News & Updates

Can a virtual party for staff be treated like a face to face annual event for employee taxable benefit purposes? If it can, the employer can spend up to £150 per head (including VAT) and the employee has no taxable benefit.

HMRC changed its guidance in its Employment Income Manual (para EIM21690) last year to make it clear that virtual functions for staff could qualify as annual events, if the following conditions were also met:

• The function is open to all staff generally and guests
• The event not a one-off, say for a person’s retirement
• If there are two or more annual events in the year the £150 per head cap must cover the costs of both events

A virtual event could involve sending each employee a hamper or party box, as well as paying for entertainment to be broadcast to the online attendees.

The gifts provided to staff as part of the annual event are not restricted by the usual £50 per item cap (as a trivial benefit), so can be quite lavish, as along as they are designed to be enjoyed as part of the event.

Written by the Tax Advice Network

We warned you about the HMRC nudge letters on 27 November 2021, and since then the tax authority has found three more topics to write to taxpayers about.

If you receive one of these letters it doesn’t necessarily mean you have done anything wrong, its just a nudge to check the amounts claimed on the 2019/20 tax return are correct.

Property finance

The tax return for 2019/20 was the last opportunity for individual landlords to claim any deduction for finance costs, and they could only deduct 25% of such costs from their rental income.

HMRC is writing to landlords who let property in 2019/20, who may have deducted more than the allowable proportion of 25% of finance costs. Note that HMRC has not checked whether the taxpayer has claimed any deduction for finance costs, or even if they claimed the right amount of deduction.

If we have a number of landlord clients we may get one letter asking us to check the finance costs deductions for all those clients. Other landlords will receive a letter form HMRC directly and we should be copied in as the agent.

Where an error is found in the 2019/20 return this should be amended online before 31 January 2022. In such cases we also need to check deductions for interest claimed on the tax returns for 2018/19 and 2017/18, and correct those figures where necessary using HMRC’s Digital Disclosure Service.

Employment expenses

The HMRC briefing indicates that this nudge letter will be sent to all those taxpayers who have claimed employment expenses on their SA tax return for 2019/20.

The HMRC letter lists the five conditions which must all be met for an expense to be claimed against employment income (see EIM31630), and asks the taxpayer to keep evidence of the expenses incurred.

HMRC is known to be concerned about the activities of High Volume Agents who submit employment-related expense claims to generate tax repayments, without checking the details. These nudge letters could potentially uncover fraudulent claims where the taxpayer’s online Govt Gateway credentials have been used to submit a tax return including an expense claim, without the taxpayer’s knowledge.

Gift Aid carry back

Last week we reminded you about the importance of declaring Gift Aid donations on the tax return and how donations made in the current tax year (2021/22) can be claimed on the 2020/21 return, if that return has not yet been filed.

The carry back of Gift Aid donations can not be made by amending an earlier tax return, it can only be included on the original version of that return which was submitted - crazy, but that’s the law.

HMRC is nudging taxpayers who have amended a declaration of Gift Aid in an earlier return. That amendment to box 8 of the tax return is not valid, although the tax software may have allowed it to be submitted, and HMRC initially accepted the amended return, and issued a tax repayment.

If the tax return is not corrected to reinstate the original figure of Gift Aid, HMRC will make an amendment under TMA 1970, s 9ZA or it may open a formal enquiry.

Written by the Tax Advice Network

The price of road fuel has increased significantly in the last few months and HMRC has responded by raising all of the advisory fuel mileage rates for company cars. The new rates can be used for business journeys taken from 1 December 2021, where the employee pays for the fuel.

The old mileage rates for the period from 1 September to 30 November 2021 are shown in brackets:

Advisory fuel rates from 1 December

 

Engine Size	Petrol - rate per mile	LPG - rate per mile
1400cc or less	13p (12p)	9p (7p)
1401cc to 2000cc	15p (14p)	10p (8p)
Over 2000cc	22p (20p)	15p (12p)

Engine Size	Diesel - rate per mile	LPG - rate per mile
1600cc or less	11p (10p)
1601 to 2000cc	13p (12p)
Over 2000cc	16p (15p)

The advisory mileage rate for electric vehicles has also increased from 4p per mile to 5p per mile from 1 December 2021. This is a significant 25% uplift, and the first change in the EV rate since it was introduced in 2018. However, it is definitely needed as the cost of electricity has also increased dramatically recently.

The provision of an EV (car or van) to an employee or director is still very tax efficient. Although the taxable benefit for electric cars is due to double from 1% to 2% of list price on 6 April 2022, it will be frozen at that level until at least 6 April 2025. There is currently zero taxable benefit for using an electric company van for private journeys.

Written by the Tax Advice Network

Paying your tax bill should be easy, but its really not for many people. HMRC no longer send payslips for many taxes, as it wants the majority of taxpayers to pay online.

Even if the taxpayer is comfortable with online banking, they have to login to their online bank account, and manually completing a bank transfer payment for the correct amount. For this they need to find the payment code for the particular tax they are paying and accurately type it in as the payment reference.

For self-assessment the payment code is the taxpayer’s UTR number with ‘K’ added to the end, but the taxpayer somehow needs to know that.

Paying PAYE is far more complicated as the payment for each tax month requires a different set of 4 digits to be added to the end of the 13-digit accounts office reference. Corporation tax payments also need a 17-digit payment reference, and the last two digits change each year.

Some online bank accounts do not accept a payment reference as long as 17 digits, but the only advice HMRC can offer is to change bank accounts.

However, an alternative payment method is now possible for at least some individual taxpayers. They need to log on to their personal tax account and click on ‘make a payment’, after entering the amount to pay they will be taken to a screen with three options:

• Pay by bank account (new)
• Direct debit (one-off payment)
• Debit card or corporate credit card

If they chose “pay by bank account” the next screen gives a list of banks to choose from. When the taxpayer choses their bank the payment details will be set up already with the correct reference number. By clicking on “approve this payment” the taxpayer is taken through to their bank’s website to log in and approve the payment.

Not all banks are linked into this new facility, and if the bank isn’t listed the taxpayer will need to go to their normal online banking website and set up the payment manually.

HMRC plan to roll out this “pay by bank account” function to payments of PAYE, VAT and corporation tax in the next few years, which will hopefully reduce the number of tax payments which end up in the wrong account.

Written by the Tax Advice Network

It’s the season of giving and many people make charitable donations at this time, sometimes as part of a family tradition to make the donation in place of physical presents.

Clients need to remember that ticking the Gift Aid box on the paper or online form while making the donation is a win-win for both the donor and the charity. The taxpayer can benefit from higher rate tax relief and the charity can reclaim the Gift Aid amount from HMRC. Every £100 donated with Gift Aid is worth £125 to the charity.

The individual needs to declare they are a UK taxpayer, and that they pay income tax and/ or CGT at least equal the 20% tax treated as deducted from gross amount of donation. This should not be a problem in most cases, unless the donation is very large.

Donors also need to remember to record the date and amount of the donations, as this information is needed for the SA tax return to be completed for the year in which the donations were made, and possibly for the immediately preceding year.

Taxpayers can choose to carry back Gift Aid donations to the previous tax year if the donation is made before they submit the tax return for that year. Gift Aid donations made now can be treated as if they were made in the tax year 2020/21, if the 2020/21 tax return has not yet been submitted. This carry-back can be very useful way to increase the effective basic rate band threshold for the earlier year.

However, in view of the increases in NIC rates and dividend tax to come into effect on 6 April 2022, many owner/ directors will want to maximise their basic rate band for 2021/22, and so keep the donations in this tax year.

Written by the Tax Advice Network

 

Welcome to our monthly newswire. This month we focus on a couple of tax planning opportunities that were not blocked in the Budget. Please contact us if you wish to discuss any matters in this newsletter further. Best wishes for the festive season and 2022!

CHRISTMAS IS THE TIME FOR GIVING

Content accurate as at 30.11.21

Many were expecting the chancellor to announce changes to inheritance tax (IHT) in his Autumn Budget, However, like capital gains tax (CGT), the rules have remained broadly the same as last year. That means that each tax year individuals may make gifts of up to £3,000 in total and that amount is not included in their cumulative total of gifts for IHT. Even if the £3,000 annual exempt amount is exceeded, provided it is an outright gift to an individual, there would be no inheritance tax payable provided the donor survives for 7 years.

Note that the gift of an asset other than cash may also give rise to a capital gain and CGT may be payable where the asset has increased in value. However if you give away a business asset such as shares in your trading company it is possible to make a claim to hold over the gain so that no CGT is payable. We can of course advise you on the procedure to follow.

REGULAR GIFTS OUT OF YOUR INCOME IS TAX EFFICIENT

One tax planning opportunity that many thought the chancellor might restrict was the exemption from inheritance tax for regular gifts out of an individual’s income. Inheritance tax is designed to tax transfers of capital so if the donor can demonstrate that the gifts are made out of surplus income then the transfers are not taken into consideration for IHT. The exemption applies where there is a regularity to the payments, such as a standing order to pay school fees. HMRC will also require proof that the payments are paid out of post-tax income and do not limit the donor’s normal lifestyle. Detailed records are required, and we can help you with a suitable spreadsheet.

TRUST PLANNING OPPORTUNITY STILL AVAILABLE

Another tax planning strategy that is still available despite rumours that it would be closed in the Budget was the CGT hold over relief when assets are transferred into or out of a trust.

This relief currently enables a non-business asset, such as an investment property, to be transferred without paying CGT. The relief applies where the transfer is subject to inheritance tax, but where the value transferred is no more than the £325,000 IHT nil rate band the transfer of the asset can take place without IHT or CGT being payable.

For example, Colin, a higher rate taxpayer, wants to gift his adult daughter Liz an investment property worth £300,000.

The property cost him £100,000 a number of years ago. If he were to transfer the property to Liz directly there could be up to £56,000 CGT payable on the £200,000 gain.

If the property is transferred to a trust for the benefit of Liz then the transaction would be immediately chargeable to IHT but covered by the £325,000 nil rate band. The resulting gain could then be held over so that no CGT is payable.

At a later date the property could be transferred from the trustees to Liz providing another opportunity to hold over the capital gain.
If this strategy may be of interest to you please get in touch. You will also need to instruct a competent trust lawyer to set up the trust.

GIFTS TO CHARITY

Where possible taxpayers should “Gift Aid” any payments to charity to provide a further benefit to the charity. Higher rate taxpayers obtain additional tax relief on the grossed-up amount donated.

For example, where an individual makes a £20 cash donation to charity the charity is able to reclaim a further £5 from HMRC making a gross gift of £25. Where the individual is a 40% higher rate taxpayer he or she is able to claim a further £5 tax relief under self-assessment, reducing the net cost of their donation to £15.

Note that the donor is required to make a declaration that they are a UK taxpayer and those that have not suffered sufficient UK tax to support the Gift Aid amount will taxed on the shortfall.

Remember that Gift Aid does not just apply to gifts of cash. Many charity shops will now sell donated items on your behalf and are able to treat the sale proceeds as Gift Aided donations. It is also possible to gift quoted securities and land and buildings to charity and claim Gift Aid on the market value of those assets.

LET’S HAVE A REAL CHRISTMAS PARTY THIS YEAR!

Last year many businesses put on a “virtual” Christmas party event and HMRC agreed that would be acceptable in order for there to be no taxable benefit for the employees involved.

There continues to be no taxable benefit for employees provided that all staff are invited, and the cost does not exceed £150 a head, inclusive of VAT.

If you have also had an annual summer event then provided the combined cost of the two events is no more than £150 a head then there would be no taxable benefit in kind. If, however the summer event cost £80 a head and the Christmas party £100 a head only one event would qualify for the exemption.

CHRISTMAS GIFTS OF UP TO £50 PER EMPLOYEE IS ALSO TAX FREE

Remember that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free. This exemption applies to small gifts worth no more than £50 to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

REPORT CJRS FURLOUGH GRANTS ON CORPORATION TAX RETURNS

The latest version of the CT600 Corporation Tax Return requires companies to report CJRS furlough payments received and the amounts that the company was entitled to during the period. Where any overpayments have already been disclosed to HMRC that amount should be reported.
The total amount overclaimed should then be entered in box 526. This amount will be assessed to income tax not corporation tax and HMRC will provide you with a payment reference.

ADVISORY FUEL RATE FOR COMPANY CARS

HMRC have again increased the advisory fuel rates that apply for the reimbursement of employees' private fuel for their company cars.

The new rates apply from 1 December 2021, but you can continue to use the previous rates for up to 1 month from the date the new rates apply.

Where there has been a change the previous rate is shown in brackets:-

Engine Size	Petrol	Diesel	LPG
1400cc or less	13p (12p)		9p (7p)
1600cc or less		11p (10p)
1401cc to 2000cc	15p (14p)		10p (8p)
1601 to 2000cc		13p (12p)
Over 2000cc	22p (20p)	16p (15p)	15p (12p)

You can continue to use the previous rates for up to 1 month from the date the new rates apply. For wholly electric cars there is a 5p (was 4p) advisory rate. Note that for hybrid cars use the equivalent petrol or diesel rate.

DIARY OF MAIN TAX EVENTS DECEMBER 2021 / JANUARY 2022

Date	What’s Due
01/12/21	Corporation tax for year to 28/02/2021 unless quarterly instalments apply
19/12/21	PAYE & NIC deductions, and CIS return and tax, for month to 5/12/21 (due 22/12 if you pay electronically)
30/12/21	Deadline for filing 2020/21 tax return online in order to request that HMRC collect outstanding tax via the 2022/23 PAYE code
01/01/22	Corporation tax for year to 31/03/2021 unless quarterly instalments apply
19/01/22	PAYE & NIC deductions, and CIS return and tax, for month to 5/1/22 (due 22/1 if you pay electronically)
31/01/22	Deadline for filing 2020/21 self-assessment tax return online and paying your outstanding tax for 2020/21 and first payment on account of 2021/22 tax.