Questions and Answers - Dec 2006
Employee Telephone Calls over Christmas
Q: Over the Christmas period, some of my employees were required to be on call 24 hrs per day, and consequently use their personal mobile phones to make business calls. How should I reimburse these employees for the cost of the business calls they make?
A: Where this is the case, Class 1 NIC and tax are payable though PAYE if you;
1. reimburse the cost of the mobile telephone, service charges or the cost of private calls
2. provide the employee with a voucher for use in relation to the mobile telephone or private calls made on it.
Where you reimburse the costs incurred by an employee in making business calls only on his or her own mobile telephone, you can ask for a dispensation from the HMRC. If you do not have a dispensation you must return the full cost you have incurred on reimbursing the calls on form P11D at section O. No Class 1 or Class 1A NIC is payable. The employee can then apply to the HMRC to advise that the payment is for expenditure incurred in the course of their employment and claim a refund for tax paid on this.
An alternative option for the future is to provide these employees with a mobile telephone and enter into a service agreement with the telephone company. Then there would be no liability for NIC or tax. This applies to the provision of the telephone, the service and all calls.
Set up of PAYE schemes
Q: I am employed but have recently set up a small limited company to deal with a sideline venture. As I am already employed and paying tax a basic rate my accountant suggested that it is more beneficial for me to take dividends rather than salary from this company. As I am not paying any wages do I still need to set a up payroll scheme for the company, as the accountant wants to charge me for this?
A: Your accountant is quite correct. As a basic rate taxpayer if you were to take salary from the company you will need to make the necessary PAYE Tax and NIC deductions on the salary you are paid. If you take a dividend, and ensure this does not make you a higher rate taxpayer you will not pay any further income tax on this. It is therefore more tax efficient for you to take a dividend.
The HMRC will normally set up a PAYE scheme once it receives the new company notification form (CT41G). This is because they assume that all companies will have at least one director and normally (though not inevitably) that director will receive salary which should be subject to PAYE deductions. If no remuneration is likely to be paid, the HMRC suggest that a covering letter is submitted with the form (or on receipt of the end of year form (P35)) which highlights this and they will update their records to show no PAYE scheme is required, and save you paying the accountant for a service that isn’t required.
Gift of goods and samples to customers
Q: I am planning an exhibition evening in my shop for some new products I am selling. I will be inviting members of the public and regular customers to my shop for an open evening, and will be providing small samples of this new product as a gift to everyone attending. Am I able to claim a deduction for this in my accounts, as I am aware that gifts to clients are in some cases not tax deductible?
A: Yes, you will be able to claim a deduction for the cost of these free samples and gifts, as, providing they include a conspicuous advertisement for your business, they will be treated as being used for the purpose of advertising.
This does not apply if the gift is food, drink or tobacco, or a token or voucher exchangeable for goods. You must ensure that the cost of the gift (together with the cost of any other such gifts given to the same person in the tax year) does not exceed £50. Remember that the advertisement must be on the gift itself, and not just on the wrapping.
Jury Service Allowances
Q: I have been called for jury service, which will last for approximately 2 weeks. As I am a self employed sole trader with no employees, do I have any entitlement to claim for the loss of my earnings, as I will need to close my business for this period?
A: Irrespective of whether your are self employed or employed, all jurors are entitled to claim a maximum daily allowance for loss of earnings over the period of jury service, which is dependant on the number of hours and period you will be acting as a juror. You may also be entitled to claim a daily allowance for subsistence and travel costs.
As you are self employed, you will have to provide the court with some evidence of the loss of your earnings, and you may need consult your accountant on this. Details of the rates payable can be obtained from the Crown Court where you have been asked to attend, or on the www.hmcourts-service.gov.uk website.
Your TaxAssist accountant will be able to provide you with further information on the tax implications of this allowance.
Are Grants Taxable?
Q: I am in the process of setting up a new business and have applied for some grants. Will these be taxable?
A: Generally speaking, grants are set against the expenditure for which they were granted. For example, if you receive a grant for advertising, the amount of that grant will be deducted from advertising costs in your accounts, thus increasing your profits, and therefore the tax due on them. If the grant is for a capital item, such as plant and machinery, then the cost of that capital item is reduced accordingly for the purposes of calculating capital allowances. Some grants may be tax-free - and you should always read the small print or conditions carefully, or get your professional advisor to do so for you, before you proceed.
Reducing Payments on Account in January
Q: I have now received the demand from the Inland Revenue for my tax payments due at the end of January. My accountant advised me of my tax bill for the 2005/06 tax return sometime ago but suggested that I could reduce the payment as business has been really poor in the current year and I do not have enough money to make this payment. What are the ramifications if I do not pay, and is there any possibility that I can reduce the amount that is due?
A: Payments on account represent 50% of the individual’s net tax liability for the previous year. All individuals are liable to make these payments unless their net tax liability is less than £500 or more than 80% of the tax due was deducted at source.
Given that your income is likely to be significantly less than the previous year which the payments on account are based on, you can claim to reduce these payments. The amount that you reduce these too should reflect your estimation of your tax liability for the year of the claim.
However, if it is later found that you have overestimated the fall in your income, and consequently reduce the payments on account by too much, you will be liable to pay interest on the difference between the amounts paid as payments on account and the amount due. Equally if you have underestimated the fall, you will be due a refund and will receive an interest supplement.
PAYE Settlement Agreements
Q: I want to reward my employees for their hard work over the past year . I know if I pay them an end of year bonus I will need to account for income tax and national insurance through the PAYE scheme but I actually want to purchase my staff presents rather than cash. Do I still need to account for tax and national insurance on this, and is there a possibility that I could settle the liability on their behalf?
Unfortunately, if you purchase gifts for your employees each will receive a P11d benefit in kind based on the value of the assets or goods that you have gifted. The employees will be charged to tax but not national insurance, on the value of the gifts. The company will have to pay a class 1A National insurance at 12.8% on the market value of the gifts at the end of the tax year.
As only the tax liability is payable by the employee, you can actually make a voluntary agreement with the Inspector of Taxes to meet the tax payable on the benefits in kind that you give to your employees. This is known as a PAYE Settlement Agreement (PSA). Once you have a signed agreement for a tax year, you do not have to enter the items covered on form P9D or P11D, operate PAYE on them, or assess NIC liability for included items which are liable for Class 1 or Class1A NIC.
You will actually pay Class 1B NIC on the items included in any PSAs, and meet the tax liability on the total amount of the gifts to your employees. This will result in your employees paying no tax on the gifts they have received.
Providing Christmas Hampers To Staff
Q: Some of my employees have asked that, rather than attend the annual Christmas dinner if I would give them the equivalent via a food and wine hamper. I am happy to do this but can you tell me whether or not they will have to pay tax on this?
A: The provision of events such as Christmas parties, open to all staff, will not lead to taxation unless they exceed £150 per head for the tax year. However if you wish to give items such as hampers, then this will have to be taxed through the payroll or the P11D form. A way round this would be to apply by letter (there is not a form) to your PAYE inspector and ask for a PAYE Settlement Agreement (PSA) to be set up, detailing what items would be covered. You cannot include large regular items such as sole-use company cars, car fuel, salary, bonuses, round sum expenses etc. The agreement has to be renewed each year. As the employer you would then be liable to pay the tax and National Insurance over.
