To December’s Tax Tips & MYOB News.
Let us know if you would like your payroll processed in time to pay your staff on Friday 20th December. If so, please email with any changes by Wednesday 18th December. If we don’t hear from you we will process your payroll between Christmas and New Year.
When you email us your monthly payroll details – please can you also include the date you will be paying staff. Or if (for instance) it is always the last working day just let us know that. HMRC expect us to file the payroll to HMRC before or on the day employee’s are paid – we need to keep to this as far as possible.
|Interim payments for VAT Annual Accounting
|Clients on VAT Annual Accounting with an August year end should now have received a letter from HMRC stating interim payments from December to August 2020 (inclusive). Typically the monthly payments should be set at one tenth of the last full year’s net VAT due (Box 5). Unfortunately HMRC seem to come up with some odd calculations when the previous return was not for a full year. Please send us a scan of your letter received from HMRC about these – and let us know if you would like us to get the monthly amount changed. The interim payments can also be reduced if your likely VAT turnover has gone down. No interim payments will be due if you are likely to receive a VAT rebate. We will be happy to ring HMRC and discuss the interim payments on your behalf.
The monthly payments should be set up to HMRC as a standing order. They should arrive with HMRC by the last working day of the month. Please don’t miss payments or risk them being late – HMRC are very happy to knock businesses out of VAT annual accounting for the slightest excuse!
HMRC VAT Bank Account Details:
Sort Code: 08 32 00
Account Number: 11963155
Account Name: ‘HMRC VAT’
Your payment reference: Quote your nine digit VAT registration number (no spaces).
|Christmas Bonus or Gift?
|The Rules on Xmas Parties
|A client recently asked me if he should give his staff a £100 Christmas Bonus. I said ‘no’.
A bonus is treated by HMRC just like a pay rise and subject to the normal tax, NI and other deductions. The same applies for Christmas presents paid in cash or vouchers exchangeable for cash.
So on a Christmas bonus of £100 two deductions are taken from the Employer:
Therefore the cost to the employer will be £117,
- Employers NI ~14% – £14 (13.8)
- Employees pension contribution – £3 (based on minimum contribution rates).
minus CT tax relief (for a profit-making business) – about £97.
The Employee has to pay out of their £100:
The employee will end up with the change – about £55. They may be able to buy an expensive bottle of whiskey to enjoy over the Christmas period.
- £12 NI employee contribution
- their Pension contribution (£4)
- they may have to make student loan repayments (£9)
- PAYE (£20)
The cost to the employer for this is £97.
I recommend instead that the employer just buys his employee the bottle of whiskey. If he buys a bottle for every employee he should be able to get a slightly cheaper price, say £50 per bottle. This can count as a Xmas gift and the employer can also get the £8 VAT back. So the net cost to the employer is now £42 minus CT relief, just £35.
Other seasonal presents might include a turkey, a Christmas hamper or a box of chocolates. Provided the cost of the gift is ‘trivial’ – typically less than £50 a head – the gift will usually not be taxable.If the gift exceeds this value, it will be taxable and it will need to be reported to HMRC on either a form P11D or through a PSA. themselves
Buy the employee a thing – don’t give them money!
|Here is a quick reminder of the rules about staff parties at Christmas time.
What is exempt?
There is a tax exemption for employee entertaining if the event is all of the following:
• an annual party or social function, such as a Christmas party or summer barbecue
• it is open to all employees (or all employees based at one location). Employees can bring guests.
• the cost does not exceed £150 per head (inclusive of VAT)
Calculating the cost
The total cost of the party is the whole cost of the event, from the start to the end. It includes food, drink, entertainment, taxis home, overnight accommodation etc.
The limit of £150 per head applies to all those attending the function not just employees. So, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests.
Two or more functions
If there are multiple annual events, they will still be exempt as long at the combined cost is no more than £150 per head.
If you’ve already used up the £150 exemption on an event, you’ll have to report and pay tax on the full costs of any additional events, even if they cost less than £150 per head on their own.
A taxable benefit in kind will arise if either the limit is exceeded, or the function is not open to all staff or it is not an annual function.
Please be aware that the £150 per head limit is an exemption not an allowance – go just a penny over the £150 and the full cost becomes taxable.
Are the costs tax deductible?
The cost of employee entertaining is an allowable expense, and therefore the cost of the staff Christmas party can be deducted.
Input tax on employee entertaining is generally recoverable. However, please note that the definition of employees for VAT purposes does not include partners/spouses of staff or former employees. Therefore, if guests are invited it will be necessary to apportion the relevant costs appropriately.
|Higher Rate Pension Tax Relief Cap – Effect on NHS
|The amount people can put into pensions tax free was reduced for all pension savers in 2010, when the £255,000 allowance was cut to £40,000 a year.
Worse – in 2016 when a tapered annual allowance for pension contributions was introduced. High earners with income over £150k lost their £40,000 annual allowance by £1 for every £2 income earned over the threshold. The £40,000 annual allowance is steadily reduced down to a base level of £10,000.
This seemingly egalitarian measure has had a catastrophic effect on the NHS. The annual allowance restrictions affected those earning more than £110,000 including around a third of senior doctors and GPs. This led to a refusal by doctors to work overtime because of tax penalties received on their pensions due to the £40,000 annual allowance limit. In turn this has exacerbated the annual winter NHS crisis.
The government has stepped in to correct their earlier mistake. But it has offered a series of sticking plasters rather than any actual surgery. In an attempt to encourage working overtime shifts, doctors have been promised that their tax bills for higher rate pension relief will be covered by the NHS.
The latest proposal for the NHS to pay doctors’ pension tax relief, would allow doctors to withdraw money from their pensions to pay their tax bills for next year. Then, before the doctor retires, the NHS will top up their pension, meaning the cost of the measure to the health service will be spread out over time while doctors will not be out of pocket.
It is currently proposed that this measure will only apply to the 2019-20 tax year. Meanwhile an interim policy gives eligible NHS staff in Scotland the option to get their employer pension contributions paid to them as part of their basic pay. Confused? You will be.
The pensions industry has slammed the government’s flailing and contradictory changes:
“These highly complex rules are affecting an increasing number of individuals across many employment sectors, public and private. We recognise the hugely important contribution to society medical professionals play. But this should be reflected in their pay, not through some concession linked to tax rules on pensions. If we start linking pensions tax allowances to a value judgement about the nature of people’s work, where might this take us?”
“….any review must be comprehensive and cover everyone affected by this absurdly complex taper, including in the private sector,”
“The best solution by far would be outright abolition, even if this meant a slightly lower annual allowance across the board.”
|December questions and answers
|December key tax dates
| Q. Do all assets qualify for the capital allowances Annual Investment Allowance? Answer
Q. Due to cash flow difficulties I have not yet paid my self-assessment payment on account, which was due on 31 July 2019. I realise that I will have to pay interest on the amount outstanding, but will I also have to pay penalties? Answer
Q. My wife doesn’t work. Can she transfer her unused personal tax allowance to me? Answer
| 19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/12/2019
30 – Deadline for 2018/19 self-assessment online returns to be filed if you are an employee and want tax underpaid to be collected by adjustment to your 2020/21 PAYE code (for underpayments of up to £3,000 only)
| Please contact us if we can help you with these or any other tax or accounts matters.
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