Merry Christmas Everyone!

An accountancy related Christmas funny....

Merry Christmas and a happy new year from all of us at Easterbrooks!

Autumn Statement Newsletter

For a summary of how you might be affected by the Autumn Statement have a look at our special edition newsletter here.

If you're after more detail there is plenty of it here!

December Newsletter

The Autumn Statement is on Thursday 5th December, 24 hours later than originally announced as David Cameron is leading a trade delegation to China (or because George needed more time to complete his homework).

The latest announcements could affect you and your business, our website will be updated with the prescient details.

Our December newsletter can be found here and includes a preview of the statement amongst other things. 

'tis the season to be jolly!

With Christmas drawing closer party time is just around the corner.  Whilst this is good news and an excellent opportunity to reward hard working staff you don't want to receive any unexpected gifts (bills) from HM Revenue & Customs so it is a good idea to consider the tax treatment of any gifts made to staff and of course the staff Christmas party.

The Staff Party

Entertaining for employees is usually an allowable expense and you can also claim input VAT on the costs where a VAT invoice is provided.  There is a limit of £150 per head providing the entertainment is available to all staff.  This limit covers all events during the year (combined) and it's best not to go over it as if the costs amount to £151 per head the whole benefit is taxable on the employee, they may not thank you for this!

There are complications where non-staff attend events as you cannot deduct VAT on the costs relating to non-employees.  These costs are also not allowable for corporation tax.

The time for giving

Whilst there is no tax relief on gifts to customers you can give away samples advertising your business as long as it isn't tobacco, food or drink.  If your gift has no advertising on it then as long as it's below £50 it will be allowable.

Gifts to employees do attract tax relief although if it anything more than what HMRC considers 'trivial' it may be treated as a taxable benefit on the employee.

The gifts do need to be non-cash (that includes vouchers) otherwise it will be taxable on the employee as earnings and subject to PAYE and NI.

Remember

Christmas is a time for joy and not a time for unexpected tax liabilities!

November Newsletter

November is here and so is our newsletter!

This month includes information on the new employment allowance which looks like good news for small businesses and confirmation of the married couples allowance set to come into effect between 2015 and 2016.

See here for the online version, if you would like to register to receive these every month please register here.

October Newsletter

Check out our October newsletter for the latest on the green shoots of recovery!

Reducing Inheritance Tax

Nobody wants to pay inheritance tax (IHT).  If your estate is worth more than the Inheritance Tax threshold (£325,000 for the 2015-16 tax year) there are some important Inheritance Tax exemptions that allow you to make gifts to others and not have to pay tax on them when you die.

Transferring an unused Inheritance Tax threshold

Since October 2007, you can transfer any unused Inheritance Tax threshold from a late spouse or civil partner to the second spouse or civil partner when they die. This can increase the Inheritance Tax threshold of the second partner - from £325,000 to as much as £650,000 in 2015-16, depending on the circumstances.

Exempt beneficiaries or 'donees'

You can make gifts to certain people and organisations without having to pay any Inheritance Tax. These gifts are exempt whether you make them during your life or as part of your will.

You can make exempt gifts to:

• your husband, wife or civil partner, as long as they have a permanent home in the UK
• a 'qualifying' charity established in the EU or another specified country 
• some national institutions such as museums, universities and the National Trust
• any UK political party that has at least two members elected to the House of Commons or has one elected member, but the party received at least 150,000 votes

Gifts that you give to your unmarried partner, or a partner that you're not in a registered civil partnership with, are not exempt.

Annual exemption

You can give away gifts worth up to £3,000 in total in each tax year and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don't use it in that year, the carried-over exemption expires.

In addition to the annual exemption there are other exemptions for certain types of gifts. These are explained below.

Exempt gifts

Some gifts made during your lifetime are exempt from Inheritance Tax because of the type of gift or the reason for making it.

Wedding gifts/civil partnership ceremony gifts

Wedding or civil partnership ceremony gifts are exempt from Inheritance Tax, subject to certain limits:

• parents can each give cash or gifts worth £5,000
• grandparents and great grandparents can each give cash or gifts worth £2,500
• anyone else can give cash or gifts worth £1,000

You have to make the gift - or promise to make it - on or shortly before the date of the wedding or civil partnership ceremony. If the ceremony is called off and you still make the gift - or if you make the gift after the ceremony without having promised it first - this exemption won't apply.

Small gifts

You can make small gifts up to the value of £250 to as many individuals as you like in any one tax year. However, you can't give more than £250 and claim that the first £250 is a small gift. If you give an amount greater than £250 the exemption is lost altogether.

You also can't use your small gifts allowance together with any other exemption when giving to the same person.

Regular gifts or payments that are part of your normal expenditure

Any regular gifts you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your normal lifestyle.

These include:

• monthly or other regular payments to someone
• regular gifts for Christmas and birthdays, or wedding/civil partnership anniversaries
• regular premiums on a life insurance policy - for you or someone else

You can also make exempt maintenance payments to:

• your husband, wife or civil partner
• your ex-spouse or former civil partner
• relatives who are dependent on you because of old age or infirmity
• your children, including adopted children and step-children, who are under 18 or in full-time education

The seven-year rule - 'potentially exempt transfers'

Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as 'Potentially Exempt Transfers' (PETs).

However if you give an asset away at any time, but keep an interest in it - for example you give your house away but continue to live in it rent-free - this gift will not be a potentially exempt transfer. 

If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate.

However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.

If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief'.

Reducing your Inheritance Tax bill by giving to charity

From 6 April 2012 if you leave 10 per cent or more of your net estate to a 'qualifying charity' your estate may qualify to pay Inheritance Tax at a reduced rate of 36 per cent.

There are different ways that you can own assets such as money, land or buildings and the way that you own the assets and with who affects the way they're treated when deciding whether the reduced rate of tax can apply.

Set up a trust

If you put some of your cash, property or investments into a trust (which you, your spouse and none of your children under 18 years can benefit from), they are no longer part of your estate.

You could set up a trust to pay for your grandchildren's education or support a family member with a disability. You can set up a trust right away or you can establish one in your will. The rules around trusts are complicated so you must take advice from an expert. Bear in mind that some types of trust might have to pay Inheritance Tax themselves.

September Newsletter

Keep up to date with September's offering including high earners child benefit charges.  It seems that there are a large number of people who don't even know they are required to complete a tax return form.

Parents on higher incomes who continued to receive Child Benefit in 2012/13 will need to register for self assessment by 5 October 2013 (unless they have already done so) and complete a tax return. Individuals who fail to register with HMRC may incur a penalty.

Car or Van?

When in the market for a new vehicle it is worth considering the tax implications of what can be a large purchase for a small business.

The current tax regime offers a generous 100% Annual Investment Allowance for qualifying capital expenditure up to £250,000.  For most small businesses this will cover all of the annual capital expenditure but to qualify your new vehicle needs to be classed as a van not as a car.

HMRC provide us with the following on their website...

In deciding whether or not a particular vehicle counts as a car for car benefits purposes, the starting point is the definition in Section 115(1) Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This works by exception: every mechanically propelled road vehicle is a “car” unless it is
(i) a goods vehicle (a vehicle of a construction primarily suited for the conveyance of goods or burden of any description),
(ii) a motor cycle (as defined in Section 185 Road Traffic Act 1988),
(iii) an invalid carriage (also as defined in that Act), or
(iv) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

The result of this is that the primary function of the vehicle must be for the conveyance of goods or burden.  Therefore luxury off-road vehicles would not qualify but some (not all) pick-up trucks would qualify.

Where the vehicle doesn't qualify as a van the tax treatment will depend on the CO2 emissions resulting in annual allowances of 18% for a cleaner car (currently those with CO2 emissions over 130g/km) or 8% for a "dirty" car.

The result of this is very much delayed relief so worth considering when you are choosing your vehicle.

It is worth noting that Vehicle Excise Duty and VAT legislation are both different to tax legislation, so the same vehicle can be treated differently by the different agencies. For instance, VED is based on type approval at the time the vehicle is first registered, whereas VAT and the tax/NICs regimes consider the nature of the vehicle at the time of the transaction or in the relevant tax year.

If you are unsure please contact us before you buy!
For a helpful list from HMRC try here.

August Newsletter

Please check out our newsletter for the latest including.....

Small businesses 'generate more for local economies' - now there's a surprise!

How long do I have to keep all this paperwork?

Personal Tax Records

If you're not running a business, you'll normally have to keep your tax records for at least 22 months from the end of the tax year to which they relate.

For example, if you gave a property to a charity in September 2012, you must keep any records relating to it until at least 31 January 2015.

Trade Records

If you're in business (as a sole trader or partnership) you must keep your tax records for at least five years and one month after the end of the tax year to which they relate.

For example, if you bought an asset in October 2012 you must keep your records until at least 30 April 2018.

HMRC Enquiry

If HM Revenue & Customs make any enquiries about your tax return you will need to keep your tax records until the enquiries are completed.

Don't throw it all!

There is certain information that you would be wise to keep for much longer than the statutory minimum as it may help mitigate future tax bills.

For example, the completion statement you receive on purchasing a second home may be needed to calculate the Capital Gain if the property is sold in the future.  This could be many years down the line!

Find out more

More information can be found here, or contact us on 01395 516658.

July Newsletter

Please see here for details of the latest news including the latest backtracking from HMRC in the implementation of RTI.

A host of information can be found through viewing past Newsletters on our Newswires page.

June Newsletter

Please see here for details of the latest news including the Queen's Speech and Tax Avoidance.

A host of information can be found through viewing past Newsletters on our Newswires page.

RTI - HMRC make a small concession

HMRC has bowed to pressure and will allow some employers more time to submit their RTI reports.

PAYE Real Time Information (RTI) is mandatory for employers from April 6. Since this date, each time you pay an employee you must report their earnings and the corresponding tax and NI contributions to HMRC no later than when you pay your workers. However, it's now offering a little leeway.

HMRC's press release of March 19 is worded a little oddly; it says that employers with fewer than 50 employees can defer making their RTI reports until "the date of their regular payroll run but no later than the end of the tax month (5th)".

In practice. Tax months end on the 5th of the month. Therefore, HMRC is saying that if you pay your workers weekly, say on a Friday, then for the April tax month paydays will be the 12th, 19th, 26th plus May 3. You must make an RTI report for these by no later than May 3, but only where this is the date on which you work out the total tax and NI payable for the month for each employee. If you run a full payroll earlier, then a report will be required at that time.

The RTI reporting concession is short lived. Only payments to employees up to and including October 5 are covered. Thereafter, every time you make a payment you must submit an RTI report.

Under current rules employers, no matter how many workers they have, don't have to make an RTI report for certain one-off or unusual payments until they make their main payroll run.

Year end tax planning

The current tax year ends on 5th April so now is a good time to plan to ensure the best use of individual’s allowances, exemptions and reliefs.  In difficult economic times, we all wish to minimise the contribution to the Chancellor of the Exchequer, which would otherwise be taken by way of direct or indirect taxes both immediately and in the future:

Income Tax

The number of people facing higher rate tax is increasing as tax thresholds reduce, leaving more people worse off, so either directing income from one spouse to another by transferring income producing assets, especially where one spouse pays tax at a lower rate could be advantageous, or investing funds in a non-taxable environment, for example an Individual Savings Account, might be opportune.

Capital Gains Tax

Individuals are each currently entitled to an annual exemption and now that Capital Gains Tax is again linked to income tax thresholds, a capital gains rate of 28% and 18% applies to chargeable gains falling in to higher rate and basic rate thresholds respectively and therefore, planning to minimise exposure is essential, especially as unused annual exemptions cannot be carried forward to a new tax year.
Spouses who live together could consider transferring assets on a ‘no gain/no loss’ basis and provided such arrangements are made on ‘an arms length basis’, it might be possible to use both, rather than one annual exemption on subsequent disposals making best use of both spouses exemptions and thresholds.
Where chargeable Gains arise, the timing and use of Capital Losses and, the possibility of spreading disposals over two tax years, in order to maximise use of current and future exemptions and postpone any liability due, could also be contemplated.

Inheritance Tax

This is a tax on Estate value and to maximise the transfer of wealth to the next generations, the main exemptions, listed below, can be considered:-

1. Most transfers between spouses.
2. The first £3,000 of lifetime transfers in any tax year, plus any unused balance from the previous tax year.
3. Gifts of up to, but not exceeding, £250 per tax year to any number of persons.
4. Gifts made out of income that form part of normal expenditure and do not reduce the donees standard of living.
5. Gifts in consideration of marriage of up to either £5,000 per parent, £2,500 per Grandparent, or £1,000 by any other person.
6. Gifts to Charities.

The use of gifts to a Discretionary Trusts might also be considered but the tax consequences, where the subject of the gift could trigger a Capital Gain, must be carefully considered.

In all matters relating to tax planning, individuals must take appropriate professional advice.

The true cost of tax

How much tax are you really paying?  With income tax, national insurance, VAT, fuel duty, beer duty etc etc it can be difficult to get a clear picture.

Allow me to illustrate.....

Average Joe has an average wage in his job working for Mr Big.

Mr Big offers Joe some extra cash for working on New Years Eve.  There is £100 up for grabs but first it has to be taxed.....

Before Mr Big can pay Joe he has to pay employers national insurance which comes to £12.13 so Mr Big offers Joe £87.87.

Joe suffers tax of £17.57 and employees national insurance of £10.54 leaving him with £59.76 in his pocket so 40.24% has gone in tax which is a fair chunk but at least Joe gets to spend it on himself now right??

Wrong of course!  I should mention poor Joe has a terrible affliction.  Whenever he buys something the vindictive tax fairy whispers into his ear the tax suffered from that transaction.....

Joe decides to take his lovely wife out for a spot of lunch, he's running low on petrol so he swings by the local generic petrol station and puts in half a tank, that's £30 gone straight away.  £18 fuel duty and VAT whispers the tax fairy into his ear.

Lunch consists of some delightful fish pie, a pint of beer for Joe and a glass of wine for the wife.  £18.35 seems reasonable enough, especially as £4.13 was tax of one sort or another points out the tax fairy.

These constant whisperings are getting Joe down, he doesn't usually smoke or gamble but he decides to buy a pack of 20 and a scratch-card, total cost £8.47.  £6.12 whispers the tax fairy.  Joe could almost hear him rubbing his hands together with glee.

That leaves £2.94 for a generous tip.  No tax there pipes up the tax fairy although the cafe staff will have to declare their tips of course.

So Joe's overtime spending is over.  Total tax to the treasury £68.49, nearly 70%, ouch.

At least Joe can console himself that the tax fairy only has a few more months to live.  Maybe he'll get a nicer one next year.

If you're paying too much tax please get in touch.