Monthly Archives: December 2014

Do you employ anyone under the age of 21?

From the 6 April 2015, if any of your employees are under the age of 21 you may no longer need to pay employer Class 1 secondary National Insurance contributions (NICs) on their earnings.

The rate of employer Class 1 NICs for employees under the age of 21 will be 0% up to the new ‘Upper Secondary Threshold’ (UST) which, for the tax year starting 6 April 2015, will be the same as the Upper Earnings Limit (UEL). Class1 NICs will however continue to be payable on all earnings above this threshold. The basic rules and calculations of National Insurance including how Class 1 NICs are assessed will not be changed by this measure.

For employees who are at, or over, the age of 16 and under the age of 21 there will be a range of new NI category letters to available. From 6 April 2015, when submitting PAYE information for employees under the age of 21 employers will need to use the new category letter appropriate to the individual.

Seven new National Insurance category letters have been introduced. The most commonly used one will be category M:- Not contracted-out standard rate contributions for employees under 21.

Employers (or their agents) are responsible for ensuring they report the correct category letter. To do this, employers will need to make sure they hold the correct date of birth for employees.

If you would like help with your payroll please do get in touch.

Internet link: Employer Bulletin

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Advisory Fuel rates for company cars

New company car advisory fuel rates have been published which took effect from 1 December 2014. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.

The advisory fuel rates for journeys undertaken on or after 1 December 2014 are:

Engine size Petrol
1400cc or less 13p
1401 cc – 2000cc 16p
Over 2000cc 23p
Engine size LPG
1400cc or less 9p
1401 cc – 2000cc 11p
Over 2000cc 16p
Engine size Diesel
1600cc or less 11p
1601cc – 2000cc 13p
Over 2000cc 16p

Please note that not all of the rates have been amended so care must be taken to apply the correct rate.

Other points to be aware of about the advisory fuel rates:

  • Employers do not need a dispensation to use these rates. Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
  • The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like to discuss your car policy, please contact us.

Internet link: gov.uk

Employment benefits changes ahead

In the Autumn Statement the government announced a package of measures which will impact the treatment of employee benefits in kind and expenses.

  • From 6 April 2015 there will be a statutory exemption for trivial benefits in kind costing less than £50.
  • From 6 April 2016, the £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. This threshold adds unnecessary complexity to the tax system. There will be new exemptions for carers and ministers of religion.
  • There will be an exemption for certain reimbursed expenses which will replace the current system where employers apply for a dispensation to avoid having to report non-taxable expenses. The new exemption for reimbursed expenses will not be available if used in conjunction with salary sacrifice.
  • The introduction of a statutory framework for voluntary payrolling benefits in kind. Payrolling benefits instead of submitting forms P11D can offer substantial administrative savings for some employers.

Please contact us if we can help with employee benefits and expenses reporting.

Internet link: gov.uk

Incorporation – restriction of relief for goodwill and Entrepreneurs’ relief

Corporation tax relief is given to companies when goodwill and intangible assets are recognised in the financial accounts. Relief is normally given on the cost of the asset as the expenditure is written off in accordance with Generally Accepted Accounting Practice or at a fixed 4% rate, following an election.

In the Autumn Statement an anti-avoidance measure has been announced to restrict corporation tax relief where a company acquires internally-generated goodwill and certain other intangible assets from related individuals on the incorporation of a business.

In addition, individuals will be prevented from claiming Entrepreneurs’ Relief on disposals of goodwill when they transfer the business to a related company. Capital gains tax will be payable on the gain at the normal rates of 18% or 28% rather than 10%.

These measures will apply to all transfers on or after 3 December 2014 unless made pursuant to an unconditional obligation entered into before that date.

Prior to this announcement it was possible, for example, on incorporation of a sole trader’s business to a company which is owned by the sole trader, for the company to obtain corporation tax relief on the market value of goodwill at the time of incorporation. The disposal by the sole trader would qualify for a low rate of capital gains tax.

Internet link: gov.uk

2012/13 tax gap

HMRC have announced the latest tax gap figures. The tax gap, which is the difference between the amount of tax due and the amount collected, was 6.8% of tax liabilities, or £34 billion, in 2012 to 2013.

Financial Secretary to the Treasury David Gauke said:

‘Since 2010 to 2011 the percentage tax gap has stayed lower than at any point under the previous government, saving the country £4 billion. Today’s figures show that there’s still more work to do but our continued drive to tackle avoidance means that avoidance is down.’

Internet link: News

Parties for employees

With the season for workplace parties fast approaching we thought it would be a good idea to remind you of the tax implications of these type of events. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.

But what about the tax consequences for the employees themselves? Is it a perk of their jobs and will they have to pay tax on a benefit?

Generally, as long as the total costs of all employee annual functions in a tax year are less than £150 per attendee (VAT inclusive) there will be no tax implications for the employees themselves. In considering this limit make sure you have included all the costs, which may include not only the meal itself but also any drinks, entertainment, transport and accommodation that you provide.

If the costs are above the £150 limit then the full cost will be taxable on the employee. In that case do get in touch so we can advise you how best to deal with them.

Internet link: HMRC guidance

VAT on ‘snowballs’

HMRC have published a Brief which advises that ‘snowballs’ are zero rated for VAT purposes.

Following the decision of the First Tier Tribunal HMRC have issued guidance on the VAT treatment of ‘snowballs’. The case concerned the VAT liability of this food item and whether or not it was confectionary (standard rated) or a cake (zero-rated). The ‘snowballs’ considered were those manufactured by Lees of Scotland and Thomas Tunnock Ltd which are a dome of marshmallow covered with sugar strands and a chocolate, carob, cocoa or coconut coating with or without a jam filling.

Both manufacturers had challenged a previous ruling that ‘snowballs’ were standard rated confectionery by claiming they were also cakes and submitted voluntary disclosures for VAT they claimed was overcharged. HMRC disagreed with this view and so the matter was decided by the First Tier Tribunal.

The Tribunal considered what factors should be considered when identifying whether a product is a cake and weighed the relevant factors in the balance. The Tribunal did not dispute that snowballs are confectionery however they accepted they do have sufficient characteristics of a cake for them to be characterised as a cake, which means they are zero rated for VAT purposes.

HMRC have accepted that decision and will be updating their guidance in respect of this type of snowball in due course.

In limited circumstances suppliers of these products may be entitled to a refund however this claim would be subject to the ‘unjust enrichment’ rules and the 4 year cap in line with normal HMRC procedures.

This case helps to illustrate how important it is to get the VAT treatment right. Please do get in touch for advice on VAT issues.

Internet link: Brief