Are home to work travel costs ever allowed?

Ordinary commuting between home and work incurs costs: either shoe leather, if you walk, or the cost of transport. For most employees these costs are considered to be personal costs and are not deductible for tax purposes.

This is so even if your employer requests that you attend out of hours, say the weekend. According the HMRC:

If an employee is sometimes required by his employer to attend their permanent workplace outside normal working hours, often at the weekend. This may mean that they incur extra costs on bus fares, meals eaten at their desk and sometimes even the cost of overnight accommodation near their workplace.

No deduction is due for any of these costs because all of the journeys between the employee’s home and their permanent workplace are ordinary commuting… It makes no difference that their employer requires them to make the journeys or that they are made outside their normal working hours.

This rule is expanded by the following example:

A health and safety inspector lives in Leicester and is employed in an office in Nottingham. His office is 500 yards from a bean processing plant that he has to inspect. He travels direct from home to the plant.

Although the plant is a temporary workplace his journey to the plant is substantially the same as his ordinary commuting journey. Therefore, his travel is treated as ordinary commuting and the cost is not deductible.

A journey to a temporary workplace that takes the employee in a completely different direction to his or her ordinary commuting journey is not substantially ordinary commuting even if the distance is the same. Conversely, a journey that is made in broadly the same direction and is substantially the same length as the ordinary commuting journey is substantially ordinary commuting even if the employee takes a different route.

And the above examples are just the tip of the iceberg. Who said tax was uncomplicated? If you are required to make journeys that you consider are not ordinary commuting, and for which you would like to claim the additional costs on your tax return, please call, we can help you decide if your claim is likely to succeed.

Child benefit tax trap

This post is a reminder that a family claiming the weekly Child Benefit (currently, £20.70 a week for eldest or only child and £13.70 a week for additional children) may get an unwelcome tax bill if either parents’ income exceeds £50,000 during a tax year.

If either parent had income over £50,000 for the tax year 2018-19, and:

  • either partner received Child Benefit, or
  • someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

Then part or all of the Child Benefit received may need to be paid back to HMRC. It doesn’t matter if the child living with you is not your own child.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2018-19 is likely to exceed this amount you should be aware of the following.

  • Before 6 October 2019, the parent with the higher income for 2018-19 (more than £50,000) will need to register to submit a self-assessment tax return and pay any HICBC due – unless they are already registered in which case, they will need to enter the amount of Child Benefit received on their return and pay any tax due.
  • The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

How will benefits be paid back?

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline Child Benefits in the first place.

To summarise:

  • Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
  • Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
  • Parents where the highest income is over £60,000 may decide to decline future Child Benefit claims as all benefits received will be clawed back by the HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions. Please call if you would like more advice regarding these deductions or dealing with your registration for self-assessment, if required.

 

How are dividends taxed?

Dividends received from shares held in UK companies form part of a tax-payers self-assessment. The payments are made by the paying company without any deduction of tax and therefore the amount received is the sum that needs to be declared.

Dividends are paid out of the company’s retained profits – these are profits after any corporation tax has been paid – once these reserves are exhausted, it is illegal to declare or pay any further dividends.

Tax payable on dividends received by shareholders is not payable at income rates (20%, 40% or 45%), but as hybrid rates. The rates for 2018-19 are:

  • The first £2,000 of dividends received – no tax is payable,
  • Dividends that form part of a tax payer’s basic rate band for income tax purposes, are taxed at 7.5%,
  • Dividends that form part of a tax payer’s higher rate band for income tax purposes, are taxed at 32.5%, and
  • Dividends that form part of a tax payer’s additional rate band for income tax purposes, are taxed at 38.1%.

It is possible that some of your dividends may form part of your basic rate and part of your higher rate, or additional rate tax bands, in which case any tax payable will be calculated using a combination of the 7.5%, 32.5% and 38.1% rates.

If the amount of the dividends you receive in the tax year 2018-19 are under £10,000 – but above £2,000 – and you do not submit a self-assessment tax return, you will need to advise HMRC, who will adjust your code number, and collect any tax due via PAYE.

If the dividends are over £10,000, they must be declared on a self-assessment tax return.

If the total dividends you receive in this tax year are under the £2,000 tax-free allowance, there is no need to inform HMRC.

Brexit , no end in sight

On the 12 March the government updated its advice to traders with the EU. The advice assumes a no-deal outcome.

On the basis that being prepared for the worst possible outcome, and a no-deal result is universally accepted to be a disaster for UK businesses, we are reproducing in full the text of the letter in this post. Here’s what HMRC are advising:

Leaving the EU: actions for your business to take now to be ready for no deal

We are writing to you because you are VAT registered and currently import and/or export goods with the EU. This letter sets out actions that it’s important you take now and changes you need to be prepared for, in the event that the UK leaves the EU without a deal. The actions set out in this letter do not apply to importing and/or exporting goods between Northern Ireland and Ireland. The government will do everything in our power to avoid a hard border whatever the circumstances. We will write to you with information about this as soon as we can.

How to make customs declarations

You will be responsible for making customs declarations for your UK-EU trade in a no deal scenario. Many businesses find the simplest way to make customs declarations is to appoint a customs agent to manage the process for them.

So that you are ready you should now:

  • register for your Economic Operator Registration and Identification (EORI) number if you haven’t done so already at www.gov.uk/hmrc/get-eori. Then:
  • if you want to make declarations through a customs agent, appoint one as soon as possible.

If you cannot appoint an agent, or do not think this is the right solution for your business and if you intend to import or export regularly, you should now:

  • make sure someone in your business is trained to make customs declarations
  • buy specialist software that links to HMRC’s customs systems
  • if you’re exporting, register for the National Export System at www.gov.uk/guidance/export-declarations-andthe-national-export-system-export-procedures.

For further information, go to www.gov.uk/hmrc/trade-with-the-eu.

Making importing easier

HMRC is introducing new Transitional Simplified Procedures (TSP) for customs, to make importing easier for the initial period after the UK leaves the EU, should there be no deal.

Once you’re registered, you’ll be able to transport your goods into the UK without having to make a full customs declaration at the border, and you will be able to postpone paying your import duties. However, for controlled goods you will have to provide some information before import. Sign up for TSP online from 7 February at www.gov.uk/hmrc/eu-simple-importing. You’ll need an EORI number to do this.

For further guidance, including which ports TSP applies to, please go to www.gov.uk/hmrc/eu-simple-importing.

Changes to VAT

The way you account for VAT on imports will change. You will be able to pay import VAT in your next VAT return rather than when your goods arrive at the UK border. You will:

  • be able to declare and recover import VAT on the same VAT return
  • need to provide your VAT registration number on your customs declaration.

Further information will be available soon.

Changes to VAT IT systems

If the UK leaves the EU without a deal you will no longer be able to use certain EU VAT IT systems. If you currently use any of these systems, you should be aware of the following:

EU VAT Refund Electronic System

To make EU VAT refund claims for 2018 using EU VAT Refund Electronic System, you should submit these before 29 March 2019, instead of the normal deadline of 30 September 2019. After we leave the EU, UK businesses will be able to reclaim VAT from EU countries, by using the existing processes for non-EU businesses.

EU’s VAT number validation service (VIES)

If you use VIES to check a customer or supplier’s VAT number, UK VAT numbers will no longer be part of this service after 29 March. A UK-only online VAT number checker will be available on GOV.UK from 29 March. You will still be able to use VIES to check the validity of EU VAT numbers.

UK VAT Mini One Stop Shop (MOSS)

If you currently use MOSS to declare and pay VAT on sales of digital services to EU consumers, you should submit your return for supplies made between 1 January 2019 and 29 March 2019 via the UK portal by the normal deadline of 20 April 2019. If you want to continue to use MOSS for sales you make after the UK leaves the EU, you will need to register for MOSS in an EU Member State. You should do this by 10 April 2019. For further information, go to www.gov.uk/hmrc/eu-vat-it-rules.

Make sure you find out about all our EU Exit news as it happens

  • Register for our email update service at www.gov.uk/hmrc/business-support select ‘business help and education emails’, then ‘EU Exit’.
  • Non-VAT registered businesses should also go to www.gov.uk/hmrc/trade-with-the-eu for changes that affect them.

We recognise the challenges that you face in getting to grips with new and unfamiliar requirements by 29 March 2019. We are committed to supporting you and your business through this period of change, helping you to comply and making importing and exporting with the EU in a no deal scenario as easy as possible. We’ll write to you again soon, to let you know what further actions you’ll need to take and when.

Readers concerned that they cannot cope with the apparent complexities of the above should seek professional advice. Please call, we can help.

Pension shakeup

The past week, and who knows for how long into the future, has been a crazy week for politics in the UK. Brexit is challenging the way manage our democracy and it will be interesting to see how matters are resolved to observe the results of the EU referendum and cope with the apparent splits amongst members of parliament.

And yet, last week, a press release was issued by the Department of Works and Pensions implying that pension scheme investment managers, the folks that determine the size of our pension pots, are being short-changed by the UK financial investment industry, and as a result, the growth in our pension fund investments is being held back.

The title of the press release says:

Radical shake-up of advice to pension schemes will benefit savers and boost £1.6 trillion pension assets

A radical reshaping of financial advice services used by pension schemes for long-term investment strategies will benefit millions of savers and boost the nation’s £1.6 trillion retirement assets, under plans unveiled by the government today (12 March).

This is an extraordinary admission that our pension savings are not being invested in the most effective way to maximise the long-term interests of contributors.

The press release goes on to say:

Opening up the market for financial advice services used by pension schemes will help trustees get better value for money, boost members’ retirement funds and reduce employers’ shortfalls, according to ministers.

 

A Competition and Markets Authority (CMA) probe into investment strategy advice accessed by pension schemes found trustees were often denied clear information which would help them when weighing up options – hitting retirement incomes.

 

Now the government is acting to:

 

  • improve competition in financial advice services used by trustees of both defined contribution (used by the majority of pension savers) and defined benefit pension schemes
  • ensure better disclosure of fees and performance
  • encourage closer trustee engagement when buying such services
  • enable more effective monitoring of compliance by The Pensions Regulator

 

Let’s hope that this initiative is effective in boosting pension investment activity.

No tax when you sell your home?

The private residence relief allows you to sell your home without paying any capital gains tax (CGT) on the profit you make on the sale.

If only life was that simple. Unfortunately, there are occasions when CGT may be payable. For example, if part of your home has been used exclusively for your business a proportion of any gain would be taxable based on the percentage of your home used for your business. Note the use of the word “exclusively” here. If you have a home office that doubles as your study or a spare bedroom there is no exclusivity and, in most cases, there would be no CGT to pay.

Complications also occur if you are absent from your home for extended periods, basically, the extended absences may mean that part of gains on sale would be taxable. Notable exceptions to this are:

  • If for 12 months you do not occupy a new home when you acquire it, because you are not able to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period. In exceptional circumstances, HMRC may allow you to treat a longer period (up to a total of 2 years) in the same way. The same treatment applies when you buy land to build a house.
  • If you are absent, live elsewhere due to the demands of your job, this should not affect your eligibility to claim private residence relief.

Under present tax rules the final 18 months of you home ownership always qualifies for the private residence CGT relief even if you are not living in the house when it is sold. This is a useful concession if there are delays between you moving out – to take up residence in a new home – and the old home sale completes at a later date.

Many other factors may also affect the tax-free status of your home including letting your home for extended periods or developing part of your garden for sale.

If you need confirmation that your future home sale will be tax-free, please call and make an appointment. We will need a potted history of your residence in the house with full details of any absences for whatever reason.

Spring Statement 13 March 2019

The following comments were written on the 13th March 2019 immediately following Philip Hammond’s presentation of the 2019 Spring Statement to Parliament. In theory, the Government uses the Spring Statement to respond to the most recent forecasts made by the Office of Budget Responsibility (OBR).

In a nut-shell, the OBR forecast that:

  • the UK economy will continue to grow, and
  • Government borrowing, and therefore interest payments, will continue to fall.

Unfortunately, the Brexit debate has compromised the Chancellor’s position and he has found himself in a three-legged race, bound to a Brexit process that delivers no certainty and which makes real forecasting of the UK’s future economic position almost impossible to predict.

If further votes on the Brexit debate take us into a no-deal situation on the 13th March, it looks as if we will see an emergency budget delivered next month, whereas a postponement of the 29 March 2019 deadline would provide breathing space: time to fully consider his options. Readers will no doubt have followed the Brexit votes in Parliament that followed the Spring Statement.

Whatever the outcome, Brexit is proving to be the glue that is holding back real planning – and perhaps real progress – on the part of the Treasury to manage the UK economy in our best interests.

However, what follows is a short summary of the points Philip Hammond did raise today.

Employment

  • Since 2010 there are more than 3.5m more people in work.
  • Employment is forecasted to increase by a further 600,000 by 2023.

Public finances

  • Debt fell last year and is forecast to fall continuously to 2023-24.

Tech and the new economy

  • In response to a government sponsored consultation, moves are afoot to update competition rules and increase competition in the digital economy.
  • The tech market place will be encouraged to allow smaller firms to participate.
  • Regulation may be introduced to make users’ personal data portable. For example, transfer lists of friends to new platforms and search engine histories to new search engines.

Border access

  • From June 2019, citizens of a number of non-EU countries will be able to use e-gates at UK airports and border crossing points.
  • The process of abolishing landing cards will also commence from June 2019.

Clean growth

  • Government is to explore schemes to encourage energy efficiencies for smaller businesses.
  • Developers will need to build in increases in biodiversity.
  • The decarbonisation of gas supplies is to be increased by using green gas suppliers.
  • From 2025 new homes will need to meet new low energy standards.

Housing and infrastructure

  • The government is on track to increase housing supply to its highest level since 1970 by the end of this parliament with an average of 300,000 properties a year.
  • A number of new steps were set out in the Spring Statement including the use of the Housing Infrastructure Fund and the Affordable Homes Guarantee Scheme to help the supply of more new homes across the country.

 

National Living and National Minimum Wage changes

  • The government has tasked the Low Pay Commission to make recommendations for changes to these rates to apply from April 2020. A response is required by October 2019.

Hampered by Brexit uncertainties, the Chancellor made no tax changes, his next round of changes will have to wait until the next Autumn Budget 2019, or April 2019 if we pursue a no-deal Brexit.

All eyes are now fixed on parliament and its attempts to achieve a workable Brexit solution that will have cross-party support.

Holiday entitlement

According to government sources if you work a five day week, you are entitled to 5.6 weeks’ paid holiday a year. This is known as our statutory or annual leave entitlement.

At first sight, 5.6 weeks looks to be an odd number of days, but it refers to a normal working week of five days. Accordingly, the 5.6 weeks translates to 28 working days.

Interestingly, an employer can include bank holidays as part of your annual leave entitlement.

What about part-timers?

Part-time workers are still entitled to 5.6 weeks, but this will be reduced to reflect the number of days a week that they work. For example, if you work a three day week you would be entitled to at least 16.8 days leave in a year (3 x 5.6).

What if I work 6 days a week?

The goal posts to not shift if you work more than 5 days a week. The statutory limit of 28 days still applies.

These paid leave entitlements apply to “workers”. A person is defined as a worker if:

 

  • they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written),
  • their reward is for money or a benefit in kind, for example the promise of a contract or future work,
  • they only have a limited right to send someone else to do the work (subcontract),
  • they have to turn up for work even if they don’t want to,
  • their employer has to have work for them to do as long as the contract or arrangement lasts,
  • they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client.

 

A final definition. An employee is a worker with an employment contract. This contract may define other benefits that are not available to worker with no employment contract.

Register your trade mark

As we take steps to disentangle ourselves from the EU and make our mark in the wider global economy this may be a good time to consider any brand recognition marks you may be using and give serious consideration to getting them registered.

There is a formal registration process linked to the gov.uk website, see https://www.gov.uk/how-to-register-a-trade-mark/apply

A summary of what you can and cannot register are set out below:

Your trade mark must be unique. It can include:

  • words
  • sounds
  • logos
  • colours
  • a combination of any of these

Your trade mark cannot:

  • be offensive, for example contain swear words or pornographic images
  • describe the goods or services it will relate to, for example the word ‘cotton’ cannot be a trade mark for a cotton textile company
  • be misleading, for example use the word ‘organic’ for goods that are not organic
  • be a 3-dimensional shape associated with your trade mark, for example use the shape of an egg for eggs
  • be too common and non-distinctive, for example be a simple statement like ‘we lead the way’
  • look too similar to state symbols like flags or hallmarks, based on World Intellectual Property Organization guidelines

It is advisable to search the trade marks’ database before you send your application to check if anyone has already registered an identical or similar trade mark for the same or similar goods or services.

You can ask the holder of an existing trade mark for permission to register yours. They must give you a ‘letter of consent’ – you must send this letter with your application.

Tax Diary March/April 2019

1 March 2019 – Due date for Corporation Tax due for the year ended 31 May 2018.

2 March 2019 – Self assessment tax for 2017/18 paid after this date will incur a 5% surcharge.

19 March 2019 – PAYE and NIC deductions due for month ended 5 March 2019. (If you pay your tax electronically the due date is 22 March 2019)

19 March 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2019.

19 March 2019 – CIS tax deducted for the month ended 5 March 2019 is payable by today.

1 April 2019 – Due date for Corporation Tax due for the year ended 30 June 2018.

19 April 2019 – PAYE and NIC deductions due for month ended 5 April 2019. (If you pay your tax electronically the due date is 22 April 2019)

19 April 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2019.