July 2019

tax tips & finance e-newsletter

In this issue

A staff summer party can be a tax-free benefit

Make school holidays easier with tax-free childcare

Using a PAYE settlement agreement to pay some of your employee’s tax

More complicated pension rules

New VAT rules for the construction sector

Changes to reporting of residential property disposals

Scaling up your business

Exam success – Jon Robards

A staff summer party can be a tax-free benefit

Your organisation may have an annual Christmas party for staff, but the tax rules also allow staff parties at other times of the year which are a tax-free benefit if certain conditions are satisfied.

The exemption applies to an annual party (for example, a Christmas party), or similar annual function (for example, a summer barbecue), provided for employees and is available to all employees or available to all employees at that location, where the employer has more than one location.

If the employer provides two or more annual parties or functions, no tax charge arises in respect of the party, or parties, for which cost(s) per head do not exceed £150 in aggregate. For each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the other is taxable.

Make school holidays easier with tax-free childcare

Did you know there is a government scheme available that can help contribute towards childcare costs which may mean fewer of your employees will need time off at the same time this summer.

Tax-Free Childcare is a scheme available to working parents with children from 0-11 years and many parents are not taking advantage of the scheme. HMRC would thus welcome help from employers in changing that, so please tell your employees about Tax-Free Childcare and how it can reduce their childcare costs.

Eligible parents can get up to £2,000 per child, per year to spend on qualifying childcare (effectively a 25% top up). Note that Tax-Free Childcare isn’t just for everyday childcare costs, such as childminders and nurseries, parents can also use it to pay towards the cost of: 

  • after school clubs
  • summer camps
  • school holiday activities

Further details can be found at:
https://www.gov.uk/tax-free-childcare

Using a PAYE settlement agreement to pay some of your employee’s tax

PAYE settlement agreements (PSAs) are arrangements under which an employer can settle the income tax and National Insurance liabilities on benefits in kind and expenses payments provided to employees and officeholders.

Setting up a PSA avoids passing on an unexpected, and potentially demotivating, tax charge to employees. Where a PSA has been agreed with HMRC, this will obviate the need for any reporting on the individual’s P11D.

The items that can be included in the PSA must meet one of three criteria: minor, irregular or impracticable to apply PAYE or apportion between the employees receiving the benefit.

Although reporting will eventually go online, applications for a PSA are currently made in writing to HMRC. The Revenue will then issue a P626 contract, which states that the employer will pay the tax and National Insurance liability on agreed benefits.

More complicated pension rules

Last month we highlighted the restricted annual pension allowance for those with high income, such as doctors. Note that the deadline for requesting for the additional tax to be paid out of the fund for 2017/18 is 31 July 2019.

There is a further complication for those individuals who have started drawing income from certain money purchase pension schemes. A new £4,000 limit introduced from 6 April 2017 restricts the amount that they can save in their pension and receive tax relief. Our concern is that many taxpayers may unwittingly trigger a tax charge due to this rule change.

New VAT rules for the construction sector

Under new rules due to come in on 1 October 2019 builders, sub-contractors and other trades associated with the construction industry will have to start using a new method of accounting for VAT.

Under the new rules, supplies of standard or reduced-rated building services between VAT-registered businesses in the supply chain will not be invoiced in the normal way. Under the reverse charge, a main contractor would account for the VAT on the services of any sub-contractor and the supplier does not invoice for VAT. The customer (main contractor) would then account for VAT on the net value of the supplier’s invoice and at the same time deduct that VAT from the payment to the sub-contractor.

This is intended to ensure that VAT is correctly accounted for on supplies by sub-contractors.

The new reverse charge will apply to a wide range of services in the building trade, primarily those activities covered by the construction industry (CIS) payment rules. Note that normal VAT invoices will continue to be issued to domestic customers.

Please contact us if you are likely to be affected by these changes and we can work with you to ensure you are ready for the new system.

Changes to reporting of residential property disposals

HMRC are imposing further regulations on landlords and second home owners.

From 6 April 2020 sales of residential property, whether in the UK or abroad, that are not an individual’s main home, need to be reported to HMRC within 30 days and, at the same time, a payment on account of the resulting Capital Gains Tax (CGT) is required. This is instead of a CGT due date of 31 January in the year following the end of the tax year in which a sale takes place, which is the current rule.

As HMRC are expected to impose late filing and late payment penalties for failure to meet the 30 day deadline, we will be asking our clients to notify us when properties are being marketed so that we can provide an indication of the potential CGT as well as providing us with the sale details as soon as completion has taken place, so that we can assist with the reporting to HMRC within the deadline.

In addition to the above changes, there are further restrictions to CGT relief on property sales coming in on 6 April 2020, namely restriction of private residence relief and lettings relief. These changes will affect sales of residential property, the contracts for which are exchanged on or after 6 April 2020, that have at some point been the taxpayer’s own home.

Please let your usual Humphrey & Co contact know if you require any further information or guidance on the above.

Scaling up your business

How do you scale up your business and take it to a new level?

A scale-up business is any firm that is looking to grow in terms of market access, revenues, and number of employees, adding value by identifying and realising new opportunities. 

Scale-up businesses are the engine of growth for the UK economy, creating wealth, opportunities and employment in a competitive environment.

Organic versus inorganic growth
Firms can scale up in one of two ways. They can focus on organic growth - growing gradually through increased sales and market share. Alternatively they can scale up through inorganic growth strategies such as through an acquisition or a merger with another business.

Commit to growth
Scaling up a business takes a huge amount of time and effort so you need to ensure that your management team is committed to growing the business. You and your team will need to create realistic growth targets and develop plans and concrete actions of how growth will be achieved.

Upskill your team
Your management team will have a given level of expertise. However, delivering a growth strategy may require an expanded skillset. Take the time to identify the skills required to realise your growth strategy. Do you have people with good management experience, an understanding of the relevant technology, good financial skills and a background in change management? If not, you will need to upskill your current team or hire in experienced professionals to help drive growth.

Collaborate
In order to scale up your business you will need to create partnerships with people and firms outside of your business. Consider your routes to market and identify potential service providers, sales channel partners, suppliers and key clients who you can work with in order to form alliances which will drive the growth of your business.

If you are focused on expanding into new markets, you will need to create collaborative business relationships with sales partners and suppliers in those countries, and may need to create formal agreements with these new business partners.

Exam Success

We are pleased to announce that Jon Robards has passed his exams to qualify as a Chartered Accountant (ACA).

Jon joined Humphrey & Co in 2014 qualifying as an Accounting Technician (AAT) the following year. He then went on to study for the ATT exams becoming a Tax Technician in 2016. Jon has now achieved his Chartered Accountancy qualification (ACA) and works in a variety of sectors within the firm including Personal Tax, Corporate Tax and Charities assisting Partner Paul Potter.

“I am delighted to qualify as a Chartered Accountant and I am grateful for the support provided by Humphrey & Co along the way. I look forward to using the qualification to provide the best possible service in assisting our clients with their accounting and tax needs” said Jon.

Senior Partner Anthony Smith comments “The partners are delighted that Jon has secured his ACA qualification, he is a real asset to the firm and we are confident he will use his new skills to help our clients both with compliance work and planning opportunities. We continue to invest in training for all our staff to ensure we can provide the best possible support and differentiate ourselves as accountants in an ever changing environment.”