RTI reporting

There has been much confusion about how to report payment dates for RTI where the employees are paid earlier or later than usual. This can happen around bank holidays such as at Easter and Christmas.

HMRC has made an absolute horlicks of explaining the correct procedure for employers to report the correct payment day.

In Employer Bulletin 77 it referred to “the normal payday”. It said the payment date to be reported on the FPS should be the normal payday if the employees are paid early or late because the normal payday falls on a non-banking day (see CWG2 para 1.8). This applies as long as the payment to the employee is made on the last working day before the normal payday or the first working day after the normal payday.

In December there can be up to four non-banking days in a row and employees can be paid much earlier due to the Christmas break. There is thus a special easement for December, which has now been made permanent as announced in Employer Bulletin 81.

For December only the contractual payday should always be the date reported on the FPS, even where the pay arrives in the bank account of the employee (or is physically handed over in cash) on a much earlier date.

For example, where the employees have a contractual payment date of the last day of the month, but this month they are paid on 23 December, the employer should still report the payment date as 31 December 2019. The FPS should be submitted to HMRC on or before 31 December 2019.

Written by the Tax Advice Network

Trivial benefits

A new statutory exemption for trivial benefits which are provided to employees was introduced from 6 April 2016, as we explained on 27 October 2016.

The trivial benefit rules allow an item worth up to £50 to be provided tax-free and NIC- free to any employee on unlimited occasions, as long as all four conditions are met for each gift, as we set out on 30 May 2019. There is an annual cap of £300 for gifts provided to the company directors and their family members, where the company is “close” (eg small family company).

HMRC is unhappy with the potentially unlimited value of trivial benefits for employees, so it has attempted to redefine the rules in the last two Employment Bulletins (issues 80 & 81).

HMRC has invented two new rules:

Series of gifts
Where a single gift is part of a series of gifts, you need to look at the total value of the series to determine if the £50 limit has been breached. This would be the case where a gift card is provided and the value on that card is topped-up on several occasions during the year. This is a reasonable interpretation of the rules.

Legitimate expectation
Where the employer is required to provide the item as part of the employment contract, it is a contractual obligation and not a trivial benefit. For example, you may provide a calculator to each member of staff as their employment contract says they will be provided with all the necessary tools to complete their job.

An employee of an accountancy firm may have a “legitimate expectation” that the firm will provide them with an adequate calculator, even if that is not stated in the employment contract. However, that does not make the gift of a calculator a contractual obligation.

HMRC has implied that if an employee has a legitimate expectation of receiving an item that makes the provision of that item an effective contractual obligation, but that is certainly not the case. Where the employee has no legal grounds to object to the withdrawal of the benefit it would not form part of their contract.

NIC gaps

The PTA allows taxpayers (not their agents), to check their National Insurance Contribution record for their entire working life. This is very useful service, as it can highlight where gaps in the record exist that the taxpayer may not be aware of.

If the client can’t access their PTA online, they can request an NI statement by phone: 0300 200 3500, or we as their agent can submit an online request for an NI statement on their behalf.

Due to the long running problems with class 2 NI (see our newsletters: 9 November 2017, 1 March 2018, 16 August 2018, 1 August 2019) in a number of cases HMRC stopped collecting the class 2 NIC. The taxpayer may not have noticed that the small amount of class 2 NIC was not being collected.

If the NI statement or the PTA shows there are years with insufficient contributions, there are ways of making up the short-fall, but it does depend on when it occurred. It’s important to make up the gaps so the taxpayer can receive the full state pension.

Men born after 5 April 1951 and women born after 5 April 1953 can pay class 3 NIC to make up gaps in the years 2006 to 2016. Other retirees have six full calendar years from the date they reach state pension age to pay additional voluntary contributions. Individuals of working age can only pay voluntary contributions for the last six tax years.

We can also check if our client would have been entitled to NI credits, but for some reason those credits were not added to their NI record. NI credits should be given automatically when Jobseekers allowance, universal credit and a number of other state benefits are claimed. However, in some cases the NI credit has to be claimed as it is not given automatically.

Written by the Tax Advice Network

Late tax returns

The SA filing deadline of 31 January 2020 falls on a Friday, but that doesn’t mean you have until Monday 3 February to get the tax returns in. The HMRC computer will log every return received after midnight on 31 January as late.

But what happens if the computer gets it wrong and loses a tax return? HMRC will argue that can’t happen, but it does, as illustrated by the case of Andreas Georgiou.

He appointed Mr Ridler as his tax agent, who submitted Georgiou’s 2016/17 tax return online at 9am on 5 September 2017. Ridler recorded the submission number that indicated the return had been submitted.

In February 2018 HMRC issued the first late filing penalty of £100, Ridler appealed but the appeal was rejected. The penalties kept coming, and in July 2018 Ridler called HMRC to have the collection of the penalties suspended. He understood that HMRC had agreed to do this, and he confirmed that agreement in writing. However, on 31 July 2018 HMRC issued a notice for further daily penalties of £900.

There seemed to be no way to stop the HMRC penalty machine other than to submit the 2016/17 tax return again, so he submitted a paper copy on 31 August. Ridler explained that he couldn’t submit the same SA return online as government gateway will not accept duplicate online returns. The penalties were appealed again in November 2018 and once again the appeal was rejected.

The FTT accepted that Georgiou and Ridler genuinely believed that the SA return had been submitted on time and removed the penalties.

Ridler set a good example of how to handle the case of missing tax return. He accurately recorded every contact with HMRC, and appealed the penalty notices promptly. His record of the online submission number was crucial evidence.

However, he could have taken the extra step of asking Georgiou to check his online personal tax account (PTA). The fact that the taxpayer had not logged into his PTA was held up by HMRC as evidence that he had not submitted his tax return.

Written by the Tax Advice Network

Entrepreneurs’ relief

All three of the main Political Parties have included a commitment in their manifestos to either abolish or “review and reform” entrepreneurs’ relief (ER). This sounds like the death knell for ER to apply to the proceeds from company liquidation.

If you are counting on paying 10% CGT on the cash pile in their company, you need to either move fast to secure the relief before it is abolished, or have a plan B.

However, before you rush to liquidate the company, check that all of the ER conditions have been in place for a full 24 months to the cessation of trade or sale. The 12-month qualification period was doubled on 6 April 2019.

The conditions which can trip people up are:

Shareholdings
Did the individual hold 5% of the ordinary share capital for the full two-year period? Where the gain is to be spread between a married couple we need concrete evidence of when shares were acquired, especially if they were gifted between relatives.

Trading
Was the company trading or did the management of investments in the last few years out-weigh any trading activities? This point was examined in the Potter case, see our newsletter on 10 October 2019.

Where the trade wound down it may have changed location or nature in the last few years. In that case it can be difficult to define exactly when the trade ceased. This problem was examined in the Jeremy Rice case.

Written by the Tax Advice Network

Welcome to our monthly newswire. We hope you enjoy reading this newsletter and find it useful.

 

The Future of Work

 

There is a lot of jargon out there around “the future of work”.  What does it really mean for businesses?

 

There is a lot of buzz around trends like artificial intelligence (AI), machine learning, blockchain, remote working, agile working, augmented reality (AR) and various other new concepts.  As technology improves we have new opportunities to automate tasks.

 

If we leverage new technology effectively, it will free us up to focus on other tasks. Understanding the future of work involves understanding how automation will play out and how that will affect the way we work in the years to come.  There are two levels of automation at play.  Assisted Intelligence, where systems and technology help us to perform a task. A good example is how GPS helps us to navigate to a destination. Autonomous Intelligence is where the technology takes the task off our hands entirely. For example – a driverless car, which navigates itself to its destination without any input from a human driver.

 

In any business, some tasks are completed by people and some by machines / technology. The future of work is concerned with the ever-increasing amount of work that needs to be done and the fact that work is becoming more complex. For example, due to increasing levels of regulation, businesses need to comply with increasingly complex rules such as GDPR or changes to taxation. Rather than hire more and more people, which is expensive, businesses need to leverage technology in order to get everything done, while still managing costs.

 

So, the future of work is all about machines and technology taking repetitive tasks off our hands so that we are freed up to do the work that machines aren’t good at. This includes leadership, creativity, innovation and collaboration. In order to make this transition successfully, businesses need to become learning organisations. In a learning organisation, the firm needs to focus on nurturing talent and developing new skillsets in order to create a more successful business. The future of work looks set to be interesting, challenging and full of opportunity, for those who embrace change.

 

Do you need a desk for everyone in your office?

Office space is expensive. Do you really need to have a dedicated desk for each and every employee?

 

Recent years have brought a lot of changes to the office environment, particularly as technology develops and the next generation of employees has come through to management. This new generation of managers brings new thinking about the modern office environment and what it should be.

 

For example, if a workforce of 100 has, on average, only 80 people in the office on a given day, those 20 empty desks take up space and are not being efficiently utilised. A hefty portion of business overhead is dedicated to office building space and maintenance. By trimming furniture and hardware costs, some of that wasted space can be better used as a meeting or project development space, saving money and benefiting the bottom line.

 

If your employees hot-desk, they tend to socialise more. Employees who sit beside someone different every day interact more, converse with a greater number of departments, and can find inspiration where it wasn’t possible to before. More interaction with a wider variety of people can lead to greater company cohesion and increased collaboration.

 

Employees will tend to optimise the space around them for productivity and might select a space that meets their needs for any given day. If they have conference calls on their schedule, they may gravitate towards a small meeting room or less-crowded alcove. If they are collaborating with colleagues on a specific project, they may choose to work in a room with presentation software and large screens, rather than huddling around a single desk.

 

When your office design allows for employee flexibility, your workers who thrive on mobility and independence are happier and more productive. They will find a way to optimise their office set-up for each and every day.

 

So, perhaps modern businesses are better off having flexible, open and collaborative offices rather than relying on the more old fashioned approach of assigning each employee a fixed desk. As an added bonus, the business may be able to reduce office overhead costs as office space can be used more efficiently.

 

Reduce debtor days to improve cash flow.

Cash flow is king in any business. Yet cash flow is one of the areas that many businesses struggle to manage.

 

Customers are reluctant to part with their money, even if it’s to pay for your goods or services. As such, it can take a while for them to pay their invoices.

 

While longer debtor days might not be a big issue for huge international corporations, for the rest of us, it can be a very real source of stress. You need your customers to pay you as quickly as possible so you can continue to run your business, so it’s easy to find yourself working extra hours, chasing up late-paying clients. Here are a few tips to help you to reduce your debtor’s days.

 

Be clear and concise

When creating an invoice, think about your messaging. Is the due date easy to see on the page, does your invoice state exactly how much payment is required and have you clearly outlined the various payment options that you accept (such as bank transfers, cash, cheque, etc.)? Options such as “pay now”, “pay by installments” or “pay on the due date” should be clearly set out.

 

Offer incentives

Sometimes offering a small discount can motivate your clients to pay on time. Offering say, 5% off the total bill for clients who pay within 2 weeks of the invoice date can help a business to get cash in quicker. Setting this type of incentive out at the beginning of a client relationship can go down well as clients can see the early payment discount as a “value add”.

 

Charge fees for late payment

Incentivise customers to pay you on time by charging a fee for late payments. If you communicate the terms and conditions around late fees clearly, clients will not be surprised if they are charged for late payment.

If you are going to charge clients for late payment, it is usually effective to give some sort of warning. It may be helpful to send clients an email saying that “payment is due in 10 days time and if it isn’t received, a late payment fee will be applied.” This gives the client an opportunity to respond.

 

Embrace technology

There are a vast array of systems available to help businesses to track invoices, monitor payments and manage clients who have missed payment deadlines. With an automated accounts receivable system, you can keep track of the status of each invoice, who has paid and what is outstanding.  You can set up automatic reminders at crucial moments in the payment cycle and significantly reduce your administration time.

 

By implementing the above strategies, you can reduce debtor days in your business and ensure that you are getting cash in as quickly as possible.

 

Executing your strategy

 

Having a good strategy is one thing, executing it well can be a huge challenge.

 

Many business owners and managers are familiar with the scenario – you arrange a strategy day with your team, capture the outputs and create a strategic plan. Everyone goes back to the office, the strategy paper gets filed and that is the last you see of it until next year’s strategy day. The hardest part of any business strategy is implementation.

 

Once you have created your strategy, you need to start engaging with your organisation. The communication process is key and needs to be two-way. You need to create a mechanism for people in your firm to feed back their view.

 

Once you have your feedback and have finalised your strategic plan, the next step is to start creating tangible objectives.

 

Each objective should have a dedicated owner (who is responsible and accountable), a deadline and regular updates on progress towards each goal should be provided at, for example, a monthly meeting.

 

Tracking and reporting are key components of executing any strategy. Monthly updates should be provided by the people responsible for each objective and should include a quantitative measure of progress and a short commentary to add background information about progress to date, expected timeline for delivery, resources required for the next stage, and so on.

 

Performance management is also key to successfully implementing your strategy. Your team need to be accountable and you need to create a connection between the strategic objectives of the business and your team member’s day jobs. Each person on your team should have a set of objectives which cascade from the overall company objectives that are set out in your strategy document. Aligning the objectives of each individual with the overall goals of your business ensures that your whole team is working towards the same common goal. You should measure and reward people for their contribution to achieving the firm’s strategy. This encourages the right behaviours among your team.

 

Executing your strategy isn’t a process. It is about developing a culture in your firm where everyone is working towards a common set of goals. At the end of each year, you should evaluate your strategy, keep the bits that are working well and update those p