Merchant McDonald & Company discuss February’s tax dates and tips, keeping you one step ahead of the taxman!
VAT Benchmarking
HMRC are currently writing to around 7,500 furniture retailers and car repair businesses asking the owners to check the figures reported on their VAT returns. If you receive one of those letters, don't panic. HMRC do not believe your VAT return is wrong, they are just asking you to double check your sales and purchase figures.
The HMRC letter asks you to work out your VAT mark-up ratio by comparing the difference between your sales and purchases (i.e. gross profit), as a percentage of the total of the purchase costs as reported on your VAT return.
HMRC then asks you to benchmark your VAT mark-up ratio to the standard ratios for your business sector, which are provided in the letter. It suggests you should calculate the VAT mark-up ratios from VAT returns submitted in the last 12 months, and compare those to the standard mark-up ratios for your trade sector. If your VAT mark-up ratio falls outside the standard range, you should review the figures to be included in boxes 6 and 7 on your next VAT return.
This all sounds very complicated, and it is. HMRC are trying to bamboozle you with ratios and percentages. In fact you are not obliged to do anything in response to HMRC's letter. It does not ask for a reply and it is not part of a tax investigation.
If you would like us to double-check the amounts reported on your VAT returns we would be happy to do so. Sometimes it is a good idea to do a random check that no sales or purchases have been left out accidentally.
Supporting the Sick
It is such a pain when a key employee is off sick. You are required to pay that person statutory sick pay (SSP) once he or she has been absent from work for four days. To add insult to injury you can't reclaim any of the SSP paid since 6 April 2014. Payments of SSP made for periods before 6 April 2014 can be reclaimed from HMRC where the SSP exceeds 13% of the class 1 NI paid to HMRC for the month.
If your employee has been absent from work because of sickness for 28 days or more, or is expected to be absent for that time, you can pay for treatments designed to help the individual get back to work. The treatment can include a range of interventions such as talking therapies for stress conditions or physiotherapy for physical injuries. From 1 January 2015 the first £500 of such treatment costs per employee is tax and NI free for the employee, and tax deductible for your business.
However, to qualify as tax-free the medical treatment must be recommended in writing as part of an occupational health assessment undertaken by a healthcare professional. One way to get such an assessment for your employee is to apply through the website: fitforwork.org. That website also offers other advice for employers and employees about sickness absence.
RTI Reports and Penalties
Real time information (RTI) was supposed to make the reporting of PAYE easier for employers, but it has introduced more filing deadlines, and new penalties for missing those deadlines.
Every employer must now send a full payment submission (FPS) report every time they pay employees, on or before the payment date. There is some relaxation for certain employers who have fewer than ten employees.
If no payment has been made to employees in the tax month the employer should submit an employer payment summary (EPS) by 19th of the following tax month. Alternatively where the employees will be paid in only one month of the year, the employer can register the PAYE scheme as an "annual scheme", and submit RTI reports just once a year.
From 6 October 2014, large employers (50 or more employees) have been charged a penalty for every RTI reporting deadline they have missed, although they are permitted one late filing per tax year. Those penalty notices will start to arrive with employers this month, but HMRC are not sending copies to us as your tax agent. If you receive an RTI penalty notice please let us know immediately.
Smaller employers (up to 50 employees) will be charged penalties for missing RTI filing deadlines from 6 March 2015. Those smaller employers are not permitted to have one penalty free month in 2014/15.
The good news for all employers is that the end-of-year questions which used to be included on the form P35 have been dropped from the final FPS or EPS to be submitted for 2014/15.
If you submit a final FPS or EPS for the 2014/15 tax year after 6 March 2015 in theory you shouldn't have to answer those annoying questions. However, this change in practice was announced too late to be included in most payroll software for 2014/15. Even HMRC's free Basic PAYE Tools software will not be updated for the change to the end of year procedures until July 2015. So it looks like you will have to answer those pointless questions for 2014/15 although HMRC do nothing with the information.
Holiday Pay
There has been some panic whipped up in the media about employers having to pay vast amounts of back-dated holiday pay to employees who regularly get paid for overtime.
In general holiday pay is calculated according to an employee's "normal pay", which for years has been judged not to include overtime payments. However, in a recent Employment Tribunal (Fulton v Bear Scotland [2014] UKEATS/0047/13), the judge decided that both guaranteed and non-guaranteed overtime should be included in the sum of "normal pay" on which holiday pay is based. The tribunal also determined that employees could make back-dated claims for unpaid holiday pay.
In response to this ruling the Government has changed the 1998 Working Time Regulations, such that paid holiday is not a contractual right and any underpayments of holiday pay cannot be pursued as a breach of contract in the civil courts.
Also as a further precaution new regulations have been made to limit the amount of underpaid holiday pay employers may be liable for. From 1 July 2015 new regulations will limit claims to underpaid holiday pay to a period of two years. Without this change in regulations claimants would have been able to tie underpayments of holiday pay where commission and non-guaranteed overtime had not been included, for up to 16 years back to the implementation of the Working Time Regulations in 1998.
There will be a six month transition period to allow claims for longer periods to be submitted where the claimant makes a claim within three months of the last perceived incorrect holiday payment.
If your workers present you with a claim for unpaid holiday pay, we can help you calculate if the claim is correct, and whether you are liable to pay the amount claimed.
February Questions and Answers
Q. Two years ago I invested £5,000 in a company under the EIS scheme, but now that company has gone into administration. How do I claim for the loss in value of my EIS investment?
A. As the company has not been struck-off the Companies House register its shares still exist, although they are probably worthless. You can make a negligible value claim for those shares by writing to HMRC, or on your tax return. This will give you a capital loss worth £5,000, which can be set against capital gains made in the same year the claim relates to or in later years. Also, as the shares were issued under the EIS scheme you can turn that loss into an income tax loss by submitting a share loss relief claim. We can help you with that.
Q. I run a small shop, which I inherited from my father. The shop has a flat above it which is let out. I've always reported all the income from the shop and flat together as self-employed income on my tax return. Is that correct?
A. No, the income from your shop and the flat should be reported separately on your tax return. The profit or loss from the shop should be reported on the self-employed pages of your return. The net income from the flat should be reported on the UK property income pages on your tax return. Any loss from the shop can't be set off against profits from the letting, or the other way round.
Q. Back in 2010 I borrowed money from my company, and paid the corporation tax charge due. Business has now improved and my company can now pay a dividend to clear the debt I owe to the company. How can I reclaim the corporation tax charged?
A. You need to complete a form L2P to reclaim that tax charge, but that must be done online here: www.gov.uk/government/publications/corporation-tax-reclaim-tax-paid-by-close-companies-on-loans-to-participators-l2p
You need to answer all the questions on the interactive form, then print it off and sign it. The signed form should be sent to:
HMRC
Corporation Tax Services
PO Box 29997
Glasgow, G70 5AB
