This is a round-up of questions that have been raised by clients over the past few weeks. They are being posted here for general information, but please see the disclaimer at the end!!!
Meals provided for employees
Q: I own a gift shop and we are now opening longer hours in the run up to Christmas. On certain days this means opening late at night and we are now opening on Sundays too. I need my staff to do additional hours during this busy period and want to pay for their meals when they are working longer hours than usual. If I do this, will they have to pay tax on the cost of me providing the meals?
A: If you offer free or subsidised meals at your business premises for your staff, this can be done free of tax and National Insurance, but only if the offer is made to all employees, including directors and part-time workers. If the offer is only made to certain employees, the exemption does not apply and then the cost of every meal represents a chargeable benefit in kind. This must then be reported on the employer year end P11D forms, and tax and National Insurance would be due on the cost of providing the food and drink.
It is important to note that the offer has to be available for all employees, but if any staff decline the offer, it does not mean that the exemption is lost. The meals do not have to be given to all employees at the same time, they just all need to have the opportunity to take them. You should therefore consider the different working patterns of your staff and perhaps offer the meals at various times on different days of the week to ensure that all staff are included.
If the meals do not qualify for the exemption, you could, as the employer, offer to settle the tax and national insurance liabilities on behalf of the staff, however this would increase the cost to you considerably.
Increase in VAT standard rate
Q: I know that the standard rate of VAT is due to increase in January 2011, but can you tell me how this will affect my business?
A: The standard rate of VAT will increase from 17.5% to 20% with effect from 4 January 2011. The way in which this will affect your business will depend on whether you are a cash or invoice business.
If you have a cash business, the new rate of 20% will apply to the takings you receive on or after 4 January 2011 and you should ensure that your pricing and any electronic till systems are updated to cope with this. For any sales made prior to that date, the current rate of 17.5% will continue to apply.
If you are raising invoices, the new rate should be shown on all invoices raised on or after 4 January 2011 providing that they are being raised within 14 days of the goods or services being provided. On the other hand, if you raise an invoice after the new rate has been introduced which relates to goods or services that were provided before 4 January 2011, you can apply the current rate of 17.5%. This would probably only be necessary where you are supplying a non-VAT registered customer though, as a VAT registered business could just reclaim the higher amount on their next VAT return.
It is important to remember that if you raise a credit note on or after 4 January next year, you must apply the VAT rate that was in force at the time when the original invoice was issued.
Q: I have been self-employed for a few years and due to the success of my business, I am now considering incorporating so I can trade through a limited company. I have used my current trading name since I first started and want to use the same name for my limited company. Will I be able to do this and can I protect the business name?
A: One way of partly protecting the name is to set up a dormant limited company, which you can trade through at a later date when you decide to incorporate your business. Although you would not be using the company to run your business at first, it would still be subject to the same filing requirements with regard to an annual return and accounts, but would be classed as dormant if no trading transactions have taken place.
Simplified dormant company accounts must be submitted to Companies House each year, and HM Revenue and Customs should also be informed of the company’s dormant status.
Once you decide to bring your business into the dormant company, all the assets and trade should be transferred in and Companies House and HMRC must be notified of the change in status for the company. Form CT41G (new company details) should be completed and filed with HMRC in order that notices to file corporation tax returns can be issued.
If at some point during the company’s life trade ceases for any reason, the company may be put back into a dormant state to avoid the need for full accounts and tax returns to be submitted to HMRC; however abbreviated accounts would still be required by Companies House.
It is important to remember that the timing of an incorporation, or indeed cessation of a business can be crucial from a tax point of view and therefore it is a good idea to seek professional advice before you stop or start trading, in order that it can be managed in the most tax efficient way. If you would like to discuss this, please contact us and we will be happy to speak about the circumstances that may apply to your business.
Gift aid relief on one off donations
Q: I will be attending a number of fund raising functions over the festive season. I know that I get tax relief on the regular charitable donations I make under the gift aid scheme, but what about one off donations I make and items purchased in auctions at such events?
A: One off donations do qualify for tax relief, providing that the guidelines set out for gift aid relief are followed. For the charity to claim tax relief under gift aid, you must provide personal details including your name and address and confirm that you are a taxpayer. This entitles the charity to treat your donation as being made net of basic rate tax and the charity then reclaims the calculated amount of basic rate tax. In addition, if the donor is a higher rate taxpayer, they can claim higher rate tax relief on the amount donated.
The payment for an item at a charity auction is not officially a gift to charity, but HM Revenue & Customs do recognise that people may intentionally pay more than an item is worth, in order to support the charity. The Revenue will therefore treat such payments as donations qualifying for tax relief under the gift aid scheme, providing that the other rules of the scheme are met and the benefits don’t exceed certain limits.
To calculate how much can be considered as a qualifying donation for gift aid relief, you need to consider if the item is commercially available. Where you can buy the item, the amount over and above the retail price is considered to qualify for gift aid. When it is not available, for example an item that is signed by a particular celebrity, the value of the item auctioned is the price paid by the successful bidder. A bidder is likely to be prepared to pay more for such an item because it is unique.
Where an individual purchases a number of different items at charitable auctions, each item must be considered separately as the treatment could differ for each item purchased. It is therefore advisable to seek professional advice in order that the correct relief is claimed.
Corporate gym membership
Q: I would like to treat my staff with a bonus this Christmas and was considering a corporate gym membership at a local health club. Will my staff have to pay any tax or National Insurance on the amount I pay for their membership?
A: If you provide your staff with access to sporting or recreational facilities, this can be a tax free benefit in kind for the employees providing that certain conditions are met, although gym membership is unlikely to qualify.
The facilities must be available for use by all of your firm’s employees and must not be available to the general public. The facilities do not have to be used exclusively by your firm’s employees though, so if you jointly offer the facility with another firm and their employees use the facilities too, the membership is still tax free.
The cost of the membership is not tax free where the facilities are open to the public, or based at a private residence or holiday accommodation, or where the membership provides you with use of a vehicle (which includes boats and aircraft).
You may wish to consider securing preferential rates at your local health club or gym rather than offering to meet the full cost of the membership, as the provision of the membership will be a taxable benefit in kind and your staff will be taxed on the amount you pay on their behalf.
Category: PAYE, NIC & Benefits In Kind
Going to work on a ship
Q: Unfortunately I had to close my restaurant earlier this year due to the recession. After several months of looking for work, I have just got a new job working on a ship. A friend told me that if I work overseas, I will not have to pay tax on my earnings, is that correct please?
A: There are special rules for employees who are classified as seafarers and providing that certain conditions are met, it may be possible to claim the seafarers’ earnings deduction.
In order to qualify, you must be working under a contract of employment as the rules do not apply to self-employed individuals. You must be working on a ship – oil rigs and offshore installations do not qualify, but cruise liners, tankers and passenger vessels do qualify as ships for this relief. The other main condition is that you must be working wholly or partly abroad – this means outside UK territorial waters.
You must have a qualifying period of at least 365 days in order to be eligible to claim the relief and you must spend more than fifty percent of that time outside the UK for that period. Days of departure from and return to the UK must be recorded and any documentation to support those dates should be retained. You must record all ports of call for each voyage, as well as details of each ship you work on.
Claims must be made on a self assessment tax return each year and there are special sections that must be completed in order to claim the relief. Providing that a qualifying claim is made, the earnings during that qualifying period are not subject to tax in the UK.
This is a complex area of legislation and you should seek advice about your own personal circumstances to ascertain whether or not you will be eligible for the relief.
National Insurance Contributions for the self-employed
Q: I recently applied for a state pension forecast and have had a response showing that I have already contributed enough to get my state pension. Does this mean that I can stop paying National Insurance on my self-employed earnings?
A: Unfortunately, just because you have contributed enough National Insurance to qualify for your state pension, this does not mean that you can stop paying National insurance if you have not yet reached pensionable age.
There are two classes of National Insurance that are applicable to self-employed individuals, Class II which is sometimes called the ‘weekly stamp’ and Class IV which is levied on profits if they exceed a certain amount.
Class II National Insurance Contributions must be paid until the earlier of the date on which you cease to trade, or the day on which you reach the qualifying age for state pension. For those individuals who have a low income, it is possible to apply for a small earnings exemption from Class II.
Class IV National Insurance Contributions are computed according to the net profit each year on your self assessment tax return. The final liability for Class IV Contributions falls in the tax year you cease to trade, or the year you reach the qualifying age for state pension.
National Insurance is a complex area of legislation, particularly for individuals who are required to pay more than one class. If you have any queries concerning your liability to pay National Insurance, please consult us.
Disclaimer – advice shared in this column is intended to inform rather than advise. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.