Taxing Times – July 2017

Hello and welcome to this edition of Taxing Times.  Despite the changeable weather and cold snap that has arrived, we hope you are all geared up to enjoy the Summer. 

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But that said, we also hope you find time to enjoy this month’s topics, which cover:

  • Salary sacrifice – still relevant after 6 April 2017 changes?
  • A look at “life lessons to remember”
  • A survival guide to selling your company
  • PAYE update
  • What’s new in the world of tax?

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Is Making Tax Digital (MTD) still happening?

As you all know, MTD was the buzzword in the world of accountancy, right up until the General Election was announced, when it disappeared.  Last week we were tipped the wink that a Finance Bill would be put before Parliament in July and that MTD would be included.   Since then a Summer Finance Bill has been announced, but no date has been given yet.

We have been “advised” that this Bill will include MTD with all of the original dates of introduction, but that is yet to be confirmed.  Watch your inbox for further information and help in the coming weeks.

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Does salary sacrifice still have a place in employees’ remuneration packages?

From 6th April 2017 there have been some quite significant changes in the salary sacrifice arena.  A new term has been coined for tax purposes – the OPRA! No, not the singing kind with large ladies and fancy costumes… OPRA stands for Optional Remuneration Arrangements.  HMRC decided that salary sacrifice for benefits was too widely taken up and that the tax and NIC savings it generated (and therefore cost to the Treasury) was “unfair”.  Hmm, despite HMRC’s manuals to its own inspectors saying that “It is important to recognise that employers and employees have the right to arrange the terms and conditions of their employment and to enjoy the statutory tax and NIC treatment that applies to each element in the remuneration package”.

And therefore from 6th April 2017, a new rule applies; where an employee has a choice about taking cash or taking a benefit (hence the word “optional” in OPRA), they are taxed on the higher of the amount they have foregone OR the benefit in kind value.  So at a very clever single stroke, by inserting this rather simple new clause that sweeps away the fundamentals of how the benefits tax code works, the Treasury will manage to add a large amount of tax and NIC to its coffers.  But this only affects the employees’ tax position and the employers NIC (class 1A) position – the cash given up is not subject to class 1  NIC so employees will not have to pay NIC on it.  A little quirk to remember there.  I now make an Edward Munch-like grimace of anguish!

Stickman £15431411_lBUT – there are two glimmers of light in this brave new world. The first refers back to the title of this article; is there still a place for salary sacrifice?  The answer is yes, most definitely.  Some benefits have been exempted from the new OPRA rule.  So, for example,  pensions salary sacrifice still works and saves both employee and employer NIC (tax relief was already given so it is tax neutral).  Cycle to work schemes are also exempted, as are salary sacrifice schemes for  very low emission cars (really low, under 75g CO2/km) – after all the UK still wants to be seen to be green! Pensions advice, childcare vouchers (CCV), workplace nurseries, and directly employer contracted childcare are also still exempt. Note that although the government plans to make Tax Free Childcare (TFC – the scheme that will replace employer provided childcare vouchers) available to all qualifying families with children under 12 by the end of 2017, the current CCV scheme will remain open to new joiners until April 2018.

14969151_sSo you can see that giving up some salary in exchange for certain benefits retains its tax and NIC advantages.  Employers can still build these benefits into their salary sacrifice offerings.  Pension salary sacrifice in particular would seem to be a “no brainer” especially for organisations with lots of employees. And don’t forget that corporate discounts which can be obtained and passed onto employees could compensate for the new tax changes even if the benefit is not one of those exempted from OPRA.

There are also transitional rules for employees who were already in schemes for employer-provided living accommodation, school fees, cars (over 75g emissions) and vans before 6th April 2017 – the new OPRA rules taking away the tax benefits don’t bite until after April 2021, to give them time to exit the arrangements. And individuals who were in other kinds of arrangements before 6 April 2017 stay protected until 5 April 2018.

12487782_sAnd the second glimmer of hope is this:  if the employee doesn’t have a choice about how their remuneration package is made up, then the new OPRA rules cannot apply.  So if they are told that they are getting £30k pa salary plus their professional subscription paid for them, then the professional subscription element falls into the normal benefits code, that is to say it will be tax and NIC exempt (as long as it is on HMRC’s List 3 and relevant to the person’s duties).  It is only if the employee is asked if they want extra cash or having their professional subscriptions paid, so they can choose one or the other, then the value of the professional subscription is brought into account for tax and employer’s NIC.  That may sound like sheer sophistry but it is a very important distinction and employers need to carefully think about how they present the remuneration package to employees going forward to be sure that they get the tax treatment they thought they would.

If you have any queries about the new salary sacrifice rules, or want to discuss putting salary sacrifice in place for pensions, childcare vouchers or other exempted benefits, please contact Kathryn Brown.

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Perfect red heart vector isolatedMotivational thought of the month:

“Follow your heart…but take your brain with you!”

Life lessons to remember

  • Always keep your words soft and sweet, in case you have to eat them!
  • If you can’t be kind, at least be vague
  • A happy person is one who can enjoy the scenery on a detour
  • When everything’s coming your way, you’re in the wrong lane
  • Overthinking = the art of creating problems that don’t even exist
  • People don’t learn anything by being told, they have to find out for themselves
  • Never look back, it distracts from the now

green-lineA survival guide to selling your company

You’ve worked really hard, you’ve grown your company from the ground up, and now someone else wants to take over the reins and buy you out. Congratulations!  Time to reap the rewards of all your effort.   But first you have to negotiate the sale process – and that is not quite as straightforward as it sounds. This article touches on some of the issues you might encounter and aims to steer you through them.

Paperwork, paperwork and more of it!

The importance of making sure your compliance is up to date and spot on in all regards cannot be underestimated. We know that doing admin and paperwork is not why you went into business, and it may not be where your strengths lie, but poor compliance can be the undoing of a potential sale.

VATIf you are selling the shares in your company that means your purchaser will be taking over the entire history of the company including any historic tax (or other) liabilities that might come out of the woodwork at some point down the line.  So they will want to undergo some kind of due diligence process, which can vary in detail and depth.  This means that the purchaser (well, his advisers) will check that everything is up to date and  properly recorded with regard to the legal side of things (for example, who owns the property and what are the terms of the lease (if there is one), have all previous share transactions in the company been recorded properly?), the employment side of things (for example, have all your key staff got contracts, are there any holiday pay or other employment related  liabilities that haven’t been provided for?) and the tax side of things (e.g. are all your PAYE, corporation tax, and VAT payments up to date, have you filed all your returns, are there any tax issues that HMRC might raise in a tax enquiry?)

This means that your compliance needs to be spot on in all regards. And because HMRC could go back at least 4 years if there was an issue, the due diligence exercise will likely cover the last 4 years as well, so you need to ensure that past years are in order not just the recent period.

finances-38073981_mlIn an ideal world you would keep your compliance up to date well before you think about selling or get an offer.  Your advisers will be able to help you with this – remember, we love paperwork and detail even if you don’t!  So if you have a query about how to treat something from a tax perspective, or you are not sure how best to record the company’s expenses, or if you want to change your employees’ remuneration packages (while keeping on the right side of PAYE), or if you are potentially going to be late filing a return….etc etc, please just ASK US – a little extra effort now could mean less hassle later…

If on the other hand you are selling the trade and assets of the company then the purchaser is not acquiring the back history (and any known or unknown liabilities or issues); he is just getting the kit, equipment, customer list etc. This means that there should be less due diligence and it will focus on the rights of the company to sell the assets and the legal agreements rather than the tax side of things. But if you don’t have those vital agreements, haven’t transferred the relevant titles, haven’t signed various contracts and so on, then that could also be a deal breaker.  So dotting the Is and crossing the Ts at the time you agree things will always stand you in good stead.

Tax – nothing else is as certain except death (cheery thought)…

Money bags 2So let’s plan for it (tax, that is) in advance! After all you don’t want to lose too much tax from your hard won sale proceeds. And you are perfectly entitled to use and claim available reliefs in order to pay the right amount of tax and no more.   But if you ask at the last minute, it might be too late to structure things in the most efficient way. There are different tax consequences of structuring your sale deal in different ways and you need to understand them early on so you can try and negotiate what is best for you (or at least make informed decisions).

Entrepreneur’s Relief (ER) offers a tax rate of 10% on the first £10 million of gains when you sell shares in your company.  But there are a number of conditions which need to be met for the 12 months before the sale.  And unless you have a Time Turner like Hermione Granger, if your sale is less than 12m away and you haven’t met those conditions, there is no way of reconstituting the past.  So planning in advance is needed.  Note that ER is only available on the sale of shares, (and they must be shares in a trading company at that), not the sale of trade and assets.

6791947_sIf you are selling the trade and assets then the tax analysis is quite different.  The money will flow into the company and be taxed at corporation tax rates.  You then have a company which has cash (but no trade or assets), which you’ll need to extract.  At that point you could potentially access the 10% ER rate but note the double layer of taxation kicking in here – taxed first in the company then in your hands when you take it out.  This is why generally speaking a sale of shares is better tax-wise for the seller than a sale of trade and assets. So this needs to form part of your deal negotiations.  And you will need advice on extracting the money from the company after the deal completes, as the 10% ER rate doesn’t always apply (thanks to some fairly new legislation).

If you are selling shares in an investment company that is a different kettle of fish from a tax perspective and ER doesn’t apply. So you’ll need to understand those tax consequences instead.

Pricing

The purchaser will also probably want to undertake financial due diligence – is the business worth what they intend to pay for it, do your sales projections stack up, is your customer base tied in?, and so on.  First of all, do take professional help in preparing your projections, cash flow statements, management accounts, statutory accounts etc.  It is our job to help you through the numbers and good advice also means discussing your plans, where you can go, what you can change and how accurate your figures are.  Again the trick is to deal with all this well in advance of any sale so you can tackle problems and know that your figures are accurate and not hiding any problems, and that they cannot be used against you to chip away at your sale price.

22175861_sThe other issue to navigate on the financial side– and sorry it sounds so obvious but sometimes it isn’t! –  is that you need to understand exactly what it is you are being offered as the sale price.  You may be faced with a lot of jargon and tribology, such as being offered an earnout or deferred payments, there may be talk of keeping some proceeds back in “escrow”, the buyer might promise to pay for “surplus cash” (and how on earth is that defined?!)  So you need to take time (and get help if necessary) to unravel the mysteries of the deal on the table.

It can be very difficult to take a time out and challenge the terms once you are deeply involved in the process. And that can give the purchaser the upper hand (whether they mean to confuse you or not). So clarify the exact heads of terms very early on, understand the price and what the terminology used actually means in terms of cold, hard cash and when you are going to get it. Ask your adviser to attend the meetings with your prospective purchaser and/or to go through  the heads of terms with you so that ambiguities or uncertainties can be flagged up early on.

21739768_lIn summary…

You can see that there is a lot involved in selling shares in your company (or its trade and assets) and that getting an offer can be only the start of a potentially difficult process!  Hopefully this article has given you lots of food for thought.  And if there are two messages to take away they are this; 1) it is never too early to start envisaging a sale and tidying up your company compliance and finances for that and 2) professional advisers really are here to help – ask us early, get us involved. We have seen this before so let us help smooth the way!  Please contact Kathryn Brown if you have any queries.

Good luck!

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PAYE update

CIS – repayment claims for limited company subcontractors

If you are a limited company acting as a subcontractor and have had deductions taken from your Construction Industry Scheme (CIS) payments then want to reclaim them, there is now an electronic form available to make your claim.  You no longer need to write in or call the helpline to make your claim.

Once you have filed your company’s final Employer Payment Summary (EPS) and all Full Payment Submissions (FPS) for the tax year, you can complete the electronic form providing all of the information requested.  You do not have to send in any documents to support your claim but you will need your government gateway User ID and password to sign in. The form can be located by clicking on the following link HERE.

Keep your staff happy not hungry

New research has revealed that a significant number of employers may be in breach of employment law and employment rights by not calculating wages and holiday pay correctly.

potatoes-french-mourning-funny-162971The most shocking examples in the report highlight around 23,000 occasions when the impact of unpaid or delayed wages was so severe it leads to employees having no food.

However, whilst some examples involved directors deliberately having a culture of non-payment, the report acknowledges that many are caused by errors and misunderstandings. Types of errors included were failure to pay holiday pay, non payment of wages for hours worked, unauthorised deductions, not paying the last wage (or outstanding holiday pay) or ceasing to pay when the business was about to go bust.

As an employer it is vital that you get your payroll right.  Apart from the financial aspect, getting payroll wrong can demotivate your employees.

Payslip queries and going round all the houses trying to resolve a query is one of the most demotivating things for an employee. Apparently, a third of employees would consider looking for a new job if their employer paid them incorrectly just once, 44% would be demotivated, and 51% would lose trust in their employer.  Would your employees leave just because of a few payroll issues. Maybe not, but for some it could be the straw that breaks the camel’s back.

No way Jose

Following the end of the domestic football season and ahead of the summer inevitable managerial merry-go-round, Total Jobs has produced and revealed which football manager the UK’s workforce would most like running their office on a day-to-day basis.

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  • Jose Mourinho finished last in 20th place – the only manager who’s negative characteristics outweighed the positives.
  • Antonio Conte was the manager workers most wanted in their workplace – fresh from winning the Premier League, his success, passion and ambition saw the Italian come out on top.
  • Claudio Ranieri was a close second – despite being out of work at the moment, taking Leicester City to the Premier League title clearly resonated closely with the public.
  • Liverpool’s charismatic manager, Jurgen Klopp came in third and Gareth Southgate is a surprising fourth place – his humble nature and loyalty proving popular in an everyday work environment.
  • Four of the bottom 5 managers have previously managed England – the poisoned chalice means Sven Goran Erikson and Sam Allardyce are relegated.  Roy Hodgson and Fabio Capello survive the drop by the skin of their teeth

green-lineWhat’s new in the world of tax?

Peter Andre in HMRC case over Katie Price expenses

Peter Andre is in dispute with HMRC over claiming business expenses for the cost of security at his home and for the cost of legal fees in a libel action against his ex Katie Price, aka Jordan! He has asked the courts for permission for the hearing to be in private or for the decision to be anonymised, but the judge has refused.  So expect details in due course!

With friends like these…

pexels-photo-226407The case is a cautionary tale against professionals doing favours for their friends! Miss Lejonvarn is an architect and when her friends were looking at getting some (significant) landscaping work for their back garden, she suggested that it could be done differently for a smaller budget.  She then went on to do designs and project management for the project – all without a contract and without payment.  Her friends then became concerned about the design and the cost and ultimately they fell out.  Her friends then engaged (with a contact and for payment) another landscape designer.  They then made a claim against their ex-friend for the increased cost of completing the project and for remedial works in changing the initial designs and work.  The maximum value of the claim was £265k (some garden design project!) The Court has held that Miss Lejonvarn did owe a duty of care to her friends (despite no payment and no contract) so was on the hook.  The issue seems to have been that she went beyond making some vague suggestions: “that sounds a bit expensive, you could maybe look at x and y” and she got too deeply involved.

Fall Guy – Hells Angel tax fraud blamed on accountant’s error

pexels-photo-255062A bid by the Australian Tax Office (ATO) to launch a tax crackdown on outlaw motorcycle gangs has hit a roadblock, as the president of the Hells Angels has avoided conviction for fraud after his accountant took the blame for tax irregularities.

Andy Murray’s – family more important than taxes

The Wimbledon champion has said he has no interest in becoming a tax exile. Murray, who is worth around £70m, has said he “wouldn’t want to live somewhere just to pay no tax and not to have my family and friends around me”.

Curse of the Black Pearl?

Johnny Depp was over £3m in the red eight years ago, according to court documents, despite being one of the world’s best-paid film stars. The Pirates of The Caribbean actor is suing his business managers for £22m claiming they mishandled his earnings. They filed a countersuit claiming their company “did everything within its power over the last 17 years to protect Depp from himself”.

Tax Freedom Day

June 12th was  ‘tax freedom day’ – the day that the average worker has earned enough to pay all of their taxes for the year. The Adam Smith Institute says this year’s tax freedom day has come after 162 days of work, the longest in a generation.

teeth 19062807_mlTax Joke of the month

A man goes to the doctor. “Doctor, that medicine you gave me isn’t working. Is there anything else I could try?”

“Fill out this tax form,” suggests the doctor.

“How’s that going to help me?”, asks the man.

“I’m not sure,” replies the doctor, “but some of my patients say it gives them relief.”

 

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