Holiday pay changes

Historically, holiday pay has been calculated on ‘normal basic pay’ and that’s made sense when the 40 hour week was the ‘norm’. However, in the new world where people are on zero hour contracts, part time contracts with extra hours regularly worked, flexible hours etc it seems sensible for people’s holiday pay to be calculated on the basis of the hours they actually work.
Once, this would have meant a lot of manual record keeping and calculation – but in the days of cloud-based time recording and HR systems, it is not that difficult to give everyone holiday pay based on the hours they actually worked over the previous 3 months.
Equality and flexibility

We have got used to the idea that we need to take proper account of statutory holidays when dealing with part time workers (who once used to miss out on any holidays that fell on days they did not usually work).

The courts have already decided that part time women can compare their pay with full time men who are working the same number of hours.

It is not a big leap of imagination to see that the calculation of holiday pay in relation to hours worked could have similar implications.
It changed earlier 

Holiday pay is no longer automatically calculated on the basis of ‘basic pay’ as British Airways pilots contested this year’s ago and got their flight bonuses included.
Holiday pay changes

Now it seems, from an Employment Appeal tribunal decision that has just been published, that holiday pay can no longer be calculated on the basis of ‘basic hours’ where workers are required and regularly working overtime, but ought to be calculated on ‘normal pay’.
Where will it end?

Wouldn’t it make more sense to simply accumulate holiday pay for each hour worked?   There’s little doubt that the latest decision is going to be appealed to the higher courts.  The legal arguments and the fine distinctions may run on, but it seems that the writing is clearly on the wall for any other method!!

Christmas Party

With the festive season fast approaching, it should be remembered that employers can provide employees with a tax free Christmas party.

The rules apply to any party or similar function, which must be open to staff generally or to workers at a particular location. The tax-free limit applies for a tax year, so an employer can put on both a summer party and a Christmas dinner as long as the total cost for both is less than £150 a head.

The £150 limit includes a whole host of items such as accommodation and transport, not only food and drink. As long as the cost per head stays under the limit, employees can bring their significant others along, and businesses will get tax relief on the total costs.

However, one word of caution; if the business spends even one penny over the £150 limit, the full amount spent will become liable to income tax and national insurance on both staff and the employer alike.  So whilst a Christmas party can be an excellent way of boosting staff morale, making employees feel valued for their hard work over the course of the year, it is important to make sure that you have checked the detail of the cost as there can be no quicker way to eliminate that morale than to come back to work after the Christmas break facing a tax bill for your pre-Christmas frivolities!

One further reminder…the tax exemption applies to an annual event, not to gifts. Employers who want to make Christmas special with gifts to employees should remember that these are taxable. Cash presents such as Christmas bonuses or vouchers redeemable for cash must be taxed and national insurance must be paid through the PAYE system. The alternative for employers who want to give, but without a tax charge attached, is to set up a PAYE Settlement Agreement with their tax office.

 

Enjoy!

HMRC brings in record £131m from tax status checks

Tax inspectors have been coming down hard on the construction industry and it’s paid off for them!

Extra payments from builders, plumbers and electricians after tax status checks by HM Revenue and Customs saw the figure rise to £131m in the year to March 2014. This is an increase of 7% from the £121m they took the year before.

If you look at the figures from 5 years ago, the yield from tax compliance investigations into the construction sector has nearly doubled.

As well as targeting construction businesses directly, HMRC is now also turning its focus to employment intermediaries who help to process the pay of contractors.

Last month HMRC confirmed that from April 6 2015, employment intermediaries will have to start providing quarterly reports explaining why workers on their payroll are not using PAYE.

HMRC tax probe yields

  •     2006-07: £56.0m
  •     2007-08: £57.2m
  •     2008-09: £65.6m
  •     2009-10: £68.9m
  •     2010-11: £66.9m
  •     2011-12: £78.9m
  •     2012-13: £121m
  •     2013-14: £131m

 

Failing to comply with HMRC could result in a big tax bill and a loss of flexibility in employment, which is vital for construction workers.

If you are currently working as a contractor in the construction industry, contact us today and we will be able to advise you on what you need to do as of April 6, 2015.

Patent Box Tax Relief

If your company is liable to Corporation Tax and makes a profit from exploiting patented inventions, you may qualify for Patent Box Tax Relief.

Your company must own or exclusively license-in the patents and must have undertaken qualifying development on them.

Your company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool.

The full benefit of the regime has been phased in from 1 April 2013.

From this date companies should have benefited from a reduced rate of corporation tax in respect of profits derived from patented products and by 2017 the rate of tax will be reduced to nil!

The relief is available on profits from the patent pending stage, but cannot be claimed until the patent is granted.

As you may know,  patents can sometimes take years to be granted so it’s important to make a claim for this relief at the patent pending stage, to ensure that no time limits are missed and no relief is lost!

If you think you qualify for this, don’t hesitate to get in touch with us today and we will be happy to talk you through Patent Box Tax Relief and how we can help you.

The Downsize Dilemma

There was a time when retiring automatically resulted in downsizing your property; bungalows, gardening and new hobbies beckoned! But more people are wondering if this is the right option for them. Unlike previous generations, those who are reaching retirement age nowadays don’t necessarily see it as the onset of ‘old age’ or even an opportunity to ‘slow things down’. So they start to question whether they really need the smaller house that usually accompanies a leisurely retirement lifestyle.

If you’re currently sitting on the fence, we’ve asked Cardiff Estate Agents, Thomas H Wood, to take a look at what we’re calling the Downsize Dilemma.

 

The Case for Downsizing

OAP? LOL!

Retirement is no longer seen as the ‘beginning of the end’ but rather an opportunity to go back to a more carefree lifestyle. With many people reaching a state of financial comfort at an earlier stage in their life, downsizing to an apartment is less a recognition of growing old and more akin to the care-free life they may have lived as a student. In recognition of this, the starting age for many new retirement developments is dropping from the average 60+ to 55 and even younger. In recognition of this a complex in Windsor features a rooftop conservatory, coffee shop and restaurant, and a development in Wiltshire offers “savvy 40- and 50-somethings” a buy-to-let investment until they’re ready to move in.

Farewell mortgage

Downsizing is likely to reduce your monthly mortgage payments, if not eliminate them entirely. Understandably, a lack of mortgage is likely to be accompanied by a certain amount of relief and the lifting of a burden that many people don’t even realise was there. Even if you still have a mortgage, the payments are probably going to be a lot less, which has a direct relationship to your own stress levels!

Hello disposable income

Unlocking the equity you have in your current home, saving money on your mortgage and the reduced upkeep of a smaller house gives you access to extra cash that allows you to splash out on the things you’ve always wanted. A sports car, that once-in-a-lifetime holiday, maybe even some cosmetic surgery, quite frankly after a hard earned career, you deserve it!

Exciting times

Yes, it’s probably going to be a bit stressful to sell and buy a property, but after many years in the same house maybe it’s time for a bit of a shake up? Stepping out of your comfort zone can be an invigorating experience. Be positive and see downsizing as an exciting new chapter in your life.

Small but perfectly formed

Larger homes, especially older properties, need a lot of housework, repairing and TLC. A smaller home takes up less of your time, giving you more to spend on the things you want to do and less on the things you have to do. You’ve also got less space in a smaller house. While that may sound like a negative, it actually gives you the motivation to de-clutter and stops you from making unnecessary purchases.

Things change

The first findings from the government’s National Wellbeing Programme suggested that the highest levels of “life satisfaction” were amongst 65 year old homeowners who were married and in good health. Experian and The Guardian asked people whose children had left home what they perceived as making up “quality of life” when looking for somewhere to retire. Air quality, crime rate, population density, burglary rates, neighbourliness, good health and life expectancy were all important factors. Your priorities change as you ‘grow up’ and the reasons why you moved to your current property, like school catchment areas, might not be relevant anymore.

The Case against Downsizing

Stress, stress and more stress

Going back into the housing market later in life could be compared to attempting a bungee jump at the same age! After divorce, moving home is often described as the second most stressful thing you can do. If you’re retiring, it’s unlikely that you’ve bought a home for quite some time, you’ll be out of practice and out of your depth in a property market that will have changed drastically. Why cause more stress at a time when you should be relaxing more?

Emotional attachment

It’s understandable to have become attached to the home where most of the major events in your life took place. While this shouldn’t stop you from downsizing, if you are a sentimental type it might be worth timing your move so that it doesn’t come right after the children move out! A lot of emphasis is put on being fiscally comfortable before downsizing, but it’s worth remembering that you should be emotionally ready, as well as financially.

Should it stay or should it go?

As we’ve mentioned in the pro-downsizing section, de-cluttering can be a good thing. But moving to a smaller property forces you to discard the things you’ve collected over the years, items that you may not really want to get rid of. If you don’t get rid of it, that could mean the extra expense of storing it somewhere.

Size does matter

Chances are that this particular feeling will pass over time, but it’s fair to say that the home you live in conveys a certain amount of prestige. After all, you’ve worked hard over the years to get there. Yes it might sound shallow, but many people have an initial feeling of inadequacy when they downsize. For many though, the benefits will outweigh this fleeting drop in self-worth!

Whatever you decide to do, your retirement should be a time for you, so choose the option that makes you happiest. As a final thought, it’s interesting to see that Wales featured favourably in research conducted by a retirement income specialist in 2010. Looking for the cheapest places to retire in the UK, they found that Cardiff came top with a cost of living 11.53% less than the UK’s average. The most recent results from the government’s National Wellbeing Programme also found that Pembrokeshire had the UK’s lowest average anxiety and Carmarthenshire had the highest proportion of people rating their anxiety level as 1 or less out of 10.

So if you want a relaxing retirement, it looks like South Wales is as good a place as any!

The dividend that comes with sensible remuneration planning

When you’re running a small business, it’s all too easy to end up paying more tax than you actually need. One of the problems, of course, is that you’re very much focused on the day-to-day priorities of the company and ensuring its success. And if your enterprise is a family concern, with joint ownership between a husband and wife, even keeping up with your cashbook accounting and VAT can sometimes be a challenge if you’re pressured for time and worrying about securing the next sale.

It’s definitely worth creating a space to talk to your accountant about remuneration planning, however. Some very straightforward steps can help to minimise your liabilities and get the most out of the business you’re trying to grow.

An example might be a company in which a husband and wife are both paying themselves significant salaries. Perhaps one partner is a director on £75,000, while the other takes home a pay cheque of, say, £26k. In this scenario, two problems arise straight away. The first is the high level of PAYE and National Insurance within the company and the second is an unnecessary burden of extra personal tax. The spouse on the lower salary is not using up their basic rate band, while the higher earner finds themselves in the higher-rate tax bracket.

The solution here might be to reduce both salaries to the level at which no national insurance is due and for the two business owners to both take dividends up to their basic rate bands instead. Rather than a 20% levy on the £26k salary, there would be a 10% tax on dividends under the basic-rate band. The director, meanwhile, would end up paying less tax on their dividends than they did via PAYE.

This strategy would provide a significant additional joint net income of approximately £19k a year to the director and their partner, while the cost to the company would remain the same.

If you’re in any doubt about whether your own affairs are arranged in the most efficient way, then a conversation with your professional adviser is the first starting point. A small amount of planning can potentially reap a big reward.

HMRC strikes again…

It’s been widely reported that HMRC have sent out letters to around 1,000 high net worth individuals who have been identified as having a lower than average effective rate of tax in 2011/12.

Are they right?

In all likeliness, no!  HMRC have produced these letters by comparing the effective rate of tax paid by individuals, with a similar income level.  However it’s just not possible to take such a simple approach to the tax affairs of high net worth individuals.  There are numerous reasons why one individual’s tax liability may be much lower that another’s, such as loss relief claims, tax relief claimed on pension contributions or charitable donations, amongst others.

What’s the next step?

There is no doubt that receiving this letter will cause some individuals undue worry.  The wording of the letter is a little intimidating, with the last paragraph re-iterating the fact that there will be serious consequences for not paying the correct amount of tax.  However, it is important to bear in mind that this is not an investigation and receiving the letter does not mean that your tax return was wrong.

There is no obligation for the individual to reply to the letter but we would advise against ignoring the letter.  We can prepare a response to HMRC on your behalf, explaining the reasons why your effective rate is lower than expected, and this should bring the matter to a close.

Xero – online accounting on the go

At Clay Shaw Thomas we appreciate that doing your accounts can often feel like a chore but with Xero it needn’t be.

Our chosen online accounting software, Xero is safe and secure and allows you to update your accounts anywhere, anytime, helping you to take control of your finances. Xero allows you to access your financial information in real-time, making it much easier for you to share your data with us.

Benefits of Xero

Xero is a pay as you go service with no upfront charge, no installation, upgrades or maintenance costs. It provides your business with automated secure bank feeds, fast simple and customised invoicing, quick and easy VAT returns and most importantly real-time collaboration with us, your advisors. The Xero system allows us to review and analyse performance, help you increase profitability, plan tax and provide you with proactive and honest advice throughout your financial year.

Xero Touch is a mobile application. With bank reconciliations, invoicing, contacts and expense claims available on-the-go see how much can be achieved with just a few taps.

Xero on the go

For more information on how we can get you onto Xero please contact me

Less than a month to go…

It’s that time of year for forms P11D to be submitted to HM Revenue & Customs

What does this mean to you?

If you provide benefits to your employees, or reimburse expenses on behalf of your employees, you may be required to declare these on form P11D and submit them to HM Revenue & Customs.

Any benefit declared on the P11D is liable to Class 1A National Insurance, payable by the business, and included as taxable income of the employee.

What is considered to be a benefit?

If the business pays for anything on behalf of the employee, it may well be considered to be a benefit in kind.

The following list is not exhaustive but includes a few common examples which may need to be declared: –

  • Use of a company car and/or provision of fuel
  • Medical insurance
  • Dental insurance
  • Sports membership, e.g. gym or golf club
  • Loans to employees or directors in excess of £5,000
  • Provision of living accommodation
  • Gifts to employees
  • Provision of vouchers
  • Provision of childcare
  • Payment of school fees
  • Reimbursement of employee expenses

What are the implications?

The relevant paperwork needs to be submitted to HM Revenue & Customs by 6rd July 2014.  Failure to do so could result in penalties of £100 per month, or per part of a month, for each 50 employees.  The associated Class 1A National Insurance needs to be paid to HM Revenue & Customs by 19th July (22nd if electronically) otherwise late payment interest will be charged.

What to do next?

If you’re concerned that your business may provide benefits to your employees and/or directors please contact us.  The legislation surrounding Benefits in Kind can be complicated and we can help you decide whether this is a requirement for your business and the next best step for you to take.

Was 2013/14 a good tax year?

Was 2013/14 a good tax year? There are still planning opportunities available to reduce your tax bills

As the current tax year rapidly draws to a close have you considered all the opportunities that are still available to you to reduce your tax bill?

Personal income tax

Are you paying tax at the highest rates of 40% or 45% or are you earning over £100,000 and forfeiting your personal allowance?

  • As a business owner you could consider delaying a bonus or deferring income.
  • You can extend your basic rate band by making a donation to charity.
  • Consider making use of a tax efficient spouse for example transferring income generating assets and using the tax free personal allowance for 2013/14 of £9,440.
  • Making a pension contribution should save you tax at the higher rate.
  • The annual investment allowance remains at £250,000 until 31 December 2014 which means that capital expenditure can be extremely tax efficient for a business owner.

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