This months newsletter opens with a seasonal comment on staff parties and gifts. We have also included an update on new legislation pending; a timely reminder for self assessment tax payers who have still not supplied their tax return details for last year; a note on the transfer of unused married couples allowance; and finally an update on the proposed new tax credit for claimants of certain enhanced capital allowances.
May we take this opportunity to wish all our readers a very happy and prosperous new year.
Staff entertaining – the Christmas party!
The costs of a staff party or other annual entertainment is allowed as a deduction for tax purposes. As long as the criteria below are followed, there will be no taxable benefit charged to employees.
A final note on gifts for employees.
Trivial seasonal gifts for employees!
Employers may find the following Revenue concession useful – we have copied the note directly from the HMRC handbook:
“An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.”
One final caution regarding VAT and staff gifts. VAT is due from the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however are zero rated for VAT purposes!
New legislation – publication imminent
As we write this newsletter we are expecting the Revenue to publish details of changes to the following areas of tax:
1. Capital Gains Tax
Draft legislation is due for publication December 2007 explaining the detailed changes to CGT from 6 April 2008. This will provide us with the small print. At present all we have to go on are the disclosures made by Alistair Darling in his Pre Budget Report on 9 October 2007.
If there are no significant changes to the October position, we can expect the Revenue to provide the draft legal framework for CGT from 6 April 2008 that will operate without the benefits of indexation or taper relief. There is also the possibility that a simplified form of retirement relief may be included to reduce the tax payable when businesses are sold. It is rumoured that the first £100,000 of gains on retirement may be exempted from charge to tax, or subject to a lower rate of say 10%.
We will include a further update on this topic in the January 2008 newsletter.
2. Income Shifting
Where a husband and wife are in business together there is a risk that the Revenue will become interested in the commercial justification for the way in which they split earnings or profit.
During 2007 the Revenue were defeated in the House of Lords in the Arctic Systems case. Here HMRC sought to assess the husband on his wife’s income from their business, on the basis that he was responsible for the lion’s share of the income generation and management. The Revenue’s position failed due to flaws in their legal arguments. As a direct result of this outcome the Revenue promised to legislate to enable them to challenge similar cases in the future.
We are expecting HMRC to publish details of new legislation to deal with income shifting, either late November or December 2007. This will have ramifications for all husband and wife business arrangements. (It will also include businesses run by Civil Partnership couples.) Again we will advise clients as soon as we have the detail and will publish our comments in a forthcoming newsletter.
Self Assessment filing deadline, tax year 2006-2007
Clients who have not yet provided information so that we can complete their self assessment tax returns for 2006-2007 may like to take note of the following points:
Married Couples Allowance – for those born before 6 April 1935
The Married Couple’s Allowance reduces the amount of income tax a married couple or civil partners have to pay. The amount you can claim depends on your ages and, for couples who married before 5 December 2005, the husband’s total income from all sources. For civil partners and couples who married on or after 5 December 2005, the amount depends on the total income of the spouse or civil partner with the higher income.
For the tax year 2007-2008 the allowance is available when either partner was born before 6 April 1935.
The maximum allowances available for 2007-2008 are:
What many couples may not realise is that if this allowance is not fully utilised by the entitled partner any surplus can be transferred to their spouse or civil partner, and used to reduce their tax bill. As you would expect there is a form that needs to be filled in!
Energy efficient plant – tax credits
It has been possible to claim 100% enhanced capital allowances (ECA’s) for the purchase of certain energy efficient plant, since 2001.
It has now been proposed that this allowance be extended so that companies who cannot get an immediate cash flow benefit, if for instance they are making losses and paying no tax, be allowed to surrender the 100% allowance for a cash payment from the Government. Details of the claim process have yet to be formalised; clients will be advised as soon as they are made available.
However companies should take this into account when planning future purchases of qualifying plant. Readers may find the following notes useful:
Tax Diary December 2007/January 2008
19 December 2007 – PAYE and NIC deductions due for month ended 5 December 2007. (If you pay your tax electronically the due date is 22 December 2007)
19 December 2007 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2007.
19 December 2007 – CIS tax deducted for the month ended 5 December 2007 is payable by today.
1 January 2008 – Due date for corporation tax due for the year ended 31 March 2007.
19 January 2008 – PAYE and NIC deductions due for month ended 5 January 2008. (If you pay your tax electronically the due date is 22 January 2008)
19 January 2008 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2008.
19 January 2008 – CIS tax deducted for the month ended 5 January 2008 is payable by today.
31 January 2008 – Filing deadline for all individual, partnership, and trust self assessment tax returns for the year ending 5 April 2007.
31 January 2008 – Due date for payment of any balancing self assessment tax and/or NIC class 4 contributions due for the year ending 5 April 2007.
31 January 2008 – Due date for payment of any first payment on account of self assessment liabilities for 2007-2008.