Taxing Times – May 2016

In Taxing Times this month we’ll have a look at the following:

  • A reminder about R&D tax relief
  • Companies House changes
  • Why 6th April? The UK’s strange Tax Year date explained
  • Forward planning for single director companies
  • Dates and deadlines
  • Payroll update
  • What’s new in the world of tax?

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Research and Development – That’s just for mad scientists…isn’t it?

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Research & Development (R&D) is – from a tax perspective– definitely not just something that is undertaken by people in white lab coats!

R&D tax relief is available to companies (but not to sole traders or partnerships) who are doing innovative work into new or improved systems, processes, services or products in the areas of technology/science.

HMRC are very keen for qualifying companies to claim R&D tax relief because the Government sees science and technology as the heart of Britain’s economic future. The message is….R&D tax relief is here and available! And R&D tax relief is not a “scheme” and it is not avoidance – it is simply a relief to be claimed by hard working companies who are doing innovative work to benefit their industry.

What qualifies for R&D tax relief?

  • Accidents can happen…but not in R&D. The company must set out on an R&D project with aims and objectives. But it doesn’t need to be successful to claim R&D.
  • The project must try to achieve an advance – which essentially means that it is not enough that you come up with a creative idea, it has to break new ground (rather than going over old ground).
  • That advance has to benefit the industry as a whole not just your company (although that doesn’t mean you have to tell everyone how you cracked the problem!)
  • The R&D work needs to be in the areas of science or technology not arts or humanities, which may be where the idea of R&D being just for scientists has arisen. But “science & technology” covers an enormous range of activities. And R&D takes place across many industries from green technologies, engineering and manufacturing to software and even motor racing. Think broadly…and don’t dismiss it out of hand.
  • There must be “uncertainty”, which means that trials and tests are needed and that someone in the industry who knows what they are doing could not figure it out as a matter of course.

Money, money, money

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The R&D tax relief system allows an extra tax deduction for spend on R&D work, such as salaries, items used up in the project and subcontractor costs. The extra tax deduction saves real cash for profitable companies as it can significantly reduce their corporation tax bill, while loss making companies can surrender losses for a cash payment from HMRC.

The R&D system is split into two different regimes, one for large companies and one for small and medium enterprises (SMEs). The regime operates differently for SMEs than it does for large companies so it is important to properly identify which category your company falls into. But whichever R&D regime applies, if the company is doing R&D it should be claiming relief – after all, it is effectively “free” money and the Government really wants qualifying companies to have it!

In conclusion
Don’t be put off by thinking R&D tax relief is only available to scientists. Talk to your accountant (and we’d be delighted if that was us!) to make sure you get the number crunching right and your company gets the relief it is entitled to.

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Companies House Changes

Company directors and company secretaries need to be aware that the new Small Business, Enterprise and Employment Act changes what is to be filed at Companies House. For example, the Annual Return is being abolished and instead is replaced by an Annual Confirmation Statement (ACS). The most significant change the Act brings is the requirement for each company to submit a register listing People with Significant Control (PSC). This register needs to be maintained and held by each company from April 2016. The company is then required to file this information at Companies House from 30 June 2016. The PSC register must be filed at the same time as the ACS.

A person is deemed to have “significant control” for the purpose of the PSC register if they meet one or more of the following criteria:

They:-
1) Own more than 25% of the company’s shares
2) Hold more than 25% of the company’s voting rights
3) Hold the right to appoint or remove the majority of directors
4) Have the right to, or actually exercises significant influence or control
5) Hold the right to exercise or actually exercises significant control over a trust or company that meets one of the first four conditions.

If you have any questions about the new Companies House changes, please contact your usual Dodds contact.

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Why the UK tax year begins on 6th April

In some countries the beginning of the new tax year coincides with the beginning of the calendar year. In the UK, however, the new tax year starts on 6 April. This is not just a random date – it has its origins in mediaeval times….

The New Year used to start on 25 March, also known as ‘Lady Day’ in commemoration of the angel Gabriel’s announcement to Mary that she would become the mother of Jesus Christ. Lady Day was one of the four most important days in the religious calendar (along with Midsummer on 24 June, Michaelmas on 29 September, and Christmas Day on 25 December). All accounts, including debts and rents, had to be settled by these so-called ‘quarter days’, and Lady Day was the first, so gradually becoming regarded as the start of the financial year.

The move forward to April 6 results from changes to the calendar and the actual number of days in various years. Until 1582, Europe had used the Julian calendar established by Julius Caesar. Under the Julian calendar, the year had only 11 months. This worked well for centuries (up to the 1500s in fact), but it did not align exactly with the solar calendar (the time it takes for the Earth to move round the sun). The Julian year was only 11½ minutes longer than a solar year, but by the late 1500s, this had all added up and the Julian calendar was ten days adrift from the solar calendar. 46785417_sThe Roman Catholic church was especially concerned because the celebration of Easter had been gradually getting later than when it had been celebrated by the early church.

So….in October 1582 Pope Gregory XIII instituted a change to the “Gregorian calendar” (with a fudge over leap years to fix the problem)…but England, not wanting to bow down to the Roman Catholic church, defied him and continued to use the Julian calendar.

Then… by 1752, when it was 11 days out of alignment with the rest of Europe, England finally accepted that it would have to make a change. The decision was made to drop 11 days from the month of September to catch up, but not being fools, to ensure that there was no loss of tax revenues, the Treasury extended the 1752 tax year by adding on the 11 days at the end. Consequently, the beginning of the 1753 tax year was moved to 5th April.

In 1800 a further adjustment was made, in which the Treasury treated 1800 as a leap year for purposes of taxation to get an extra day’s revenue, so shifting the start of the tax year forward by one more day to 6th April. 6th April has remained the beginning of the tax year ever since

So now you know…feel better?!

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Forward planning for single director companies

If you are a single director company, it is important to consider what will happen and how the business will continue if you are incapacitated or fall sick and can no longer run the business (whether for a short or longer period of time). Who will do the banking, organise the work schedule or open the shop? It may be worth considering this to avoid any further unwarranted stress in an already difficult situation.

22175861_sWe have recently had a few situations like this and we have found that the banks for example can be a little inflexible so we would recommend you to have at least one other signatory on the bank account and also to consider appointing another director to the company.

It would be worth speaking to your Dodds contact for further help and advice if this is a concern you have.

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Upcoming dates and deadlines

31 May 2016
PAYE – last date for giving a form P60 for 2015/16 to each relevant employee who was working for you on 5 April 2016
Corporation Tax – returns for accounting periods ended 31 May 2015 should reach HMRC
Company accounts – private companies with 31 August 2015 year ends should file their accounts with Companies House

30 June 2016
Corporation Tax – returns for accounting periods ended 30 June 2015 should reach HMRC
Company accounts – private companies with 30 September 2015 year ends should file their accounts with Companies House

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Payroll Update

Employment Allowance Changes

The Employment Allowance guidance has been updated to reflect changes for single director companies from 6 April 2016. Limited companies where the director is the only employee paid earnings above the Secondary Threshold for Class 1 National Insurance contributions will no longer be able to claim Employment Allowance.
The Secondary Threshold is £156 a week for the 2016 to 2017 tax year.

A company is no longer eligible for the allowance if:

  • only one employee (or director) in the limited company is paid above the Secondary Threshold
  • that employee is a director of the limited company.

This means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, will no longer be eligible for the Employment Allowance. This change only applies to limited companies and if you’re self-employed, you won’t be affected by this change.

Scottish Rate of Income Tax

9596724_sThe Scottish Rate of Income tax (SRIT) came into force on 6 April 2016 and already we are seeing problems arising where addresses are not correct at HMRC so incorrect tax codes are being issued.

HMRC has delivered the following key messages for employers:

  • HMRC is responsible for identifying Scottish taxpayers – not employers
  • Scottish taxpayers will be identified using address information that is held by HMRC so employers are to actively encourage employees to update HMRC with address changes
  • Employers must report the ‘S’ code if advised by HMRC
  • If an employer is given a P45 with a Scottish tax code they must follow the current process. If a new starter doesn’t have a P45, or you’re unsure which tax code to apply, use the rest of the UK tax code and rate. HMRC will tell employers if they need to change the tax code
  • If an employee thinks they have the wrong tax code, ask them to check the guidance on “Who is a Scottish taxpayer” and then get in touch with HMRC to update their details
  • You don’t need to show the Scottish rate separately on the P60 or payslips but you should show a Scottish tax code

Football club fined £22,000 for auto-enrolment failures

Swindon Town Football Company Ltd (STFC) has been fined thousands of pounds after it repeatedly failed to comply with its auto-enrolment duties.

The football club received fines from The Pensions Regulator (TPR) worth a total of £22,900 after it failed to put eligible workers into a pension scheme or comply with other workplace pension duties.

The Pension Regulator has said “This case illustrates what can happen when an employer buries their head in the sand and disregards their duties. If things aren’t going well, then talk to us; don’t ignore us. Failing to comply on time will not save you money. Not only do you risk a fine, but you will also have to make backdated contributions.”

The moral of this story is that auto-enrolment won’t go away if you ignore it. But TPR really do want to help employers comply; they don’t want to have to impose fines, so if there are problems, do talk to them (or us!)

National Living Wage

On 1 April 2016 the new National Living Wage became law and the £7.20 rate was introduced for workers aged 25 years and over.

The government’s Step Up For Britain campaign was launched in January 2016 to highlight the introduction of the National Living Wage on 1 April 2016. More than one million workers have directly benefitted from the increase, which saw the current National Minimum Wage rate of £6.70 increase by 50p for those aged 25 years and over.

Did you know a third of staff never check their payslips?!

The survey for the government’s Step Up for Britain campaign found that 32% of the lowest paid employees fail to make the simple check of looking at their payslip against their earnings, which is a critical way for them to make sure they receive the pay increase.

If you need any help with your payroll queries please contact Julie Campbell.

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What’s new in the world of tax?

Dividend tax changes hit 2016/17 PAYE coding notices

If you thought the introduction of the dividend tax allowance was a year end issue, think again as HMRC is adding predictive dividend earnings to PAYE tax coding notices for the 2016/17 tax year, but it is possible to dispute the calculation and ask for it to be changed/removed. Ask your accountant to check the notice for accuracy as we have seen some completely random amounts so far!

Prince wrote thousands of songs – but no will

Court documents filed in Minnesota showed that Prince appears to have died intestate – this is a timely reminder to all of us to make our bequests known in a will – otherwise your hard earned estate could end up going to people you don’t want it to.

15059865_sSpy in the sky

Spanish officials are conducting searches using light aircraft to photograph unregistered swimming pools and illegal villa extensions. Spain charges a tax on homes based on the size of the property and Spain’s treasury has identified thousands of tax dodgers this way.

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