Financial Monitor (February 2006)
Quote of the month
"The difference between a successful person and others is not a lack of knowledge but rather a lack of will".
New requirements for those provided with fuel for business purposes
Where an employer reimburses an employee for the cost of road fuel (petrol or diesel) used for business journeys, VAT Regulations allow the employer to treat the VAT element of the amount reimbursed as deductible input tax. This applies equally to a straightforward reimbursement and to reimbursement by way of a mileage allowance. In order to comply with European law, the Government has tightened the rules, to require the employer to hold a VAT receipt for any amount reclaimed. In practice, this means that employees and directors claiming fuel cost reimbursement, or business mileage allowances, should now be asked to submit fuel receipts with their expenses claims.
Dividend planning - companies with profit less than £50,000
If your company has profits less than £50,000 for the year ending on 31 March 2006 or spanning that date then if dividends are paid before 31 March 2006 this may increase the corporation tax liability. This is because the nil rate of taxation on the first £10,000 of profits is not applied when dividends are paid. This will change from 1 April 2006 when the nil rate band is abolished. Consequently, for companies with profits less than £50,000 it will now probably be better to defer payment of future dividends until after 31 March 2006. However, individual shareholders may wish to maximise the use of their basic rate band of income tax by paying dividends before 5 April 2006. If such dividends are required then they should be paid between 1 April 2006 and 5 April 2006. It is recommended that actual payment is made even if it is then re-introduced by credit to directors' loan account if cash flow would not allow the dividend to be paid.
Open Annuities - no longer available after 5 April 2006
An open annuity allows someone of pension age to purchase an annuity where, at the time of death, all the remaining funds within the annuity can pass back to the estate of the deceased without any tax charges, including inheritance tax. This circumvents the disadvantage of a normal annuity in that those dying shortly after the normal guarantee period of five years, effectively pass the balance of the fund to an insurance company. The use of an open annuity preserves the remaining fund for the family. This scheme will not be available after 5 April 2006.
The costs of an open annuity scheme make it disadvantageous for pension funds less than £300,000. If you would like to consider such a scheme you will need the advice of an Independent Financial Adviser and we can introduce you to one, if you do not already have your own.
Tips - some changes
There have been changes in the guidance issued by H M Revenue and Customs (HMRC) regarding the national insurance treatment where tips are pooled using the tronc system. In the past national insurance liabilities have arisen when the pool is distributed by the employer rather than a nominated member of staff. HMRC now accepts that national insurance contributions should no longer be paid where an employer uses the tronc system towards its liability to pay the National Minimum Wage nor where the employee's contract mentions the existence of a tronc.
If you have paid an assessment raised by HMRC based on their previous interpretation of the rules relating to tips or paid national insurance contributions on that basis, it may be possible to obtain a refund. Please contact Peter Newsam to discuss the matter.
Are you sure your employees have contracts of employment
Half of employers don't know whether their staff have a contract of employment, despite the fact that failure to issue such a contract can lead to a penalty, according to new research.
A survey of almost 2,000 employers found that 52% could not be certain that all the employees had contracts. Since October 2004, employers who fail to issue a contract can be liable to pay compensation of two to four weeks' pay.
Under dispute resolution regulations, a contract (technically called a written statement of employment particulars) must contain details of employers' disciplinary/dismissal and grievance procedures, which must be at least as good as statutory procedures.
Failure to issue a contract detailing the procedures could lead to more than just a penalty. If the contract does not contain procedures, then the likelihood of an employer following them is small. Failure to follow the procedures means the dismissal will be classed as automatically unfair and compensation awarded may be increased by up to 50%.
PAYE Internet filing - mandatory for those with at least 50 employees
All employers with 50 employees or more should have been advised by the Revenue that they must file the end of year PAYE returns on line for the year ended 5 April 2006. If you have not been so advised but have at least 50 employees please contact ourselves. The return must be filed electronically by 19 May 2006 otherwise a penalty of up to £3,000 may be charged.
Those businesses with less than 50 employees will receive £250 tax free if they file on line, but it not yet mandatory to do so.
If you need assistance with on line filing please contact us.
Budget Day - 22 March 2006
Our next edition of Financial Monitor towards the end of March will consist of a summary of the main Budget measures to be announced by the Chancellor on 22 March 2006.
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