May 2018

tax tips & finance e-newsletter

In this issue

Changes to termination payments
HMRC lose IR35 case
Taking a Lodger? Don’t forget to claim “Rent A Room” relief
CGT to be paid earlier on property disposals in 2020
GDPR is coming
Creating a disaster recovery plan for your business

Changes to termination payments

Care is always required when employees are made redundant or payments are made on the termination of employment. Not only are there employment law considerations, there are also important tax implications and this is an area where professional advice is strongly recommended to avoid unnecessary pitfalls. The tax treatment of these payments changed from 6 April 2018 and further changes come into effect in 2019.

Pay In Lieu of Notice

Employers now need to pay Income Tax and Class 1 National Insurance Contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments. The element that is now chargeable to Income Tax and NICs is the amount of the termination payment that represents payment in lieu of notice (PILON), sometimes referred to as “garden leave”.

Ex-gratia Payments

The first £30,000 of genuine ex-gratia continues to be exempt from income tax and national insurance. The £30,000 limit includes statutory redundancy payments. Payments in excess of £30,000 are taxed as employment but there is currently no NIC on such payments. It was originally proposed that employers’ NIC would be applied to such payments from 6 April 2018 but the delayed introduction of the National Insurance Contributions Bill means that employer NICs on termination payments above £30,000 will now take effect from 6 April 2019.

HMRC lose IR35 case

In the March e-news we reported the Tax Tribunal decision involving Christa Ackroyd Media Ltd, a company set up by a TV presenter to supply her services to the BBC, where it was held that the IR35 personal service company rules applied to the arrangements. In a recent case involving a night manager on a building site, another tribunal decided that the IR35 rules did not apply.

The facts of the recent case involve a Mr Daniels supplying his services via his company MDCM Ltd. These are entirely different from those in the Christa Ackroyd case but it indicates that the current rules are very unclear and open to interpretation by the courts.

For the IR35 rules to apply it must be inferred that under the hypothetical contract between “worker” and client that worker would be regarded as an employee if directly engaged. There are numerous factors taken into account, but the most important factor considered by the courts is the extent to which the “worker” is under the control of the client.

Please contact us if you wish to discuss whether these recent cases impact on your particular circumstances.

Taking a Lodger? Don’t forget to claim “Rent A Room” relief

HMRC are carrying out a review of rent a room relief to discover whether the scheme, introduced back in 1992 provides the right incentives for the rental market.

The current scheme exempts from tax, gross rents up to £7,500 where rooms within the taxpayer’s main residence are rented out.

Most accountants that responded to the call for evidence were keen for the relief to continue as it encourages taxpayers to let out spare rooms and provides them with additional income.

Note that where the gross rental income exceeds £7,500, say £12,000, the excess of £4,500 would be taxable. Alternatively the taxpayer may deduct costs of providing the living accommodation such as a proportion of mortgage interest and light and heat. If these allowable expenses amounted to £9,000 then it would be more appropriate to be taxed on the net rental profit of £3,000.

Note also that the current scheme only provides relief where the rooms let are in the taxpayer’s main residence and if the property is jointly owned, the relief would be £3,750 each. Where the lettings are in another property, the new £1,000 property allowance could be set against the gross rental income, however this allowance applies to each taxpayer.

CGT to be paid earlier on property disposals in 2020

HMRC are consulting on the mechanism for collecting Capital Gains Tax (CGT) on residential property disposals from April 2020, when the tax will be due within 30 days of completion.

This will be instead of the normal payment date of 31 January following the end of the tax year and is yet another attack on buy to let landlords!

GDPR is coming

The implementation date for the EU Data Protection Regulation (GDPR) is 25 May. Despite Brexit, UK businesses will need to comply.

In order to maintain business links with EU countries, the UK will need to create EU equivalent rules and regulations. GDPR is an example of this and must be complied with if businesses want to trade with the EU. The GDPR regulations are more favourable to consumers than businesses.

As personal information becomes more regularly shared and businesses now hold huge volumes of customer data, there is a need for management and control over what businesses can do with that information.

GDPR gives regulators the ability to apply large fines of up to 20m Euro or 4% of global annual turnover – whichever is higher, for non-compliance. As such, businesses need to take these new regulations seriously and will need to implement changes to the way they operate, depending on the type of personal data that they hold.   This will include customer records, databases, CRM systems, etc.

In addition, firms will need to ensure that they have appropriate policies and procedures in place with regard to any personal data that they hold or process.

It’s also worth reviewing supplier contracts to ensure that these contracts are GDPR compliant. Finally, your recruitment and HR policies and procedures should be reviewed to ensure that personal data is managed in a way that is compliant with GDPR.

There isn’t a lot of time left before GDPR comes into force. For businesses that haven’t yet prepared for GDPR, the best approach is probably to consider hiring an external consultant to advise the firm on getting up to date as quickly as possible.

Humphrey & Co have updated our data protection policies. We are currently emailing our contacts to opt-in to receive future marketing in line with the new GDPR requirements. If you would like to continue to receive our news updates please complete our opt-in form.

Creating a disaster recovery plan for your business

A disaster recovery plan is a documented process designed to help recover and protect a business and its infrastructure in the event of a disaster. It provides a clear plan of action to be taken before, during and after a disaster.

A disaster could be man-made or a natural occurrence. A disaster recovery plan is designed to allow your business to get back on its feet as quickly as possible. In terms of managing risks to your business, a disaster cannot be eliminated from your risk register. You cannot prevent a disaster from occurring but you can manage your business through it.

The first step in creating a disaster recovery plan is to make a list of all the office jobs / tasks that would have to be relocated to an alternate location so the business can continue to run. Identify the most critical roles and create a list of the areas that should be prioritised in order to ensure that the business can continue to run during a crisis.

The next step is to identify alternative office space. This could be a serviced office at a nearby location that can be up and running in a matter of hours. You don’t need to rent this space right now. Instead, you should just identify a number of alternatives that could be up and running quickly, if needed.

You should ensure that your firm has sufficient insurance and budget available to handle a disaster situation. For example, if your office was wiped out due to a fire, you would need to have a budget available to purchase necessary office equipment, computers, etc. to get your business back up and running as quickly as possible.

Most businesses are highly dependent on I.T. You should have your servers and systems backed up at a secondary data site. This data site should be accessible in a disaster situation so that your business can continue to function.

Finally, you should document a list of key personnel and their contact details. In the event of a disaster, they should be contacted in order to make alternative arrangements for the firm.