The National Minimum Wage Increase
Q: I am currently looking to take on a new member of staff as an apprentice. I understand the national minimum wage rules may mean I have to pay him a certain hourly rate? Is this true?
A: From the 1st October 2007, the minimum wages rates increased to £5.52 for adults aged 22 and older. The development rate for 18-22 year olds is £4.60 and the development rate for 16-17 year olds is £3.40. However, there are a few exceptions which apply to these rates for a small minority of workers.
Currently, apprentices under the age of 19 are not entitled to the national minimum wage, and apprentices over the age of 19 and below the age of 25 are not entitled to the minimum wage in the first year of their contract.
Apprentices as far as the minimum wage is concerned are either workers who have contracts of apprenticeship; or workers who are taking part in the specific training programmes which are funded by a local development agency. You must ensure you have a written agreement between you and your new worker which confirms they are employed an apprentice contract.
For more information on whether or not your employee counts as an apprentice you should contact the National Minimum Wage helpline on 0845 6000 678 or speak to your local TaxAssist accountant.
Incorrect Vat Returns
Q: On filing in my businesses VAT return for this quarter, I noticed is calculated VAT on my sales incorrectly. Due to these errors, I will have additional VAT to pay. How do I rectify the situation and will there be any penalties or interest to pay on this?
A: If the net errors total less than £2,000 you have the choice of using two methods to disclose the errors without being charged interest or penalties. You can voluntarily disclose these errors either by contact your local VAT Business Advice Centre in writing or by adjusting your VAT account and including the value of that adjustment in the next VAT return for the current period.
If the net errors total more than £2,000, you must inform your local VAT Business Advice Centre in writing of the errors. If you use this method, you must not make adjustment for the same errors on a later VAT return. Customs may also charge interest on any under declarations you disclose in this way.
Rental Income Whilst Abroad
Q: I am going to work abroad for two years and rather than sell my house I am going to rent it out. I have not engaged an agent to act for me as I know the tenant, and they will be paying the rent directly to me whilst I am abroad. Are there tax implications I should be aware of on this rental income?
A: If a tenant pays rent of more than £100 a week (£5,200 per annum) to a non-resident landlord they must deduct basic rate tax from the landlord’s UK rental income and pay the tax to the Inland Revenue’s Accounts Office, Cumbernauld. Tenants who pay rent of £100 a week or less do not have to operate the scheme unless they are told to do so by the Inland Revenue. When working out the amount to tax, the tenant can take off tax deductible expenses that are incurred for the purposes of letting the property.
However, you can apply as the landlord on form NRL1 to the Centre for Non Residents for approval to receive your rental income gross. This is usually given if your tax affairs are up to date or you do not expect to be liable to UK income tax for the tax year. You will still however need to include this information on a UK self assessment tax return if you are sent one. For further information on the landlords and tenants responsibility see the information on www.hmrc.gov.uk/cnr website or contact your accountant.
Capital allowances on Taxi’s
Q: I started a chauffer company last year and business has been so profitable that I am now looking to employee my son as an additional driver and purchase another vehicle. I am looking to purchase a new vehicle for an “on the road price” of £18,000. How is the cost dealt with for tax purposes?
A: The total cost of the vehicle will qualify for Capital Allowances, and cars used for private hire purposes, assuming they are not hired consecutively for more than 30 days to the same person, are treated as a “qualifying car” for Plant and Machinery allowances.
First Year Allowances will therefore be available on the full cost of £18,000 in the period the vehicle is acquired. If the vehicle is acquired prior to 5 April 2008 it will qualify for an increased First Year Allowance of 50% applicable to this tax year.
You must also remember to ensure that if your son receives private use of the vehicle, however small a percentage it may be, he will be assessable to a benefit in kind based on the CO2 emissions level of the car. Equally, if he receives private fuel in addition to the use of the car, a benefit in kind for this will also be applicable. You will need to produce and submit end of year forms P11d and P11d(b) disclosing these benefits to the HMRC by 6 July after the tax year end in which the benefits are received.
My Employee Has Passed Away!
Q: One of my employees recently passed away after a short illness. I have continued paying him up until his death under the terms of his contract, but I don’t know what I need to do with regard to the payroll now?
A: When you learn of the death of an employee you should complete a form P45 as normal for any employees who leave, write D in the box at the bottom of the form, and send all four parts of the form to your Inland Revenue office.
Obviously there may be some of the payments due to this employee made after the date of death. In this situation, you should make the payments of the outstanding wages to the personal representative of the deceased employee. Pay As You Earn deductions will need to be made on this, using tax code BR on any payments after you have completed the form P45 as advised above. Also all payments made after the date of death should continue to be detailed on the PAYE working sheet (form P11)
If the payments you are making fall into a later tax year than the one in which your employee died, you should deduct PAYE using the code BR and record details on a new form P11 in the name of the deceased employee. Again these payments should be made to the personal representative of the deceased.
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.
Small Business Grants
Q: I am in the process of setting up a new business and want to know whether I can apply for any grants, and whether these are taxable?
A: There are some very useful websites available which advise on any local and national grants available to small businesses. Business Link (www.businesslink.co.uk ) has a Grants And Support Directory (GSD) which allows you to search for sources of help when starting up a new business, or developing an existing business.
For tax purposes, grants are generally 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. Your local TaxAssist accountant can advise further on this issue before you proceed.
Set up of PAYE schemes
Q: I recently set up a Limited Company, but as I am already employed elsewhere, 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 PAYE scheme?
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 in this scenario.
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.
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