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February 2019

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To February’s Tax Tips & MYOB News.

AccountEdge Newsletters
Here is a useful archive of past newsletters with written explanations of the functionality of AccountEdge software.
February 2019
· Workplace Pensions – the advantages of employer contributions
· Maximising the benefit of Gift Aid donations
· The tax benefits of paying a cost from the company
· Flat Rate Expenses – HMRC’s hidden trap
· February questions and answers
· February key tax dates
Workplace Pensions – the advantages of employer contributions
From April 2019, the Pensions Regulator (PR) will increase the total minimum contribution rates for workplace pensions to 8% – of this at least 3% must be paid by the employer. There is no plan to increase these rates again in the future.  Note: these minimum contribution rates are not based on total earnings, but calculated as a percentage of ‘banded qualifying earnings’ only – the band of earnings between £503 and £3,863 per month.

Many employers will only pay 3% of the new contribution rates themselves, expecting employees to cough up the remaining 5% of contributions. In contrast, we propose that the Employer pays the full 8% with no employee contributions. .

Our reasoning is as follows:

Less complaints from staff and follow ups from Pensions Regulator
The PR offers a complaints service for employees who are unhappy about the administration of their workplace pension schemes.  We think they will concentrate their enforcement action and non compliance fines where employees are disgruntled. 
By making our standard pension scheme non contributory there will be no reduction in employees’ net pay (at a time when few can afford it).  The staff will be unable to complain about consultation or bureaucratic failures, if the employer is picking up all the costs anyway. 

Unfair tax relief on Employee Contributions
When making employee contributions you can choose to have contributions taken before tax or after tax (with 20% tax relief then applied). The first option results in the lowest paid staff missing out on the tax relief, the latter means that higher tax payers will not necessarily get all their tax back. 

Employer Pension Contributions do not suffer NI 
Employee pension contributions suffer Employer NI and (depending on the tax treatment) Employee NI. It is actually more efficient tax-wise for employees to forgo a pay increase and receive the full 8% of pension contributions from their employer.  There is no Employer or employee NI wasted on employer pension contributions.

Please get in touch and confirm whether you will be happy to follow our standard pension scheme and pay the full 8% pension contributions as the employer from April.

Read More .
Maximising the benefit of Gift Aid donations top
The tax benefits of paying a cost from the company
The government’s Gift Aid scheme aims to maximise the value of donations made to charities whilst allowing most UK taxpayers to benefit from tax relief on the gift. Since the scheme allows payments to be related to a previous year, the end of the tax year is a good time to give the matter a review.

The Gift Aid scheme allows individuals to claim tax relief on making one-off or regular gifts to charity and there are no lower or upper limits on donations. When a payment is made, it is treated as being made net of tax at the basic rate. So, if a basic rate taxpayer makes a donation of £100, the charity will be able to claim back tax of £25 from the government (£125 being the ‘grossed up’ value of the payment). The charity gets £125, but it costs the donor only £100. Read More
Clients often ask us how much cheaper is it to pay a cost from your company than to pay it personally.  There is a lot to factor in: employer NI of 13.8%, employee NI of 12% , Student loan (for some) of 9%, and PAYE 20%.  Workplace pensions act as a new employment tax.  The new 8% pension rate will act on top of existing taxes.

The result is surprising.  Let us imagine that you could pay a £1000 cost personally.  What would it cost your company to pay you enough to cover this cost?  What would it cost the company itself to pay the cost?

If you ignore Student loans after all the deductions the employer will have to pay you the equivalent of £1,502 for you to be able to pay the cost.  If the company pays the cost directly it will only end up with a cost of £810.

Now let us imagine the cost is also subject to VAT at 20%.  Now the employer will have to pay you the equivalent of £1,802 – much higher than the £810. 
Flat Rate Expenses – HMRC’s hidden trap top
You use HMRC’s approved benchmark rates when you pay your employees for subsistence when they travel for work. The trouble is, if you follow HMRC’s latest advice you may be costing yourself VAT.

What’s the full story?

Simple subsistence

You’re probably aware that from 6 April 2019 the law changes to simplify employers’ admin for job- related subsistence costs incurred by your workers. The new rules confirm that you can pay your employees an income tax and NI-free flat rate amount that they can use to buy food and drink when travelling on business, and from April you won’t have to check their receipts. We think this relaxation of the rules is a good idea, but there’s a problem.

VAT and subsistence

Other HMRC rules allow you to reclaim VAT on employees’ travel expenses for business trips, including meals and accommodation. Even better, it’s happy to extend this to treat other people who work for your business as if they were employees. This applies to:
  •     any person directly employed by you, i.e. not through an agency
  •     directors, partners, and any other managers
  •     helpers at business events; and
  •     self-employed people who work for you, e.g. subcontractors, subject to conditions.

Conditions. To count as employees for VAT recovery purposes the final category of people must work for you on similar, but not necessarily the exact same, terms as an employee.
What’s the problem?

While both the income tax/NI and VAT rules are intended to help employers, they work against each other because the latter is subject to another condition. Trap. HMRC’s guidance says “You cannot reclaim VAT if you pay your employees a flat rate for expenses.” Depending on how much you pay out on subsistence expenses, this condition could be expensive. Note. The rule applies to any flat rate allowance (apart from motor expenses for which there are special rules) not just those for subsistence, e.g. a payment for incidental overnight expenses (IOEs).

Example. In 2019/20 Acom Ltd pays its employees subsistence flat rate allowances of £23,000. It follows HMRC’s latest guidance and so doesn’t keep copies of receipts for food and drink bought by its employees. If the employees spend only £20,000 on food and drink, of which £18,000 includes VAT, Acom will not be allowed to reclaim the £3,000 VAT (£18,000 x 1/6).

A nice idea but...

We appreciate HMRC’s attempt to help employers who already have more than enough red tape to contend with, but in relaxing the rules on what records must be kept for direct tax purposes, it’s potentially doing businesses a disservice.

Tip. You can preserve your right to reclaim VAT on employees’ subsistence even if you pay a flat rate allowance. To do this, continue to ask your employees for receipts for food and drink they buy while travelling for work. Assure them that you’re not checking on them but need the receipts solely for the purpose of reclaiming VAT. You can reclaim VAT on the receipted amounts only, not the full allowance that you pay your employees.

Originally published by Tips and Advice Tax by Indicator:  
February questions and answers top
February key tax dates top
Q. I recently sold my main residence and down-sized to a smaller property. Unfortunately, because of current economic conditions, the sale price of the house was £30,000 less than I originally paid for it many years ago. Can I offset this loss against income from my business and reduce my income tax liability for this year? Answer

Q. I have been trading for several years. Although I am not currently registered for VAT, I think my income is getting close to the VAT registration threshold. Are there any items I can ignore for working out my ‘taxable turnover’ for VAT registration purposes? Answer

Q. My employer has offered to give me an interest-free loan to purchase an annual rail fare ticket costing £3,500. Will I have to pay tax on the loan? Answer
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/2/2019

28 – First 5% penalty surcharge on any 2017/18 outstanding tax due on 31 January 2019 still unpaid

Need Help? top
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