This month’s articles provide ground rules for ensuring you get tax relief for the cost of your Christmas party, an update on the relaunched Business Record Check campaign, details of HMRC initiative to target the rag trade and alcohol industry, and a warning for Swiss bank account holders.
George Osborne delivered his Autumn Statement and it looks as if there continue to be challenging times ahead. Even so, we wish all of our readers a very happy Christmas and prosperous New Year and sincerely hope that you manage to take a well earned rest over the holiday period.
The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.
Also, as long as the criteria below are followed, there will be no taxable benefit charged to employees:
If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.
A final note on ‘Trivial’ 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 cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however, are zero rated for VAT purposes!
Business Records Checks
HMRC relaunched its Business Record Check (BRC) initiative on 1 November 2012.
When the program was first unveiled in January 2011 HMRC intended to visit 50,000 small businesses across the UK. A year later the whole process was reviewed and subsequently suspended following concerns raised by professional bodies and accountants. According to HMRC:
“Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.
Following a review, HMRC announced a fresh approach to its pilot BRC programme on 3 February 2012.
The review of the pilot programme, which included discussions with trade and professional bodies’ representatives, found clear evidence that the programme was effective in improving record-keeping practices amongst SMEs. However, it recommended that the checks were better targeted in future, and linked to wider education and support activities.
In order to implement the review’s recommendations all new BRC activity was paused from 3 February to 31 October 2012 to allow HMRC to redesign the BRC process.”
Essentially, a BRC is just what it says on the tin, an enquiry from HMRC staff to make sure that record keeping is adequate. The relaunch has introduced a change of emphasis:
HMRC now intends to:
Based on the responses received:
This appears to be very similar to the traffic light system used by HMRC prior to the suspension. Adequate records were given the green light, records in need of improvement were given the amber light and inadequate records awarded a red light.
Rag trade and alcohol industry targeted
The first taskforces to tackle tax cheats in the rag trade and alcohol industry were launched on 19 November by HMRC.
The specialist taskforce teams will target those who do not pay the right amount of tax in:
They are expected to recover around £17 million.
David Gauke, the Exchequer Secretary, said:
“The vast majority of people play by the rules. We will not tolerate tax evasion and will crack down on the minority who choose to break the rules.
It cannot be fair that, while most people are paying the right tax, a tiny minority are not paying what they should.
Swiss bank account holders beware
UK residents with Swiss bank accounts should be aware that new taxation arrangements are scheduled to come into force on 1 January 2013.
The new tax agreement between the UK and Switzerland means that account holders must either provide full details to HM Revenue & Customs (HMRC) or pay over a proportion of the money in their account and a future withholding tax.
Jennie Granger, HMRC Director General, Enforcement and Compliance, said:
“Swiss banks or accountants are writing to people affected by the agreement. Some may be asking customers to close their accounts. If this happens, UK residents must ensure that any outstanding tax liabilities are paid. Anyone in these circumstances is strongly advised to contact HMRC as soon as possible.”
The agreement includes a withholding tax to deal with the tax on income and gains. Rates currently range from 27 per cent on capital gains up to a maximum of 48 per cent for interest or other non-dividend income. Where the payment option is chosen, any past liability to specified taxes will be dealt with by paying a one-off charge of up to 41 per cent of the total value of the account.
Tax Diary December 2012/January 2013