Our newsletter this month includes: tax relief for uniforms and other expenses, possible changes to the tax rules for companies, the outcome of the Glasgow Rangers’ case concerning tax avoidance, the minimum salary levels for director shareholders to consider and an update on the Making Tax Digital process.
It is possible to claim for the cost of repairing or replacing small tools you need to do your job as an employee (for example, scissors or an electric drill), or cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots).
If you need to buy other equipment to use in your employment, you can claim capital allowances instead. A capital allowance is an agreed percentage of the cost of the equipment, that can be deducted from your taxable income. In most cases, this sort of claim should enable you to write off the full cost of any qualifying expenditure made.
You can claim for the amount you have spent, or a ‘flat rate deduction’.
If you are claiming for the amount you have spent you will need to keep a receipt.
Flat rate deductions are fixed amounts that HM Revenue and Customs has agreed are typically spent each year by employees in different occupations. They range from £60 to £140 depending on listed occupations.
If your occupation isn’t listed, you may still be able to claim a standard annual amount of £60 in tax relief.
You don’t need to keep records of what you’ve paid for if you claim a flat rate deduction.
There is a government department, the Office for Tax Simplification (OTS), that has been charged with investigating ways that the UK’s tax rules can be changed to make them easier to understand and easier to use.
The OTS has recently issued a new report on the proposal to simplify the Corporation Tax assessment process for companies, particularly smaller concerns.
Their report sets out some significant steps towards creating what they describe as ?a 21st-century Corporation Tax system in the UK?. The aim is to make the calculation of Corporation Tax simpler, with fewer changes and more time to plan. The report also recognises the importance of reducing the burden on small businesses, and ?keeping this country an attractive destination for trade and investment in a post Brexit world?. &
The report takes an in-depth and innovative look across four broad themes:
· simpler tax for smaller companies
· aligning the tax rules more closely with accounting rules where appropriate
· simplifying tax relief for capital investment
· a range of further issues affecting the largest companies
It also highlights the links with HMRC’s work on Making Tax Digital, which offers a real impetus to move towards a simpler system by use of technology.
The OTS recommendations are not legislative changes, they are suggestions. These will now have to be taken up by the Treasury and HMRC to consider changes to tax law in future Budgets.
There has been a long running tax case rumbling through the lower courts on the use of a device called an Employee Benefit Trust (EBT) by Glasgow Rangers Plc. HMRC have considered the use of the EBT a scheme to avoid PAYE and NIC.
The case has now been considered by the Law Lords in the Supreme Court, who decisively ruled in favour of HMRC.
An EBT collects payments from employers and makes these available to employees as a loan ? this process means that funds are made available, in the Rangers’ case to players, without a charge to tax or NIC.
Whilst it was acknowledged that the individual processes in the set up and management of the EBT were carefully drawn to keep within current legislation, the overall strategy was the avoidance of tax and NIC. In their judgement, the Supreme Court judges were satisfied that this ?purposive? approach, the purpose for which the EBT had been created, was the avoidance of PAYE and NIC and therefore they dismissed Glasgow Rangers Plc’s appeal.
A growing number of cases, where HMRC had challenged the use of EBTs by other concerns, will now be pursued by HMRC based on this judgement. This decision probably marks the end of the EBT as a legitimate tax planning device.
Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions, and in some case Income Tax.
The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NI contributions.
For 2017/18 the NI contribution rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive. Earnings in this band range qualify for NIC credit for State benefit purposes. At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes. At £157.01 plus per week (£8165 p.a.) NI contributions start to be paid at the rate of 12%.
Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.
Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.
Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.
Making Tax Digital (MTD) is the government’s latest attempt to fully digitise the process of collecting data from taxpayers so they can speed up the process of calculating how much tax you owe.
Until recently, we were facing radical changes to the tax system to accommodate this objective. Businesses (including landlords) were to be required to upload summarised accounts data from their accounts software on a quarterly basis. This information, plus details of other income was to be collected in a personal tax account which would automatically calculate future tax liabilities.
The process was timed to commence April 2018 and be completed April 2020.
The accountancy profession was united in opposition to the undue haste of the implementation process and the obligation that all businesses with turnover more than £10,000 would be required to invest in acceptable accounts software and make quarterly uploads.
It would seem the government has listened. Last week they announced:
Under the new timetable:
· only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
· they will only need to do so from 2019
· businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020
Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
It seems clear from this announcement that MTD is proceeding, but at a much more sensible pace.
VAT registered traders will need to have MTD compatible software in place by April 2019, and all businesses including property businesses with turnover above the VAT registration threshold (currently £85,000), will need to be ready to make the quarterly uploads of accounts data by April 2020.
Businesses with turnover below the VAT threshold will be under no obligation to use the MTD process, but can join in on a voluntary basis.
We will continue to work with clients to ensure they are ready to meet their obligations. It is gratifying to see the pace of change in this area slow down. This will give affected business owners and their advisors more time to implement the changes required and make more considered decisions about the software they will use to implement their links to HMRC’s MTD systems.
1 August 2017 – Due date for Corporation Tax due for the year ended 31 October 2016.
19 August 2017 – PAYE and NIC deductions due for month ended 5 August 2017. (If you pay your tax electronically the due date is 22 August 2017)
19 August 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 August 2017.
19 August 2017 – CIS tax deducted for the month ended 5 August 2017 is payable by today.
1 September 2017 – Due date for Corporation Tax due for the year ended 30 November 2016.
19 September 2017 – PAYE and NIC deductions due for month ended 5 September 2017. (If you pay your tax electronically the due date is 22 September 2017)
19 September 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 September 2017.
19 September 2017 – CIS tax deducted for the month ended 5 September 2017 is payable by today.
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