At Howards our expert team is available to help you whenever you need it. With nearly 20 years’ experience our firm is the best choice for local advice on business, accounting, tax, and payroll issues. As a successful Stafford firm of accountants, we add value by sharing best practice and advice with those who need it.
Here are some of the most pressing questions that our team of nearly 50 consultants, directors, managers, seniors, semi-seniors and trainees have been presented. If you have a question that you feel others will benefit from knowing the answer, please contact us and we will take a look.
Q: I have recently become a grandfather for the first time and want to make a cash gift to my new grandchild. What implications would any gift have on my inheritance tax (IHT) position?
For inheritance tax purposes a gift is treated as anything of value. Not only cash, but also jewellery, paintings, property, etc.
You can make a number of gifts without their value being considered part of your estate for IHT purposes.
• You can give your grandchild a gift of up to £250 per year
• You also have an allowance of £3,000 per year, which can be used as a gift to any person(s). This can be increased to £6,000 if you did not use the allowance the previous year. For example, if you have already given £1,000 to your brother, you can give £5,000 to your grandchild. Be aware, however, that in choosing this option you cannot also give the £250 to your grandchild.
• You can give a gift from your regular income. To ensure this is exempt from IHT, you must be able to maintain your standard of living.
• You can make payments to help with the grandchild’s living costs, for example nursery fees.
Any gifts over and above those listed here will be treated as part of your estate for inheritance tax purposes. If the gifts exceed £325,000 within 7 years of your death, the beneficiary will face IHT on the excess.
Inheritance tax is based on a sliding scale. It depends on how many years before your death gifts were made. The scale is:
Less than 3 years 40%
3 to 4 years 32%
4 to 5 years 24%
5 to 6 years 16%
6 to 7 years 8%
7 years and over – there is no inheritance tax to pay
Q: I have just started self-employment, when do I need to notify HM Revenue & Customs of this?
Currently you only need to notify HMRC you are self-employed if your earnings from self-employment exceed £1,000.00 in the tax year.
If you exceed this figure, then to avoid a potential penalty you will have to register your self-employment no later than 5 October after the commencement of your second year of trading.
For example if you started self-employment the 1 August 2020, you will have to 5 October 2021 to notify HMRC.
Q: As a result of the coronavirus pandemic I am re-evaluating how I run my business and have decided to work from home. If I was to have a garden room built in my garden to use for working from home, Could I charge the cost of the build to the business? i.e. pay for it on the business?
You can put the expenses through the company for a garden office. This means that the company would own the office, it would be classed as an asset of the company and not you personally. However, if you were ever to sell your house, you would have to give some money to the company to effectively purchase the garden office from the company.
Q: . I’m thinking of buying an electric bike to commute to the office. I would only use it for business purposes. Can I buy it through my business and would doing so affect my benefits? Would the bike be treated as a company asset?
This would not be part of a Cycle to Work scheme, as there is no rental agreement or purchase option. Therefore, there would be no benefit in kind to record, irrespective of the cost of the bike. You can include it as a business asset and claim capital allowances. You do not need to keep records of your journeys. The key point is that the company would own the bike, which would be on loan to you as a director. However, make sure that the electric bike is generally available to any employees.
NATIONAL MINIMUM WAGE
Q: We provide accommodation for our employee’s, can we deduct any of the accommodation costs from the employee’s salary?
For NMW purposes the value of the provision of accommodation, is £8.20 per day or £57.40 per week. This covers rent, laundry, utility bills and furniture.
If you do not charge the £8.20 per day, you can add this ‘amount’ to the earnings paid per hour and as long as the average wage plus the daily allowance provided over the relevant pay period exceeds or equals the NMW then there will be no problem.
There are 2 areas where problems can arise though.
1) If you deduct above the rate of £8.20 per day. You will need to pay the employee a higher rate than the official NMW to take into account any additional accommodation cost you charge.
2) If the employee is paid solely according to the number of hours they work, (known as time work), then for absences for example, sickness or holidays), special rules apply whether you continue to pay them the full pay for the pay period or if you reduce the pay.
More in how to calculate the National Minimum Wage rates during absences can be found at https://www.gov.uk/government/publications/calculating-the-minimum-wage/calculating-the-minimum-wage#sleep-in-shifts.
CONSTRUCTION INDUSTRY SCHEME
Q:- I am currently a small building contractor, (with plans to expand), who currently operates under the Construction Industry Scheme. Will this affect me from 6 April 2021?
A: From the tax year 20/21, the delayed operation of the new IR35 legislation will come into force.
Firstly, IR35 supersedes, the operation of the CIS scheme if this is appropriate.
However, unless you meet 2 of the following 3 criteria (and you may do in the future with your expansion plans) your own responsibilities will not change.
- Your business has a turnover of not exceeding £10.2 million.
- You have a balance sheet total not more than £5.1 million.
- You have over 50 employees.
As you are currently likely to not meet any of the above criteria, then the decision if IR35 applies will remain with the engaged. Therefore for example if an electrician you engage trades through his own limited company then you will operate CIS as normal.
If a subcontractor or a professional service outside the scope of CIS (for example a quantity surveyor) does ask your IR35 status you should tell them that you are exempt under the small company rules. We would recommend you do this by email or in writing.
Q: I have just bought a house for renting out which requires work doing on it to bring it up to the required habitable standard. Will I have to be registered with HMRC as a contractor under the Construction Industry Scheme for the work done?
If it the work to be undertaken is of a minor nature (for example, painting, electrical work etc.) then you would have no need to register as a contractor, however should the work be more extensive for example changing the floor plan by for example adding an extension or another floor, or converting a property into individual flats then you may fall within the construction industry and we would recommend that you requested further advice before you undertake the project.
Q: I AM A SELF-EMPLOYED KITCHEN FITTER DOING WORK FOR PRIVATE HOME OWNERS, AND AT TIMES I NEED TO USE AN ELECTRICIAN OR PLUMBER. DO I NEED TO DECLARE THESE PAYMENTS THROUGH THE CONSTRUCTION INDUSTRY SCHEME (CIS)?
Where work undertaken is contracted between yourself and a private householder, the work you do will be classified as outside the scope of CIS.
However where you have to subcontract a part of the job to another, this will be treated as a new contract and dependent on the specific work undertaken for that job then it could fall within the Construction Industry Scheme.
For example, if the work undertaken involved the moving of the sink or the installation of additional electrical sockets in a pre-existing kitchen then the work would not fall within the scope of CIS.
However, potential situations where the work would fall within the scope of CIS, would be –
- The electrical work undertaken in the kitchen was part of a contract to rewire the whole house.
- The fitted kitchen was being installed in a new extension to the property. (In this case you could fall within CIS as both a contractor and subcontractor if the extension was contracted to a third party).
Of course, in these circumstances if you were to recommend a plumber or electrician to the householder and they themselves agreed the job to be done, the price and paid them direct, they would not fall within your contract and you would have nothing to report.
Q: Following a household declutter I am selling personnel items online and at car boot sales, will I have to inform HMRC of the income?
Generally for personnel items, there would be no tax to pay, however if you are lucky to sell a personal possession for over £6,000.00 (for example jewellery), you will have to check if you need to pay capital gains on the item sold. There are a number of exemptions from the £6,000.00 rule (as long as they have not been used for business, for example, your personal car or personal items which are classed as having a limited lifespan of under 50 years, for example clocks and watches.
As ‘trading income’ over £1,000.00 does need to be declared to HMRC and HMRC do receive information from online selling sites, we would recommend you keep a written record of your sales, (particularly if they exceed this amount), as HMRC may require you to prove that you were selling just personal goods and not trading as a business.
Q: I have a haulage business. Can you tell me the best way to refund my employees their subsistence payments tax-free whilst they are out driving on business? They only drive in the UK.
There are a number of ways and it depends on 2 main factors are the employees only undertaking jobs where they return at home each night or do, they spend nights away.
Taking the first option, there are 2 ways which their expenses can be refunded, the first is by keeping a record and refunded the cost on production of receipts of any meals/drinks they have purchased.
The 2nd which involves considerably less paperwork is using the HMRC benchmark rates this pays £5.00 for one meal (minimum journey time 5 hours), £10.00 for 2 meals (10 hours or more) and where the journey continues after 8.00 p.m. either an extra £10.00 can be paid (£20.00 total), or if the journey exceeds 15 hours a total of £25.00 can be paid. The only paperwork required for this is evidence of the times the journey(s) were undertaken.
If the business journey starts before 6.00 a.m. then £5.00 can be paid for breakfast.
In regards to overnight journeys, there is a third option and this is the approved overnight subsistence allowance. This used to be straightforward however the rules in regards to operating this have been tightened in recent years, resulting in an increased administrative burden for HGV employers.
For these journeys the employer can pay either £34.90 if the HGV doesn’t have a sleeper cab, or £26.20 when there is a sleeper cab used. The problems with this is that to use these rates you need to obtain an approval notice from HMRC (renewed every 5 years) and you need to have a system in place where you periodically check that employees are incurring expenses for meals/drinks and that the payment is a reasonable sum of the subsistence expenditure.
As an employee could receive £25.00 per day anyway for been away over 15 hours, with a lot less paperwork for both the employer and the employee we would recommend this is the best system to use.
In addition, an extra £5.00 per night tax free to cover any incidental overnight expenses without the need for any records identifying the expenses incurred.
You can of course pay a sum higher than the benchmark rates, however the additional sums paid would be subject to tax and national insurance through the employees’ payroll.
TAX & VAT
Q: It's the end of the tax year and I haven't received a P60. What should I do?
Your employer is legally obliged to provide your P60 no later than May 31 following the end of the tax year. It may be a paper or electronic document.
Check if your employer has issued your P60 and when you can expect it. If it has been issued, check how your employer sent it. If it was issued electronically, for example, has it gone to the right email address? If it was posted and has gone astray or you have lost it, ask your employer for a duplicate. Employers are required to keep these records for 3 tax years.
Also, if your employer has notified HMRC of your P60 details, you will be able to view them via your personal tax account. Find it at https://www.gov.uk/personal-tax-account. Your income from employment is held here for 5 years.
If your employer doesn’t provide a copy of your P60 and you can’t find the details via your online tax account, notify HM Revenue & Customs (HMRC). It can’t supply a copy of your P60 but can provide a statement of your total employment earnings. HMRC can penalise employers who fail to provide their employees with a P60.
Q: One of my employees will for the first time be working abroad in Europe for the next 5 months. What are the tax and National insurance consequences?
For tax purposes as the employer is still contracting to you, in most cases you will continue to deduct PAYE tax through the payroll as normal, however you should provide the employee with a statement that shows:-
- The date the work starts abroad.
- The gross pay and the tax deducted from the 6 April to the date they left the country.
In addition you must notify HMRC of the details by contacting the employers helpline and HMRC will tell you if you meet one of the exemptions from operating PAYE.
If the employee is on a overseas contract, then the country where the work is undertaken may require tax to be paid there, it is worth checking with the relevant tax authority.
In any case for European countries double tax agreements do apply and the employee can request any overseas tax is offset against his UK tax liability.
For National Insurance purposes, National Insurance is normally deducted in the country where the work is undertaken however where the work abroad is temporary you will need to obtain a CA3822 from HMRC through your Government Gateway account, this will allow the NIC deductions to continue to be deducted and paid in this country. If the employment is extended and exceeds 1 year then dependent on the European country is in the EU or not (for example Iceland) you should seek advice due to potential rule changes.
If you do not obtain the CA3822 you and the employee will end up liable for both the NIC in this country and the social security costs in the country where the work is undertaken.
Q: Now we are heading back to normal I wish to say thank you to my employees for their hard work during the pandemic by taking them on an away day to a theme park, are there any tax implications to me in doing this?
Yes, I am afraid there are, as the thank you would be treated as a tax benefit subject to tax and National Insurance. The reasons are the event can’t be treated as staff training, or as part of the staff entertainment annual allowance, (as this been deemed as a one-off event rather than an annual event).
Rather than having to complete P11d’s for the employee’s tax and a P11Db for the National Insurance due, you can arrange with HMRC to pay the tax and National Insurance through a PAYE Settlement Agreement.
There is an alternative though, instead of saying thank you for the work they have done, you could instead give the employees on an occasion (in this case we will say Easter or their birthday), a voucher for the theme park, up to the value of £50.00. In doing it this way, there will be no tax or National Insurance to pay by the employer or the employee.
Q: Several of my employees work variable hours. Do I have to pay them holiday pay and, if so, how do I work it out?
Yes, you do! An employee’s entitlement to holiday pay commences from the day they start work. The statutory minimum holiday leave for a full year’s employment is 5.6 weeks. You can, of course, provide additional holiday entitlement through their contract of employment. It makes no difference if someone works a standard working week or variable hours. The leave entitlement is unaffected.
It’s easy to check the holiday entitlement of an employee who has worked for you for, say, less than a year. Use the ‘calculate holiday entitlement’ tool.
The calculation for holiday pay for employees who work variable hours is based on the number of weeks worked in the last two years. This is 104 weeks, on a rolling basis. It is known as the holiday pay reference period.
To arrive at the holiday pay reference period, determine whether the employee has worked some days every week in the past 52 weeks. Alternatively, they may have worked for more than 52 weeks, but not every week. Or they may have worked for less than 52 weeks over the full 104-week cycle.
Q: For our company cars what is the best method to use to avoid a car fuel benefit charge being due?
There are 2 methods to avoid the charge, both using the same principle of the company car driver keeping comprehensive business/private mileage records.
The major difference is as to how any business/private fuel used is provided in the first place. If the company provides all the fuel then the director/employee needs to repay the private miles undertaken at the advisory fuel rate. If the director/employee pays for all the fuel, then the employer will refund the business miles at the advisory rate.
As a fuel benefit charge becomes available even if 1 mile of private mileage is paid for by the company, (for example if a business journey was re-classified as ordinary commuting), we would always recommend the second option, as any payment refunded incorrectly would be treated as a taxable expense.
Q: I had to work from home due to the coronavirus pandemic but have forgotten to claim my home working tax allowance. Am I too late?
No you are not too late. You can still make a claim for last year. Go to the Gov.UK website and sign into your government gateway account https://www.gov.uk/log-in-register-hmrc-online-services. Don’t worry if you haven’t got one. It’s easy to set up. You’ll just need your National Insurance number and a recent payslip/P60 or your passport for verification purposes. Once you have made the claim HMRC should refund the tax you are owed by cheque or by payment directly into your bank account.
Also, did you know you may be able to claim the home working tax allowance for this tax year? If you have had to work from home since 6 April 2021, even for one day, you can claim the allowance for this current tax year as well. If this is the case HMRC will adjust your tax code and you will receive the payment through your earnings.
RETIREMENT & PENSION
Q: I have reached 60 and have just taken early retirement. How will this affect how much state pension I will receive?
It all depends on your National Insurance record. For you to receive a state pension you need to have qualifying contributions for at least 10 years up to a maximum of 35 years. These contributions can come from National Insurance paid or credited whilst you worked, credits if you were un-employed and signed on or if you were ill, a parent or a carer.
Q: I am thinking of popping a lump sum into my pension through my company before my financial year end. Will this affect my corporation tax?
Yes any payments into your pension will reduce your corporation tax liability, however, you can’t contribute more than £40,000 in one tax year.
WANT TO SEARCH THE ARCHIVES?
Do you have a pressing question that you think others would benefit from knowing the answer to? We get asked hundreds of interesting questions each year. Check our archives to find some helpful answers:
Please get in touch if you can’t find the answer you are looking for.
NOW IT'S YOUR TURN
Have a pressing question that you think others would benefit from knowing the answer to? Please get in touch.