The annual investment allowance (AIA) gives a 100% deduction for tax purposes for the cost of plant, equipment and certain fixtures in buildings, which qualify for capital allowances. The AIA has an annual cap. This started at £50,000 in 2008, was increased to £100,000 by the previous government, and was cut to £25,000 in April 2012 by the current incumbents.
Now the AIA cap will temporarily increase to £250,000 for expenditure incurred in the two years from 1 January 2013. Equipment bought on and after 1 January 2015 will be subject to the reduced AIA cap of £25,000, unless the Chancellor of the day has another change of mind. Expenditure that qualifies for capital allowances, but which exceeds the available AIA cap for the business is given tax relief at the rate of 18% or 8% per year, depending on the nature of the item purchased.
The AIA cap for accounting periods that end on 31 December 2013 and 31 December 2014 will be £250,000, fair and square. But where your business has an accounting period that straddles 1 January 2013, the calculation of the AIA cap is complicated. Say your accounting period ends on 31 March 2013. You need to split the accounting period (for AIA purposes only), into:
a. 1 April 2012 to 31 December 2012 (portion of £25,000 AIA); and
b. 1 January 2013 to 31 March 2013 (portion of £250,000 AIA).
The maximum AIA for the business is the sum of the portions of the AIA cap due for each of those sub-periods a) and b). However, the expenditure must also be spread over those two periods to gain the maximum advantage from the AIA. The business cannot spend its maximum AIA in the period from 1 January 2013 to 31 March 2013.
The complications do not stop there, as there is protection for businesses that have already spent their maximum AIA of £25,000 in 2012. Please ask us to check how much the AIA cap will be for your business before you purchase any expensive equipment.
Monday, 7 January 2013
RTI - More Information
The rules for reporting wages, hours worked and payroll deductions under real time information (RTI) are still being written.
What to report
RTI reports will need to be made where at least one employee is paid above the lower earnings limit (LEL), (£109 per week for 2013/14). For wages between the LEL and the Primary threshold (£149 per week for 2013/14) the worker is given NI credits although they don't actually pay any NI, so the level of their wages needs to be reported.
A major difference between RTI and the current system, is that once the employer is reporting under RTI, reports must be made for each employee even if no tax or NI are deducted for a particular period. This because RTI has two functions; - to report deductions to HMRC and to report net pay for each worker to the Department of Work and Pensions (DWP) to allow the DWP to calculate top-up benefits such as Tax Credits and the new Universal Credit.
The wages for employees aged under 16 are not required to be included in the RTI report, unless those wages are so high that the worker will be subject to income tax. Workers aged under 16 do not pay NICs, and are not eligible to claim Tax Credits.
Penalties for errors
The draft legislation released on 11 December 2012 indicates that penalties for errors in RTI reports will apply from 6 April 2013, when most employers will be required to start using RTI. Those employers who are already in the RTI pilot programme may be subject to penalties if their last RTI report for the 2012/13 tax year is incorrect.
In either case the penalties for errors in RTI reports will not be collected until the 2013 Finance Act has been passed, probably in late July 2013. This application of penalties from the start of RTI has come as an unpleasant surprise, because tax and accountancy bodies have been pushing for a 'soft-landing' for the RTI penalty rules for all employers.
Penalties for late reports
Penalties for RTI reports which are submitted late will generally apply from 6 April 2014 onwards. Remember an RTI report will have to be filed every time employees are paid. Under the current system a report of PAYE deductions is only required to be submitted to HMRC once per tax year, by 19 May after the end of the tax year.
Where the last RTI report for the tax years 2012/13 (for employers in the RTI pilot) or 2013/14 is submitted by 19 May after the end of the tax year, there will be no late-filing penalty. However, from 6 April 2014, where the employer fails to submit RTI reports on time within the tax year, the employer could be fined for each month for which RTI reports are late. Only one penalty per month will apply even if the employer makes more than one RTI report during the month.
What to report
RTI reports will need to be made where at least one employee is paid above the lower earnings limit (LEL), (£109 per week for 2013/14). For wages between the LEL and the Primary threshold (£149 per week for 2013/14) the worker is given NI credits although they don't actually pay any NI, so the level of their wages needs to be reported.
A major difference between RTI and the current system, is that once the employer is reporting under RTI, reports must be made for each employee even if no tax or NI are deducted for a particular period. This because RTI has two functions; - to report deductions to HMRC and to report net pay for each worker to the Department of Work and Pensions (DWP) to allow the DWP to calculate top-up benefits such as Tax Credits and the new Universal Credit.
The wages for employees aged under 16 are not required to be included in the RTI report, unless those wages are so high that the worker will be subject to income tax. Workers aged under 16 do not pay NICs, and are not eligible to claim Tax Credits.
Penalties for errors
The draft legislation released on 11 December 2012 indicates that penalties for errors in RTI reports will apply from 6 April 2013, when most employers will be required to start using RTI. Those employers who are already in the RTI pilot programme may be subject to penalties if their last RTI report for the 2012/13 tax year is incorrect.
In either case the penalties for errors in RTI reports will not be collected until the 2013 Finance Act has been passed, probably in late July 2013. This application of penalties from the start of RTI has come as an unpleasant surprise, because tax and accountancy bodies have been pushing for a 'soft-landing' for the RTI penalty rules for all employers.
Penalties for late reports
Penalties for RTI reports which are submitted late will generally apply from 6 April 2014 onwards. Remember an RTI report will have to be filed every time employees are paid. Under the current system a report of PAYE deductions is only required to be submitted to HMRC once per tax year, by 19 May after the end of the tax year.
Where the last RTI report for the tax years 2012/13 (for employers in the RTI pilot) or 2013/14 is submitted by 19 May after the end of the tax year, there will be no late-filing penalty. However, from 6 April 2014, where the employer fails to submit RTI reports on time within the tax year, the employer could be fined for each month for which RTI reports are late. Only one penalty per month will apply even if the employer makes more than one RTI report during the month.
New Tax Free Allowance
The standard personal allowance (amount of tax-free income) for 2013/14 will be £9,440. We had been expecting a smaller increase to £9,205.
The new higher allowance allows an individual to earn £181.54 per week (about £787 per month) tax free. But the NIC thresholds will not increase by as much, so an employee starts to pay NICs on income way below the tax-free threshold.
In 2013/14 the class 1 primary NI earnings threshold for employees will be £149 per week (£7755 per year). Employers will pay class 1 NI on wages of £148 or more per week (£7700 per year). You need to consider the NI costs for both you and your company when deciding how much you can extract from your own company as salary.
If you pay yourself the full personal allowance of £9,440 as salary from 6 April 2013, you will have personal NIC of £202.20 (12% x (9440-7755)) for the year. Your company will also pay £240.12 (13.8% x (9440-7700)) in class 1 NICs. However, the salary and NIC cost is fully tax allowable for the company.
A salary of £7,695 per year (about £147.98 per week) will avoid both employees and employers NICs. But you will get an NI credit for state retirement pension purposes if your salary lies in the range £109 to £149 per week. Unfortunately under RTI (see above), payments of salary in that range will have to be reported to HMRC, so there is no admin saving on paying a low salary.
The new higher allowance allows an individual to earn £181.54 per week (about £787 per month) tax free. But the NIC thresholds will not increase by as much, so an employee starts to pay NICs on income way below the tax-free threshold.
In 2013/14 the class 1 primary NI earnings threshold for employees will be £149 per week (£7755 per year). Employers will pay class 1 NI on wages of £148 or more per week (£7700 per year). You need to consider the NI costs for both you and your company when deciding how much you can extract from your own company as salary.
If you pay yourself the full personal allowance of £9,440 as salary from 6 April 2013, you will have personal NIC of £202.20 (12% x (9440-7755)) for the year. Your company will also pay £240.12 (13.8% x (9440-7700)) in class 1 NICs. However, the salary and NIC cost is fully tax allowable for the company.
A salary of £7,695 per year (about £147.98 per week) will avoid both employees and employers NICs. But you will get an NI credit for state retirement pension purposes if your salary lies in the range £109 to £149 per week. Unfortunately under RTI (see above), payments of salary in that range will have to be reported to HMRC, so there is no admin saving on paying a low salary.
Friday, 30 November 2012
Planning for RTI
If you are an employer you should have received information from the Taxman about operating PAYE under Real Time Information (RTI).
Employers with fewer than 5001 employees will have to operate RTI from 6 April 2013, and that includes one-man companies. Some employers have already started to use RTI under the pilot program. Individuals who employ carers in their own home may be able to defer migrating to RTI until April 2014.
Defacto's online portal will be RTI compliant for 2013 however if you use another 3rd party software you need to check whether your payroll software will be RTI-ready from April 2013. Don't assume it will be. Some software providers have taken this time to discontinue legacy packages and force you to move to more expensive offerings. Even HMRC is cutting back on the free payroll software it provides. The HMRC PAYE Basic tools will work under RTI, but only for up to nine employees, and it does not handle net pay arrangements for employer pension contributions.
If you use an external provider to run your payroll, you must talk to them about how much it will cost to run your payroll from April 2013. RTI requires more data to be submitted to the Tax Office than currently required (see below). Also the RTI reports must be sent on or before the day on which employees are paid, which could be daily or weekly. Currently the Taxman requires an annual report of what has been paid and deducted under PAYE.
The 'on or before' requirement has been relaxed in limited circumstances where employees are paid in cash on the day they work, and the amount of payment cannot be known in advance. This may apply to bar staff and crop-pickers. However, the RTI report must still be made within seven days of the day of payment, or when the next payroll is run, whichever comes next.
As the purpose of RTI is to provide accurate information to the DWP on claimants' earnings, employers are required to provide the weekly hours worked by each employee, as they fall into the following bands:
A. Up to 15.99 hours
B. 16 to 24.99 hours
C. 30 hours or more
D. Other
You don't have to record the exact hours worked, only the normal hours the employee is expected to work.
From April 2014 the Taxman will charge penalties where RTI reports are submitted late, or containing inaccurate information. Please talk to us about how your business can meet the RTI challenge and how we can help. You have just four months to get ready.
Employers with fewer than 5001 employees will have to operate RTI from 6 April 2013, and that includes one-man companies. Some employers have already started to use RTI under the pilot program. Individuals who employ carers in their own home may be able to defer migrating to RTI until April 2014.
Defacto's online portal will be RTI compliant for 2013 however if you use another 3rd party software you need to check whether your payroll software will be RTI-ready from April 2013. Don't assume it will be. Some software providers have taken this time to discontinue legacy packages and force you to move to more expensive offerings. Even HMRC is cutting back on the free payroll software it provides. The HMRC PAYE Basic tools will work under RTI, but only for up to nine employees, and it does not handle net pay arrangements for employer pension contributions.
If you use an external provider to run your payroll, you must talk to them about how much it will cost to run your payroll from April 2013. RTI requires more data to be submitted to the Tax Office than currently required (see below). Also the RTI reports must be sent on or before the day on which employees are paid, which could be daily or weekly. Currently the Taxman requires an annual report of what has been paid and deducted under PAYE.
The 'on or before' requirement has been relaxed in limited circumstances where employees are paid in cash on the day they work, and the amount of payment cannot be known in advance. This may apply to bar staff and crop-pickers. However, the RTI report must still be made within seven days of the day of payment, or when the next payroll is run, whichever comes next.
As the purpose of RTI is to provide accurate information to the DWP on claimants' earnings, employers are required to provide the weekly hours worked by each employee, as they fall into the following bands:
A. Up to 15.99 hours
B. 16 to 24.99 hours
C. 30 hours or more
D. Other
You don't have to record the exact hours worked, only the normal hours the employee is expected to work.
From April 2014 the Taxman will charge penalties where RTI reports are submitted late, or containing inaccurate information. Please talk to us about how your business can meet the RTI challenge and how we can help. You have just four months to get ready.
Business Record Checks
The Taxman apparently believes that anyone who does business in cash must be a potential 'tax cheat'. This is ridiculous of-course, but his latest business record checks campaign is based on this fallacy.
If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer's agent if asked to do so.
The telephone questionnaire is a computer-generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.
The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.
If you receive a call from the Taxman asking questions about your business records, please refer the caller to us before agreeing to answer his questions. You should not be penalised for doing this. The Taxman is required to deal with the taxpayer's agent if asked to do so.
The telephone questionnaire is a computer-generated script, which only accepts a limited range of answers. For example: How many purchases are in cash? Answers accepted: none, a third, half or more.
The answers given determine whether the Taxman sends you guidance on how to keep better business records, or an Inspector to check what you may be doing wrong. Where the Taxman wants to inspect your business records, please ask us to be present when they come. The potential penalties for flying solo are not worth it.
VAT Registration Advice
It's one number (£77,000 from 1 April 2012), so why is so easy to get it wrong? We are talking about the compulsory VAT registration threshold in the UK. If your VAT taxable turnover (sales) total for the previous 12 calendar months exceeds this compulsory registration threshold, or the sales your expect to make in next 30 days will exceed that threshold, you MUST register for VAT within the next 30 days.
You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:
- If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first, permission may not be granted.
- You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
- If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.
You can now register for VAT online on the HMRC website, but we recommend that you talk to us first, as so many things can go wrong. If you make a mistake with the form, the Taxman may not let you correct it. For example:
- If you exceed the VAT registration threshold due to a 'blip' in sales, you can ask the VATman for permission not to register for VAT, but you must ask first, permission may not be granted.
- You can reclaim VAT on services you purchased for your business in the six months before the day your VAT registration is effective from, so it is essential to time your VAT registration date with an eye on the invoice dates for those expensive services. If the service relates to an asset which was no longer held at registration, the VAT can't be recovered as pre-registration VAT.
- If you receive a large order which will push your sales over the VAT registration threshold for the next 30 days alone, pay attention to the delivery dates for that order. A staggered delivery for the order may mean you do not exceed the VAT threshold in the next 30 days, and you may register for VAT too early.
Beware scam e-mails
With the self assessment deadline approaching, there are more and more scam e-mails circulating, which appear to be from HMRC in relation to claiming a tax refund. These often look genuine - coming from "@hmrc.gov.uk" e-mails and they usually copy HMRC's logo from their website, and include links to HMRC's genuine website.
The e-mails have a form attached which asks for debit or credit card details, security codes and passwords, dates of birth, available balances on account - all of the details a fraudster needs to be able to steal from you!
HMRC do not e-mail in relation to tax refunds. Nor will they ever ask you for credit or debit card details for refunds.
If you receive an e-mail in relation to a refund DO NOT complete the form - delete it or forward the e-mail to us or to HMRC at phishing@hmrc.gsi.gov.uk
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