Here are Merchant McDonald & Company’s tax tips for September.
Late filing penalties
From 6 October 2014 the HMRC computer will automatically issue you with a penalty if you submit your full payment submission (FPS) under RTI "late", or don't submit it at all for a month in which you paid your employees.
So what makes the FPS "late"? HMRC say the FPS must be submitted on or before the day the employer pays the employees (the "payment date"). But is that the day the funds leave the employer's bank account or the day the employee receives the money?
In fact the "payment date" for RTI purposes is neither of these dates. It is the date contractually agreed between the employer and the employee to be the date on which the employee is to be paid. If the funds happen to be passed to the employee on an earlier or later date, perhaps due to a bank holiday, that doesn't change the "payment date". This is explained in HMRC's RTI guidance on non-banking days.
So whatever the payment date is in your employee's contract (verbal or written), that is the date that you should enter in the payroll software as the regular payment date. As long as the FPS is submitted before that regular payment date, you should be able to avoid any late filing penalty.
In fact you will be allowed one late filing per tax year without incurring a penalty. The HMRC computer will warn you that you have submitted your FPS late by sending an electronic notice sent through HMRC's PAYE online service. You may have already received some of these electronic warning messages, but at present no penalties have been issued. If you receive any more late filing warnings do let us know as the late filing penalties can be up to £400 per month for large payrolls.
Redress Payments
Was your business mis-sold an interest rate hedging product (IRHP) by its bank? The Financial Conduct Authority (FCA) has required the banks concerned to make redress payments to the wronged businesses, and some of those payments are coming through now.
If you receive an IRHP redress payment it will be made up of:
- Consequential losses and basic redress; and
- Interest is paid at 8%
The bank may deduct tax at 20% from the interest element, where it is paid to an unincorporated business. Look out for such tax deductions declared in the documentation supplied by the bank. The interest and any tax deducted needs to be shown on the business tax return. However, if you trade as a company the interest should be shown as loan relationship income not as trading income.
If the original IRHP payments were treated as trading deductions for your business, the redress payment should be included as trading income in your accounts. It should be included in the accounts for the period in which it is received. If the redress is paid by instalments, each instalment should be included in the business accounts for the period in which it is received.
If the original IRHP payments were not treated as taxable deductions (perhaps because the product was treated as a hedging asset in your company accounts) the redress payment may be treated as a capital receipt. We can advise you on the correct accounting and tax treatment.
VAT On Multi-products
Most products and services are subject to standard rate VAT at 20%, but some products are zero-rated (VAT applied at 0%), while others, e.g. rent for certain buildings, are exempt from VAT. There is a limited range of products and services that attract 5% VAT.
If you supply a package which is made up of products and services which carry different rates of VAT, you need to be sure of the split to charge the right amount of VAT to your customers. The VAT man may insist that you charge VAT at the highest rate if he thinks the lower-rated product is only incidental to the total package the customer is buying. For example a printed leaflet (zero rate) sold with a DVD (standard rate).
Say you own a large retail building and let out space within it as shops and in it are shops for antique dealers. The rent is exempt from VAT if you have not "opted to tax" your whole building. Each dealer can ask you to sell stock on their behalf if he is not present when a customer arrives. This selling service should be standard rated as an agency service.
In a similar case to this the VAT man argued that the whole charge to the dealers (rent and selling service) should be charged at 20% VAT. Fortunately the Tax Tribunal disagreed and ruled there were two elements which should have separate VAT charges, as this is how the antique dealers viewed the arrangement.
If your products have several elements with different VAT treatments, talk to us about how your customers view the mix, and how you should split the VAT charges.
Travel Question
If you contract through your own personal service company (PSC), you will be an employee of that company and you have to obey the strict tax rules that apply to employees' travel deductions when claiming expenses from your PSC.
The first rule is that the cost of ordinary commuting cannot be claimed. This is defined as travel to a permanent workplace, which is somewhere attended regularly to perform the duties of the employment. Travel costs to a temporary workplace can be claimed, but the conditions that make a workplace 'temporary' must be met.
A place is not a temporary workplace if the employee attends for a continuous period of more than 24 months, or the attendance is expected to last more than 24 months. If your PSC takes on a contract that is expected to last say 36 months at one location, you can't claim travel costs to that location, as your workplace is not a temporary workplace from the start of the contract.
Another definition of 'temporary workplace' is one which the worker attends to perform a task of limited duration or for some other temporary purpose. HMRC has a rule of thumb that if the worker is attending a place for 40% or more of his working time, that is a permanent workplace and travel costs to the location can't be claimed.
If you work at your client's office for say 15 hours per week out of a 40 hour normal working week, your client's office is a temporary location even if the contract exceeds 24 months. Please discuss the matter of travel expenses with us before you take on a long contract, as the deductibility of the travel costs may tip the balance on whether the contract is worthwhile.
September Questions and Answers
Q. Private school fees are so expensive, can I get my company to pay the fees directly and save myself a bit of tax?
A. If the company pays a bill, such as the school fees, which you are personally liable to pay, the payment is treated for national insurance (NI) purposes, as if the company had paid it to you so the company must pay employers NI on top of the amount of the fee. However, it is a benefit in kind so it must be reported on the form P11D and the income tax you are due to pay will be included in your PAYE code for the next year. In the long run you don't save any tax or NI.
If your company contracts directly with the school to be the person responsible for paying the school fees, the tax position is slightly different. The payment must be treated as a benefit in kind and reported on your form P11D, and the company must pay class 1A NICs on the amount paid. You pay tax on the payment to the school, but not NICs.
Q. I was travelling abroad on business last month when I got terrible tooth ache. I sought emergency treatment at a local dentist and paid the bill using my company's debit card. Will I be taxed on the dentist's fee as a benefit in kind?
A. If the dental cost had been incurred while you were in the UK, it would have been a taxable benefit for you. But as you were working outside the UK at the time, your company can pick up the bill with no tax cost to you. The dental bill is also a valid deduction for the company as it forms part of the cost of sending you to work abroad for a short period.
Q. I own several properties which I let out unfurnished, but they do contain carpets, curtains and white goods. I've been told I can no longer claim the cost of replacing those items against my rental income. Is that true?
A. For periods before 6 April 2013 HMRC permitted a deduction for the cost of renewing carpets, curtains and white goods in all let residential properties on a concessionary basis. That concession was withdrawn with effect from 6 April 2013. The new rules now state that a wear and tear allowance (10% of the net rents) that covers furnishings and similar items, can only be claimed for fully furnished properties.
Your properties don't count as fully furnished, even though they contain some white goods and carpets. HMRC will not accept claims for the cost of free-standing white goods in unfurnished residential properties. It will allow a deduction for the cost of replacing fixtures such as baths, toilets, integrated fitted ovens and hobs, as those costs can be classified as repairs. If you replace part of the fitted carpet you could claim that as a repair, but not the cost of putting new carpet down in the entire property.
September Key Tax Dates
19/22 - PAYE/NIC and CIS deductions due for month to 5/09/2014
30 - Closing date to claim Small Business Rate Relief for 2013/14 in England.
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