Taxing Times – August 2017

Hello and welcome to this edition of Taxing Times.  In this month’s edition we will cover;

  • A short guide to share schemes
  • A quick update on Making Tax Digital
  • Dates for your diary 

and the usual;

  • PAYE update
  • What’s new in the world of tax. 

Happy reading, come rain or shine!

We’re really hoping it’s more of the shine option as this weekend, Saturday 5th August, Dodds will be at the Dumfries Show at Park Farm, Dumfries, DG2 7LU. If you’re planning on attending the show, do pop by for a brew and a catch up!

Another “out and about” coming up – Dodd Wealthcare Limited will be at the inaugural Over 50s show at Rheged on 23 September between 10am and 4pm. Lots going on from seminars to live demonstrations to seminars and it’s free entry. So why not pop it in your diary and come along and say hello.

Using share schemes to incentivise key staff

The point about share schemes is that, if used right, they can be a great incentive. And there are lots of different share plan routes available and lots of ways such incentives can be made bespoke to fit the company’s requirements.  The article below briefly touches on a chosen few ways to incentivise staff with shares, but it by no means covers all the variations.  So if you are considering putting a share scheme in place, talk to your adviser (hopefully us!) so s/he can design one on a bespoke basis that gives you exactly what you want to achieve.

Share awards

The outright share award is potentially the simplest way of doing things – someone gets shares and immediately they become a shareholder with entitlement to whatever rights those shares have.  So for example, they could share in dividends straight away. It is very clear to the shareholder what they are getting out of it and they can feel a real sense of ownership straight away.  So as an incentive that is a real positive.  But there are considerations about what the person has to pay to buy in – how do they afford to buy in? How do the existing shareholders feel about sharing the historic value retained in the company with the newcomers? What are the tax consequences if the employees don’t pay “market (3rd party) value”? Dealing with all of these questions will be part of designing your company’s share award plan.

Growth shares

There is a way of awarding shares called a Growth plan. This is still an outright share award with lots of positive messages.  But a growth share creates a new class of share which only has rights to the value of the company going forward – so the value of the company to date is ring-fenced for the existing shareholders.  That can make existing shareholders feel a lot more comfortable and makes it much more affordable for the new growth share holders to buy in (or be given the shares with a very low up front tax cost).  Growth shares are potentially a really good option. But they do have to be written properly to make sure they work as intended.

Enterprise Management Incentives (EMI)

The EMI is, from a tax perspective, an excellent plan.  It is an option plan – so not an outright award of shares but a promise to allow someone to acquire shares at a point in the future.  EMI plans are highly flexible because you can design performance criteria and exercise conditions into them.  The clock starts ticking for Entrepreneurs’ Relief (permitting a 10% capital gains tax rate) from the date of grant not exercise, and any tax bill/cost of acquisition is fixed at the date of grant not exercise, so they act like a share award from that perspective.  No tax or NIC is due when the option is granted and generally no tax or NIC is payable on exercise.

They are also an HMRC approved plan so you know if the conditions are met HMRC will have no issue with the arrangements – and you can get them to agree the value of the options before you go ahead with the plan which can provide real peace of mind. When the employee exercises the option, s/he becomes a real shareholder and from that point can take dividends (if permitted – they don’t have to get dividends if you don’t want them to) and share in sale proceeds on a takeover etc.

Because they are an approved scheme with great tax benefits, the EMI comes with a number of conditions to be met.  Some are for the company, such as it must have gross assets of less than £30m and must not be under the control of another company (so you cannot have EMI plans in subsidiaries, for example).  Some are for the employee, for example s/he must work for a minimum of 25 hours a week or 75% of their working time. And the company cannot operate in particular business arenas, for example, you cannot put EMI plans into companies which are farming, banking or in property development (to name a few).

Time out to think about the practicalities

Putting in place a share scheme means there are also commercial/practical things to think about;

  • Will you want to use a new class of shares?  The answer is generally yes, because that allows flexibility, so you can make the employee share non voting (if you want) or non dividend bearing (if you want) or pay different rates of dividends to management than you do to the other shareholders. And you will definitely need a new class to do growth shares. So the company’s articles will need to be updated.
  • You will also need to think about whether the employee’s shares are permitted to vote and get dividends – they don’t have to be, it depends on what you see as key to incentivising the staff.
  • A fundamental thing to think about is the transfer and leaver provisions for these shares – what if the employee leaves?  Will he be allowed to keep on owning the shares (or have the right to an EMI option) when he no longer works there? Will someone who leaves on good terms i.e. because they retire, be treated differently to someone who leaves on bad terms?  Generally in owner managed businesses the answer on transferring shares/keeping them after leaving is a firm “no” – but you must write that down very explicitly and agree it upfront as part of the share scheme paperwork.
  • For an EMI (or other HMRC approved scheme) you have to register the share scheme within a very specific timeframe otherwise the tax benefits are all lost.

If you have any queries about share plans, or want to discuss putting a share plan in place, please contact Kathryn Brown.

Joy at Making Tax Digital delay

Making Tax Digital was first due to come into force as from April 2018 for Income Tax and Class 4 NIC purposes for those businesses and landlords whose turnover exceeded the VAT registration threshold.

It was then to come in for other unincorporated businesses from 1 April 2019.  Only the smallest (with turnover less than £10k) were to escape.  These changes were planned despite widespread concern from the tax profession, MPs and the Treasury Select Committee that the lead in and testing time was too short and that there were too many unknowns to make mandation successful in such a short timeframe.  The Government announced on 13 July that it had (finally!) listened and that MTD for taxes other than VAT will not come into force until “at least 2020”.  It will be compulsory for businesses with a turnover above the VAT threshold (currently £85,000), and then only from April 2019 (so a year’s delay has been achieved at least) but only for VAT not other taxes.  The deferral will give more time for testing the system.  MTD will be available on a voluntary basis during that time, should those smaller businesses and landlords choose to use it (!)

Upcoming Dates for your diary

31 August 2017

Corporation Tax: Deadline to file corporation tax returns for accounting periods ended 31 August 2016 with HMRC

Company accounts: accounts for private companies with 30 November 2016 year ends should be filed with Companies House (public companies need to file their 28 Feb 2017 year ends)

30 September 2017

Corporation Tax: Deadline to file corporation tax returns for accounting periods ended 30 September 2016 with HMRC

Company accounts: accounts for private companies with 31 December 2016 year ends should be filed with Companies House (public companies need to file their 31 March 2017 year ends)

VAT: Deadline to submit claims under the European VAT reclaim scheme (for UK registered businesses that incurred EU VAT during 2015)

Automatic Enrolment Update

Exemption Certificate Scam

The Pensions Regulator (TPR) is investigating at least one company offering what it describes as ‘Certificates of Auto Enrolment Exemption’ to employers.

A number of employers have been persuaded to pay for the documents, with the scammers claiming the paperwork means they do not have any workplace pension duties.

While employers have been charged £58 for the certificates, the documents are worthless – no such documents are produced or accepted by TPR as evidence of automatic enrolment exemption.

Every individual or organisation in the UK that employs at least one person has automatic enrolment duties. For some, this will involve simply informing TPR that they do not have any staff that qualify for automatic enrolment. In other cases, employers will have to enrol some or all of their staff in a workplace pension and make regular contributions.

Employers who have failed to comply with their duties because they believe these fake documents give them an exemption, leave themselves open to being fined and may be committing an offence.

Anyone who is offered the chance to buy a certificate of exemption or any similar sounding document is being urged to decline and contact TPR immediately.

Master Trust Schemes News

This year has been the busiest to date for the NEST Corporation with more than 240,000 new employers and 1.5 million new members joining NEST’s pension scheme.

NEST has published its annual report and accounts for 2016/17.  Highlights during the year include a 5star rating as an auto enrolment provider and winning eight industry awards.

Meanwhile, NOW Pensions has been removed from the master trust assurance list.   The Pensions Regulator has been actively reviewing the position of NOW Pensions on the list due to concerns about the governance and administration of the scheme, including delays processing some contributions and communicating with a portion of members.  Employers who have used NOW Pensions to meet their automatic enrolment duties are not required to take any action and remain compliant with their enrolment duties.  22 pension schemes remain on the master trust assurance list, 12 of which have said that they are open to small employers.

Automatic Enrolment Duties for New Employers from 1 October 2017

If you become an employer for the first time on or after 1 October 2017 you will immediately have automatic enrolment duties for your new staff.  These duties apply from the first day the first member of staff started working for you.  This is now known as your duties start date which replaces the staging date that was issued to employers previously.

Getting Started

When you are about to employ a worker for the first time, you need to take certain steps in preparation for taking on staff, such as determining whether you need to register as an employer with HMRC and deciding on the payroll software you are going to use or who will complete the payroll processing on your behalf.  Getting ready for automatic enrolment is also one of these steps.

As soon as your new member of staff begins employment, you should be ready to comply with your legal duties which will mean assessing whether they need to be enrolled into a workplace pension, choosing a qualifying scheme if you have employees to enroll, writing to your employee to advise them of their individual options and completing a Declaration of Compliance with The Pension Regulator.

Becoming an employer for the first time can be a huge milestone for your business and the payroll team at Dodd & Co are here to help.

Other Payroll News

Parental Bereavement (Pay and Leave)

A draft bill has been introduced into parliament covering Parental Bereavement (Pay and Leave) and for the first time, parents who are employed and have suffered the death of a child would receive statutory paid leave to grieve, under a new law being supported by the government.
Currently under the Employment Rights Act, employees have a right to take a ‘reasonable’ amount of unpaid time off work to deal with an emergency involving a dependant, including making arrangements following the death of a dependant.  What is “reasonable” depends on the circumstances but in practice the length of time off will be agreed between the employer and their employee.
The Parental Bereavement (Pay and Leave) Bill will seek to ensure grieving parents in employment receive paid leave to grieve away from the workplace.

General Data Protection Regulations

The General Data Protection Regulation (GDPR) comes into force on 25 May next year.  Many of the principles of the UK’s Data Protection Act 1998 (DPA) will remain when the UK implements GDPR but the new regulation takes data protection further.  There will be a change in emphasis from ‘best practice’ to ‘requirements’, greater consent from individuals and new rights such as the right to be forgotten. Payroll and HR data, procedures and systems will be directly affected, including where third party software or service providers are involved.

A recent poll suggested that a fifth of employees said they will request for personal data to be removed from current or previous employers and 22% said they would request access to their personal data.  Compliance with the new data rights will be another challenge to tackle for businesses and employers.

Gender Pay Gap

With one in ten employers admitting to paying women less than men for jobs at the same level and the BBC still under fire after revealing the huge gap in earnings between its male and female employees, the headline news appears to suggest this is a UK wide problem.

Gender pay reporting legislation, introduced in April this year, requires employers with 250 or more employees to publish statutory calculations every year showing how large the pay gap is between their male and female employees. With increasing media coverage of National Minimum Wage investigations by HM Revenue & Customs and the call for clearer information on employee wage slips, it has never been more vital that you ensure employees are paid fairly and correctly.

 

What’s new in the world of Tax?

Tradespeople top fitness stakes

Tradespeople such as builders and plumbers are the healthiest workers in the UK, burning on average 2,500 calories a day. IT workers are the least fit, burning fewer than 200 calories from just 24 minutes of daily activity. Lawyers and accountants aren’t much better with only 42 minutes of activity a day.

Well perhaps, but that isn’t taking into account that our brains are way more active than that!

The lure of butlering

There has been a surge applications to become a butler thanks to Downton Abbey. Butlers can earn £300,000 a year and there has been a huge increase in accountants and lawyers applying for the role!

You cannot be serious! – Becker sued over £32m loan

A former business partner of Boris Becker has demanded the repayment of £32m he loaned to the former Wimbledon champion. The latest financial headache for Becker comes after a London court declared him bankrupt in June.

UB40 guitarist barred

Former UB40 bassist Earl Falconer has been banned from running companies for four years after his company, Reflex Recordings, which collected royalties from UB40’s music back catalogue, sold £252,980 assets when it was insolvent and didn’t fairly split the proceeds with creditors.

Tax Joke of the month:

Who makes the best detective – Sherlock Holmes or a tax accountant?
The tax accountant – he makes more deductions!

Motivational thought of the month:

 

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