Frequently Asked Questions


Expenses

A trivial benefit has to satisfy the following conditions in order to qualify for the trivial benefits in kind exemption:

• no more than £50 per benefit
• not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed).
• there is a limit on the total trivial benefits exemption of £300 per tax year per director (or officeholder).

The exemption also applies to family or household members, so, if there is a function where partners are invited, then each employee’s partner can share the £50 trivial benefit for the particular event. Similarly, where a director has the £300 per year limit, any benefits provided to their family or household members are also included within this limit.

If the individual benefit exceeds £50 (or an average of £50 per head), the whole amount then comes taxable as a benefit in kind, not just the excess over £50.

Examples:

Allowable

• Taking a group of employees out for a meal to celebrate a birthday
• Buying each employee a Christmas present
• Flowers on the birth of a new baby
• A summer garden party for employees

Not allowed

• Providing a working lunch for employees (because this is related to their employment)
• Gifts, incentives or events related to performance targets or results
• Gifts, incentives or events in relation to employment services e.g. team-building events
• Taxis when employees work late

Recap

The new HMRC exemption introduced in April 2016 confirmed that businesses will not have to pay tax and NIC on paid or reimbursed travel and subsistence expenses payments or put them on a P11D. In other words, the introduction of the new exemption places the onus on employers to determine whether employee expenses are fully deductible for tax purposes.

Conditions

An employer should consider:-

• setting out a corporate policy of which type of expenses are reimbursable and the need for those expenses to be reasonable
• requiring the completion of a standard expense claim form
• the need for any expense claim to be supported by a receipt
• making checks and authorising expense claims

The employer should also consider scale rates

Scale rates can be used instead of actual expenses and are generally for travel and subsistence and consist of round sum allowable amounts for specific circumstances.

Benchmark rates

Benchmark rates are a set of maximum reimbursement rates for meals. These round sum amounts have now been included in Regulations and can be used by employers for payment or reimbursement of employees expenses where relevant qualifying conditions are met. These rates apply only if the employee incurs expenditure in the course of ‘qualifying business travel’. One meal allowance per day and the amount of which does not exceed:-

• Up to £5 can be claimed where the director/employee leaves home earlier than usual (and before 6am) and has incurred the cost of breakfast taken away from home (irregular early starters only)
• Up to £5 may be claimed every day, where the director/employee has been away from home for a period of at least five hours and has incurred the cost of a meal
• Up to £10 may be claimed every day, where the director/employee has been away from home for a period of at least ten hours and has incurred the cost of several meals.
• Up to £15 may be claimed every day, where the director/employee has to work later than usual (finishing work after 8pm having worked a normal day), and therefore is assumed to have needed to buy a meal (irregular late finishers only)

Conditions for using benchmark rates

Employers must have a checking system in place if benchmark rates are used to ensure that the employee is incurring and paying amounts in respect of expenses of the same kind and that tax relief would be allowed.

This can incorporate accounting fees/legal fees/other external contractor fees. These are all allowable if they are for business purposes.

These are all allowable expenses for the business.

If this is claimed as a company cost, HMRC classes this as a benefit in kind. It is then taxable and will appear on the P11d. This policy includes personal trainers.

Costs of software licences, maintenance and support, used wholly and exclusively for the business, are allowable.

Capital allowances can be claimed when disposing of fixed assets.

Profit and loss can be used mainly when an asset is disposed of, i.e. passed from the business to someone else. If the value of the asset is greater than the value held in the company’s books at that time then this is the “profit on disposal”.

Client entertainment is not an allowable expense. Examples of expenses that are considered to be business entertainment and therefore not allowable; food and drink, sporting or concert tickets, nightclubs, etc. Additionally, use of capital assets such as yachts or speedboats for entertaining.

Invoices raised in good faith can be written off if it transpires that the customer can’t or won’t pay. The VAT on the bad debt can then be reclaimed only after 6 months after the invoice date. A provision for bad debt can be made in the company year end accounts.

This policy is not to be mistaken for raising a credit note. Credit notes are raised for a number of reasons but mainly because the original invoice is incorrect, not because the debt has gone bad.

For more information please get in touch.

Donations must always be made to a recognised charity. Rodliffe Accounting may ask for documentary evidence of the donations when the annual accounts are produced. The donation deducted against profit cannot put the business into a loss making position for tax purposes.

Note – If you are a high rate tax payer then it is more beneficial to pay this out of your own pocket because gift aid can then be claimed.

Depreciation is calculated each month based on the amount of fixed assets. Depreciation is an accounting adjustment to take into account the “useful life” of the asset and spread it’s value over time. This has the effect of creating an even charge on your profit and loss account throughout the year.

For Corporation Tax purposes depreciation is ignored and instead capital allowances are used. Over time the depreciation and capital allowance add up to the same amount but because of HMRC rules there can be timing differences between the two, which means the profit for accounting purposes and the profit for tax purposes will not always be the same.

Staff entertainment is a fully allowable expense as long as it meets the following criteria:

  1. Open to all employees
  2. Total cost per attendee is no more than £150 per tax year
  3. An annual event

The total cost can be applied to multiple events within a given tax year, so long as they meet the other criteria. All VAT, transport and accommodation costs must be included when calculating the total cost.

It would be reasonable to assume that a business with one Director (and partner) would normally hold staff entertainment in the form of an office party and probably invite on average 2 other guests. Guests can be staff and relations of staff.

Although it is not specified in law just how many people can attend it is our view that an amount of £300 – £600 per annum for staff entertainment in total is reasonable if you are a sole director/shareholder company. For example, if your total turnover is around £50,000 then £300 is reasonable in our opinion, ie 2 guests. However, if your turnover is higher, then we think £600 (4 guests) is very reasonable.

Also, these are claims for specific parties and company celebrations, not regular monthly costs.

You should keep a record of the overall cost of the party/event and keep a record of who attended.

Keep receipts and make sure you don’t go over the £150 per person. If you do exceed this amount then the whole amount is taxable, not just the portion over £150!

You are able to claim the full cost of computer components below £500, for example, computer parts, printers, fax, mouse, keyboard, etc. as long as they are wholly and exclusively for business purposes.

Anything above £500 could be a fixed asset, in which case your account manager will need a copy of the invoice or details of; the asset, cost, type, date, etc.

If you purchase different components, that are effectively all one asset, that all appear on one bill for more than £500, then this could be classed as one fixed asset. For example, if you buy a monitor, keyboard, mouse, extra memory, cables, etc.. then this could be considered as one workstation and therefore one asset.

The general rule is that where you are employed on a contract you may claim travel expenses until you are aware that the length of the contract, from the date it first started, will be for 24 months or more. It is not the point at which you have worked at the temporary place for 24 months that is relevant, but the time when an expectation that you will work there for 24 months (or more) first arises that is critical.

Once you become aware that you will be working at a temporary place of work for 24 months or more then, from that point in time, it is considered to be a permanent place of work and consequently travel is considered by HMRC as ordinary commuting.

When engaging on a new contract with an unrelated client, HMRC operates a restriction as to what is considered a change in the temporary place of work. They do not necessarily view a change in the contracting company’s client to be a conclusive change in travel to a new temporary place of work. This is most simply explained by remembering that you are employed by a Limited Company and if 2 clients are situated close to each other with similar journeys required to travel to the sites then essentially the location of your place of work is to all intents and purposes identical. It is important to remember that you are working for the same company even though the end clients may not be connected. Conversely, 2 successive contracts of 12 months with the same business but in different parts of the country will always be seen as travel to a temporary workplace.

It is important to be aware that contracts which span a break of a few months may be viewed as continuous for the purposes of ascertaining whether there is a permanent place of work where the nature of the subsequent contract may be considered to be an extension of the previous.

Where an employee spends less than 40% of their time at a place of work it can never be considered as a permanent work place and travel will always be allowable.

Introduction

A company is not obliged to distribute all or indeed part of its profits. Instead, the company can retain its profits for future investment in the business. If the company decides to distribute its profits then the most common way is by dividend. These profits are distributed to its shareholders who will normally hold ordinary shares, although, there are other types of shares, eg. preference shares.

Frequency of dividends

We advise our clients to take a final and an interim dividend like most limited companies. This will be typically 2 dividends per year ( 4 dividends at most ). However, if you are a small business rather than a contractor then it is possible to take dividends more regularly.

The directors can only declare a dividend if there are sufficient profits in the business. A director is in breach of his/her statutory requirement to the business if they authorise a dividend where there is insufficient profits.

Available Profit

Dividends can be paid from retained profits and or from profits in the current financial year. Retained profits are the accumulation of previous years profits brought forward.

Timing of dividends

The payment of a dividend to a director is recognised when the payment is “made available”. For example, if a dividend is recorded in the company accounts in March and the funds transferred to the directors current account then the “made available” date will be March even if the funds are transferred in April.

Dividends paid or proposed in relation to share holdings

Dividends should be paid and proposed in direct proportion to the shares held. For example, if a client has 2 shares and his partner 1 share then the dividend paid to him will be twice the dividend to his partner.

If a dividend is paid part way through the year after a further allotment of shares then the dividend payable can be made in line with the new holdings.

Publications, trade journals and magazines subscribed for by the Company for the director/employee to carry out their duties of employment are allowable. The purchase must be made from the Company’s bank account and any subscription must be in the Company’s name.

If the visa is personal, then HMRC would expect this to be shown on a P11d at the end of the tax year and then taxed as a benefit in kind. If it’s a commercial visa, then this is fully allowable with no P11d implications.

Generally, if the visa process has been instigated by the individual in order to find work in the UK then this is a personal cost. However, if an employer has employed someone from another country and a visa is required to fulfill the role then this should be classed as a commercial visa.

Only subscriptions that are wholly and exclusively for the business and listed on the HMRC website, see link below, are allowable:-

https://www.gov.uk/government/publications/professional-bodies-approved-for-tax-relief-list-3

Payments should be made from the business bank account.

You can employ your children on a part time basis, for example, a Saturday morning and a couple of hours after school each night. They can quite legitimately look after filing, tidying up, stock checking etc.

How much do you pay them? You should bear in mind the minimum wage for children under 18. Also you consider payment which is commensurate with the work performed.

You can also offer employee benefits eg mobile phone.

You will need an employment contract, board minute and your child will also need to have their pay processed on your payroll and RTI submission made each time they are paid.

We recommend you read Management of Health and Safety at Work Regulations 1999. We also recommend you contact your local council to apply for a Child Work Permit.

NB, it is illegal to employ a child under 13 years of age.

HMRC have released guidance on the changes to employer-supported childcare. For employees joining schemes involving either vouchers or contracted childcare (not to employer-provided nurseries) from 6 April 2011 employers will be required to estimate the employee’s likely annual earnings. The new rules will start from 6 April 2011 but will only apply to individuals who join a scheme on or after that date. They will not apply to employees already in schemes by that date.

This should include benefits but not potential bonuses or overtime. The amount of assistance that can be received tax and NIC free will be based on the level of expected earnings for the year as follows:

  • where the level of earnings is below the threshold for the higher rate the limit will remain at £55 per week;
  • where the level of expected earnings is such that the higher rate, but not the additional tax rate, applies the limit will be restricted to £28 per week; and
  • where the level of the expected earnings exceeds the additional rate threshold the limit will be further restricted to £22 per week.

Once estimated, it seems that the basic earnings figure is set in stone – if the employee finds later that they were not actually a higher rate taxpayer in that year, they cannot claim extra relief. On the other hand, if the employer gets the initial estimate wrong and the employee ends up with too much tax relief, the difference must be reported on form P11D.

Workplace childcare facilities

Definitions or restrictions

You provide a workplace childcare facility that meets all the following conditions:

  • the facility must have the appropriate registrations and approvals
  • childcare in the facility is available to all your employees
  • the children cared for are your employees’ children, or children for whom your employees have parental responsibility
  • the childcare covers up to the end of the week containing 1 September following each child’s 15th birthday (16th birthday for children with a disability)

The childcare facility doesn’t have to be based at your workplace. It can be in another premises that you manage and finance, as long as the premises isn’t used wholly or mainly as a private residence.

You have:

  • no reporting requirements
  • no tax or NICs to pay

All employers can now give up to £243 per month maximum per employee (not per child) to cover the cost of child care which is tax and NI free as long as the following conditions are met.

  1. a) The benefit must be directly used to pay for childcare for the child who must be below the age of 15 (the following September) These costs can either be paid directly by the company or by purchasing child care vouchers.

b) The childcare must be provided by a registered child care provider.

Professional Indemnity Insurance (PII)

PII can be claimed as an expense and should be paid from the business bank account. If you are a contractor, PII is a very useful expense to have when arguing against IR35 as it shows that the client has business risk that needs to be insured. It is very likely that your agency will insist you have PII.

For a small business, PII will be a mandatory requirement before you can enter contractual arrangements with suppliers or customer.

IR35 insurance

IR35 insurance is allowable and should be paid from the business bank account.

Life insurance (RLP)

This is allowable and does not need to be reported on the P11d but this should go through directly from the business account.

HMRC would not allow contractors to claim this.

As a Director of your company (i.e an employee) it may be possible to claim a relief from your company which exempts the first £8,000 of removal expenses and benefits.

However, to qualify, removal costs must fall within specific categories of expenses and benefits and the change of residence must satisfy a number of conditions.

The most important condition is that the employee must change his only main residence as a result of:

  • starting a new employment
  • a change of duties of the employment
  • or changing the place where the duties are usually performed

Also , the new residence must be within reasonable daily travelling distance of the new normal place of work and the old residence must not be within reasonable daily travelling distance of the new normal place of work.

If your company wishes to pay for removal expenses and benefits then it would have to prove that the expense was incurred wholly, necessarily and exclusively for the purposes of its business. It is unlikely that this would be the case if you claiming for moving your home and therefore we think this could involve an enquiry from HMRC

Commercial sponsorship often involves some form of advertising of the business name and products. Association with popular events or people can enhance reputation, awareness and image with resulting commercial benefits. This often includes links with sporting or cultural events such as; corporate events, sponsoring individuals and longer term sponsorships

These costs will not be allowable for tax where they are:-

  • capital expenditure
  • not wholly and exclusively for business purposes, or
  • expenditure which is specifically disallowed for tax purposes such as entertaining costs (eg hospitality portion of a corporate sponsorship event)

Capital expenditure

Capital expenditure may include assets such as cars or racehorses. However, a contribution to a permanent exhibit could be disallowed if it was considered to be of enduring benefit to the business. Depending on the nature of the capital expenditure it might at least be possible for the business to instead make a capital allowances claim or if a company a claim for relief under the intangible assets rules.

Non-business purpose

Expenditure which is not wholly and exclusively for business purposes because there is also a non-business purpose is not allowable. This is an area which can cause difficulty because of the perception of what sponsorship actually means.

HMRC guidance gives examples of non-business purpose including:

  • where the sponsored person is a relative or close friend of the business owner or
  • where the business owner has a personal involvement in the sponsored activity (such involvement often pre-existing the sponsorship).

Generally, there is no tax relief given on the cost of making business gifts, as HMRC usually treats these as entertaining. But, there are exceptions:-

Employee gifts

A gift made by an employer to an employee is deductible in the company accounts.

VAT is reclaimable on the cost of an employee’s gift.

Advertising

A company can provide:-

  • A business sample or product in order to advertise to the public
  • An item incorporating a clear advertisement provided that it costs less than £50. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.

Where a business makes gifts in excess of £50 it should account for output VAT on the value of the gifts.

Output VAT does not need to be accounted for where a gift is a sample of the business’ product.

Business gifts to charities

A business gift is allowable when made to a charity.

A cash donation is not a business gift, and so without special rules, a gift of cash to a charity will not be tax deductible.

Overnight accommodation, eg the cost of a hotel, B&B stay or rented accommodation, is allowable but must be for business purposes and the costs must be reasonable. You can claim accommodation and reasonable expenses for the evening meal and breakfast.

Be careful not to stay too close to home or to claim alcohol as HMRC may query this.

HMRC do not allow a standard rate for staying with friends and family. If you incur subsistence expenses when staying with friends or family on business, you can only reclaim expenses supported by receipts.

Advertising your company is an allowable expense. The advertising expenditure has to be wholly and exclusively for the business and must be a genuine attempt to attract more business.

Free goods/services

The cost to a business of giving away its own goods or services for the purpose of advertising those goods or services to the public is not business entertainment expenditure and is, therefore, allowable as long as two conditions are satisfied:-

Firstly, the goods or services given away must be part of the normal trade and

Secondly, they must be given away for the purpose of advertising to the public.

The first condition, for example, means that where a sweet manufacturer gives away a free sample of a new chocolate bar, the expenditure is not treated as hospitality. However, if the same manufacturer produces a special selection of sweets only to be used as gifts for customers then this is not part of the normal course of trade and the expenditure is business entertainment and is not allowable.

The second condition is that the gifts must be given with the object of “advertising to the public generally”. This condition will be satisfied if they are made available to the public indiscriminately.

Promotional events

Promotional events arranged for the purpose of publicising a trader’s products are not in themselves business entertainment the cost of any food, drink or other hospitality provided as part of the event is disallowable. It is often the case that publicity for the trader’s products is just one part of an event designed to provide hospitality for customers, journalists, and so on. In this event, expenditure, except the direct cost of publicising the products, is disallowable.

An example of allowable expenditure is an event arranged by a car manufacturer to allow potential customers to test drive new cars. However, if the manufacturer arranges a golf day at which test drives are available then only the direct costs of the test drives and of any publicity material provided are not disallowed.

Similarly, the costs of a book launch at which food and wine are provided and where the author and invited guests are entertained together with journalists and booksellers is disallowable. However, where any hospitality provided is minimal no disallowance need be made.

The costs of eye tests for employees is allowable, and does not attract a BIK charge. The expense is allowable if the employee is required to use a computer, however the cost of glasses or contact lenses is not allowable, as the individual would already have to bear the costs themselves.

Although you can claim for gym membership via your company, a benefit in kind (BIK) charge will arise against the employee, and Class 1A NICs will be payable by the company on the total cost of the membership.

The company can pay for this cover, the employee will attract a BIK (benefit in kind) charge as well as employers’ NIC on the total value of the benefit. Attracting a BIK charge means it will appear on the P11d.

You may decide to take out a permanent health insurance (PHI) policy through your company rather than personally to provide you with an income should you be unable to work. This is an allowable business expense, although you may be personally liable to pay income tax and NICs on any funds received via your income protection policy should you need to make a claim.

Directors and employees can claim for the cost of one private health assessment or health screening each year without attracting a BIK charge.

Generally, for a small business, where the trading address is the home address then property costs are not allowed by HMRC. Instead, the director can claim rent non vatable (see the section below).

For a small business, however, with a separate business property then the following rules apply:-

Council Tax

Council tax is classed by HMRC as a personal tax and therefore should not be claimed

Insurance buildings

Insurance costs can be claimed

Rates

Business rates can be claimed. Remember rates are paid over 10 months so make sure that any recurring postings take this into account

Rent

Rent is usually paid 3 months in advance and is allowable.

Repairs

For all equipment owned by the business this is an allowable business expense.

Utilities

Electric, gas, water, oil, etc… are all allowable

Duplication of rent – (contractors)

There are generally two scenarios where duplication of rent occurs:-

  • Where the contractor is relocated to take on a new contract. This in turn means extra rent / accommodation costs are incurred.
  • Where a contractor chooses to rent accommodation rather than incurring hotel costs because this is more economical.

HMRC sometimes argue that neither of these costs are allowable.

Our policy is that we would not suggest you claim these costs. However, if you are prepared to argue with HMRC that the costs associated with either of the two scenarios above are less than the alternatives you have investigated then HMRC may agree. We suggest clients use their own judgement based on our interpretation above.

School fees are not allowable by HMRC as they are not wholly and exclusively for business purposes. If you were to pay through the business then this will be charged as a P11d benefit in kind.

However, there is often an element of childcare included in school fees and if it meets the following criteria, then HMRC may allow that portion.

If you use childcare provided by a school, it must be:

  • provided under the direction of the school’s governing body or the person responsible for managing the school
  • on school premises, or other premises that may be inspected as part of a school inspection – either by Ofsted or an equivalent inspection body (for example the Independent Schools Inspectorate, Bridge Schools Inspectorate or the Schools Inspection Service)

An example of ‘other premises’ could be where a school uses a village hall for their out of school hours care.

If your child is between five and 15 years old (16 if they’re disabled), the childcare must also be provided out of school hours.

Home phone landline & broadband

Please note what you can claim for your telephone and broadband is based on what your actual usage of the line is.

You can claim the cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use. Keep copies of your itemised bills should HMRC wish to check them.

Dedicated business phone landline

As long as this is paid directly by the business then this is a fully allowable expense and can also include a fax line. We suggest a contract between your limited company and the phone company. This should be wholly and exclusively for business calls only.

Mobile business calls, direct cost – Mobile phone (paid by company)

This is a wholly allowable business expense as long as it is directly charged to the business bank account. We suggest a contract between your limited company and the phone company.

Mobile business calls, reimbursed expense – Mobile phone (paid by individual)

This remains an allowable expense however only for the proportion of business calls which must be highlighted and evidenced should it be required because it is possible that HMRC may ask for an itemised bill. When Rodliffe is preparing your P11d we may ask for confirmation that these calls are for the business.

Internet charges

We suggest a contract between your limited company and the provider for the full cost of internet charges. If this cost is claimed by the director instead as a reimbursed expense then HMRC may ask for an explanation of how this cost is split.

Packages

Some clients have a bundled package of phone, internet and TV. It could be defendable to claim a proportion of this as home phone and internet but not the whole cost, as this could be taxed.

As with any business, directors and staff will need to travel from their main place of work (which could be their home ) to fulfill work obligations. This may be to one principle client site or many sites for many clients. Meeting certain criteria means that transport could be an allowable expense.

Is there a general rule?

The general rule is that, where you are employed on a contract, you may claim travel expenses until you are aware that the length of the contract, from the date it first started, will be for 24 months or more. It is not the point at which you have worked at the temporary place for 24 months that is relevant, but the time when an expectation that you will work there for 24 months (or more) first arises that is critical.

Once you become aware that you will be working at a temporary place of work for 24 months or more then, from that point in time, it is considered to be a permanent place of work and consequently travel is considered by HMRC as ordinary commuting.

Where an employee spends less than 40% of their time at a place of work it can never be considered as a permanent work place and travel will always be allowable.

New contract, new client, so new temporary place of work?

When engaging on a new contract with an unrelated client, HMRC operates a restriction as to what is considered a change in the temporary place of work. They do not necessarily view a change in the contracting company’s client to be a conclusive change in travel to a new temporary place of work. This is most simply explained by remembering that you are employed by a Limited Company and if 2 clients are situated close to each other, with similar journeys required to travel to the sites, then essentially the location of your place of work is, to all intents and purposes, identical. It is important to remember that you are working for the same company even though the end clients may not be connected.

Conversely, 2 successive contracts of 12 months with the same business but in different parts of the country will always be seen as travel to a temporary workplace.

It is important to be aware that contracts which span a break of a few months may be viewed as continuous for the purposes of ascertaining whether there is a permanent place of work where the nature of the subsequent contract may be considered to be an extension of the previous.

Travel specifics

 

Air Travel Direct Costs

The cost of air tickets and air travel paid directly by the company. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.

Air Travel Reimbursed Expenses

Costs of air tickets and air travel reimbursed by the company to the employee. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.

Car parking

The cost of parking is an allowed expense.

Congestion charge and tolls

Congestion charge and tolls are an allowed expense.

Fixed rate mileage

Business mileage can be claimed:-

  • 45 pence per mile up to the first 10,000 miles
  • 25 pence per mile for any miles thereafter

All mileage should be supported by fuel receipts if required. You should log the expense claim for mileage making it clear that the trip was for business purposes and include the date and destination of the journey.

20p per mile can be claimed for journeys made on an employee’s own cycle.

Rail Travel Direct Costs

The cost of rail tickets and rail travel paid directly by the company. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.

Receipts should be kept where possible but if not available then keep the train ticket.

Rail Travel Reimbursed Expenses

Costs of rail tickets and rail travel reimbursed by the company to the employee. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.

Receipts should be kept where possible but if not available then keep the train ticket.

Taxi

To be able to claim this for travel back to (trading office) then the following conditions apply –

  1. a) The director or their staff will be required to work late one night
  2. b) This is also not a regular event or requirement
  3. c) Should be restricted to no more than 60 journeys per annum per director/employee
  4. d) Public transport should not be available as an alternative
  5. e) It must be a hired taxi

You should avoid regular journeys and, in the event you make significant claims, you may be required to prove that public transport links were poor or not available on the days when the taxi fare was claimed.

Other travel claims

It is allowable for a company to pay for a weekend away for a director or an employee as long as the weekend event is related to the business. In the event the client is to travel overseas then this is also 100% allowable as long as this is primarily for business purposes.

In the event this is a longer trip, HMRC will be looking for you to distinguish between the business and personal proportions of the expenses incurred. For example:

Should you have business meetings on Friday and Monday, you would not be expected to return home and you can claim the full cost of staying at a local hotel. If you incur personal expenses on Saturday and Sunday over and above the cost of the stay, e.g. visiting a local attraction, then this should not be claimed. To claim the cost of spouse or partner attending, they must be an employee of the business otherwise their costs will have to be removed from the claim.

 

Our policy

For courses to be an allowable expense then the course must satisfy the following criteria:-

  • Must be related to the profession or industry
  • There must be a short, medium or long-term benefit to your business of the training
  • The company must pay directly from the business bank account to avoid any P11d benefit
  • A board minute is required

Should HMRC check, then they will look for the relevance of the course. If they feel that the course or the training isn’t appropriate for the profession or business then they may query the expense and not allow it. HMRC will also expect that courses aimed at developing the skills of an employee or employees will in the longer term have a positive impact on the companies’ profitability. It would, therefore, be assumed that future revenue streams are impacted positively to cover the cost of the training.

HMRC view

The main test against which HMRC are going to apply when looking at training costs:-

Is the expense “Wholly and exclusively for the purposes of the trade”. It’s the test that must be passed if you’re to successfully claim expenses against tax bill.

Other things to consider:

Materiality must also be borne in mind. For example, a course costing £10K based in Sydney, Australia on Excel skills would be deemed inappropriate by HMRC in our opinion.

Language courses are allowable should the clients business benefit, for example, if a future contract is in another country.

CPD is often a requirement of a profession and is therefore allowable, again within reasonable limits. If the CPD is necessary for the client to fulfil the existing contract then we consider this to be an allowable training cost.

Most businesses can claim a 100% tax deduction for some of the cost of setting up a website under the annual investment allowance.

Usually for websites, there is a one-off cost for the original design and a monthly fee to have the site maintenance and updates. According to the HMRC, costs of creating the website are capital, on the basis that they are incurred in bringing into existence an asset of enduring benefit to the trade.

The purpose of the website is a factor in the accounting treatment. For example, if the website has a shop from which customers can order and pay for goods, then this is a fixed asset and should be capitalised.

HMRC suggest that planning costs for a website to be charged against profits when they are incurred, and only capitalised if it can be shown that this expenditure will create an asset which has a long-term net benefit for the business. In a nutshell, this means that the website must generate sales or make cost savings.

For tax purposes, you have to treat the original design cost of your website as capital asset and the monthly fee for maintenance and updating the site as an expense.

SSP applies to all employers regardless of size and represents the minimum payments which should be paid by law. It is possible to opt-out of the scheme, but only if an employer’s occupational sick pay scheme is equal to or more than SSP – check your employment contract. There would still be a requirement to keep appropriate records etc.

Period of incapacity for work (PIW) – A PIW consists of four or more calendar days of sickness in a row. These do not have to be normal working days.

Linking – Where one PIW starts within eight weeks of the end of a previous PIW the periods can be linked.

Qualifying days (QDs) – These are usually the employee’s normal working days unless other days have been agreed. SSP is paid for each qualifying day once the waiting days have passed.

Waiting days (WDs) – The first three QDs in a PIW are called WDs. SSP is not payable for WDs.

Where PIWs are linked, it is only the first three days of the first PIW which are WDs.

Who qualifies for SSP?

All employees who, at the beginning of a PIW or linked PIWs, have had average weekly earnings above the Lower Earnings Limit. Employees must have notified you about their sickness – either within your own time limit or within seven days. They must give evidence of their incapacity. Employees can self-certify their absence for the first consecutive seven days, thereafter form Med3 (Fit Note) is required from their general practitioner.

How much SSP is payable?

The weekly rate of SSP for the 2017/18 tax year is £89.35 but it is computed at a daily rate. The daily rate may vary for different employees. It is calculated by dividing the weekly rate by the number of qualifying days in a week.

For example, an employee with a five-day working week would normally have a daily rate of £17.87 for 2017/18. Only QDs qualify for SSP and remember the first three days (WDs) do not qualify.

Maximum SSP

The maximum entitlement is 28 weeks in each period of sickness or linked PIW.

 

PAYE and records

SSP is included in gross pay and PAYE operated as normal. In line with the abolition of the Percentage Threshold Scheme and the introduction of the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations, with effect from 6 April 2014, employers are no longer required to maintain minimum statutory SSP records to demonstrate compliance with SSP obligations. However, it is best practice to continue to monitor sickness absence and maintain detailed records as these will be required for PAYE purposes.

SMP is paid to female employees or former employees who have had or are about to have a baby. The payment of SMP is compulsory where the employee fulfils certain requirements. SMP is payable provided the employee has:

  • started her maternity leave
  • given 28 days notice of her maternity leave (unless with good reason)
  • provided medical evidence with a form (MATB1)
  • been employed continuously for 26 weeks up to and including her qualifying week
  • had average weekly earnings (AWE) above the Lower Earnings Limit in the relevant period.

It is important to note that mothers have a legal entitlement to take up to 52 weeks off around the time of the birth of their baby whether or not they qualify for SMP. This means that mothers can choose to take up to one year off in total.

The amount payable

SMP is payable for a maximum of 39 weeks. The date the baby is due, as shown on the MATB1 certificate, determines the maternity pay period entitlement and not the date the baby is born. The rates of SMP are as follows:

  • first six weeks at 90% AWE (see below)
  • up to a further 33 weeks at the lower of: 90% of AWE, £ 139.58 per week for 2015/16 (£138.18 for 2014/15)

SMP is treated as normal pay.

Average weekly earnings (AWE)

AWE need to be calculated for two purposes:

  • to determine if the employee is entitled to SMP (earnings must be above the Lower Earnings Limit)
  • to establish the rate of SMP.

The average is calculated by reference to the employee’s relevant period. This is based on an eight week period up to the end of the qualifying week, which is 15 weeks before the baby is due. In some instances, subsequent pay rises have to be taken into account when calculating SMP. Earnings for this purpose are the same as for Class 1 NIC and include SSP.

Recovery of SMP

92% of SMP paid can be recovered by deduction from the monthly PAYE payments. Employers may qualify for Small Employers’ Relief (SER). SER is 100% of SMP plus 3% compensation.

To qualify for SER, the current limits are:

  • total gross Class 1 NIC for the employee’s qualifying tax year must be less than £45,000
  • the employee’s qualifying tax year is the last complete tax year that ends before the start of her qualifying week.

Shared parental leave (SPL)

New rights to Shared Parental Leave are available to parents whose babies are due on or after 5 April 2015. In the case of adoptions SPL will apply in relation to children matched with a person or placed for adoption on or after 5 April 2015.

Employed mothers are still entitled to 52 weeks of maternity leave. The mother can curtail her right to SMP and leave and opt to take ShPL and Shared Parental Pay (ShPP). SPL and ShPP will be available provided the parents satisfy the eligibility requirements.

OSPP is paid to partners who take time off to care for the baby or support the mother in the first few weeks after the birth. OSPP was previously known as Statutory Paternity Pay.

  • a biological father
  • a partner/husband or civil partner who is not the baby’s biological father
  • a mother’s female partner in a same-sex couple

The partner must have:

  • given 28 days notice of their paternity leave (unless with good reason)
  • provided a declaration of family commitment on form SC3
  • been employed continuously for 26 weeks up to and including their qualifying week
  • had average weekly earnings above the Lower Earnings Limit in the relevant period.

The amount payable

OSPP is payable for a maximum of 2 weeks, it must be taken as a block either 1 week or a complete fortnight but not 2 single weeks at the following rates:

the lower of: 90% of AWE, £139.58 for 2015/16 (£138.18 for 2014/15). OSPP is treated as normal pay.

The calculation of average weekly earnings and the recovery of OSPP are subject to the same rules as for SMP.

With effect from 1st October 2014, fathers will have the right to take unpaid leave to attend up to two antenatal appointments.

Shared parental leave (SPL)

New rights to Shared Parental Leave are available to parents whose babies are due on or after 5 April 2015. In the case of adoptions SPL will apply in relation to children matched with a person or placed for adoption on or after 5 April 2015.

Employed mothers are still entitled to 52 weeks of maternity leave. The mother can curtail her right to SMP and leave and opt to take ShPL and Shared Parental Pay (ShPP). SPL and ShPP will be available provided the parents satisfy the eligibility requirements.

Cycling to work

Any employee considering joining a Cycle to Work scheme will need to consider whether they would prefer to use their own cycle and be able to claim up to the 20p per mile tax-free for any business miles they travel, as opposed to having a cycle loaned to them by their employer.

The cycle to work scheme is a government initiative designed to support and encourage employees to cycle to work. The idea behind the scheme is that this will contribute to healthier employees, having benefits for both the individuals themselves and the companies they work for.

How the scheme works

For those who are not Limited Company contractors the way the scheme works is that the employee sacrifices some salary for the use of the bike which is loaned to them by their employer. It is not deemed a benefit in kind to the employee and is, therefore, tax-free. In addition, the employee can eventually buy the bike from the company. The cost to the employee is calculated according to HMRC approved valuation tables to ensure it does not attract a benefit in kind charge. Overall this can mean a significant cash and tax saving for the employee.

The employer company benefits financially from this with reduced income tax and NICs from the employee’s sacrifice of salary, reduced corporation tax and in some cases VAT relief.

Limited Company contractors and the cycle to work scheme

Limited Company contractors, as employees of their companies, can also take advantage of the cycle to work scheme but do not have to make a salary sacrifice. They can also benefit from a number of tax savings.

  • It may be possible to reclaim VAT on the bike purchase, making it cheaper to buy
  • The company’s Annual Investment Allowance can be used to get 100% tax relief on corporation tax
  • As the bike is paid for from gross earnings, not personal income, there is a potential saving on income tax
  • If the contractor buys the bike from their company – although the company will pay corporation tax on the sale – the contractor can potentially make tax savings on the purchase

Rules

The scheme is not designed for personal bicycle use so the bike must be used more than 50% of the time for business travel purposes. Therefore, the employee must predominantly use the bike to get them to and from their workplace. The definition of ‘workplace’ is wider under the scheme than the usual definition for travel expense purposes, so travel to a permanent workplace is allowable.

In the event you are taking a member of the team out to discuss their role, internal matters or to have a private 1:1 then these expenses are an allowable expense.

You should be mindful that these are to cover the base cost of something like a coffee and a sandwich, not champagne and caviar though.

If the company purchases goods or raw materials that are then held as stock until they are resold to the customer then these are direct purchases and should be included in the Cost Of Sales calculation in the Profit and Loss account. If any of these purchases are still in stock at the end of the financial year then they are counted and the total included as closing stock on the balance sheet.

Anything below the value of £500 we will treat as a cost. Anything above £500 could be a fixed asset and therefore capitalised as an asset of the business and written off using standard depreciation charges.

Your account manager will need a copy of the invoice or details of the asset purchased, cost, type, date, etc. before deciding to treat it as an asset.

Capital allowances can be claimed when disposing of fixed assets. Profit and loss can be used mainly when an asset is disposed of, i.e. passed from the business to someone else. If the value of the asset is greater than the value held in the company's books at that time then this is the "profit on disposal".

Depreciation is calculated each month based on the amount of fixed assets. Depreciation is an accounting adjustment to take into account the "useful life" of the asset and spread it's value over time. This has the effect of creating an even charge on your profit and loss account throughout the year. For Corporation Tax purposes depreciation is ignored and instead capital allowances are used. Over time the depreciation and capital allowance add up to the same amount but because of HMRC rules there can be timing differences between the two, which means the profit for accounting purposes and the profit for tax purposes will not always be the same.

If the company purchases goods or raw materials that are then held as stock until they are resold to the customer then these are direct purchases and should be included in the Cost Of Sales calculation in the Profit and Loss account. If any of these purchases are still in stock at the end of the financial year then they are counted and the total included as closing stock on the balance sheet.

These are all allowable expenses for the business.

Anything below the value of £500 we will treat as a cost. Anything above £500 could be a fixed asset and therefore capitalised as an asset of the business and written off using standard depreciation charges. Your account manager will need a copy of the invoice or details of the asset purchased, cost, type, date, etc. before deciding to treat it as an asset.

Donations must always be made to a recognised charity. Rodliffe Accounting may ask for documentary evidence of the donations when the annual accounts are produced. The donation deducted against profit cannot put the business into a loss making position for tax purposes. Note - If you are a high rate tax payer then it is more beneficial to pay this out of your own pocket because gift aid can then be claimed.

Generally, there is no tax relief given on the cost of making business gifts, as HMRC usually treats these as entertaining. But, there are exceptions:-

Employee gifts

A gift made by an employer to an employee is deductible in the company accounts. VAT is reclaimable on the cost of an employee's gift.

Advertising

A company can provide:-
  • A business sample or product in order to advertise to the public
  • An item incorporating a clear advertisement provided that it costs less than £50. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
Where a business makes gifts in excess of £50 it should account for output VAT on the value of the gifts. Output VAT does not need to be accounted for where a gift is a sample of the business' product.

Business gifts to charities

A business gift is allowable when made to a charity. A cash donation is not a business gift, and so without special rules, a gift of cash to a charity will not be tax deductible.

This can incorporate accounting fees/legal fees/other external contractor fees. These are all allowable if they are for business purposes.

Invoices raised in good faith can be written off if it transpires that the customer can't or won't pay. The VAT on the bad debt can then be reclaimed only after 6 months after the invoice date. A provision for bad debt can be made in the company year end accounts. This policy is not to be mistaken for raising a credit note. Credit notes are raised for a number of reasons but mainly because the original invoice is incorrect, not because the debt has gone bad. For more information please get in touch.

Introduction

A company is not obliged to distribute all or indeed part of its profits. Instead, the company can retain its profits for future investment in the business. If the company decides to distribute its profits then the most common way is by dividend. These profits are distributed to its shareholders who will normally hold ordinary shares, although, there are other types of shares, eg. preference shares.

Frequency of dividends

We advise our clients to take a final and an interim dividend like most limited companies. This will be typically 2 dividends per year ( 4 dividends at most ). However, if you are a small business rather than a contractor then it is possible to take dividends more regularly. The directors can only declare a dividend if there are sufficient profits in the business. A director is in breach of his/her statutory requirement to the business if they authorise a dividend where there is insufficient profits.

Available Profit

Dividends can be paid from retained profits and or from profits in the current financial year. Retained profits are the accumulation of previous years profits brought forward.

Timing of dividends

The payment of a dividend to a director is recognised when the payment is "made available". For example, if a dividend is recorded in the company accounts in March and the funds transferred to the directors current account then the "made available" date will be March even if the funds are transferred in April.

Dividends paid or proposed in relation to share holdings

Dividends should be paid and proposed in direct proportion to the shares held. For example, if a client has 2 shares and his partner 1 share then the dividend paid to him will be twice the dividend to his partner. If a dividend is paid part way through the year after a further allotment of shares then the dividend payable can be made in line with the new holdings.

Client entertainment is not an allowable expense. Examples of expenses that are considered to be business entertainment and therefore not allowable; food and drink, sporting or concert tickets, nightclubs, etc. Additionally, use of capital assets such as yachts or speedboats for entertaining.

Staff entertainment is a fully allowable expense as long as it meets the following criteria:

  1. Open to all employees
  2. Total cost per attendee is no more than £150 per tax year
  3. An annual event
The total cost can be applied to multiple events within a given tax year, so long as they meet the other criteria. All VAT, transport and accommodation costs must be included when calculating the total cost. It would be reasonable to assume that a business with one Director (and partner) would normally hold staff entertainment in the form of an office party and probably invite on average 2 other guests. Guests can be staff and relations of staff. Although it is not specified in law just how many people can attend it is our view that an amount of £300 - £600 per annum for staff entertainment in total is reasonable if you are a sole director/shareholder company. For example, if your total turnover is around £50,000 then £300 is reasonable in our opinion, ie 2 guests. However, if your turnover is higher, then we think £600 (4 guests) is very reasonable. Also, these are claims for specific parties and company celebrations, not regular monthly costs. You should keep a record of the overall cost of the party/event and keep a record of who attended. Keep receipts and make sure you don't go over the £150 per person. If you do exceed this amount then the whole amount is taxable, not just the portion over £150!

Generally, there is no tax relief given on the cost of making business gifts, as HMRC usually treats these as entertaining. But, there are exceptions:-

Employee gifts

A gift made by an employer to an employee is deductible in the company accounts. VAT is reclaimable on the cost of an employee's gift.

Advertising

A company can provide:-
  • A business sample or product in order to advertise to the public
  • An item incorporating a clear advertisement provided that it costs less than £50. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
Where a business makes gifts in excess of £50 it should account for output VAT on the value of the gifts. Output VAT does not need to be accounted for where a gift is a sample of the business' product.

Business gifts to charities

A business gift is allowable when made to a charity. A cash donation is not a business gift, and so without special rules, a gift of cash to a charity will not be tax deductible.

In the event you are taking a member of the team out to discuss their role, internal matters or to have a private 1:1 then these expenses are an allowable expense. You should be mindful that these are to cover the base cost of something like a coffee and a sandwich, not champagne and caviar though.

HMRC have released guidance on the changes to employer-supported childcare. For employees joining schemes involving either vouchers or contracted childcare (not to employer-provided nurseries) from 6 April 2011 employers will be required to estimate the employee's likely annual earnings. The new rules will start from 6 April 2011 but will only apply to individuals who join a scheme on or after that date. They will not apply to employees already in schemes by that date. This should include benefits but not potential bonuses or overtime. The amount of assistance that can be received tax and NIC free will be based on the level of expected earnings for the year as follows:

  • where the level of earnings is below the threshold for the higher rate the limit will remain at £55 per week;
  • where the level of expected earnings is such that the higher rate, but not the additional tax rate, applies the limit will be restricted to £28 per week; and
  • where the level of the expected earnings exceeds the additional rate threshold the limit will be further restricted to £22 per week.
Once estimated, it seems that the basic earnings figure is set in stone - if the employee finds later that they were not actually a higher rate taxpayer in that year, they cannot claim extra relief. On the other hand, if the employer gets the initial estimate wrong and the employee ends up with too much tax relief, the difference must be reported on form P11D. Workplace childcare facilities Definitions or restrictions You provide a workplace childcare facility that meets all the following conditions:
  • the facility must have the appropriate registrations and approvals
  • childcare in the facility is available to all your employees
  • the children cared for are your employees' children, or children for whom your employees have parental responsibility
  • the childcare covers up to the end of the week containing 1 September following each child's 15th birthday (16th birthday for children with a disability)
The childcare facility doesn't have to be based at your workplace. It can be in another premises that you manage and finance, as long as the premises isn't used wholly or mainly as a private residence. You have:
  • no reporting requirements
  • no tax or NICs to pay
All employers can now give up to £243 per month maximum per employee (not per child) to cover the cost of child care which is tax and NI free as long as the following conditions are met.
  1. a) The benefit must be directly used to pay for childcare for the child who must be below the age of 15 (the following September) These costs can either be paid directly by the company or by purchasing child care vouchers.
b) The childcare must be provided by a registered child care provider.

School fees are not allowable by HMRC as they are not wholly and exclusively for business purposes. If you were to pay through the business then this will be charged as a P11d benefit in kind. However, there is often an element of childcare included in school fees and if it meets the following criteria, then HMRC may allow that portion. If you use childcare provided by a school, it must be:

  • provided under the direction of the school's governing body or the person responsible for managing the school
  • on school premises, or other premises that may be inspected as part of a school inspection - either by Ofsted or an equivalent inspection body (for example the Independent Schools Inspectorate, Bridge Schools Inspectorate or the Schools Inspection Service)
An example of 'other premises' could be where a school uses a village hall for their out of school hours care. If your child is between five and 15 years old (16 if they're disabled), the childcare must also be provided out of school hours.

SMP is paid to female employees or former employees who have had or are about to have a baby. The payment of SMP is compulsory where the employee fulfils certain requirements. SMP is payable provided the employee has:

  • started her maternity leave
  • given 28 days notice of her maternity leave (unless with good reason)
  • provided medical evidence with a form (MATB1)
  • been employed continuously for 26 weeks up to and including her qualifying week
  • had average weekly earnings (AWE) above the Lower Earnings Limit in the relevant period.
It is important to note that mothers have a legal entitlement to take up to 52 weeks off around the time of the birth of their baby whether or not they qualify for SMP. This means that mothers can choose to take up to one year off in total.

The amount payable

SMP is payable for a maximum of 39 weeks. The date the baby is due, as shown on the MATB1 certificate, determines the maternity pay period entitlement and not the date the baby is born. The rates of SMP are as follows:
  • first six weeks at 90% AWE (see below)
  • up to a further 33 weeks at the lower of: 90% of AWE, £ 139.58 per week for 2015/16 (£138.18 for 2014/15)
SMP is treated as normal pay.

Average weekly earnings (AWE)

AWE need to be calculated for two purposes:
  • to determine if the employee is entitled to SMP (earnings must be above the Lower Earnings Limit)
  • to establish the rate of SMP.
The average is calculated by reference to the employee's relevant period. This is based on an eight week period up to the end of the qualifying week, which is 15 weeks before the baby is due. In some instances, subsequent pay rises have to be taken into account when calculating SMP. Earnings for this purpose are the same as for Class 1 NIC and include SSP. Recovery of SMP 92% of SMP paid can be recovered by deduction from the monthly PAYE payments. Employers may qualify for Small Employers' Relief (SER). SER is 100% of SMP plus 3% compensation. To qualify for SER, the current limits are:
  • total gross Class 1 NIC for the employee's qualifying tax year must be less than £45,000
  • the employee's qualifying tax year is the last complete tax year that ends before the start of her qualifying week.

Shared parental leave (SPL)

New rights to Shared Parental Leave are available to parents whose babies are due on or after 5 April 2015. In the case of adoptions SPL will apply in relation to children matched with a person or placed for adoption on or after 5 April 2015. Employed mothers are still entitled to 52 weeks of maternity leave. The mother can curtail her right to SMP and leave and opt to take ShPL and Shared Parental Pay (ShPP). SPL and ShPP will be available provided the parents satisfy the eligibility requirements.

OSPP is paid to partners who take time off to care for the baby or support the mother in the first few weeks after the birth. OSPP was previously known as Statutory Paternity Pay.

  • a biological father
  • a partner/husband or civil partner who is not the baby's biological father
  • a mother's female partner in a same-sex couple
The partner must have:
  • given 28 days notice of their paternity leave (unless with good reason)
  • provided a declaration of family commitment on form SC3
  • been employed continuously for 26 weeks up to and including their qualifying week
  • had average weekly earnings above the Lower Earnings Limit in the relevant period.

The amount payable

OSPP is payable for a maximum of 2 weeks, it must be taken as a block either 1 week or a complete fortnight but not 2 single weeks at the following rates: the lower of: 90% of AWE, £139.58 for 2015/16 (£138.18 for 2014/15). OSPP is treated as normal pay. The calculation of average weekly earnings and the recovery of OSPP are subject to the same rules as for SMP. With effect from 1st October 2014, fathers will have the right to take unpaid leave to attend up to two antenatal appointments. Shared parental leave (SPL) New rights to Shared Parental Leave are available to parents whose babies are due on or after 5 April 2015. In the case of adoptions SPL will apply in relation to children matched with a person or placed for adoption on or after 5 April 2015. Employed mothers are still entitled to 52 weeks of maternity leave. The mother can curtail her right to SMP and leave and opt to take ShPL and Shared Parental Pay (ShPP). SPL and ShPP will be available provided the parents satisfy the eligibility requirements.

If this is claimed as a company cost, HMRC classes this as a benefit in kind. It is then taxable and will appear on the P11d. This policy includes personal trainers.

The costs of eye tests for employees is allowable, and does not attract a BIK charge. The expense is allowable if the employee is required to use a computer, however the cost of glasses or contact lenses is not allowable, as the individual would already have to bear the costs themselves.

Although you can claim for gym membership via your company, a benefit in kind (BIK) charge will arise against the employee, and Class 1A NICs will be payable by the company on the total cost of the membership.

The company can pay for this cover, the employee will attract a BIK (benefit in kind) charge as well as employers' NIC on the total value of the benefit. Attracting a BIK charge means it will appear on the P11d. You may decide to take out a permanent health insurance (PHI) policy through your company rather than personally to provide you with an income should you be unable to work. This is an allowable business expense, although you may be personally liable to pay income tax and NICs on any funds received via your income protection policy should you need to make a claim.

Directors and employees can claim for the cost of one private health assessment or health screening each year without attracting a BIK charge.

SSP applies to all employers regardless of size and represents the minimum payments which should be paid by law. It is possible to opt-out of the scheme, but only if an employer's occupational sick pay scheme is equal to or more than SSP - check your employment contract. There would still be a requirement to keep appropriate records etc. Period of incapacity for work (PIW) - A PIW consists of four or more calendar days of sickness in a row. These do not have to be normal working days. Linking - Where one PIW starts within eight weeks of the end of a previous PIW the periods can be linked. Qualifying days (QDs) - These are usually the employee's normal working days unless other days have been agreed. SSP is paid for each qualifying day once the waiting days have passed. Waiting days (WDs) - The first three QDs in a PIW are called WDs. SSP is not payable for WDs. Where PIWs are linked, it is only the first three days of the first PIW which are WDs.

Who qualifies for SSP?

All employees who, at the beginning of a PIW or linked PIWs, have had average weekly earnings above the Lower Earnings Limit. Employees must have notified you about their sickness - either within your own time limit or within seven days. They must give evidence of their incapacity. Employees can self-certify their absence for the first consecutive seven days, thereafter form Med3 (Fit Note) is required from their general practitioner.

How much SSP is payable?

The weekly rate of SSP for the 2017/18 tax year is £89.35 but it is computed at a daily rate. The daily rate may vary for different employees. It is calculated by dividing the weekly rate by the number of qualifying days in a week. For example, an employee with a five-day working week would normally have a daily rate of £17.87 for 2017/18. Only QDs qualify for SSP and remember the first three days (WDs) do not qualify.

Maximum SSP

The maximum entitlement is 28 weeks in each period of sickness or linked PIW.  

PAYE and records

SSP is included in gross pay and PAYE operated as normal. In line with the abolition of the Percentage Threshold Scheme and the introduction of the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations, with effect from 6 April 2014, employers are no longer required to maintain minimum statutory SSP records to demonstrate compliance with SSP obligations. However, it is best practice to continue to monitor sickness absence and maintain detailed records as these will be required for PAYE purposes.

Professional Indemnity Insurance (PII)

PII can be claimed as an expense and should be paid from the business bank account. If you are a contractor, PII is a very useful expense to have when arguing against IR35 as it shows that the client has business risk that needs to be insured. It is very likely that your agency will insist you have PII. For a small business, PII will be a mandatory requirement before you can enter contractual arrangements with suppliers or customer.

IR35 insurance

IR35 insurance is allowable and should be paid from the business bank account.

Life insurance (RLP)

This is allowable and does not need to be reported on the P11d but this should go through directly from the business account.

Commercial sponsorship often involves some form of advertising of the business name and products. Association with popular events or people can enhance reputation, awareness and image with resulting commercial benefits. This often includes links with sporting or cultural events such as; corporate events, sponsoring individuals and longer term sponsorships These costs will not be allowable for tax where they are:-

  • capital expenditure
  • not wholly and exclusively for business purposes, or
  • expenditure which is specifically disallowed for tax purposes such as entertaining costs (eg hospitality portion of a corporate sponsorship event)

Capital expenditure

Capital expenditure may include assets such as cars or racehorses. However, a contribution to a permanent exhibit could be disallowed if it was considered to be of enduring benefit to the business. Depending on the nature of the capital expenditure it might at least be possible for the business to instead make a capital allowances claim or if a company a claim for relief under the intangible assets rules.

Non-business purpose

Expenditure which is not wholly and exclusively for business purposes because there is also a non-business purpose is not allowable. This is an area which can cause difficulty because of the perception of what sponsorship actually means. HMRC guidance gives examples of non-business purpose including:
  • where the sponsored person is a relative or close friend of the business owner or
  • where the business owner has a personal involvement in the sponsored activity (such involvement often pre-existing the sponsorship).

Generally, there is no tax relief given on the cost of making business gifts, as HMRC usually treats these as entertaining. But, there are exceptions:-

Employee gifts

A gift made by an employer to an employee is deductible in the company accounts. VAT is reclaimable on the cost of an employee's gift.

Advertising

A company can provide:-
  • A business sample or product in order to advertise to the public
  • An item incorporating a clear advertisement provided that it costs less than £50. No relief is permitted for this type of item if the gift is food, drink, tobacco or an exchangeable voucher.
Where a business makes gifts in excess of £50 it should account for output VAT on the value of the gifts. Output VAT does not need to be accounted for where a gift is a sample of the business' product.

Business gifts to charities

A business gift is allowable when made to a charity. A cash donation is not a business gift, and so without special rules, a gift of cash to a charity will not be tax deductible.

Advertising your company is an allowable expense. The advertising expenditure has to be wholly and exclusively for the business and must be a genuine attempt to attract more business.

Free goods/services

The cost to a business of giving away its own goods or services for the purpose of advertising those goods or services to the public is not business entertainment expenditure and is, therefore, allowable as long as two conditions are satisfied:- Firstly, the goods or services given away must be part of the normal trade and Secondly, they must be given away for the purpose of advertising to the public. The first condition, for example, means that where a sweet manufacturer gives away a free sample of a new chocolate bar, the expenditure is not treated as hospitality. However, if the same manufacturer produces a special selection of sweets only to be used as gifts for customers then this is not part of the normal course of trade and the expenditure is business entertainment and is not allowable. The second condition is that the gifts must be given with the object of "advertising to the public generally". This condition will be satisfied if they are made available to the public indiscriminately.

Promotional events

Promotional events arranged for the purpose of publicising a trader's products are not in themselves business entertainment the cost of any food, drink or other hospitality provided as part of the event is disallowable. It is often the case that publicity for the trader's products is just one part of an event designed to provide hospitality for customers, journalists, and so on. In this event, expenditure, except the direct cost of publicising the products, is disallowable. An example of allowable expenditure is an event arranged by a car manufacturer to allow potential customers to test drive new cars. However, if the manufacturer arranges a golf day at which test drives are available then only the direct costs of the test drives and of any publicity material provided are not disallowed. Similarly, the costs of a book launch at which food and wine are provided and where the author and invited guests are entertained together with journalists and booksellers is disallowable. However, where any hospitality provided is minimal no disallowance need be made.

Generally, for a small business, where the trading address is the home address then property costs are not allowed by HMRC. Instead, the director can claim rent non vatable (see the section below). For a small business, however, with a separate business property then the following rules apply:- Council Tax Council tax is classed by HMRC as a personal tax and therefore should not be claimed

Insurance buildings

Insurance costs can be claimed

Rates

Business rates can be claimed. Remember rates are paid over 10 months so make sure that any recurring postings take this into account

Rent

Rent is usually paid 3 months in advance and is allowable.

Repairs

For all equipment owned by the business this is an allowable business expense.

Utilities

Electric, gas, water, oil, etc... are all allowable

Duplication of rent - (contractors)

There are generally two scenarios where duplication of rent occurs:-
  • Where the contractor is relocated to take on a new contract. This in turn means extra rent / accommodation costs are incurred.
  • Where a contractor chooses to rent accommodation rather than incurring hotel costs because this is more economical.
HMRC sometimes argue that neither of these costs are allowable. Our policy is that we would not suggest you claim these costs. However, if you are prepared to argue with HMRC that the costs associated with either of the two scenarios above are less than the alternatives you have investigated then HMRC may agree. We suggest clients use their own judgement based on our interpretation above.

If the visa is personal, then HMRC would expect this to be shown on a P11d at the end of the tax year and then taxed as a benefit in kind. If it's a commercial visa, then this is fully allowable with no P11d implications. Generally, if the visa process has been instigated by the individual in order to find work in the UK then this is a personal cost. However, if an employer has employed someone from another country and a visa is required to fulfill the role then this should be classed as a commercial visa.

You can employ your children on a part time basis, for example, a Saturday morning and a couple of hours after school each night. They can quite legitimately look after filing, tidying up, stock checking etc. How much do you pay them? You should bear in mind the minimum wage for children under 18. Also you consider payment which is commensurate with the work performed. You can also offer employee benefits eg mobile phone. You will need an employment contract, board minute and your child will also need to have their pay processed on your payroll and RTI submission made each time they are paid. We recommend you read Management of Health and Safety at Work Regulations 1999. We also recommend you contact your local council to apply for a Child Work Permit. NB, it is illegal to employ a child under 13 years of age.

Our policy

For courses to be an allowable expense then the course must satisfy the following criteria:-
  • Must be related to the profession or industry
  • There must be a short, medium or long-term benefit to your business of the training
  • The company must pay directly from the business bank account to avoid any P11d benefit
  • A board minute is required
Should HMRC check, then they will look for the relevance of the course. If they feel that the course or the training isn't appropriate for the profession or business then they may query the expense and not allow it. HMRC will also expect that courses aimed at developing the skills of an employee or employees will in the longer term have a positive impact on the companies' profitability. It would, therefore, be assumed that future revenue streams are impacted positively to cover the cost of the training.

HMRC view

The main test against which HMRC are going to apply when looking at training costs:- Is the expense “Wholly and exclusively for the purposes of the trade”. It's the test that must be passed if you're to successfully claim expenses against tax bill.

Other things to consider:

Materiality must also be borne in mind. For example, a course costing £10K based in Sydney, Australia on Excel skills would be deemed inappropriate by HMRC in our opinion. Language courses are allowable should the clients business benefit, for example, if a future contract is in another country. CPD is often a requirement of a profession and is therefore allowable, again within reasonable limits. If the CPD is necessary for the client to fulfil the existing contract then we consider this to be an allowable training cost.

HMRC would not allow contractors to claim this. As a Director of your company (i.e an employee) it may be possible to claim a relief from your company which exempts the first £8,000 of removal expenses and benefits. However, to qualify, removal costs must fall within specific categories of expenses and benefits and the change of residence must satisfy a number of conditions. The most important condition is that the employee must change his only main residence as a result of:

  • starting a new employment
  • a change of duties of the employment
  • or changing the place where the duties are usually performed
Also , the new residence must be within reasonable daily travelling distance of the new normal place of work and the old residence must not be within reasonable daily travelling distance of the new normal place of work. If your company wishes to pay for removal expenses and benefits then it would have to prove that the expense was incurred wholly, necessarily and exclusively for the purposes of its business. It is unlikely that this would be the case if you claiming for moving your home and therefore we think this could involve an enquiry from HMRC

Publications, trade journals and magazines subscribed for by the Company for the director/employee to carry out their duties of employment are allowable. The purchase must be made from the Company's bank account and any subscription must be in the Company's name.

Only subscriptions that are wholly and exclusively for the business and listed on the HMRC website, see link below, are allowable:- https://www.gov.uk/government/publications/professional-bodies-approved-for-tax-relief-list-3 Payments should be made from the business bank account.

Costs of software licences, maintenance and support, used wholly and exclusively for the business, are allowable.

You are able to claim the full cost of computer components below £500, for example, computer parts, printers, fax, mouse, keyboard, etc. as long as they are wholly and exclusively for business purposes. Anything above £500 could be a fixed asset, in which case your account manager will need a copy of the invoice or details of; the asset, cost, type, date, etc. If you purchase different components, that are effectively all one asset, that all appear on one bill for more than £500, then this could be classed as one fixed asset. For example, if you buy a monitor, keyboard, mouse, extra memory, cables, etc.. then this could be considered as one workstation and therefore one asset.

Home phone landline & broadband

Please note what you can claim for your telephone and broadband is based on what your actual usage of the line is. You can claim the cost of all your business use of the line, and a percentage of the line rental, based on how much you use it for business purposes and how much is for personal use. Keep copies of your itemised bills should HMRC wish to check them.

Dedicated business phone landline

As long as this is paid directly by the business then this is a fully allowable expense and can also include a fax line. We suggest a contract between your limited company and the phone company. This should be wholly and exclusively for business calls only.

Mobile business calls, direct cost - Mobile phone (paid by company)

This is a wholly allowable business expense as long as it is directly charged to the business bank account. We suggest a contract between your limited company and the phone company.

Mobile business calls, reimbursed expense - Mobile phone (paid by individual)

This remains an allowable expense however only for the proportion of business calls which must be highlighted and evidenced should it be required because it is possible that HMRC may ask for an itemised bill. When Rodliffe is preparing your P11d we may ask for confirmation that these calls are for the business.

Internet charges

We suggest a contract between your limited company and the provider for the full cost of internet charges. If this cost is claimed by the director instead as a reimbursed expense then HMRC may ask for an explanation of how this cost is split.

Packages

Some clients have a bundled package of phone, internet and TV. It could be defendable to claim a proportion of this as home phone and internet but not the whole cost, as this could be taxed.

Most businesses can claim a 100% tax deduction for some of the cost of setting up a website under the annual investment allowance. Usually for websites, there is a one-off cost for the original design and a monthly fee to have the site maintenance and updates. According to the HMRC, costs of creating the website are capital, on the basis that they are incurred in bringing into existence an asset of enduring benefit to the trade. The purpose of the website is a factor in the accounting treatment. For example, if the website has a shop from which customers can order and pay for goods, then this is a fixed asset and should be capitalised. HMRC suggest that planning costs for a website to be charged against profits when they are incurred, and only capitalised if it can be shown that this expenditure will create an asset which has a long-term net benefit for the business. In a nutshell, this means that the website must generate sales or make cost savings. For tax purposes, you have to treat the original design cost of your website as capital asset and the monthly fee for maintenance and updating the site as an expense.

Recap

The new HMRC exemption introduced in April 2016 confirmed that businesses will not have to pay tax and NIC on paid or reimbursed travel and subsistence expenses payments or put them on a P11D. In other words, the introduction of the new exemption places the onus on employers to determine whether employee expenses are fully deductible for tax purposes.

Conditions

An employer should consider:-

• setting out a corporate policy of which type of expenses are reimbursable and the need for those expenses to be reasonable
• requiring the completion of a standard expense claim form
• the need for any expense claim to be supported by a receipt
• making checks and authorising expense claims

The employer should also consider scale rates

Scale rates can be used instead of actual expenses and are generally for travel and subsistence and consist of round sum allowable amounts for specific circumstances.

Benchmark rates

Benchmark rates are a set of maximum reimbursement rates for meals. These round sum amounts have now been included in Regulations and can be used by employers for payment or reimbursement of employees expenses where relevant qualifying conditions are met. These rates apply only if the employee incurs expenditure in the course of 'qualifying business travel'. One meal allowance per day and the amount of which does not exceed:-

• Up to £5 can be claimed where the director/employee leaves home earlier than usual (and before 6am) and has incurred the cost of breakfast taken away from home (irregular early starters only)
• Up to £5 may be claimed every day, where the director/employee has been away from home for a period of at least five hours and has incurred the cost of a meal
• Up to £10 may be claimed every day, where the director/employee has been away from home for a period of at least ten hours and has incurred the cost of several meals.
• Up to £15 may be claimed every day, where the director/employee has to work later than usual (finishing work after 8pm having worked a normal day), and therefore is assumed to have needed to buy a meal (irregular late finishers only)

Conditions for using benchmark rates

Employers must have a checking system in place if benchmark rates are used to ensure that the employee is incurring and paying amounts in respect of expenses of the same kind and that tax relief would be allowed.

The general rule is that where you are employed on a contract you may claim travel expenses until you are aware that the length of the contract, from the date it first started, will be for 24 months or more. It is not the point at which you have worked at the temporary place for 24 months that is relevant, but the time when an expectation that you will work there for 24 months (or more) first arises that is critical. Once you become aware that you will be working at a temporary place of work for 24 months or more then, from that point in time, it is considered to be a permanent place of work and consequently travel is considered by HMRC as ordinary commuting. When engaging on a new contract with an unrelated client, HMRC operates a restriction as to what is considered a change in the temporary place of work. They do not necessarily view a change in the contracting company's client to be a conclusive change in travel to a new temporary place of work. This is most simply explained by remembering that you are employed by a Limited Company and if 2 clients are situated close to each other with similar journeys required to travel to the sites then essentially the location of your place of work is to all intents and purposes identical. It is important to remember that you are working for the same company even though the end clients may not be connected. Conversely, 2 successive contracts of 12 months with the same business but in different parts of the country will always be seen as travel to a temporary workplace. It is important to be aware that contracts which span a break of a few months may be viewed as continuous for the purposes of ascertaining whether there is a permanent place of work where the nature of the subsequent contract may be considered to be an extension of the previous. Where an employee spends less than 40% of their time at a place of work it can never be considered as a permanent work place and travel will always be allowable.

Overnight accommodation, eg the cost of a hotel, B&B stay or rented accommodation, is allowable but must be for business purposes and the costs must be reasonable. You can claim accommodation and reasonable expenses for the evening meal and breakfast. Be careful not to stay too close to home or to claim alcohol as HMRC may query this. HMRC do not allow a standard rate for staying with friends and family. If you incur subsistence expenses when staying with friends or family on business, you can only reclaim expenses supported by receipts.

As with any business, directors and staff will need to travel from their main place of work (which could be their home ) to fulfill work obligations. This may be to one principle client site or many sites for many clients. Meeting certain criteria means that transport could be an allowable expense.

Is there a general rule?

The general rule is that, where you are employed on a contract, you may claim travel expenses until you are aware that the length of the contract, from the date it first started, will be for 24 months or more. It is not the point at which you have worked at the temporary place for 24 months that is relevant, but the time when an expectation that you will work there for 24 months (or more) first arises that is critical. Once you become aware that you will be working at a temporary place of work for 24 months or more then, from that point in time, it is considered to be a permanent place of work and consequently travel is considered by HMRC as ordinary commuting. Where an employee spends less than 40% of their time at a place of work it can never be considered as a permanent work place and travel will always be allowable.

New contract, new client, so new temporary place of work?

When engaging on a new contract with an unrelated client, HMRC operates a restriction as to what is considered a change in the temporary place of work. They do not necessarily view a change in the contracting company's client to be a conclusive change in travel to a new temporary place of work. This is most simply explained by remembering that you are employed by a Limited Company and if 2 clients are situated close to each other, with similar journeys required to travel to the sites, then essentially the location of your place of work is, to all intents and purposes, identical. It is important to remember that you are working for the same company even though the end clients may not be connected. Conversely, 2 successive contracts of 12 months with the same business but in different parts of the country will always be seen as travel to a temporary workplace. It is important to be aware that contracts which span a break of a few months may be viewed as continuous for the purposes of ascertaining whether there is a permanent place of work where the nature of the subsequent contract may be considered to be an extension of the previous.

Travel specifics

 
Air Travel Direct Costs
The cost of air tickets and air travel paid directly by the company. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.
Air Travel Reimbursed Expenses
Costs of air tickets and air travel reimbursed by the company to the employee. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes.
Car parking
The cost of parking is an allowed expense.
Congestion charge and tolls
Congestion charge and tolls are an allowed expense.
Fixed rate mileage
Business mileage can be claimed:-
  • 45 pence per mile up to the first 10,000 miles
  • 25 pence per mile for any miles thereafter
All mileage should be supported by fuel receipts if required. You should log the expense claim for mileage making it clear that the trip was for business purposes and include the date and destination of the journey. 20p per mile can be claimed for journeys made on an employee's own cycle.
Rail Travel Direct Costs
The cost of rail tickets and rail travel paid directly by the company. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes. Receipts should be kept where possible but if not available then keep the train ticket.
Rail Travel Reimbursed Expenses
Costs of rail tickets and rail travel reimbursed by the company to the employee. HMRC may consider that this area is open to abuse so they could ask for documentary proof of the journey and that it was for business purposes. Receipts should be kept where possible but if not available then keep the train ticket.
Taxi
To be able to claim this for travel back to (trading office) then the following conditions apply -
  1. a) The director or their staff will be required to work late one night
  2. b) This is also not a regular event or requirement
  3. c) Should be restricted to no more than 60 journeys per annum per director/employee
  4. d) Public transport should not be available as an alternative
  5. e) It must be a hired taxi
You should avoid regular journeys and, in the event you make significant claims, you may be required to prove that public transport links were poor or not available on the days when the taxi fare was claimed.

Other travel claims

It is allowable for a company to pay for a weekend away for a director or an employee as long as the weekend event is related to the business. In the event the client is to travel overseas then this is also 100% allowable as long as this is primarily for business purposes. In the event this is a longer trip, HMRC will be looking for you to distinguish between the business and personal proportions of the expenses incurred. For example: Should you have business meetings on Friday and Monday, you would not be expected to return home and you can claim the full cost of staying at a local hotel. If you incur personal expenses on Saturday and Sunday over and above the cost of the stay, e.g. visiting a local attraction, then this should not be claimed. To claim the cost of spouse or partner attending, they must be an employee of the business otherwise their costs will have to be removed from the claim.  

Cycling to work

Any employee considering joining a Cycle to Work scheme will need to consider whether they would prefer to use their own cycle and be able to claim up to the 20p per mile tax-free for any business miles they travel, as opposed to having a cycle loaned to them by their employer. The cycle to work scheme is a government initiative designed to support and encourage employees to cycle to work. The idea behind the scheme is that this will contribute to healthier employees, having benefits for both the individuals themselves and the companies they work for.

How the scheme works

For those who are not Limited Company contractors the way the scheme works is that the employee sacrifices some salary for the use of the bike which is loaned to them by their employer. It is not deemed a benefit in kind to the employee and is, therefore, tax-free. In addition, the employee can eventually buy the bike from the company. The cost to the employee is calculated according to HMRC approved valuation tables to ensure it does not attract a benefit in kind charge. Overall this can mean a significant cash and tax saving for the employee. The employer company benefits financially from this with reduced income tax and NICs from the employee's sacrifice of salary, reduced corporation tax and in some cases VAT relief.

Limited Company contractors and the cycle to work scheme

Limited Company contractors, as employees of their companies, can also take advantage of the cycle to work scheme but do not have to make a salary sacrifice. They can also benefit from a number of tax savings.
  • It may be possible to reclaim VAT on the bike purchase, making it cheaper to buy
  • The company's Annual Investment Allowance can be used to get 100% tax relief on corporation tax
  • As the bike is paid for from gross earnings, not personal income, there is a potential saving on income tax
  • If the contractor buys the bike from their company - although the company will pay corporation tax on the sale - the contractor can potentially make tax savings on the purchase

Rules

The scheme is not designed for personal bicycle use so the bike must be used more than 50% of the time for business travel purposes. Therefore, the employee must predominantly use the bike to get them to and from their workplace. The definition of 'workplace' is wider under the scheme than the usual definition for travel expense purposes, so travel to a permanent workplace is allowable.

A trivial benefit has to satisfy the following conditions in order to qualify for the trivial benefits in kind exemption:

• no more than £50 per benefit
• not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed).
• there is a limit on the total trivial benefits exemption of £300 per tax year per director (or officeholder).


The exemption also applies to family or household members, so, if there is a function where partners are invited, then each employee’s partner can share the £50 trivial benefit for the particular event. Similarly, where a director has the £300 per year limit, any benefits provided to their family or household members are also included within this limit.


If the individual benefit exceeds £50 (or an average of £50 per head), the whole amount then comes taxable as a benefit in kind, not just the excess over £50.


Examples:


Allowable


• Taking a group of employees out for a meal to celebrate a birthday
• Buying each employee a Christmas present
• Flowers on the birth of a new baby
• A summer garden party for employees


Not allowed


• Providing a working lunch for employees (because this is related to their employment)
• Gifts, incentives or events related to performance targets or results
• Gifts, incentives or events in relation to employment services e.g. team-building events
• Taxis when employees work late



Personal Tax

From 6 April 2016, the notional 10% tax credit on dividends was abolished. A £5,000 tax-free dividend allowance was introduced. Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). Individuals who are basic rate payers who receive dividends of more than £5,001 will complete self-assessment returns from 6 April 2016.

If you are liable to make student loan deductions then this needs to be ticked on tax return as well, as the calculations need to be re-run based on total income. Any difference needs to be paid by 31st January as part of balancing payment of the year. The student loan repayments are due at the rate of 9% on earnings over the threshold.

We can defer your initial payment of tax and, instead of paying cash by 31st January, this will instead be collected through your tax code during the next tax year. Therefore, effectively delaying the payment of tax for more than a year. To qualify, your total tax due should be less than £3,000, you must have a salary income where this tax could be collected from and must submit the tax return before 30th December.

If you or your partner have adjusted net income of more than £50,000, you need to declare any child benefit you had received and pay some of the amount back to HMRC by 31st of January. Please note if the adjusted net income exceeds £60,000, then all of the child benefit will become repayable and, in this case, you should consider the option to de-elect to receive child benefit. Equally, if your combined income is likely to remain above £60,000, it may be wiser to contact HMRC and request that you no longer receive the benefit.

For more information including penalties and fines please refer to HMRC:- https://www.gov.uk/self-assessment-tax-returns/deadlines

No POA is required if the tax due on self-assessment is below £1,000, or more than 80% of total tax due was deducted at source, or your extra tax is less than 20% of the total tax.

With effect from 6 April 2013 the UK introduced a Statutory Residence Test (SRT) for the first time and includes a three part test.

  1. Automatic residence test
  • An individual will be automatically UK resident should they:
  • Spend 183 days or more in the UK in a tax year; or
  • Spend at least 30 days at their UK home and it is either their only home or they spend less than 30 days in their overseas homes; or
  • Carry out full-time work in the UK; or
  • Die in the year, having been UK resident in all of the three preceding tax years and had a UK home.
  1. Automatic overseas test
An individual will be automatically non-resident if they:
  • Were UK resident in at least one of the previous three UK tax years, but spend less than 16 days in the UK and do not die in the tax year; or
  • Were non UK resident in all of the three preceding tax years and spend less than 46 days in the UK in the years; or
  • Leave the UK to carry out full time work abroad, spend less than 90 days in the UK and no more than 31 days working in the UK; or
  • Die in the year having spent less than 46 days in the UK and were not UK resident in either of the two preceding tax years.
  1. The sufficient ties test
If the automatic tests are not satisfied then the sufficient ties test must be considered. This test combines factors connecting individuals to the UK with time spent in the UK. There are 5 factors to consider:
  1. Family ties - Does the individual have a UK resident spouse, civil partner, cohabitee or minor children.
  2. Accommodation tie - Does the individual have a place to live in the UK which was available for a continuous 91 day period and they spent at least one night there (16 nights if owned by a relative).
  3. Work ties - Did the individual work for at least 40 days (minimum 3 hours per day) in the UK, in the year.
  4. 90 day tie - Did the individual spend more than 90 days in the UK in either of the two preceding tax years.
  5. Country tie - If an individual spends more midnights in the UK than anywhere else they will have a country tie. A tie breaker exists in favour of the UK.
These rules are complex so please refer to HMRC for further information:- https://www.gov.uk/tax-foreign-income/residence

HMRC have become more strict and expect that you keep appropriate records to support your tax return, more specifically:-

  • The taxpayer must keep all the records used in making and delivering a correct tax return.
  • The taxpayer must keep information that shows that they have prepared a complete and correct tax return.

Records must be retained until later of:-

  1. 5 years from 31st January following the tax year, where the taxpayer is in business (as a sole trader or in a property business), or
  2. 1 year after 31st January following the tax year.

The penalty of failing to keep adequate records is £3,000 per tax year.

HMRC guidelines say you need to send a tax return if, in the last tax year:

  • you were self-employed - you can deduct allowable expenses;
  • you got £2,500 or more in untaxed income, for example from tips or renting out a property - contact the helpline if it was less than £2,500;
  • your income from savings or investments was £10,000 or more before tax;
  • your income from dividends from shares was £10,000 or more before tax;
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax;
  • you were a company director;
  • your income (or your partner') was over £50,000 and one of you claimed Child Benefit;
  • you had income from abroad that you needed to pay tax on;
  • you lived abroad and had a UK income;
  • your income was over £100,000;
  • you were a trustee of a trust or registered pension scheme;
  • you had a P800 from HMRC saying you didn't pay enough tax last year - and you didn't pay what you owe through your tax code or with a voluntary payment.

An individual has to notify HMRC that they owe tax by 5th October. If the notice to file a tax return is not issued by HMRC before 31st October, then the due date for the balancing payment is three months after the issue date.

A payment on account (POA) is a payment of tax for the current tax year based on the income of the last tax year. A POA is required for self-assessment individuals. Other individuals who have income above the annual personal allowance, but pay tax throughout the year, eg through monthly pay as part of the pay as you earn scheme will not, therefore, be required to make a POA.

When the tax return is submitted, an individual is actually paying last year's tax liability 9 months after the tax year ended. Therefore, HMRC like to get an estimated amount of tax from self-employed individuals during the year in two installments. The first one is due on 31st January, which is 10 months after the tax year start date, and the other one is in July, which is four months after the relevant tax year end. As this is a projected figure HMRC are assuming that you will earn the same amount as last year and you will have the same liability every year. Therefore, this is just an estimate. We can quite often calculate a better estimate than HMRC which may well reduce the POA based the current year income being less than the preceding year. However, if the reduced POA is less than the actual tax liability at the year end, then the individual will incur an interest charge or even a penalty. No taxpayer is required to pay in either January or July more than 50% of the relevant amount for the preceding year, even though it may already be clear, at the time the payments are made, that the actual liability for the year will exceed that for the preceding year.

Capital gains tax and student loan repayments are excluded from the computation of POAs. So any capital gains tax or Student Loan repayment is simply payable as part of the balancing payment on 31st January following the tax year.

We can plan your dividends for this tax year. This depends on your spending requirements and money you need on a regular basis. As part of our self-assessment procedure, we offer our clients an assessment of future tax liability based on our own estimates. We can then calculate how much tax you are likely to pay and the POA based on this figure. If you have a limited company then the tax department at Rodliffe will liaise with your account manager to calculate the amount you can take which will help you to defer the extra payment of tax. We can reduce this to any amount depending on your cash flow circumstances. Please note that if later you decide to take more dividends than suggested, this will attract more tax. If you are not one of our limited company clients or don't have a limited company, we can still do an estimated calculation for you. A claim can be made to reduce the tax to nil, or to a fixed amount. Any such claim must state the taxpayer's belief that there will be no income tax liability for the current tax year or that any such liability will be covered by income tax deducted at source, or the amount due for the current year, after taking into account tax deducted at source, will be a certain amount which is less than the amount of payments on account based on the preceding year, or the claim must include the grounds for that belief. If the claim does not include these details then HMRC could challenge that the claim was fraudulent.

If you are using the questionnaire, then answer the questions which are relevant for you. Help text is there to guide you. You will need proof of the amounts, particularly, your P60, your dividend tax vouchers, your P11d. You may also need your P45 from your previous employer, if applicable. If we look after your limited company then we will already have your dividend vouchers on file. You will need proof of the amounts, particularly your P60, your dividend tax vouchers and your P11d. You may also need your P45 from your previous employer, if applicable. If we look after your limited company then we will already have your dividend vouchers on file. Please let us have copies of your PAYE coding notices for 2016/17 (if you have received them). Please send us a copy of your 2015/16 self-assessment tax return, if this was not filed by us last year, as this will help us with this year's return. If HMRC conducts an inquiry into your tax affairs as a result of your self-assessment then we will charge separately for this work. Of course, we will quote first for this piece of work. If you wish to take out tax insurance, then let us know.

You have to pay additional tax because not all tax is deducted at source. This could be due to the following, (the list below are some of the examples and is not a complete list):

  • You are receiving a benefit in kind and tax on these benefits wasn't deducted from your salary
  • You have rental property income which is received gross and you have to pay tax on it through your self-assessment
  • You sold an asset and made a capital gain on the sale. Tax on capital gains is due through your self-assessment
  • You have received a dividend/bank interest and you are a higher rate taxpayer so you have to pay additional tax on income falling above the basic rate band.

Your online return is due by 31st January. The tax year dates to which the self-assessment return relates run from 6th April to 5th April of the tax year just ended. Rodliffe submits all self-assessments online.

An individual has to notify HMRC that they owe tax by 5th October. If the notice to file a tax return is not issued by HMRC before 31st October, then the due date for the balancing payment is three months after the issue date.

Your online return is due by 31st January. The tax year dates to which the self-assessment return relates run from 6th April to 5th April of the tax year just ended. Rodliffe submits all self-assessments online.

From 6 April 2016, the notional 10% tax credit on dividends was abolished. A £5,000 tax-free dividend allowance was introduced. Dividends above this level are taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). Individuals who are basic rate payers who receive dividends of more than £5,001 will complete self-assessment returns from 6 April 2016.

We can defer your initial payment of tax and, instead of paying cash by 31st January, this will instead be collected through your tax code during the next tax year. Therefore, effectively delaying the payment of tax for more than a year. To qualify, your total tax due should be less than £3,000, you must have a salary income where this tax could be collected from and must submit the tax return before 30th December.

With effect from 6 April 2013 the UK introduced a Statutory Residence Test (SRT) for the first time and includes a three part test.

  1. Automatic residence test
  • An individual will be automatically UK resident should they:
  • Spend 183 days or more in the UK in a tax year; or
  • Spend at least 30 days at their UK home and it is either their only home or they spend less than 30 days in their overseas homes; or
  • Carry out full-time work in the UK; or
  • Die in the year, having been UK resident in all of the three preceding tax years and had a UK home.
  1. Automatic overseas test
An individual will be automatically non-resident if they:
  • Were UK resident in at least one of the previous three UK tax years, but spend less than 16 days in the UK and do not die in the tax year; or
  • Were non UK resident in all of the three preceding tax years and spend less than 46 days in the UK in the years; or
  • Leave the UK to carry out full time work abroad, spend less than 90 days in the UK and no more than 31 days working in the UK; or
  • Die in the year having spent less than 46 days in the UK and were not UK resident in either of the two preceding tax years.
  1. The sufficient ties test
If the automatic tests are not satisfied then the sufficient ties test must be considered. This test combines factors connecting individuals to the UK with time spent in the UK. There are 5 factors to consider:
  1. Family ties - Does the individual have a UK resident spouse, civil partner, cohabitee or minor children.
  2. Accommodation tie - Does the individual have a place to live in the UK which was available for a continuous 91 day period and they spent at least one night there (16 nights if owned by a relative).
  3. Work ties - Did the individual work for at least 40 days (minimum 3 hours per day) in the UK, in the year.
  4. 90 day tie - Did the individual spend more than 90 days in the UK in either of the two preceding tax years.
  5. Country tie - If an individual spends more midnights in the UK than anywhere else they will have a country tie. A tie breaker exists in favour of the UK.
These rules are complex so please refer to HMRC for further information:- https://www.gov.uk/tax-foreign-income/residence

HMRC guidelines say you need to send a tax return if, in the last tax year:

  • you were self-employed - you can deduct allowable expenses;
  • you got £2,500 or more in untaxed income, for example from tips or renting out a property - contact the helpline if it was less than £2,500;
  • your income from savings or investments was £10,000 or more before tax;
  • your income from dividends from shares was £10,000 or more before tax;
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax;
  • you were a company director;
  • your income (or your partner') was over £50,000 and one of you claimed Child Benefit;
  • you had income from abroad that you needed to pay tax on;
  • you lived abroad and had a UK income;
  • your income was over £100,000;
  • you were a trustee of a trust or registered pension scheme;
  • you had a P800 from HMRC saying you didn't pay enough tax last year - and you didn't pay what you owe through your tax code or with a voluntary payment.

You have to pay additional tax because not all tax is deducted at source. This could be due to the following, (the list below are some of the examples and is not a complete list):

  • You are receiving a benefit in kind and tax on these benefits wasn't deducted from your salary
  • You have rental property income which is received gross and you have to pay tax on it through your self-assessment
  • You sold an asset and made a capital gain on the sale. Tax on capital gains is due through your self-assessment
  • You have received a dividend/bank interest and you are a higher rate taxpayer so you have to pay additional tax on income falling above the basic rate band.

For more information including penalties and fines please refer to HMRC:- https://www.gov.uk/self-assessment-tax-returns/deadlines

If you are liable to make student loan deductions then this needs to be ticked on tax return as well, as the calculations need to be re-run based on total income. Any difference needs to be paid by 31st January as part of balancing payment of the year. The student loan repayments are due at the rate of 9% on earnings over the threshold.

If you or your partner have adjusted net income of more than £50,000, you need to declare any child benefit you had received and pay some of the amount back to HMRC by 31st of January. Please note if the adjusted net income exceeds £60,000, then all of the child benefit will become repayable and, in this case, you should consider the option to de-elect to receive child benefit. Equally, if your combined income is likely to remain above £60,000, it may be wiser to contact HMRC and request that you no longer receive the benefit.

No POA is required if the tax due on self-assessment is below £1,000, or more than 80% of total tax due was deducted at source, or your extra tax is less than 20% of the total tax.

A payment on account (POA) is a payment of tax for the current tax year based on the income of the last tax year. A POA is required for self-assessment individuals. Other individuals who have income above the annual personal allowance, but pay tax throughout the year, eg through monthly pay as part of the pay as you earn scheme will not, therefore, be required to make a POA.

When the tax return is submitted, an individual is actually paying last year's tax liability 9 months after the tax year ended. Therefore, HMRC like to get an estimated amount of tax from self-employed individuals during the year in two installments. The first one is due on 31st January, which is 10 months after the tax year start date, and the other one is in July, which is four months after the relevant tax year end. As this is a projected figure HMRC are assuming that you will earn the same amount as last year and you will have the same liability every year. Therefore, this is just an estimate. We can quite often calculate a better estimate than HMRC which may well reduce the POA based the current year income being less than the preceding year. However, if the reduced POA is less than the actual tax liability at the year end, then the individual will incur an interest charge or even a penalty. No taxpayer is required to pay in either January or July more than 50% of the relevant amount for the preceding year, even though it may already be clear, at the time the payments are made, that the actual liability for the year will exceed that for the preceding year.

Capital gains tax and student loan repayments are excluded from the computation of POAs. So any capital gains tax or Student Loan repayment is simply payable as part of the balancing payment on 31st January following the tax year.

We can plan your dividends for this tax year. This depends on your spending requirements and money you need on a regular basis. As part of our self-assessment procedure, we offer our clients an assessment of future tax liability based on our own estimates. We can then calculate how much tax you are likely to pay and the POA based on this figure. If you have a limited company then the tax department at Rodliffe will liaise with your account manager to calculate the amount you can take which will help you to defer the extra payment of tax. We can reduce this to any amount depending on your cash flow circumstances. Please note that if later you decide to take more dividends than suggested, this will attract more tax. If you are not one of our limited company clients or don't have a limited company, we can still do an estimated calculation for you. A claim can be made to reduce the tax to nil, or to a fixed amount. Any such claim must state the taxpayer's belief that there will be no income tax liability for the current tax year or that any such liability will be covered by income tax deducted at source, or the amount due for the current year, after taking into account tax deducted at source, will be a certain amount which is less than the amount of payments on account based on the preceding year, or the claim must include the grounds for that belief. If the claim does not include these details then HMRC could challenge that the claim was fraudulent.

HMRC have become more strict and expect that you keep appropriate records to support your tax return, more specifically:-

  • The taxpayer must keep all the records used in making and delivering a correct tax return.
  • The taxpayer must keep information that shows that they have prepared a complete and correct tax return.

Records must be retained until later of:-

  1. 5 years from 31st January following the tax year, where the taxpayer is in business (as a sole trader or in a property business), or
  2. 1 year after 31st January following the tax year.

The penalty of failing to keep adequate records is £3,000 per tax year.

If you are using the questionnaire, then answer the questions which are relevant for you. Help text is there to guide you. You will need proof of the amounts, particularly, your P60, your dividend tax vouchers, your P11d. You may also need your P45 from your previous employer, if applicable. If we look after your limited company then we will already have your dividend vouchers on file. You will need proof of the amounts, particularly your P60, your dividend tax vouchers and your P11d. You may also need your P45 from your previous employer, if applicable. If we look after your limited company then we will already have your dividend vouchers on file. Please let us have copies of your PAYE coding notices for 2016/17 (if you have received them). Please send us a copy of your 2015/16 self-assessment tax return, if this was not filed by us last year, as this will help us with this year's return. If HMRC conducts an inquiry into your tax affairs as a result of your self-assessment then we will charge separately for this work. Of course, we will quote first for this piece of work. If you wish to take out tax insurance, then let us know.

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Great service: friendly and professional. I definitely recommend Rodliffe to anyone to help with their business.

 
Sergei, small business owner