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NEWSLETTER DECEMBER 2013

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NEWSLETTER
DECEMBER 2013

This month we have added articles covering: pension Auto-Enrolment, the 60% Income Tax rate, have a tax free Christmas party and notice from HMRC that they will be closing down certain unused PAYE schemes.

May we take this opportunity to wish all our readers a well deserved break this Christmas and all the very best for 2014…

Pension Auto-Enrolment

The Pension Regulator issued a press release 17 October 2013 alerting medium sized businesses of their obligation to set up and automatically enrol employees in a pension scheme. They said:

?The clock is ticking for thousands of medium sized employers across the UK who have six months to go before their duty to automatically enrol workers into a work-based pension is switched on. Over the past few weeks, The Pensions Regulator has sent around 6,000 letters to employers alerting them to begin finalising their preparations to meet their duties under automatic enrolment legislation. Thousands more letters calling employers to action will follow between now and Christmas.

Figures released today by The Pensions Regulator show that more than 1.7 million workers have already been automatically enrolled by their employers. More than 2,000 large employers have complied with their automatic enrolment duties and the regulator is stressing that by now medium sized employers should have plans in place to do the same. Leaving preparations too late can risk non compliance and this can come at a cost.?

Small employers, those with less than 50 staff when the scheme started 1 April 2012, still have some time to go before they need to implement Auto-Enrolment. However, all businesses affected should be starting to consider their options now.

If you want to know when you will be required to set up and enrol your staff into a pension scheme you can enter your PAYE reference number in a simple tool on the Pensions Regulator website at: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx this will advise you of your official ?staging date?.

More general advice regarding your responsibilities can be accessed at http://www.thepensionsregulator.gov.uk/employers.aspx

Finally, if you need help with implementation planning, please call us to organise a fact-find appointment.

The 60% Income Tax band

According to HMRC the highest rate of Income Tax is 45%. This will apply to anyone with income over £150,000. Income below this amount is taxed at 40%, or a combination of 20% and 40%.

However, if your income marginally exceeds £100,000, for every £2 your income exceeds this amount you will lose £1 of your personal tax allowance. For a person under 65 years the personal allowance for 2013-14 is £9,440. Consequently, if your income rises to £118,880 you will lose your personal allowance.

The tax payable on this marginal amount of £18,880 is £18,880 x 40% plus £9440 x 40% – in total £11,328, or 60% (11,328/18,880 x100) of your income earned between £100,000 and £118,880.

If you estimate that your income will marginally exceed £100,000 in this tax year you may be advised to consider your options. There are two strategies you could employ:

  1. Reduce your income, or
  2. Increase your tax allowable deductions

 

Reduce your income:

  • You could discuss a salary sacrifice arrangement with your employer: exchange salary for unpaid leave or a combination of tax free benefits.
  • Defer bonuses and/or dividends payable towards the end of the tax year until after 5 April 2014. Depending on the numbers, this may defer the problem to the next tax year, or produce a permanent tax saving ? don?t forget, gift aid payments can be carried back a year in many cases.
  • Take a close look at the taxable benefits you receive. For instance if your employer pays the fuel costs to cover private use of a company car consider reimbursing the private fuel cost.

Increase your tax allowable deductions:

  • Increase charitable donations.
  • Increase pension payments.
  • If you are self-employed consider investment in plant or equipment and take advantage of the £250,000 Annual Investment Allowance.

It?s worth giving the matter serious thought as you will potentially save 60% of any cost in reduced Income Tax payments. The above suggestions are not the only strategies you could employ. If you would like to organise a meeting to discuss your planning options in more detail please call.

Tax-free Xmas party

This month gives us an excuse to let our hair down and enjoy a well earned celebration with our work colleagues and partners. This article is a reminder of the tax concessions that apply to the costs of providing the Christmas bash.

The cost of an annual staff party or similar function 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:

  1. The event must be open to all employees at a particular location.
  2. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

 

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!

Unused PAYE schemes

From October 2013, PAYE schemes will automatically be closed where

  • No real time PAYE submissions have been made
  • No payments have been made to HMRC
  • The employer is not an annual payer
  • There is no evidence that the employer wants to claim Construction Industry Scheme deductions
  • The employer has not received an advance from HMRC
  • There have been no periods of Construction Industry liability
  • There is no evidence that the employer has any employees
  • There is no evidence that Class 1A NIC is due.

HMRC?s Director General for Personal Tax, Ruth Owen, said

?Closing schemes that are no longer needed is really important for businesses and for HMRC as it means that HMRC won?t waste employers? or taxpayers? time and money by needlessly pursuing returns or debts when in fact none are due.

Since April, employers or agents (acting on behalf of their clients) who have set up PAYE schemes that are no longer needed can easily close the scheme by reporting this on their final submission. This new process helps further as it means we can identify and remove unnecessary schemes earlier.?

Tax Diary December 2013/January 2014

  • 1 December 2013 – Due date for Corporation Tax due for the year ended 28 February 2013.

  • 19 December 2013 – PAYE and NIC deductions due for month ended 5 December 2013. (If you pay your tax electronically the due date is 22 December 2013.)

  • 19 December 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

  • 19 December 2013 – CIS tax deducted for the month ended 5 December 2013 is payable by today.

  • 30 December 2013 – Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2014-15.

  • 1 January 2014 – Due date for Corporation Tax due for the year ended 31 March 2013.

  • 19 January 2014 – PAYE and NIC deductions due for month ended 5 January 2014. (If you pay your tax electronically the due date is 22 January 2014.)

  • 19 January 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2014.

  • 19 January 2014 – CIS tax deducted for the month ended 5 January 2014 is payable by today.

  • 31 January 2014 ? Last day to file 2013 Self Assessment tax returns online.

  • 31 January 2014 ? Balance of Self Assessment tax owing for 2012-13 due to be settled today. Also first payment on account for 2013-14 due today.