Doctor, Doctor Tell Me The News…..

DoctorWho is responsible for deciding on IR35 status in the NHS? And what are the implications of the new rules introduced in April 2017? You might like to carry out a health check on your approach to locum staff, Robert Woolley of HPH Accountants LLP explains.

IR35 has always been a thorny and complex issue and it’s being scrutinised again in the National Health Service in the light of changes which took effect at the start of the 2017-8 tax year.

These regulations are essentially there to ensure that individuals who provide services through an intermediary pay the correct amount of tax. Immediately we are confronted with the question of who is genuinely self-employed and who might be deemed, in fact, to be an employee.

In the NHS, where there is a great deal of use of ‘locum’ staff, the whole issue is high profile.

Now, it’s no longer the responsibility of the intermediary to make a judgement about the application of IR35, but rather the ‘public authority’ itself. Where the rule does apply, it’s the responsibility of the ‘fee-paying’ NHS body to deduct tax and NI at source.

Originally, the advice from NHS Improvement had therefore been for health service managers to put agency, bank and locum staff on the payroll along with PAYE employees. It has become clear, however, that the Revenue expects decisions to be made on a case-by-case basis rather than in a blanket way.

According to their instructions to colleagues, any adjudication on an individual’s status must be done ‘fairly, accurately and take into account all relevant factors, including representations which may be provided by the individual.’

Thankfully, there’s a simple online tool (www.gov.uk/guidance/check-employment-status-for-tax) provided by HMRC which helps to decide on an individual’s status, although there may also be a case for taking professional advice where any complexities arise.

If you require any assistance with employment status issues don’t hesitate to contact the HPH team.

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The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

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To VAT, Or Not To VAT – That Is The Question?

Exploration vehicleHMRC is looking closely at the VAT charged in certain industries, writes Robert Woolley of HPH Accountants LLP. And it could lead to significant VAT cost, including penalties.

For many businesses providing services, the rules around charging VAT are pretty straightforward. If you’re unsure as to whether VAT is chargeable, most companies in the past have erred on the side of caution and added the sales tax to their bill. After all, their customer will simply claim it back in the input column of their regular VAT return.

Recently, however, we’ve noticed HMRC challenging input VAT where they claim it should never have been charged.  In the best case scenario, this can require obtaining a credit note from the supplier, causing unnecessary inconvenience.  However, in the worst case, the supplier may no longer be in business meaning there is no scope to obtain a refund of the VAT incorrectly paid and, in certain circumstances, it can also lead to potential penalties.

The oil and gas sector produces a number of complexities around the place of supply of service.  For example, someone in York might be working for another company based in the UK, but remotely monitoring geological activities in, say, the Caspian Sea. This means that there is room for interpretation over issues such as land-related services and place of supply.

Another market in which complications arise is the construction industry in areas such as relief for new builds. Again, we see push back from HMRC over interpretations of when VAT is chargeable and when it’s not.

Of course, it’s possible to make honest mistakes with your VAT and it may be that you’re in the kind of business where you can only make a decision about charging on a case-by-case, invoice-by-invoice basis. Some forward-thinking accountancy firms are providing straightforward tools to help you, whether you are the supplier or the recipient, make a choice which avoids falling foul of HMRC. If you’re up front about any errors, it will cost you less in penalties than if the Revenue uncovers the discrepancy themselves.

Back to main website: http://www.hphonline.co.uk/

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

HOW TO AVOID A POST-PARTY HANGOVER

Party CelebrationWhen the pre-occupation with Political Parties has receded after the General Election on 8 June your thoughts may turn to having fun either to celebrate or banish the blues; Robert Woolley of HPH Accountants LLP takes a look at the tax implications of holding a summer bash at your workplace.

If you’re looking to plan a party for your employees, it’s worth bearing in mind the potential tax implications. The good news is that, unlike entertaining customers, the costs of entertaining employees are generally allowable against the profits of the business.

But what about the consequences for the employees themselves? Will they have to pay tax on the benefit?

The general rule is that as long as the total costs of all employee annual functions in a tax year are less than £150 per head (VAT inclusive), there will be no tax implications for the employees themselves. In considering this limit, it is necessary to include all the costs of an event including any food, drinks, entertainment, transport and accommodation that you provide.

If the total costs are above the limit of £150, the employee will have to pay tax on the full cost of the benefit. In that scenario, it should be reported on each employee’s P11D or, alternatively, you may choose to enter into a PAYE Settlement Agreement with HMRC to cover the tax.

It is also worth noting that a new exemption in relation to employee entertainment was introduced on 6th April 2016.  From this date, a benefit provided by an employer to an employee was made exempt from tax and need not be reported to HMRC on a P11D if all of the following conditions are satisfied:

  • The cost of providing the benefit does not exceed £50;
  • The benefit is not cash or cash vouchers;
  • The employee is not entitled to the benefit as part of any contractual obligation; and

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family), the exemption is capped at a total of £300 in the tax year.

Example

A company holds two annual functions open to all its employees in the tax year – a Summer party and a Christmas party.

The total costs of the Summer party, including transport and accommodation, are £10,000 including VAT. The total number of attendees was 100, so the cost per head was therefore £100.

The Christmas party cost £8,000 including VAT, and 100 people attended this. The cost per head is therefore £80.

The total cost per head for both functions is £180, so they cannot both qualify for an exemption. As the cost per head of each party is not more than £150, either event can qualify on its own, however it is more beneficial overall for the costlier Summer party to be exempted.

If an employee attends both events, they will be taxed only on the benefit of £80 for the Christmas party. If they only attend the Summer party, there will be no taxable benefit because that event is exempt. If they only attend the Christmas party, they will be taxed on the benefit of £80.

Both functions would be taxable if the average cost per head of each of the events exceeded £150. This limit is not an allowance to be set against an amount that exceeds that figure.

It’s worth talking to your accountant if you have any concerns about the tax implications of the summer party season ahead. That way, everyone can enjoy the event without a financial hangover.

Back to main website: http://www.hphonline.co.uk/

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

Is the snap election a taxation Godsend?

Ballot Box

The Government is rushing through the Finance Bill 2017 with only four hours of debate, due to the decision to hold a General Election. How has the limited timeframe affected the legislation?

Ian Humphries of HPH Accountants LLP highlights some of the provisions that have been dropped.

You may have heard about HMRC’s attempt to make the filing of tax information and returns more efficient under the banner of ‘Making Tax Digital’ or MTD. The idea is that by uploading income and expenditure via cloud-based software or apps, the submission of information would become faster and easier.

The initiative, however, has now been subject to delay. Initially scheduled to affect large businesses from April 2018 and the self-employed and landlords, with income in excess of £10,000, from April 2019, the plans have now been put off for at least a year.  The introduction of MTD has been controversial and the delay may allow HMRC to consider the likely consequences.

Many taxpayers would have been disappointed by the recent Budget announcement of the reduction in the dividend allowance from £5,000 to £2,000, which was due to take effect from 6 April 2018. This would have reduced the potential tax-free income to £14,500 and given some tax payers an additional bill of £150. However, lack of time to debate this in the Finance Act has meant that the £5,000 allowance has been retained.

Also disappearing are the-tax free trading and rental allowances for those self-employed individuals and landlords whose total income is less than £1,000. Had these measures been passed, then they would have taken out of tax those individuals who, for example, trade on eBay or householders who let out their drives.

Since April 2015, the Money Purchase Annual Allowance (MPAA) – an annual allowance of £10,000 in respect of money purchase pension contributions – has applied to individuals who have flexibly accessed their pension benefits. Its introduction was to ensure there are no potential recycling issues, with individuals claiming further tax relief on any new contributions made, having just accessed pension benefits under the new flexible arrangements. It was intended to reduce this allowance to £4,000, but that proposal has been scrapped.

Legislation that would have seen IHT chargeable on all UK property, regardless of ownership structure and affecting all non -UK domiciled individuals, has also avoided ending up on the statute book.

If you’re celebrating at any of delays described above, it’s likely that your elation will be short-lived. You should be prepared for some – or all – of these provisions to re-appear in future legislation.

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The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

MTD – do the noughts and ones add up?

DigitalRichard Clarkson of HPH Accountants LLP has been closely involved in discussions of the government’s plans to digitise the tax reporting system.

Here he gives his own perspective on a number of the questions accountants and their clients are asking.

Is the whole ‘Making Tax Digital’ (MTD) project actually going ahead?

Yes. A number of related consultations were launched in November last year, but it’s pretty clear the plans will proceed, albeit with a few fairly minor concessions. We were hoping to get the final shape of it in the 2017 Finance Bill. However, this is light on detail and it is clear that a lot of the rules are going to be made by regulations, which will minimise parliamentary scrutiny.

The plans are controversial, aren’t they?

Again, yes. The Treasury Select Committee, chaired by Andrew Tyrie MP, supports the principle of digitisation. At the same time, they’ve gone through the proposals in forensic detail, taken evidence from a variety of people including the Federation of Small Businesses, and concluded that a year’s lead time for the project just isn’t enough. At the moment, their feeling is the supposed benefits just aren’t proven. They recommend pilot schemes to see how the idea works in practice.

What will the new regime actually mean for businesses?

Effectively, you’ll be making five tax returns a year. HMRC doesn’t see it that way, but you’re going to be expected to report quarterly on your income, expenditure and taxable profit. If that’s not a tax return, then what is? You can paint stripes on a horse, but that doesn’t make it a zebra!

You’ll then have to put in a further return at the end of the year, making corrections as appropriate to your earlier submissions. You will need software to upload the relevant data to the Revenue.

Will smaller businesses be able to cope?

That’s a good question. HMRC assumes that everyone will use business software and it will be a straightforward data dump. But a lot of small businesses don’t have the correct level of sophistication. Can their software deal with debtors and creditors, for instance? With stock and work in progress? We’ve been told that it will be possible for very small companies to submit three-line accounts – their turnover, expenses and profit. But if that’s it, there does really seem little point to the whole exercise.

Are there any exemptions?

Practically none. Your turnover would have to be lower than £10,000 per annum to stay outside the new digital system.

Could it be that we’ll have to pay tax quarterly?

For the moment, the answer is no, although many people have speculated that this may be the long-term goal of the government.

What are the cost implications for business?

It seems very likely that larger accountancy bills will become the norm. And although there’s some suggestion that companies may be able to continue using Excel spreadsheets with some kind of technological bolt-on, the chances are you’ll need some new software. The government is trying to persuade developers to offer this for free, but whether that comes to fruition remains to be seen. There is bound to be expense in setting the new system up, training people in its use and so on.

Back to main website: http://www.hphonline.co.uk/

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

Is The VAT Flat Rate About To Fall Flat?

vatRobert Woolley of HPH Accountants LLP explains that VAT regulations are set to change at the beginning of April 2017. The new regime may effectively spell the end of the flat-rate VAT scheme for many small businesses.

For a number of years now, many businesses with a turnover of less than £150,000 have opted to make use of the flat-rate VAT scheme.

Rather than balance the VAT charged on sales with the VAT incurred through purchases, businesses are given a percentage figure to apply to the gross sales over a three-month period. This rate will depend on the industry the business is in and can vary quite considerably.

In compensation for the beneficial repayment rate, businesses are not allowed to claim back VAT they have been charged, the only exception being capital items costing above £2,000.

In December 2016, the government entered into consultation on the flat-rate VAT scheme which makes it much less attractive to many small businesses.

Originally, it was effectively possible for small businesses to gain from the charging of VAT, by retaining a proportion of the money collected as taxable profit. HMRC seems determined to close off what is now seen as a loophole, but which may have been presented originally as a benefit to encourage registration and growth rather than supressing sales to stay below the VAT threshold.

From 1st April 2017, a large proportion of businesses on the flat-rate scheme will have to apply the figure of 16.5% to their gross sales.

So with £100,000 in sales and £20,000 in VAT on top, charged out to customers, the payback rate becomes £19,800. As a result, many small business owners currently on the flat-rate scheme may choose to opt out and record VAT in the traditional way.

There is, however, one way in which a business can stay on the flat-rate scheme and retain its more favourable terms. That is if they can prove they are not a ‘limited cost trader’.

The definition of the limited cost status is that the expenditure on goods is less than 2% of the VAT-inclusive turnover. In some circumstances, it may be more than 2% but less than £1,000 per annum.

The issue giving accountants sleepless nights is over the precise definition of goods. We know that it excludes capital expenditure, food and drink and any type of vehicle maintenance or fuel (unless you’re running a taxi service).

Where things become more complex would be, for instance, over the purchase of something like a software subscription. It seems that if the software is bespoke to your business, it will probably count as a service not goods.

It’s these kinds of assessments that small businesses will need to make and it’s important to take professional advice, as the situation is still fluid and everyone is racing to interpret what exactly the new regime will mean.

HMRC will be writing to all affected companies in due course, but given the short time frame, it is well worth starting now a conversation with us at HPH to be prepared for 1st April.

Back to main website: http://www.hphonline.co.uk/

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

In Good Company?

sole-trader-limited-companyChanges in legislation make the choice of operating as an unincorporated business (sole trader or partnership) or incorporated business (limited company) more complex today, argues Paul Hudson, Tax Manager at HPH Accountants LLP and puts forward some points to consider.

If you’re setting up a business for the first time, one of the key choices you’ll make is over how you choose to structure it.

The simplest option is often to become a sole trader or, if there are two or more individuals in business together, a partnership. Many businesses start life in this way.

Alternatively, some might set-up in business as a limited company, appointing themselves as company director.

There is no right or wrong answer here, but the way in which a business is structured will probably depend on a number of factors including possibly the business owners’ personal circumstances and the likely profits of the business.

It’s worth remembering that the Taxes Acts and the Companies Act are vast and complex, which means it’s important to get support from those who have knowledge and experience of the rules.

Limited liability

If you are a sole trader, you do not benefit from ‘limited liability’ and as a result are potentially at risk of losing your own personal assets if the business fails. A company is a separate legal entity and therefore it is possible for the business owner(s) to benefit from ‘limited liability’.

Administration and formalities

If you run an unincorporated business, you prepare annual business accounts and a Self-Assessment tax return. The accounts are not filed at HM Revenue & Customs or Companies House, although some of the information contained within the accounts is declared on the tax return.

If you run a limited company, you are required to prepare accounts in a specific Companies Act format. Company accounts are filed at HM Revenue & Customs and at Companies House. You need to observe certain formalities before taking profits from a company, including the necessary recording of board meetings. It’s possible to pay salaries and bonuses, provided the company operates a payroll scheme.

Rates of tax and national insurance contributions

As an unincorporated business owner, your tax and national insurance contributions on profit are at rates of 20% (basic rate), 40% (higher rate) and 45% (additional rate).

In addition, class 4 national insurance contributions are due on profits falling between £8,060 and £43,000 at 9% and 2% on profit over £43,000. Class 2 national insurance contributions of £145.60 pa are due if profits exceed £5,965.

Regardless of the value of the amount you draw, tax and national insurance contributions are due on the taxable profit of the business.

As a company owner, you are able to control the level of income on which you pay tax by drawing only the level of income required to fund your lifestyle. Depending on circumstances, it is also possible to control the type of income on which you pay tax by voting yourself a tax-efficient remuneration package.

Companies are currently subject to corporation tax at 20%.

Should I review my existing business structure?

The Finance Act 2015 introduced major changes to the way in which business owners are taxed on profits extracted from a company – in particular by way of dividend. These included:

• the abolition of the notional 10% tax credit on dividends;
• a new £5,000 tax-free dividend allowance;
• and a new rate of taxation on dividends of 7.5% (basic rate taxpayers).

For most small business owners the result of these changes will be an increase in taxation.

In light of the changes introduced in the Finance Act 2015, business owners should consider whether the vehicle through which they trade is still appropriate for them and, if trading as a company, whether they are extracting profits in the most tax efficient manner. That’s why, whether you’re just setting up or already in business, it is always worth having a discussion with us at HPH about the most appropriate option for you.

Back to main website: http://www.hphonline.co.uk/

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.