Partnership Power: Sapphire Accounting announce an apprenticeship levy transfer with Seashell Trust

Sapphire Accounting will be transferring 10% of our apprenticeship levy to Seashell Trust. This will help Seashell Trust to fund more apprenticeships for their existing and new staff  

The accountancy firm, Sapphire Accounting, are transferring 10% of their apprenticeship levy to Seashell Trust to enable them to fund more apprenticeships for existing and new staff. Any business can gift up to 10% of their overall levy to another business as it is a ‘use it or lose it’ tax. According to an Open University study published in May 2018, it is estimated only 8% of the total £1.28bn in apprentice levies paid over the last 12 months have been used, so there is a huge amount of opportunity for companies to transfer their levy to charities.

Maria McGrath, Learning and Development Manager at Seashell Trust said ‘we are so grateful to Sapphire Accounting for their generosity and such a forward thinking CSR strategy. At the moment we have 47 people signed up to apprenticeships and are committed to ensuring our staff have the best opportunities for career development.

She continued, ‘but as a charity we just don’t have the budget to offer apprenticeships to everyone who would benefit, so this money will really change the lives of local people.’

Sapphire are also planning a whole host of fundraising activities for Seashell over the next year including the Manchester 10K, the Yorkshire Three Peaks and payroll giving to raise funds for the charity that supports children and young people with complex disabilities.

Mark Connor, Managing Director at Sapphire Accounting, said “We are delighted to partner with Seashell Trust, a local charity which our staff voted overwhelmingly to support. The work that Seashell Trust do to make a significant difference to children and young people’s lives is truly inspiring and everyone at Sapphire is really proud to support such a great cause.”

If your business has unused money in the levy pot that you would be willing to transfer to benefit a local charity, contact wendy.bray@seashelltrust.org.uk or call her on 0161 610 0168.

Be sure to follow our team as we take on the Manchester 10 KM and Yorkshire Three Peaks. Find us on Twitter and LinkedIn

HMRC’s new guidance on business travel

HMRC’s new guidance on business travel

Business travel expenses which you pay or reimburse to your employees are now exempt from tax and NI, as long as HMRC’s conditions are met. How can you make sure you are meeting them?

Expenses exemption

Following changes in the rules which took effect on 6 April 2016, qualifying business expenses you reimburse your employees, or meet on their behalf, don’t count as their taxable income and don’t need to be reported to HMRC on Form P11D . Expenses qualify for this treatment if, had the employee borne the cost personally, they would be entitled to claim a tax deduction for it.

It’s now an employer’s problem

Under the old rules once you reported the expense (on Form P11D) to HMRC your job was done. It would consider whether the expense qualified for a tax deduction. However, since 6 April it’s employers who must decide. If you believe an expense would be tax deductible you can reimburse the employee, record the transaction in your business records and that’s the end of the matter. But if it’s not a qualifying expense you must treat it as earnings and deduct PAYE tax and NI.

Does it qualify?

Some types of expense aren’t a problem – it’s easy to decide if they are tax deductible. For example, where an employee works from home and buys the stationery they need to do their job, you can reimburse them tax and NI free without a worry. However, other expenses are less clear cut.

Necessarily incurred in the pursuit of the business

The general rule is that an expense is tax deductible, and therefore can be reimbursed or paid for without applying PAYE tax or NI, if it’s incurred “necessarily in the performance of the duties” of the employee’s job. Direct job expenses (such as in our example above) will meet these conditions. However, business travel and related expenses (subsistence and accommodation) can be tricky and getting it wrong may lead to you bearing the cost of the PAYE tax and NI.

Sapphire Tip.

HMRC has revamped its guide to employee travel expenses, (Booklet 490) to cover the new rules which you can download from GOV.UK

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517266/490.pdf

It includes many examples which will help you decide if an expense is exempt.

Still unsure?

While HMRC’s guide covers common situations, it is not comprehensive. As explained above, if you don’t make the right decision HMRC can ask you to foot the tax and NI that it thinks should have been deducted when you paid the employee.

Official protection

The good news is that the new rules protect you to some degree. They say that if you couldn’t reasonably have known an expense didn’t qualify, you won’t be liable for the consequences of getting it wrong. Tip. If in doubt, check HMRC’s guide and cross reference the relevant paragraph number to your employee’s expenses claim. That will show that you’ve taken reasonable steps in deciding that the expense qualified as exempt.

Summary

To be exempt an expense must be incurred “necessarily” for the purpose of the employee’s job. Use HMRC’s revised guide to travel expenses (Booklet 490) to help you decide if the exemption applies. As long as you can show you followed its advice you can’t be held liable for getting it wrong.

 

Dispensing of the Dispensation

Dispensing of the Dispensation

P11D Dispensations were abolished from 6th April 2016 and have been replaced by a new automatic statutory exemption for reimbursed business expenses.

What were P11D dispensations?

Every employer who paid reimbursed business related expenses had to previously make a P11D dispensation (P11Dx) application to HMRC using their PAYE scheme details and include details of the type of expenses that were being reimbursed, where they wanted them to be paid free of Income Tax and National Insurance (NI) to employees and directors. HMRC would then make a decision to grant, part grant or decline an application and issue a notice of their decision.

Without a P11D dispensation, the employer would have to report the expenses on an individual’s P11D and the employee would have to pay the Income Tax unless they made a counterclaim via form P87 to claim the Income Tax relief.

Why the change?

The Office of Tax Simplification (OTS), who act on behalf of the UK Government, issued a report in 2014 regarding the simplification of many aspects of the administration of the tax system. They specifically identified the P11D dispensation process as one area that needed reviewing and updating, to remove administrative burden from employers. However, despite the removal of an initial administration burden, this has arguably pushed even more onus towards employers, who now have to decide for themselves which expenses fall under the new exemption rules.

 

What exactly has changed?

The Finance Act 2015 introduced sections 289A-E into Part 7A of ITEPA 2003, effective 6th April 2016, and effectively achieve the following:

  • removes HMRC’s powers to grant dispensations (by omitting ITEPA 2003 ss 65 and 96)
  • exempts expenses and benefits that would otherwise be deductible from earnings under ITEPA 2003 Chapters 2, 5 of Part 5, or Chapter 3 of Part 5, such as travel and subsistence expenses, business entertainment and professional fees and subscriptions
  • makes it a statutory requirement for employers to operate a system for validating employee expense claims, including those reimbursed by way of allowances
  • provides that regulations may exempt particular types of expense payment
  • introduces sampling rules to support employer requests for the agreement of bespoke allowances
  • disapplies the new exemption when expenses are reimbursed in conjunction with salary sacrifice arrangements.

What does it mean practically?

The main condition attached to the new statutory exemption is that employers must have a robust system in place for checking that payments to employees are only made on occasions where the employee would be entitled to a deduction.

Mileage payments up to the Approved Mileage rates are exempted as well as new set of Benchmark subsistence rates. Employers who have previously agreed bespoke rates with HMRC must have applied for Approval Notices by 6th April 2016 if they wish to continue to pay these rates tax free.

Benchmark subsistence rates

These new rates do not require any sampling exercise and can be used by all employers subject to the following conditions being met:

  • Minimum journey time of 5 hours – £ 5 maximum meal allowance
  • Minimum journey time of 10 hours – £10 maximum meal allowance
  • Minimum journey time of 15 hours – £25 maximum meal allowance

Where a meal allowance of £5 or £10 is paid and the qualifying journey in respect of which it is paid lasts beyond 8pm a supplementary rate of £10 can be paid.

A meal is defined as a combination of food and drink and would take a normal dictionary meaning. Where employees are required to start early or finish late on a regular basis, the over 5 hour and 10 hour rate, whichever is applicable, can be paid provided that all the other qualifying conditions are satisfied.

Qualifying conditions

Benchmark scale rates must only be used where all the qualifying conditions are met. The qualifying conditions are:

  • the travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting
  • the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours
  • the employee should have incurred a cost on a meal (food and drink) after starting the journey

Employers can pay less than the published rates but employees cannot claim tax relief on the difference. They can however claim a deduction from HMRC for the difference between what they actually spent on the expense and the amount reimbursed by their employer in the normal manner (i.e. P87 form). Employers paying more must subject the surplus to tax and NI.

Other rates

  • Working Rule Agreements – The published scale rates do not apply to employees covered by Working Rule Agreements, for which separate specific rates are already set for particular occupations.
  • Overnight subsistence rate – A rate has not been set for overnight subsistence. Employers wishing to agree a rate with HMRC for overnight subsistence will need to apply using the bespoke rate process.
  • Staying with friends and family rate – A rate has not been set for a scale rate payment for staying with friends and family. The travel rules still apply to actual costs of subsistence incurred while staying with friends and family.

Travel schemes involving salary sacrifice

It will not be possible to continue with any arrangement whereby expenses vary in some way with earnings, without treating the expenses as taxable. So, as well as expenses paid under traditional salary sacrifice schemes, other arrangements which attempt to pay bonuses, top up amounts, or other forms of pay which vary with expenses, are all now taxable by virtue of section 289A of ITEPA 2003.

Budget Statement March 2016

Budget Statement March 2016

Recruitment Industry and Accounting Provider Soundbites 

The below summary includes direct ‘lifts’ from the Chancellor’s Announcement (the red boxes) for ease of reference. The Sapphire Comment is an initial view and is subject to change following more detailed consideration and additional information such as Guidance Notes and the Finance Bill which will be published in the last week of March 2016

Personal Service Companies (PSCs)

  • Off Payroll Engagement in the Public Sector (‘IR35’)

The Office of Tax Simplification (OTS) and House of Lords have all commented that the IR35 legislation is not effective enough and it was widely believed that there would be an announcement in today’s autumn statement. As it is, the status of the IR35 legislation will remain unchanged for the time being and the “Discussion document” Consultation responses are still being considered:

 

Sapphire Comment: In the end, the government has been less heavy handed than many had feared with limited company workers but the ‘direction of travel’ in attacking PSC structures is clear. It should be anticipated that the IR35 legislation will be modified (inevitably it will only be made far more aggressive) and it seems that the initial action will be in the public sector. This is presumably because government can determine which public sector assignments are inside and which are outside IR35. This will result in the “enshrining” of the emerging One Man Umbrella model inside government policy.

 

  • Increase in the taxation of dividends (previously announced)

From April 2016 the government will remove the 10% Dividend Tax Credit and replace it with a new tax-free Dividend Allowance of £5,000 a year for all taxpayers. The government will then set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

 

Sapphire Comment: This is best explained in a graph. Interestingly, because there will no longer be a “dividend tax gross up”, those on the margins of higher rate tax thresholds will find themselves paying slightly less tax:

 

 

  • Director Loans accelerated Corporation Tax Charge

From April 2016 the government will increase the tax rate on loans outstanding for more than 9 months after a company’s year end from 25% to 32.5% to ensure director/owners are not incentivised to take loans rather than dividends due to the new dividend tax

 

Sapphire Comment: Loans of up to £10,000 will still be permitted from PSCs but this is a logical change to that the new dividend tax is aligned with the advanced corporation tax charge.

 

  • £30,000 tax free redundancy payments

It would appear that, on the face of it, these are still permitted as tax exempt payments

 

Sapphire Comment: When a temporary worker closes their PSC, this still remains an appropriate manner in which to extract surplus reserves but it is important that this is done in the correct manner.

 

Umbrella Companies and Recruitment Agencies

  • Restricting Travel and Subsistence (T&S) Claims for Umbrella and PSCs from 6th April 2016

As expected, T&S expense claims for Umbrella workers and those in PSCs who work on “inside IR35” assignments (where they are working under Supervision, Direction and Control (SDC)), can no longer claim T&S expenses.

 

HM Revenue and Customs and HM Treasury have published a further document this week which states that the draft legislation for restriction of tax relief on travel and subsistence for workers working through an intermediary (published on 9th December 2015) has been amended to “prevent organised misuse of Personal Service Companies in order to avoid the restrictions.

It seems fairly clear that there will be some form of debt transfer in place for Recruitment Agencies with the detailed legislation due to be published on 9th December.

Sapphire Comment: The final legislation has not yet been published so we can only speculate on the contents of the amendments until Finance Act 2016 is published in the next 2 weeks.

 

  • Trivial Benefits in Kind under £50 will no longer be subject to tax

‘Expense dispensations’ will no longer be part of the employment taxes regime from April 2016, and it is also announced that ‘trivial’ benefits in kind will no longer be subject to tax either.

 

Sapphire Comment: It is assumed that it is possible to make a trivial benefit payment each month, meaning that a total of £600 can be paid in this manner without being subject to tax.

 

Apprenticeship Levy (effectively an additional payroll tax of 0.5%) from April 2017

This new tax will be a huge cost for Umbrellas (to the extent that they survive until April 2017) and for Recruitment Agencies. The threshold of payroll cost, above which this levy will apply, is just £3m which will catch many operators in the temporary labour market.

 

Sapphire Comment: This change will accelerate the demise of Umbrella companies and will make Recruitment Agencies with payroll costs close to £3m even more reluctant to add workers to their payroll because of this additional cost.

 

Capital Gains Taxes

  • Capital Gains Tax reduced from 18% to 10%

This was an unexpected boost to those who make capital gains but the ‘sting in the tail’ is that some employee “tax exempt” share arrangements (which typically reward employees for the growth in their company’s value) will now be subject to a new capital gains £100k lifetime limit

 

Sapphire Comment: A welcome reduction in tax rates – very few reductions of this nature have been in evidence in recent years.

 

  • Company Distributions

There is a sinister comment buried in the detailed HMT Budget document regarding capital distributions from companies – typically an approach used at the end of a company’s life.

 

Sapphire Comment: This is an interesting comment and indicates that capital distributions from companies are likely to be restricted by additional rules which may be introduced very soon!

 

Tax Avoidance Structures including Offshore Schemes

  • Marketed Avoidance Schemes

It is well known that there are providers who masquerade as ‘compliant providers’ and secretly (or not so secretly). A new wave of punishments were announced in the Autumn statement but a high er penalty of 60% of tax due will now be introduced:

 

Sapphire Comment: This is a particularly draconian move but underlines the determination of the authorities to eliminate mass marketed schemes and attack the whole “off shore disguised remuneration” supply chain as well as very punitive penalties for those individuals continuing to use them.

 

Digital Accounts

  • The Digital Tax Accounts Initiative continues with Quarterly Reporting on the horizon…

There will obviously be a need for accounting software providers to engage with government on some significant changes which are planned for the longer term. As per the announcement below, it is suggested that taxpayers will be more engaged with HMRC and there is the distinct possibility that tax payments will be made earlier (corporation tax is currently not due until 9 months after a company’s year end for example).

 

Sapphire Comment: The Online world has arrived and the role of the accountant is changing in the modern era. Embracing technology and the use of Apps and online software will be essential HMRC and accountant tools in the very near future.

The intent from HMRC in this area can be accurately predicted in that the above initiative is likely to be coupled with Quarterly reporting of landlord and limited company incomes by 2018.

Tax on Dividends is Changing

Tax on dividends is changing – plan ahead now!

 What are the current rules?

Under current tax rules any dividend you receive is deemed to have been received less a 10% notional tax i.e. you are actually receiving 90% of the full amount of the dividend.  This is grossed up to the full 100% when you enter this is your personal tax return.  In the calculation of your personal tax this 10% is then knocked off as tax paid.

‘This is a ridiculous method of doing things does this really happen?’  Yes, this is a really strange process but that’s what actually happens!

Dividends are taxed on the grossed up amount at 10% on earnings up to £42,385, 32.5% on earnings up to £150,000 and at 37.5% on earnings above this amount.

What’s changing?

Dividends will no longer be grossed up.  i.e. you will be deemed to have received the full 100%.  Under the new rules everyone will get a £5,000 dividend allowance under which no tax is due on dividends.  The £5,000 is included as part of your basic rate allowance.   There will be no ‘notional tax’ deducted in your tax calculation.  Above this dividends will be taxed at 7.5% on earnings up to £43,000, 32.5% on earnings up to £150,000 and 37.5% on earnings above this amount.

 I don’t care about the rules just tell me the numbers!

Example: You currently receive a salary of £10,600 and a dividend of £30,000.

Under current tax rules you would have a personal tax bill of £348.

Under the new rules your personal tax bill would shoot up to £1,845!

Example: You currently receive a salary of £10,600 and a dividend of £60,000.

Under current tax rules you would have a personal tax bill of £7,848.

Under the new rules your personal tax bill would shoot up to £10,995!

Sapphire’s Comment

If you currently draw a dividend from your company then speaking to your accountant about tax planning may save you a significant amount on your personal tax bill and stop any nasty surprises.  At Sapphire we specialise in planning ahead so you always know where you are with your personal finances.

Employment Allowance – The Changes

What is the Employment Allowance?

The Employment Allowance (EA) gives employers the option to claim up to £2,000 each year to reduce their National Insurance (NI) bill. Employers can only claim the EA against their Class 1 Secondary Contributions (Employer’s NI), up to the maximum amount of £2,000. You can still claim if your Employer’s NI bill is less than the £2,000 allowance but cannot carry any excess over to the next tax year.

Who can claim the allowance?

If you have a limited company and have any employees (including the director) you are eligible to claim the EA but you cannot claim if you are employing somebody for personal, household or domestic work such as a nanny or gardener, unless the employee is a social care worker.

You are only allowed to claim one EA per PAYE scheme and cannot claim for more than one company that is part of a group.

You can claim the EA by submitting an Employer Payment Summary (EPS) via your payroll software.

 

What is changing from 6th April 2016?

Any limited company claiming the EA will not be eligible to claim from 6th April 2016 if the director is the sole recipient of earnings from their company. The extract from the draft legislation reads:

“The new subsection provides that a company cannot qualify for an employment allowance where all the payments of earnings it pays in a tax year are paid to or for the benefit of one employed earner only who is also a director of the company at the time the payments are made.”

The EA is raising from £2,000 to £3,000 from 6th April 2016 which means employers can save a further £1,000 per year on their NI bill.

 

Who will it impact?

Any limited company where the director is receiving all earnings will not be able to claim the EA from 6th April 2016.For any limited

company who employs more than just the sole director AND they are in receipt of earnings from that limited company, will remain unaffected and qualify for the additional £1,000 from 6th April 2016

Sapphire’s Comment

If you are a director of a limited company but the sole earner from that company, you will not be able to claim the EA from April 2016. If you have a second employee, even if they are only employed in an administrative role, the company will still be entitled to claim the EA. You should look very carefully at whether you can justify a second employee, even in a part time role, as this may be of benefit.

Autumn Statement 2015 – Recruitment Industry Soundbites from Sapphire Accounting

Recently, the Chancellor of the Exchequer produced the Treasury’s Autumn Statement to Parliament.

You can now read our helpful breakdown of the key points (for the recruitment industry) by clicking on the link below.

Sapphire Autumn Statement 2015 Soundbites

(You must have Adobe Reader installed to read the above document correctly, please go to www.adobe.com/reader to download)

Workplace Pensions – “We’re all in”

But what does this actually mean?

What is pension auto enrolment?

Pension auto enrolment may not seem like the most riveting subject but it is beneficial to gain an understanding of it as it will affect most of us. New government workplace pension’s legislation requires all employers with staff in the UK to provide a qualifying workplace pension scheme. Implementation (staging date) is determined by the size of the employer’s largest PAYE scheme. Over 5 million employees across the UK’s largest employers (around 100,000 so far) have already enrolled. A further 1 million small and medium employers are still to enrol between now and 2018.

So, why has this been introduced? Well, the current state pension is funded by National Insurance Contributions (NICs) and the number of working vs retired is estimated currently to be 3:2. However, by 2050, this is estimated to be 2:3 (in 1901 it was 10:1!). Longer life expectancy means NICs simply won’t cover the cost of retirement.

Who does it apply to?

An eligible jobholder is any worker who ordinarily works in the UK and is aged between 22 and the State Pension Age (SPA), and earns over £10,000 per year. Eligible employees must be automatically enrolled but employees can opt-out (but can’t be encouraged to!).

Non-Eligible Jobholders (under 22’s and over SPA or employees earnings less than £10,000 but more than £5,772 per year) do not have to be automatically enrolled but can ask to join the pension scheme. The employer must contribute if they decide to opt in.

Entitled Workers (any employee earning under £5,772 per year) do not have to be automatically enrolled but can ask to join the pension scheme. The employer has no obligation to contribute.

What are an employer’s duties?

All employers must comply from their ‘staging date’. They must select a qualifying pension scheme, choose the scheme design and assess their workforce. Communication must be made to employees and they must be kept up to date of any changes after each assessment. The workforce must be assessed before the staging date and at each pay period after staging date, however don’t worry as payroll software usually deals with this.

The qualifying pension scheme must:

  • Be tax registered;
  • Meet minimum criteria
  • Be registered in the UK or EEA
  • Have no barrier to auto enrolment
  • Be a qualifying scheme

Postponement

Postponement is generally used if an employer needs more time, has high staff turnover or temporary workers on short term contracts. They can postpone for up to 3 months but will still need to have a scheme in place on their staging date and comply with the legislation. There is a requirement to issue Statutory Postponement Notices to all workers and employees do have the option to ‘opt-in’ immediately during the postponement period.

And if employers don’t comply?

The Pension Regulators ‘police’ this very aggressively so it is worth playing by the rules! There have already been fines and prosecutions issued for non-compliance. Fixed fines for non-compliance and based on ‘warnings’ and daily fines for continued non-compliance after a warnings. Fines can however be up to £50k per organisation in worst cases – ouch!

How can Sapphire help?

Sapphire specialise in taking the hassle out of running your payroll, which includes your Auto Enrolment requirements. Our staff are trained and qualified to deal with your requirements and ensure your business remains compliant without you having to worry. Please contact us on 01625 539997 for a free, no obligation chat about our services.

HMRC announces “Second Incomes Campaign”

What’s the issue?

HMRC has been busy pushing its new Second Incomes Campaign, so – how might directors and other business owners be affected?

Why are HMRC doing this?

HMRC are concerned that many taxpayers aren’t properly declaring all taxable sources of income, and have therefore introduced the Second Incomes Campaign. It says this is to enable individuals to bring their tax affairs “fully up to date on a voluntary basis”. There are many activities which can bring in a second income but two of the most likely sources for directors and other business owners are consultancy and training services offered in a personal capacity, i.e. not through the business.

HMRC’s Approach:

Although HMRC is encouraging voluntary disclosures of this nature, it won’t assign them to the ‘Second Incomes Campaign’ automatically. In order to take advantage of what it calls the “best possible” tax repayment terms you must specifically tell it that you want to participate by completing the correct notification form. Once this has been done you then have to calculate the unpaid tax that’s due and send HMRC a disclosure form. Once that’s acknowledged the tax owed must be paid within four months.

If undeclared sources of income aren’t voluntarily disclosed and HMRC subsequently finds out, you could face higher penalties or, even worse, a criminal prosecution. There is no end date for the Second Incomes Campaign

What to do if you think you may be affected:

If you’re concerned, Sapphire suggests that you don’t leave things to chance.

Sapphire Tip:

Rather than going straight to HMRC – either for advice or to make a disclosure – directors and business owners should first seek specialist advice and, if necessary, representation. Apart from the fact that HMRC’s online calculator can only manage basic tax affairs, personal declarations made by high net worth individuals may prompt an inspector to undertake a deeper investigation.

Undeclared personal fees, e.g. for consultancy work, are being targeted. If you’re worried, don’t automatically make a disclosure under the campaign – it could prompt a deeper investigation. Speak to your accountant first.