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Business Companion News – June 2024
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Welcome to our Business Companion Newsletter for June 2024.

Use the correct HMRC Payment reference!
Whichever tax you are paying, make sure you use the correct reference to make sure that your payment is allocated to the correct tax for the correct period. If you use the wrong payment reference, or even worse no reference at all, HMRC may lose your payment or allocate it in a way you were not expecting.  And it may be very difficult to correct later.

See the article about Paying P11Ds below and see this helpful section on https://simpleaccounting.co.uk/resources/administration_centre/#tax

June 2024

• Paying your Class 1A National Insurance (P11D)

• Tax on a pay increase versus extra dividends

• Claiming Child Benefit at higher incomes

• Unprofessional HMRC – dire results
Paying your Class 1A National Insurance (P11D)
Paying the National Insurance on P11Ds is different from settling other debts. The collection procedure is different and it can get very confusing if you pay late.

if you’ve given any employees benefits outside of payroll, then a P11D form will need to be completed for each employee who has received a taxable benefit during the tax year. The Class 1A National Insurance contributions will then also need to be reported on a P11D(b) form. The filing deadline for these is the 6th July each year.

How to pay your Class 1A National Insurance (P11D)

The deadline for paying the Class 1A National Insurance to HMRC is 22nd July each year if you pay by direct transfer or 19th July each year if you pay by cheque.

You can use the following bank details to pay HM Revenue and Customs (HMRC) online:

Sort Code: 08 32 10
Account Number: 12001039
Account Name: HMRC Cumbernauld

Your payment reference number is different than for other PAYE NI payments. Your payment reference will be composed of 17 characters, the initial 13 being your Accounts Office reference number –and the last 4 digits will consist of the tax year you are intending to pay for, followed by ‘13’. For example: if you want to make a payment in July 2024 for the previous tax year. Your payment reference number would be: 123PA000123452413, where 123PA00012345 is your accounts office reference, 24 refers to the 2023-24 tax year, followed by ‘13’. This is another example of the HMRC being incomprehensible and inconsistent.

To pay the other taxes please see: https://simpleaccounting.co.uk/resources/administration_centre/#tax
Tax on a pay increase versus extra dividends
Claiming Child Benefit at higher incomes
As a Director, you might want to consider the tax effectiveness of different strategies for increasing your own remuneration. Would it be better to receive a pay increase or a higher dividend?

Generally the advantages lie with dividends – but the gain is small.

Option 1  Dividends
Assume the company sets a modest budget of £1000 net cost for an increase
Company pays dividend of £1000
At the margin you pay £87.50 in personal income tax IF the increase is paid to a basic rate taxpayer.    
No Employee NI
No Employer NI
Net gain  £922.50.

Option 2 Wage increase
Same £1,000 cost budget.  Now however the wage and Employer NI are tax deductible.  Assume your company marginal CT rate will be 26.5% next year, therefore the wage budget can be as high as £1361 and still only cost the company £1000.  Except the company can’t pay you £1361 because the Company pays Employer NI.  So the Company pays you £1196 but also has to pay 13.8% of this (ie £166) as Employer NI.  
So £1,196 to you as a gross wage – sounds good.
But then at the margin you pay 20% personal income tax and 8% Employee NI. This totals £335 taxes leaving you with £861.

So as I said earlier… dividends are best… but not by much  £922 plays £861. £61 better off.

Notes
If you have an employment contract then you need to be sure that your hours are obviously paid above the minimum wage £11.44 ph or £22,000 for a 37 hour week. This will be monitored more closely by the HRMC when they get access to regular contract hours through the payroll system next year.

– Ideally company salaries should be at or above the £12,570 personal allowance.

– Take into account the basic rate tax band of up to £50k.

– I recommend that the company pays any pension contributions as a 100% Employer contribution – this avoids 13.8% Employer NI that is imposed on the wages an employee needs to make an employee contribution.

– Larger wages will be more effective if you are claiming R+D tax credits.
How do I claim Child Benefit?

You can claim Child Benefit as soon as you’ve registered the birth of your child, or a child comes to live with you if you’re adopting or fostering. If you didn’t claim Child Benefit when your child was born – either because you earned too much, or you didn’t realise you were eligible – it’s not too late. You can apply at any age up until 16 (or up to 20 if your child is in qualifying full time education). However, you will only be able to backdate any claim by three months, not the whole time you’ve been eligible to claim.

You’ll have to fill in the ‘CH2’ form and send it to the Child Benefit office. You can do this either online, or download the form: https://www.gov.uk/government/publications/claim-child-benefit-if-you-cannot-claim-online  and send it to the address on the form. You can also check if you’re eligible and apply by phone on 0300 200 3100.

How much is Child Benefit?

There are two weekly Child Benefit rates (2024-25)
  • For a first-born or only child: £25.60
  • For additional children: £16.95 per child
  What if you income is £60,000 or above?

In the Spring Budget the Government raised the threshold for the High-Income Child Benefit Charge from £50,000 to £60,000, they also reduced the rate at which it tapers off.

Since April 2024, if you (or your partner) earn more than £60,000 a year, you can still get the full amount of Child Benefit, but you will have to pay some of it back. This is known as the ‘High Income Child Benefit tax Charge’.  It does not matter which of you actually receives the benefit.

Rather than paying the Child Benefit back you may decide it is easier to not receive it at all, in this case ring the Child Benefit Office to cancel it on 0300 200 3100.

The High Income Child Benefit tax Charge is tapered. So the more you earn over £60,000, the more you need to pay back.

– For every £200 you receive above £60,000, you need to pay back 1% of the maximum amount of Child Benefit you’re entitled to. So, if you earn £70,000 a year, you’ll pay back 50% (meaning you’ll still get over £600 a year if you have one child).

– Once you hit £80,000 a year, the charge you’ll pay back is 100% of your entitlement, meaning you won’t get any benefit.
For advice about Child Benefit and the High-Income Child Benefit Charge just email us.
Unprofessional HMRC – dire results
This is an unpleasant example of the current routine unprofessional conduct of the HMRC.  This case is currently doing the rounds among accountants.  

The point at issue was the High Income Child Benefit Tax Charge (HICBC). HICBC is a tax intended to recompense the government for Child Benefit paid to individuals who are earning over £50k a year.  It is a fiddly tax to administer, particularly when taxpayers have changing circumstances…. as this man had. HICBC can only be declared on a personal tax return which this taxpayer had not been required to complete as he was an employee.

Mr Erridge is the taxpayer involved and is dyslexic.  He was unable to understand the forms and inconsistent assessments that were coming from the HMRC.  He reacted well and quickly.  But he could not follow the HMRC’s repeated tax code changes on his rapidly changing pay levels.  There was a long trail of letters written by Mr Erridge to the HMRC – they failed to respond.  He did not receive a notice to file for Self Assessment.  He did not receive a notice to file for HICBC.  He did not have to make tax returns because he was taxed entirely through his payslip.  His family’s claims for their three children amounted to some £3k pa for the years that were in dispute.  His income was only above the £50,000 threshold because of benefits (car fuel and medical).  

The HMRC claimed that he should have registered at the outset and assessed him back to the start of the HICBC tax.  This was beyond the normal four year time limit on assessments.  They assessed a charge of £15k.  These assessments were grossed up by the HMRC with interest and penalties to £18k, much in the manner of a doorstep money lender.  He employed an accountant, and they appealed to First Tier Tribunal.  

Before Mr Erridge’s appeal was heard, HMRC took debt recovery action to enforce collection of the full amount said to be due. Mr Erridge asked HMRC for “time to pay” by spreading the amounts over a period but was told he “didn’t earn enough”. HMRC then transferred his case to a debt collection company. Mr Erridge was placed under pressure to raise the full sum as soon as possible. He put his family home on the market at a discounted price; a sale was agreed within two weeks and HMRC were paid.

Of course the reason that we hear about this is that the accountant had intervened.  At the Tribunal justice was finally done.  And the charge assessments and penalties were overturned. Hooray.

While it is contrary to HMRC’s published guidance to pursue and enforce penalties which are under appeal, the HMRC’s debt collector had also intervened.  So of course Mr Erridge had still lost his house.

https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j13021/TC%2009122.pdf
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