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Welcome…
To April’s Business Companion News.
Voluntary NIC deadline extended
In March we reminded you to check whether your national insurance contribution (NIC) record contains any gaps. The deadline for paying voluntary Class 3 NIC to fill any NIC deficiencies in tax years back to 2006/07 has now been extended from 5 April 2023 to 31 July 2023.
To make the payment, you first need to ring the National Insurance Helpline to get a reference number: telephone: 0300 200 3500.
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| Medical Treatments and Insurance |
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Here is a summary of the tax situation for a range of medical benefits that you can provide for your employees.
Not Taxable on the employee
– Medical screening, checkups and examinations can be provided tax free to your employees. These are meant to be generally available to all staff. The concession can even extend to an employee’s family members.
– Counselling for a worker suffering from trauma, to speed up a return to work is tax free.
– Eye tests and Spectacles can be provided for workers using VDUs or instruments as part of their role.
– You can pay for medical treatment costs while employees are working for the company abroad.
– Travel insurance which covers an employee while working abroad, is tax free, even though this will often include medical insurance.
– Medical treatment is only tax free if it is provided for an injury related to the employee’s job.
Taxable on the employee
– Company subsidy for the cost of treatment for an injury or illness not related to the workplace is a taxable benefit.
– Sick leave and pay is subject to PAYE.
– Maternity benefits are subject to PAYE.
– Provision of private medical insurance to an employee is taxable on that employee.
There is no effect on the employee’s year end P60. However the HMRC get their bite another way. A P11d would be required. A company payroll officer is required to issue each employee that receives medical insurance a P11d; this gives a benefit figure that has to be manually added into your tax coding or your personal tax return. Every employee therefore has to pay tax on the benefit of a company-wide medical insurance policy, in about as administratively complex a way as possible. The company also has to pay Employer NI through a related form called the P11db. The company can claim corporation tax relief on all these costs.
Permanent Health Insurance (aka Keyman policies)
Permanent Health insurance (PHI) payments are slightly different. These can be paid by the company without creating a tax liability on the employee. Any insurance payout made by a PHI insurer to the company is also tax free on the employee involved.
However any PHI insurance claim is paid to the company not the employee. It might be paid on to the employee – but then that would be subject to PAYE and NI, as would a sickness wage paid by the company to the employee. There is a similar PAYE/NI liability for any claim under group life insurance policies paid by the company. |
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If you or your employees pay their business fuel you may be finding that paying at the HMRC’s set mileage rates does not cover the cost to the employee. However, paying above that rate has tax and NIC consequences.
These days few employees have petrol or diesel driven company cars or vans because the tax charged on the benefit in kind generally means that it is not cost-effective to do so (more favourable benefit in kind rates are available for low emission electric vehicles, as well as tax reliefs for companies on the cost of the purchase). Instead many employees travelling on business use their own cars and their employer reimburses them usually to the HMRC approved amount of 45p per mile up to £4,500pa.
The problem comes if you pay more than this. The excess is a benefit in kind charged on the employee usually taxed via a P11d.
One option to not using the approved rates is for the company to reimburse the actual cost. But this can involve a lot of calculation work. |
Self Assessment
The interest rate that HMRC charges on unpaid personal tax rose this year to a four year old high of 6%. Meanwhile those owed tax by HMRC are paid at a rate of just 2.5% on their money. this gap is because of a rule that allows HMRC to charge at 2.5% points above the Bank rate and pay 1% below it subject to a minimum of 0.5%.
Directors’ Loans
The HMRC also uses the lower rate of 2.5% for the threshold for a Director’s loan. If a company share holder owes more than £10,000 at the year-end the company has to charge interest on the loan every tax year. if this charge is not paid the loan has to be reported to HMRC via a P11d form which then becomes part of that shareholder’s personal tax return. |
| New Corporation Tax Rise |
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What are the new Corporation Tax (CT) rates?
The headline rate of CT has just risen from 19% to 25%. However, smaller companies will not have to pay the full rate. It depends on your level of profits for each fiscal tax year.
The current 19% rate will still apply – if your annual profits are at, or below a new £50,000 threshold.
The full 25% rate applies to companies with annual profits of £250,000 or more.
Between these two rates, a marginal rate applies.
How does the marginal rate work between the two rates of Corporation Tax?
Say your annual profit figure is £180,000.
There is a 19% CT rate up to £50,000. If your profits are exactly £50,000 then your CT is £9,500.
But your profits are beyond £50,000. The extra profit subject to the marginal tax is £130,000 (£180,000 minus £50,000 is £130,000). Profits between £50,000 and £250,000 are taxed at the 26.5% marginal CT rate. 26.5% of the extra £130,000 is £34,450.
So your total CT liability is £9500 plus £34,450. This is £43,950.
This represents a tax increase of £9,750 (nearly 30%) on the same profit last year – a particularly sharp tax increase for relatively modest profits.
Corporation Tax two Associated Companies.
If you operate more than one limited company, where one company – under the control of the same owners – is controlled by another, the £50,000 and £250,000 thresholds are reduced.
For example, where there are two associated companies, the thresholds are reduced to £25,000 and £125,000. This may subject more of your profits to the 26.5% rise. We can avoid this by simplifying groups and changing any associated companies that are no longer required to dormant status.
What practical effect does this have?
The amount that you save on business expenses has now increased. It therefore becomes even more critical that you claim all your business costs against your company. Don’t let poor cost control mean that you miss out on cost recovery. Other issues to focus on are R&D tax claims and bringing forward investment plans.
Does the higher CT rate make it better to receive salary rather than dividend?
The significant increase in Corporation tax doesn’t alter the basic remuneration advice that we give. Salary rather than dividend up to £12,570. Then afterwards pay yourself £37,430 dividend to take your total earnings up to the edge of the Basic rate band. However the increased Corporation tax rate now makes the benefit of this remuneration strategy marginal.
Increased salary has three incidental advantages that may prove to be more important. A higher salary will allow your company to make an increased pension contribution to your pension fund on your behalf. If you have a higher salary and the company fails, the insolvency is less likely to result in a clawback, than if you had paid yourself in the form of a dividend that the company was not profitable enough to afford. An increased salary may also give you the chance to claim more staff cost in any R&D corporation tax claim that you are making. Best of all is to claim a business expense back from your company. Sell something to your company if possible. |
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| April Questions and Answers |
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 Q. In his Spring Budget, the Chancellor said ‘full expensing’ would apply to plant and machinery. Does this mean I can write off the balance brought forward in my plant and machinery pool, which was previously written down at 18% on the reducing balance method? Answer
Q. I’ve been receiving text messages from tax.service.gov.uk advising of new PAYE codes for 2023/24. However, when I log into the HMRC website, it says that no new PAYE codes have been issued. This has been going on for weeks, is it a scam or genuine contact from HMRC? Answer
Q. I want to top up my NIC record by paying to complete seven tax years. To pay online I need an 18-digit reference number which is only available by calling HMRC, but the HMRC telephone line is never answered. How can I make the payment? Answer |
 5 – Last opportunity to utilise income tax personal allowances, annual ISA allowances, and exemptions for CGT and IHT for 2022/23.
Last day to claim exemption from Class 4 NIC for 2022/23 where earnings are also subject to Class 1 NIC.
Final day for claims for 2018/19 relating to personal allowances, remittance basis, terminal loss relief, overlap relief, carry-forward of trading losses, and capital losses.
11 – Last day to set up a variable direct debit to pay PAYE for payment this month.
19 – Employers must make the final RTI payroll report for 2022/23 using FPS or EPS.
22 – PAYE, NIC, and student loan deductions are to be paid to HMRC by electronic means for the month of 5 April 2023, unless the employer has set up a direct debit so HMRC can collect the amounts due.
30 – Daily £10 late filing penalties start to apply to outstanding 2021/22 self-assessment returns.
Any IHT due on lifetime transfers between 6 April and 30 September 2022 is due.
ATED returns and ATED relief declarations must be filed for 2023/24. The ATED charge must be paid for 2023/24.
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 Please contact us if we can help you with these or any other tax or accounts matters.
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See details of our Business Companion Service. |
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‘All clients using these software packages can benefit from our support. Visit our website https://www.simpleaccounting.co.uk for a look at the resource on offer.’ |
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