Tax refund scams warning from HMRC

HMRC has issued a warning to taxpayers regarding the latest tax refund scams. These scams are targeting individuals via email and SMS messages.

HMRC is currently processing genuine tax refunds for the 2017/18 tax year and the fraudsters are sending scam messages which claim that taxpayers are entitled to a rebate. These messages go on to request that they provide their personal and account details in order to make their claim.

HMRC is keen to stress that it will only ever inform individuals of a tax refund by post or through their employer, and never via email, text messaging or voicemail.

Commenting on the issue, Treasury Minister Mel Stride said

We know that criminals will try and use events like the end of the financial year, the self assessment deadline, and the issuing of tax refunds to target the public and attempt to get them to reveal their personal data’.

HMRC is advising taxpayers not to click on any links, download any attachments or provide any personal information, and to forward any suspect messages to HMRC.

Please get in touch if you wish to discuss any of this further.

Torrwaterfield – 0116 2423400 info@torrwaterfield.co.uk

Clause 24 in the Finance Act – Is it affecting you?

We have known for some time that Landlords have been hit hard by recent tax changes:

  • Clause 24 restricting relief for interest;
  • 8% extra capital gains tax;
  • 3% extra stamp duty.

Clause 24 of the Finance Act set out restrictions for individuals on claiming loan interest as a cost against property investment income, for individuals it works as follows:

  • For the tax year just ended 2017/2018, 75% of the interest can be claimed in full and 25% will get relief at 20%;
  • For this tax year just started 2018/19, 50% of the interest can be claimed in full and 50% will get relief at 20%;
  • From 6 April next year to 5 April 2020, 25% of the interest can be claimed in full and 75% will get relief at 20%;
  • And finally from 6 April 2021, 100% will get only 20% relief.

Essentially Clause 24 removes Interest from the allowable property expenses, and gives you tax relief at 20% instead, so that Higher Rate tax payers will pay more tax.

However, these rules do not apply to companies and therefore they will continue to claim full relief.

If you would like to discuss any of this further please get in touch on 0116 2423400 or info@torrwaterfield.co.uk

Paul Witherington, Accounts & Tax 

P11d returns – Recap on the general principles of what is allowable.

BUSINESS TRAVEL

As we approach the time when employers have to deal with P11d returns, it is worth having a recap on the general principles of what is allowable.

Travel expenses have specific tests which must be satisfied in order for an employee to gain a deduction. These rules are different from the general rule for deductibility of expenses in that they do not need to be incurred “wholly and exclusively”. This is because with any business travel there are likely to be elements of mixed or private purpose, e.g. meals on trips or overnight accommodation. Meals and overnight accommodation come under the heading of “subsistence” and these follow the rules on business travel.

In order for travel expense to be allowable, it must satisfy one of two tests. Either

  • It is ‘necessarily incurred in the performance of duties’ or
  • The travel is ‘for necessary attendance’

Allowable business travel expenses include the actual costs of travel, the subsistence expenditure and other associated costs that are incurred as part of the cost of making the journey. They consist of expenses you are obliged to incur in performing your duties. Tax relief is not normally available on travel costs relating to commuting to and from the normal place of work, or private travel. There are some special rules on Worksite Travel Costs however, where exceptions occur that should be considered.

Road Travel – Use of Private Vehicles

You may claim a cost per mile for allowable business journeys in your own vehicle.  There is a distinction between the first 10,000 miles in any tax year and subsequent miles. The 2018 allowable mileage rates that may be claimed are as follows:

Type of Vehicle Motorcar Motorcycle – all Cycle
First 10000 Miles 45p per mile 24p per mile 20p per mile
10000+ Miles 25p per mile 24p per mile 20p per mile
       

You must retain valid VAT fuel receipts to support your claim. There is currently no HMRC requirement to state the fuel type.

Road Travel – Use of a Hire Car

Occasionally you may need to hire a car, either for a specific journey or if your own car is being serviced or repaired. If you regularly use your personal car for business travel and claim mileage rates you cannot claim the cost of the hire car, you should continue to claim the authorised mileage rates.

If you don’t use your personal car for business and you hire a car in your own name for business journeys for short term use, the hire costs and fuel are an allowable expense. If the hire car is used for personal use a proportion of the hire costs will be disallowable.

Hiring a car abroad specifically for business purposes is an allowable expense and the hire costs and fuel can be claimed.

Rail or Air Travel

The cost of train or airfares for business-related journeys is allowable. Additional costs such as excess baggage claims are also allowable if they are incurred in the performance of your duties and have no personal element.

Other Allowable Travel Costs

Allowable travel costs include bridge, tunnel and road tolls, bus and taxi fares, car-parking charges and congestion charges provided they have been incurred on a business trip.

Overseas Travel Costs

The cost of overseas travel is allowable where you are obliged to incur the expense in the performance of your duties.

Accommodation

The cost of hotel accommodation for nights spent away from home on business may be claimed. The cost of maintaining a rental property may also be allowable provided that use of the property is necessary for business purposes, and a permanent residence is being maintained elsewhere within the UK where a regular pattern of commuting back to that residence is evident. Where a rental property is not used exclusively for business purposes the proportion of costs relating to the period of private usage is not allowable. In such cases it will be necessary to determine the appropriate split of private and business usage and claim only for the business use.

The cost of accommodation in relation to site work is allowable if the period of time at the site is both expected to be no more than 24 months in total, including any time spent on-site prior to the current contract and in fact does not exceed 24 months. The “40% rule” also applies here; claims can be made for accommodation at/near a temporary workplace but never near a permanent workplace.

Incidental Overnight Expenses Allowance

On a business trip you may incur personal costs such as private telephone calls, laundry, newspapers or the cost of childcare. HMRC regards these as personal rather than business expenditure and are not allowable. However, if you are staying overnight while either away on business or on allowable work-related training, you are entitled to claim a subsistence allowance.

There are two Incidental Overnight Expenses Allowance rates: £5 per night in the UK and £10 per night overseas (including Eire). No receipts need to be produced. These allowances can only be claimed in relation to an overnight stay, for example, on a business trip in the UK lasting 5 days with 4 overnight stays, £20 can be claimed.

Incidental Overnight Expenses Allowances in relation to site work are claimable if the overnight stay is associated with a period of time at a site that is both expected to be no more than 24 months in total, including any time spent on-site prior to the current contract, and in fact does not exceed 24 months. The “40% rule” also applies here; claims can be made for accommodation at/near a temporary workplace but never near a permanent workplace.

Meals

When staying overnight meals are an allowable expense. Food and drink must have been purchased after the journey commenced. As a result of this rule costs incurred in preparing a pre-packed lunch are not allowable expenses. The levels of costs that are generally acceptable to HMRC are as follows and claims need to be supported with a valid receipt:

  • Breakfast or lunch: £15 in London and £10 outside London
  • Dinner: £40 in London and £30 outside London

HMRC accepts that reasonable costs of alcoholic beverages with a meal may be claimed. Where you have dined with work associates, only the proportion of the total cost that pertains to you as the director is allowable unless the purpose of the meal is business entertaining. Appropriate identification and explanation of the receipts must be provided in English when submitted in relation to meals overseas.

If you would like to discuss any of this further then please get in touch 0116 2423400 or info@torrwaterfield.co.uk 

Nish Bathia, Director 

P11Ds – Return of Expenses and Benefits

It is that time of year again when your organisation’s P11D forms will need to be prepared and submitted to the Inland Revenue. The most common entries being the car or van benefit, with or without fuel for private use.

In addition to the above, directors/employees are sometimes provided with private health insurance.  The best way of dealing with this is to ensure that the contract is between the employer and the insurance company and therefore the amount is treated as a benefit in kind and reported on a P11D 

However, sometimes the employer will offer to pay the employee’s personal medical insurance directly.  In this case the contract for the health insurance will be between the insurance company and the director/employee and the payment is treated very differently to the above.  If the company pays the bill on behalf of the employee the amount is entered onto the P11D for tax purposes but is dealt with through the payroll for National Insurance.  This, as you can imagine, gets very messy.

This does not just apply to medical insurance but also any contract in the director/employee’s name that the employer settles on behalf of the director/employee.  Another common one that springs to mind is a mobile phone bill. 

The moral of the above is to set up medical insurance/mobile phone contracts between the employer and the supplier directly which simplifies the treatment of dealing with the whole reporting process.

The above is just a small part of the P11D system so please get in touch if you require any help. 0116 24243400 or info@torrwaterfield.co.uk

Julia Harrison , Tax Manager 

Why has my tax code changed?

“How do I know if my tax code is correct?”

Your tax code is used by your employer to calculate how much tax needs to be deducted from your pay. HMRC tells your employer which code to use to collect the right amount of tax from you. You can check your income tax online to see what your tax code is, how your tax code has been worked out and how much tax you have paid and are likely to pay in the coming months.

“What does my tax code actually mean?”

Your tax code represents how much tax free income you have for that tax year, for example the standard tax code for the 2018/19 tax year is 1185L and this means you have a tax free income of £11,850.

“What does the letter in my tax code mean?”

The letter in your tax code represents your situation and how that affects your tax free income, for example:

  • L = You’re entitled to the standard tax free allowance.
  • M & N = Marriage Allowance, this means you have either transferred or received personal allowance to or from your partner.
  • 0T = Your personal allowance has been used up or you’ve started a new job and your employer doesn’t have all of your starter details.

To see the full list on the HMRC website please click here.

“Why is there a W1/M1 at the end of my tax code?”

The W1/M1 means that the tax code is non-cumulative; in these cases tax will be calculated purely based on the taxable pay for that pay period. Each pay day is treated as if it is the first week or month of the tax year. All previous pay and tax are ignored.

There are a few reasons you may have been put on this type of code, for example:

  • Started a new job
  • Getting Company benefits or state pension
  • Becoming employed after being self employed

These tax codes are generally temporary and you or your employer can update this.

“How do I change my tax code?”

 You can use the HMRC online services to tell HMRC about any missing or incorrect information. They will then update this by sending you and your employer a P6 tax coding notice. If you can’t use the online services you can call HMRC on 0300 200 3300 and they will help guide you through and get your tax code updated.

If you would like to discuss this further then please get in touch on 0116 242 3400.

Polly Dennis, Payroll Assistant 

I’m self-employed, what do I need for my mortgage?

Applying for a mortgage always sounds like a tricky task, especially if you’re self-employed as you do not have a set and secure amount of income every year.

Previously, you could apply for a self-certified mortgage – this allowed you to disclose to your lender how much you were earning without actually providing any evidence. Unfortunately, this type of mortgage was scrapped and now all lenders require proof of income for all mortgages.

This means that if you are self-employed, you need to prove how much you earn in order to apply for a mortgage.

Lenders usually ask for the following as proof of income:

  • Two or three years’ worth of accounts prepared by a qualified accountant
  • HMRC Tax Year Summaries – that show how much income you declared to HMRC and how much tax you paid on that
  • Bank statements – including savings or ISA’s Proof of your deposit
  • Details of any debt repayments and other outgoings, including things such as childcare costs, credit purchases and pension contributions.

If you have only recently started up as self-employed, you may not have two or three years’ worth of accounts. In this situation the lender may ask for proof of future trading such as sales contracts.

Depending on whether you operate as a sole trader or a partnership the lender will assess you in different ways.  Lenders favour providing mortgages to those they consider to be low risk.  This usually includes people with a steady income that have a low risk of defaulting on their monthly payments.  For a sole trader, lenders will usually look at the net annual profit of the business.  For partnerships, they’ll look at each partner’s share of the profit.

If you have any queries on the above or would like some advice on applying for a mortgage, please feel free to contact us on 0116 242 3400.

Calum Ainge, Accounts & Tax 

Franchising – Pros & Cons

When starting up a business, you may be considering whether it would be a good idea to begin trading under a franchise name and thus becoming a ‘franchisee’. Below are some pros and cons which will hopefully aid you in your final decision of what route to take.

Pros

Brand Name

You will be trading under a brand name which is well known across the country. These are the names most likely to appear at the top of internet searches and to be recommended by others. They are trusted names and are held at a high standard by most for good reason.

Ongoing Help & Support

Once you start trading as a franchisee, there is continuing help and assistance offered to you by the franchisor. They want to ensure that your business is going to reflect positively on their brand. Support usually consists of training programs and first hand support whilst also assisting with other elements such as stock control.

They also tend to offer financial support with new business start-up costs, which could be for things such as equipment, vehicles and marketing campaigns.

Location

As can be seen on most high streets and in most shopping centres, the larger brand names get the prime locations. This is certainly the case when trading as a franchisee, people recognise the name and the logo and immediately trust that they are going to receive quality service. Customers are also more likely to trust a business which is situated around other successful businesses.

Finance

If your franchisor is reluctant to provide funds in relation to your start-up costs, this is not something to necessarily worry about. Being part of a big brand name is looked upon more favourably by banks when a business is trying to get a loan. The security and reliability of being a franchisee usually means that banks will be more than happy to help you out.

Cons

Fees

These can be high. There is usually an initial lump sum charged by the franchisor and continuing fees are charged in order to keep using the franchise brand name. These costs are generally calculated on business turnover, not the surplus made, which is bad news if you have a tight profit margin. Costs can all depend on how well the company is performing.

Lack of Independency

Once you are a franchisee, you are working under the franchisor’s name, and therefore are expected to do things their way, not your own. In this case you may feel that your entrepreneurial creativity is being restricted which could get frustrating. You are effectively working under someone else’s idea which may diminish the initial idea of being ‘self-employed’.

Other People’s Decisions

Due to the lack of control you have when being a franchisee, it means that although you could be running an extremely profitable business, a bad decision made by the franchisor could end up with you losing it all. Another risk would be that another company could damage the franchisor’s name and bring your profits down as a result of this. 

It is important to understand that these pros and cons can vary depending on which franchisor you have elected to work under, if any!

If you want to know more about the pros and cons of being a franchisee, please feel free to give us a call on 0116 2423400.

Jake Dempsey, Accounts & Tax 

How do you complete a Monthly CIS Return?

What is CIS?

The Construction Industry Scheme is a method of deducting tax from subcontractors in the building sector. Contractors deduct a percentage of the money owed on their payments to subcontractors and pass it over directly to HMRC. The amounts are effectively taxed at source as the sub-contractor does not get the money.  The deducted CIS tax counts as advance payments towards the tax and National Insurance contributions that will be calculated upon completion of the subcontractor’s self-assessment tax return.

What do I need to complete a return?

Monthly CIS returns need to be submitted by the contractor to HMRC to disclose the amount of CIS which has been deducted and is therefore due to be paid over to HMRC.

The contractor needs from the subcontractor an invoice which states the money they are owed.

The invoice should split out the materials and labour with CIS only being deductible on the labour element of the invoice. CIS is deducted at 20% providing the subcontractor has a UTR (unique tax reference) number which should be displayed on the invoice. If there is no UTR number then CIS will be deducted at 30%.

How do I do it?

CIS periods run from the 6th of the month to the 5th of the month following – for example, 6th March – 5th April. The CIS return then needs to be submitted and the liability paid over within two weeks of the period end – 19th April for example in order to avoid facing late filing charges. The return can be manually entered under the contractor’s logon on the HMRC website or it can be submitted via numerous accounting software programmes. The CIS is payable to HMRC upon payment of the invoice and not the date the invoice is issued, so it should only be included on the CIS return at this point. Once the return has been submitted to HMRC, statements should be sent out to all subcontractors for their own records.

If you wish to discuss any of this further then please get in touch 0116 2423400 or info@torrwaterfield.co.uk

Brook Lucas, Accounts & Tax 

With effect from 6 April 2018, all PILONs will be chargeable to Income Tax and Class 1 National Insurance Contributions (NICs)

With effect from 6 April 2018, all PILONs will be chargeable to Income Tax and Class 1 National Insurance Contributions (NICs), whether or not they are contractual payments. Payments or benefits paid in connection with the termination of a person’s employment will be split into two elements. The first element, post-employment notice pay (PENP) received is taxable as general earnings and will be subject to Class 1 NICs from 6 April 2018. The PENP represents the earnings that the employee would have received had they been given and worked their full and proper notice and on which they would ordinarily have paid tax and Class 1 NICs.

PENP is calculated by applying a formula to the total amount of the payment or benefits paid in connection with the termination of an employment. The second element is the remaining balance of the termination payment, or benefit, is not a PENP. This is taxable as specific employment income to the extent that it exceeds £30,000 and is treated in the same way as other payments and benefits taxable under section 403 Income Tax (Earnings and Pensions) Act 2003.

PENP calculations should not be applied to statutory and non-statutory redundancy payments. These payments are always taxable as specific employment income and subject to the £30,000 exemption where appropriate. As an employer, you will be required to apply the PENP formula to the total amount of relevant termination payments, or benefits. You should operate PAYE to deduct income tax and Class 1 NICs from the amount of PENP from 6 April 2018. You should then apply the £30,000 exemption, where applicable, to the second element of the relevant termination payment and deduct income tax (but not NICs) accordingly. Detailed guidance on how and to what payments you should apply the PENP formula to will be published in the Employment Income Manual in due course

Foreign Service relief

Foreign Service relief on termination payments is being removed for UK residents. Employees whose employment is terminated on, or after, 6 April 2018 and who receive a payment or benefit in connection with that termination will not be eligible for tax relief in respect of any period of foreign service undertaken as part of their office or employment if they are UK resident for the tax year in which their employment is terminated. This change is subject to parliamentary approval. Foreign Service relief will be retained for seafarers.

If you would like to discuss any of this further please get in touch 0116 2423400 or info@torrwaterfield.co.uk

Are You Washing Away Your Potential Tax Refund?

If you wear a uniform or protective clothing at work and you have to wash it yourself you may be due a tax refund from HMRC, and if you don’t claim it, you’ll lose it after 4 years.

This typically applies to:

Retail staff

Hospitality & catering

Nurses, doctors, dentists and other healthcare workers

Police officers

Airline staff / cabin crew / pilots

Public transport (London Underground staff, train conductors, bus drivers)

Engineers & mechanics

Builders / plumbers / carpenters

PE teachers

However any item of clothing with a company logo on it can be claimed for!

How much can I claim?

The amount you can claim depends on your job. If claiming for the full 4 years, the standard rebate for most employees is £48. However for certain professions HMRC has agreed higher allowances. There are numerous calculators online that will inform you how much you are entitled to based on your circumstances.

How do I claim?

There are currently three ways to claim your refund:

  • By entering it as a deduction on your Self-Assessment tax return if you already fill one in.

 

 

  • By phone if you’ve had a successful claim in a previous year and your expenses are less than £1,000.

 

If you require any more information please contact the office on 0116 242 3400.

Tom Luckett, Accounts & Tax