November 2019

tax tips & finance e-newsletter

In this issue

When will Budget day be now?

Apply for more time for MTD digital links

Government funding to help you prepare for customs changes

Keep details of your director’s loan account, and keep it in credit

Christmas gifts

Christmas is the time for giving

Tax Investigation Service

When will Budget day be now?

It was announced on 14 October that Sajid Javed’s first budget would be on 6 November but with a general election in December when will it be now?

The current political uncertainty makes it difficult to give clear tax advice as a number of key proposals in the draft Finance Bill scheduled to take effect from April 2020 might not now take place, due to the December general election.

The key tax measures “in limbo” until legislated in Finance Act 2020 are:

  • Extending the “off-payroll” working rules to the private sector
  • Restricting R&D repayable credit for SMEs
  • Limiting CGT private residence and lettings reliefs
  • The proposed 2% reduction in P11d car benefits

The “off-payroll” working rules will almost certainly proceed, even if not from 6 April 2020, and thus businesses and workers affected should prepare for the planned changes. Contact us if you need help in assessing the likely impact on your business.

Apply for more time for MTD digital links

For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) your accounting systems must use digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software. That is the end of the current 12 month “soft landing” extension.

Businesses with complex or legacy IT systems may require a longer period to put digital links in place. These businesses can apply to HMRC for additional time to put the required digital links in place. If your business qualifies then the additional time will be granted as a specific direction from HMRC.

If, for example, your company purchases another business it may take additional time to digitally link different software applications or packages to meet the MTD legal obligations. HMRC will consider an application to extend the digital link deadline longer than the “soft landing” period. That would mean the businesses would continue to be able to “cut and paste” during the extension period.

Government funding to help you prepare for customs changes

£16m in new government funding is now available to help businesses train staff in making customs declarations, and to help businesses who support others who trade goods to invest in IT.

This will ensure that trade with the EU continues as smoothly as possible after Brexit on 31 October. Grants can be used to support:

  1. training costs for businesses who complete customs declarations, or who intend to in the future
  2. funding for IT improvements, which is available to small and medium sized employers who are currently involved in trade as an intermediary

Keep details of your director’s loan account, and keep it in credit

In a recent Tax Tribunal case the judge agreed with HMRC that a detailed breakdown of directors loan account transactions is required, including dates.

The significance is that where the loan account is overdrawn (debit balance) there may be a possible P11d benefit on the director and also a tax charge on the company. A taxable benefit in kind would arise where the loan exceeds £10,000 and the interest paid is less than the HMRC official rate, currently 2.5%.

In addition, if the director is also a shareholder of a close company, there is a 32.5% tax charge payable by the company making the loan where the loan is still outstanding 9 months after the end of the accounting period.

Thus, you can see why HMRC may require a detailed analysis of transactions between the director and the company.

Note that where the loan is repaid to the company and a similar amount withdrawn within a 30 day period the tax legislation matches the repayment with the new “loan” and consequently the original loan would still be outstanding.

Christmas gifts

At this time of year, it is worth revisiting the tax rules surrounding Christmas gifts and parties:-

Client Christmas gifts

  • Businesses cannot claim a tax deduction for client entertaining (such as a meal or Christmas drinks for clients)
  • Where clients attend your Christmas party, the costs have to be apportioned between them and employees for tax purposes
  • Business gifts to clients are not normally allowed as a deduction against profits – they are treated in the same way as business entertaining.

There are exceptions:-

  1. Gifts of free samples of your products are 100% tax-deductible
  2. Gifts carrying your business advertising or branding are tax-deductible (e.g. mugs, diaries or pens), but only up to £50 per person per annum. However, gifts of food, drink, tobacco and vouchers receive no tax deduction.
  3. Christmas cards to clients and prospects are considered an office expense and are deductible, provided they carry a clear advertisement for the company sending them.
  4. VAT on client entertaining is not recoverable. You can reclaim the input VAT on gifts acquired for business purposes, which would include gifts for customers which meet the above conditions.

Staff Christmas gifts

A gift to an employee is tax-deductible provided that it is wholly and exclusively incurred for the purpose of your business. A seasonal gift is considered to pass this test. A gift made by an employer to an employee is not taxed as an employment benefit provided that it meets the criteria for being a trivial benefit. A trivial benefit is one that is non-contractual, costs £50 or less per employee, is not cash or a voucher, and is not for services performed. If the cost exceeds £50, the whole benefit is taxed, not just the excess.

HMRC have traditionally treated the following seasonal gifts as ‘trivial’ benefits:-

  1. A turkey
  2. A box of chocolates
  3. A bottle of ordinary wine

Staff Christmas parties

Provided the staff Christmas party meets certain rules, they are free of tax and National Insurance Contributions.

The party must be open to all employees and the cost to the employer must not exceed £150 per head (including VAT, taxis and overnight accommodation), this being the total cost of the party divided by the total number of people attending (including non-employees).

Where the cost is less than £150 per head, the unused element could be spent on another staff function (perhaps in the summer) – provided the annual aggregate spend does not exceed the £150 per head limit. If the limit is exceeded, you can choose the lower costing event as taxable.

Christmas is the time for giving

Those thinking about making gifts at Christmas should take advantage of the various inheritance tax (IHT) exemptions and reliefs available to them. Note that certain gifts can also have capital gains tax (CGT) implications.

The IHT annual exemption - use it or lose it!

Although not particularly generous at £3,000 per donor per annum if this annual IHT exemption is not used by 5 April it is lost, although it is possible to carry the allowance forward one year if unused. This means that if the annual allowance for 2018/19 was not used an individual may make gifts of up to £6,000 in 2019/20.

Where the gifts to individuals exceed the annual exemption there may still be no inheritance tax to pay if they survive for 7 years following the gift or the gift falls within the £325,000 nil rate band.

Gifts out of income are not taken into account for IHT

A more generous inheritance tax exemption applies where the donor can prove that he or she is not transferring capital but is making gifts out of their income. There are detailed conditions for this exemption to apply requiring records to be kept of income and expenditure in order to prove that there is sufficient surplus income each year to make regular gifts to the beneficiaries. We can of course assist you in keeping the necessary records to satisfy HMRC.

Certain gifts can have capital gains tax consequences

Although there will be no CGT on gifts of cash there may be CGT to pay where the gift comprises shares or other assets. This is because the transaction will generally be deemed to take place at market value between connected persons even though no money changes hands.

The amount of the gain would normally be determined by comparing the market value with the original cost of the asset gifted. Where the amount of this gain is within the annual CGT allowance (currently £12.000) then there would be no CGT payable.

Where the gift comprises shares in a trading company or other business assets it may be possible for donor and recipient to sign an election to hold over the gain so that no CGT is payable by the donor at the time of the gift. This can also apply where assets are gifted into a trust. The effect of such an election is that the recipient of the asset will take over the donor’s original cost for subsequent disposal.

Please get in touch with us if you are considering making gifts of shares or other assets so that we can advise you fully of all the tax implications.

Tax Investigation Service

Time consuming and expensive HMRC tax investigations are on the increase, any individual or organisation is at risk of an investigation even if you have done nothing wrong.

Humphrey & Co has offered a Tax Investigation Service (TIS) to our clients for several years now, and we invite all our clients to share in the protection offered. Tax investigations can be costly. Investing a small amount into our tax investigation service now means that you will receive complete support if HMRC targets you.

We believe that we know you and your business best and we want to be there for you when you need us most. We will manage your case from start to finish, reducing stress and providing peace of mind.

Please visit our website for further information on the Tax Investigation Service and how it can protect you.