Category: Finance & Accounting

If you’re an employer, make sure you’re up to date on the latest Employer Bulletin on diesel supplements.

Employees with a company car are taxed – often quite heavily – for the privilege. The charge is on the benefit which the employee derives from being able to use their company car for private journeys.

The amount charged to tax is a percentage of the ‘list price’ of the car – known as the ‘appropriate percentage’. The percentage depends on the level of the car’s CO2 emissions. A supplement applies to diesel cars. For 2019/20, as for 2018/19, the supplement is set at 4%. However, the application of the diesel supplement cannot take the percentage of the price charged to tax above the maximum charge of 37%. Consequently, the diesel supplement has no practical effect where emissions are 170g/km or above as the maximum charge already applies.

The nature of the diesel supplement was reformed from 6 April 2018. From that date it applies to cars propelled solely by diesel (not hybrids) which do not meet the Real Driving Emissions 2 (RDE2) standard. The supplement is levied both on diesel cars which are registered on or after 1 January 1998 which do not have a registered Nitrogen Oxide (NOx) emissions value, and also on diesel cars registered on or after that date which have a NOx level that exceeds that permitted by the RDE2 standard.

Checking whether the supplement applies

So, how can employers tell whether the diesel supplement applies?

Diesel cars which meet the level of NOx emissions permitted by Euro standard 6d meet the RDE2 standard. Consequently, they are exempt from the entire diesel supplement. For cars that are manufactured after September 2018, employers can use the Vehicle Enquiry Service (see https://vehicleenquiry.service.gov.uk/) to identify whether a particular car meets the Euro 6d standard – the employer simply needs to enter the registration number of the car into the tool to find information on the vehicle, including its Euro status. Cars that are shown as meeting Euro status 6AJ, 6AL, 6AM, 6AN, 6AO, 6AP, 6AQ or 6AR meet Euro standard 6d and are therefore exempt from the diesel supplement. Where the car was registered on or after 1 September 2018, this information is also shown on the vehicle registration document, V5C.

From 6 April 2019 onwards, employers should use fuel type F (rather than A as previously) when reporting the allocation of a diesel car meeting the Euro 6d standard to HMRC on Form P46(Car) or when payrolling the benefit.

Cars that do not meet the Euro 6d standard are subject to the diesel supplement. HMRC advise that very few, if any, diesel cars were exempt from the diesel supplement in 2018/19.

Example 1

Alan is allocated a company car registered in 2015. The car has CO2 emissions of 120g/km. It does not meet the Euro 6d standard. The diesel supplement applies and the appropriate percentage is increased by 4% from 28% (the percentage applying for 2019/20 to petrol cars with CO2 emissions of 120g/km) to 32%.

Example 2 Louise is allocated a new diesel company car on 6 April 2019. The V5C shows that the car has CO2 emissions of 120g/km and that it meets Euro Status 6d. The diesel supplement does not apply and the tax charge for 2019/20 is based on the appropriate percentage of 28% for cars with CO2 emissions of 120g/km.

Partner note: ITEPA 2003, s. 141; Employer Bulletin, April 2019.

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

Do you run a business? Should you register for VAT? What are the conditions? We answer all these questions here

All traders – whether sole traders, partnerships, or limited companies – are obliged to register to charge and pay VAT once annual sales reach a pre-set annual threshold. This threshold remains at £85,000 for the year commencing 1 April 2019.

The annual VAT threshold is determined by total sales and is not the same as total profits (which is generally sales minus expenses). A business can make a loss and still need to register for VAT!

In summary, a business must register if:

  • its taxable outputs, including zero-rates sales (but not exempt, non-business, or ‘outside the scope’ supplies),have exceeded the registration threshold in the previous 12 calendar months – unless the business can satisfy HMRC that its taxable supplies in the next 12 months will not exceed a figure £2,000 below the registration threshold (so currently £83,000); or
  • there are reasonable grounds for believing that the business’s taxable outputs in the next 30 days will exceed the registration threshold; or
  • the business takes over another business as a going concern, to which the two bullet points above apply.

The threshold operates on a month-by-month basis, so a check should be made at the end of each month to make sure the business hasn’t gone over the limit in the previous twelve months.

The month-by-month basis also works by looking forward, so it is equally important at the end of each month to consider whether the limit will be exceeded in the following twelve months. If it is anticipated that total sales may exceed the VAT threshold, the business needs to register.

Where registration is required, HMRC must be notified:

  • within 30 days of the end of the relevant month (past sales condition); or
  • by the end of the 30-day period (expected sales condition).

If the business does not register with HMRC within the specified time limit, a penalty will be charged, which can eventually be up to 15% of the VAT owed – in addition to the actual VAT due.

Voluntarily registration

A business can register for VAT even if its turnover (total sales) is below the threshold and it may actually save tax by doing so, particularly if its main clients or customers are organisations that can reclaim VAT themselves.

Example

A non-VAT registered sole-trader buys a new office photocopier for the business. The copier costs £100 plus VAT, so a total of £120 is paid (£100 plus VAT at 20%). £120 is set against business profits for income tax purposes. If the trader is a basic rate (20%) taxpayer, there will be a tax saving of £24 (20% of £120), so the copier actually costs the trader £96. However, if the business is VAT-registered, the £20 VAT paid on the item (the input tax) can be reclaimed and £100 is set against business profits for income tax. The tax reduction is therefore £20 (20% of £100) and the copier costs the business just £80 – £16 is saved by being registered for VAT.

The business must not charge or show VAT on its invoices until the VAT number is received from HMRC. However, the VAT for this period must still be paid to HMRC. Therefore the business will need to increase its prices to allow for this and tell its customers why. Once the VAT number is received, the business can reissue the invoices showing the VAT separately.

Once registration has taken effect, there are a series of administrative obligations which must be complied with, and, importantly, a severe penalty regime exists for getting it wrong.

Partner Note: VATA 1994, Sch 1; HMRC VAT Notice 700/1

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

Today’s blog covers the things you need to know about entrepreneur’s relief to reduce capital gains tax.

Entrepreneurs’ relief is intended to reduce the rate of capital gains tax to a flat rate of 10% on certain qualifying business disposals. Certain aspects of the relief have recently changed, and this may affect any subsequent tax liability.

A qualifying business disposal must include a material disposal of business assets. For these purposes, a disposal of business assets is a disposal of:

  1. the whole or part of a business;
  2.  of (or of interests in) one or more assets in use, at the time at which the business ceases to be carried on, for the purposes of the business; or
  3. one or more assets consisting of (or of interests in) shares or securities of a company.

Formerly, to qualify for relief, the assets or shares had to be held by the individual for at least 12 months to the date of disposal. However, the length of ownership condition has recently been increased such that, for disposals made on and after 6 April 2019, the taxpayer will have to have held the assets or shares for at least 24 months for the relief to apply.

Shareholders

In order for a shareholder to claim on the disposal of shares, the following conditions generally need to be met:

  1. the company in which those shares are held must be the individual’s personal company;
  2. the shareholder must be an employee or officer of the company, or of a company in the same trading group; and
  3. the company must be a trading company or a holding company of a trading group.

All three of these conditions must be met for the whole of a 24-month period (for disposals from 6 April 2019) that ends with the disposal of the shares, cessation of the trade, or the company leaving the trading group and not becoming a member of another trading group.

Personal company

A company is the personal company of the individual at any time when all of the following conditions apply:

  1. the individual holds at least 5% of the ordinary share capital of the company;
  2. the individual can exercise at least 5% of the voting rights of the company which are associated with ordinary share capital;
  3. the individual is entitled to at least 5% of the profits available for distribution to the equity holders; and
  4. the individual would be entitled to at least 5% of the assets available on a winding up of the company.

Conditions numbered 3, and 4 were added for disposals made on and after 29 October 2018. However, the way the law was drafted would have made it difficult for some taxpayers to determine whether those conditions had been met for the full qualifying period. Therefore, the original draft legislation was modified before enactment to include an alternative test to both those, namely that in the event of a disposal of the whole of the ordinary share capital of the company, the individual would be beneficially entitled to at least 5% of the proceeds.

Shareholding threshold

Where an individual’s shareholding has fallen below 5%, as a result of a fundraising event involving the issue of additional shares which takes place on or after 6 April 2019. The equity funding share issue must be made wholly for cash and be made for commercial reasons, and not as part of arrangements driven by tax avoidance.

In these circumstances the shareholder will be entitled to the relief which would otherwise be lost, by making one or both of the following elections:

  • claim the relief on a deemed sale and reacquisition at market value at the point immediately before the additional shares are issued which removes the personal company qualification; or
  • defer taxation of the gain made on this deemed sale until the actual disposal of the shares.

The second election will generally be required as the taxpayer will make a deemed sale with no sale proceeds with which to pay the CGT due.

If neither of the elections is made the taxpayer will pay the CGT on the gain with no entrepreneurs’ relief at the time it arises.

Partner Note: FA 2011 s 9; FA 2019, s 39 and Sch 16; TCGA 1992, s 169ff

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

Here are some tax planning tips for workplace pensions if you have employees.

An increase in the minimum contributions employers and their staff must pay into their automatic enrolment workplace pension scheme took effect from 6 April 2019.

From that date, the employer minimum contribution has risen from 2% to 3%, while the staff contribution also increased from 3% to 5%. As part of the ‘phasing’ process, the increases mean that total contributions for employees have gone up from 5% to 8%. It is the employer’s responsibility to ensure that these increases are properly implemented.

The increases do not apply to employers using defined benefits pension schemes.

The amount that the employer and the employee pay into the pension scheme will vary depending on the type of scheme chosen and its associated rules. The employee contribution may also vary depending on the type of tax relief applied by the scheme. The majority of employers use pension schemes that from April 2019 require a total minimum of 8% contribution to be paid. The calculation for this type of scheme is based on a specific range of earnings. For the 2019/20 tax year this range is between £6,136 and £50,000 a year (£512 and £4,167 a month, or £118 and £962 a week).

For calculating the minimum contributions payable for this type of scheme the following amounts are included:

  • salary
  • wages
  • commission
  • bonuses
  • overtime
  • statutory sick pay (SSP)
  • statutory maternity pay (SMP)
  • ordinary or additional statutory paternity pay
  • statutory adoption pay

Although most pension schemes use these elements for calculating contributions, it might be a good time to recheck the scheme documents to make sure everything is in order.

All employers with staff in a pension scheme for automatic enrolment must ensure that they implement the changes and ensure that at least the new minimum amounts are being paid into their pension scheme. This applies whether the employer set up a pension scheme for automatic enrolment or they are using an existing scheme.

The Pensions Regulator provides an online contributions calculator to help employers work out costs for each member of staff. The calculator can be found at https://www.thepensionsregulator.gov.uk/en/employers/work-out-your-automatic-enrolment-costs.

No action is required where an employer does not have any staff in a pension scheme for automatic enrolment, or if amounts above the statutory minimum are already being paid. However, employers still need to assess anyone who works for them each time they are paid, and put them into a pension scheme if they meet the criteria for automatic enrolment. The employer must contribute at least the right minimum amount at the time and any further increases required.

As well as the obligation to continue paying into the pension scheme, manage requests to join or leave the scheme, and keep records, employers are also obliged to carry out a re-enrolment check every three years to put back in any staff who have left their pension scheme.

Tax planning points

Remember that people other than the holder can invest in the holder’s pension. For example, an individual could contribute to a spouse or partner’s personal pension, or even to a child’s personal pension to allow them to start building up retirement benefits from an early age.

The number of different pension schemes that a person can belong to is not restricted, although there are limits on the total amounts that can be contributed across all schemes each year.

It is also worth remembering that non-earners can pay £2,880 a year into a pension and receive an automatic 20% boost to their contribution in tax relief. This means that on a contribution of £240 per month, the actual amount invested in the pension scheme will be £300.

Partner Note: Pensions Act 2008; Finance Act 2004, s 188

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

Employing family members

It is permissible for a business to claim a tax deduction for the cost of a reasonable wage paid to a family member who helps in the business. Their duties could, for example, include answering the phone, going to the bank, bookkeeping and other administrative tasks.

The tax legislation specifies that ‘in calculating the profits of a trade, no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade’, which indicates that as long as the work is undertaken, the payments are realistic and actually made, there should not be a problem with claiming tax relief.

The benefits of spreading income around family members where possible include maximising the use of annual personal tax allowances (£12,500 per individual (children and adults) in 2019/20), and potentially taking advantage of nil and lower rate tax thresholds.

‘Family’ could include anyone who depends on the owners of the family business for their financial well-being (for example, elderly relatives and/or long-standing domestic staff members), but care must be taken not to fall foul of the ‘settlements’ legislation and other anti-avoidance measures in force at the time.

Keeping records

The tax deductibility of wages paid through a business has recently been examined by the Tax Tribunal. The business owner claimed that wages paid to his son had been paid partly through the ‘provision of goods’. He managed to substantiate some cash payments and a monthly direct debit (for insurance costs) by reference to his son’s bank statements. However, the bulk of the claim was based on buying food and drink to help support his son at university. Unfortunately, the tribunal concluded that the payments were made out of ‘natural parental love and affection’. There was a duality of purpose as the ‘wages’ had a major underlying ‘private and personal’ motive, and thus not for the purposes of the trade. The tribunal subsequently dismissed the appeal on the grounds that the business owner was doing nothing more than supporting his son at university.

The outcome of this case could have been very different if the business owner had used an alternative methodology for paying his son’s wages. In particular, the judge noted that had payment been made on a time recorded basis or using some other approach to calculate the amount payable, and had an accurate record been maintained of the hours worked and the amount paid, it is unlikely that the deduction would have been denied.

In particular, this case highlights the importance of maintaining proper records regarding the basis on which payments are to be made to children. A direct link between the business account and the recipient’s account would clearly be advisable.  For example, if the business owner had paid the wages directly into his son’s bank account, leaving the son to purchase his own food and drink from the money he earned from his father, bank statements could subsequently have been used to provide evidence of what had been paid and this could be linked to the record of hours worked. Maintaining the link is the key issue here.

Rate of pay

It is also worth noting that HMRC examine whether a commercial rate is being paid to family members. The concept of ‘equal pay for equal value’ should help prevent a suggestion of dual purpose and thus, in turn, should also help refute allegations of excessive payments to family members as a means of extracting monies from the business.

Finally, wherever payments are made to family member, legal issues such as the national minimum wage should also be borne in mind.

Partner Note: ITTOIA 2005, s 34; Nicholson v HMRC [2018] TC06293

Tax aspects of using a work’s van

If an employee is able to use a work’s van for private use, which generally includes home-to-work travel, there will be a taxable benefit and a subsequent tax charge.

From 6 April 2019, the flat-rate van benefit charge has risen from £3,350 to £3,430, representing a small increase in real terms to a basic rate taxpayer of £16 a year.

If an employer also provides the employee with fuel for private use, then a tax charge on the provision of fuel will also arise based on an annual fixed rate. For 2019/20 the flat-rate van fuel benefit charge has been increased from £633 to £655, so there is an increase in real terms to a basic rate taxpayer of just £4.40.

What is a van?

To qualify as a van, a vehicle must be:

  • a mechanically propelled road vehicle; and
  • of a construction primarily suited for the conveyance of goods or burden of any description; and
  • of a ‘design weight’ which does not exceed 3,500kg; but
  • not a motorcycle as defined in the Road Traffic Act 1988, s. 185(1). Broadly, this means that it must have at least four wheels.

The design weight of a vehicle, also known as the ‘manufacturer’s plated weight’, is normally shown on a plate attached to the vehicle. What it means is the maximum weight which the vehicle is designed or adapted not to exceed when in normal use and travelling on the road laden.

Human beings are not ‘goods or burden of any description’ so a vehicle designed to carry people (such as a minibus) will not be a van for these purposes.

Private use

A charge to income tax will generally arise if a company van is made available, by reason of the employment, to an employee or to a member of his or her family or household for private non-business-related use. It must be made available without a transfer of ownership from the employer to the employee.

There are three types of journeys that are classed as non-taxable business use:

  • business journeys – journeys the employee makes in the course of carrying out the duties of their employment
  • ordinary commuting – travel to and from home to a place of work
  • insignificant private use beyond ordinary commuting – for example making a slight detour to purchase a sandwich for lunch

Pool vans

Broadly, vans used as pool vans that meet the following criteria will not attract a benefit-in-kind tax charge:

  • the van is used by more than one employee
  • the van is not ordinarily used by one employee to the exclusion of others
  • the van is not normally kept at or near employees’ homes
  • it is used only for business journeys (A limited amount of incidental private use is allowed. For example, commuting home with the van to allow an early start to a business journey the next morning)

Given that these rules provide a total exemption from any tax charge, it is not surprising that HMRC apply them very strictly.

Tax charge

The benefit charge applies regardless of the employee’s earnings rate but may be proportionately reduced if the van is only available for part of a tax year, and/or by any payments made by the employee for private use.

For 2019/20, a basic rate taxpayer will pay £686 for the use of a work’s van (£3,430 x 20%). For a higher rate taxpayer, the cost will be £1,372.

If fuel is also provided for private use, for 2019/20, a basic rate taxpayer will additional tax of £131 (£655 x 20%), and a higher rate taxpayer will pay £262.

Tax is normally collected through the employee’s Pay As You Earn (PAYE) tax code.

Partner Note: ITEPA 203, ss 154-159; FA 2016, s 11; EIM22701ff

Is the summer party tax-free?

A statutory exemption exists, which allows employers to meet the cost of certain social events for staff without triggering a liability to tax or NICs, providing certain conditions are met.

The legislation refers to ‘an annual party or similar annual function’. Although HMRC do not seem to interpret this to mean that the same event must be held every year, it may be prudent to check the issue in advance where a one-off event is planned.

Conditions

A staff event will qualify as a tax-free benefit if the following conditions are satisfied:

  • the total cost must not exceed £150 per head, per year
  • the event must be primarily for entertaining staff
  • the event must be open to employees generally, or to those at a particular location, if the employer has numerous branches or departments

The ‘cost per head’ of an event is the total cost (including VAT) of providing:

  1. the event, and
  2. any transport or accommodation incidentally provided for persons attending it (whether or not they are the employer’s employees), divided by the number of those persons.

Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year, for example, there could be three parties held at various times, each costing £50 per head.

The £150 is a limit, not an allowance – if the limit is exceeded by just £1, the whole amount must be reported to HMRC.

If there are two parties, for example, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one, leaving the other one as a fully taxable benefit.

Example

ABC Ltd pays for an annual Christmas party costing £150 per head and a summer barbecue costing £75 per head. The Christmas party would be covered by the exemption, but employees would be taxed on summer barbecue costs, as a benefit-in-kind.

Tax treatment for employers

The cost of staff events is tax deductible for the business. The legislation provides a let-out clause, which means that entertaining staff is not treated for tax in the same way as customer entertaining. The expenses will be shown separately in the business accounts – usually as ‘staff welfare’ costs or similar.

There is no monetary limit on the amount that an employer can spend on an annual function. If a staff party costs more than £150 per head, the cost will still be an allowable deduction, but the employees will have a liability to pay tax and National Insurance Contributions (NICs) arising on the benefit-in-kind.

The employer may agree to settle any tax charge arising on behalf of the employees. This may be done using a HMRC PAYE Settlement Agreement (PSA), which means that the benefits do not need to be taxed under PAYE, or included on the employees’ forms P11D. The employer’s tax liability under the PSA must be paid to HMRC by 19 October following the end of the tax year to which the payment relates.

It should also be noted that whilst the £150 exemption is mirrored for Class 1 NIC purposes, (so that if the limit is not exceeded, no liability arises for the employees), Class 1B NICs at the current rate of 13.8%, will be payable by the employer on benefits-in-kind which are subject to a PSA.

The full cost of staff parties and/or events will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.

VAT-registered businesses can claim back input VAT on the costs, but this may be restricted where this includes entertaining customers.

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

PAYE settlement agreements

A PAYE Settlement Agreement (PSA) enables the employer to pay the tax and National Insurance instead of the employee on those benefits and expenses included within the PSA. This can be useful to preserve the beneficial nature of the benefit, for example in respect of a Christmas or other function falling outside the associated exemption, or where the effort involved in reporting the benefit on individual employees’ P11Ds is disproportionate to the amount involved.

What can a PSA be used for?

A PSA cannot be used for all benefits – only for those which fall into one of the following three categories:

  • minor benefits and expenses – such as telephone bills, incentive awards outside the scope of the exemption and similar
  • irregular items – such a relocation expenses or the occasional use of a company flat
  • impracticable expenses and benefits in respect of which it is difficult to place a value on or to divide up between individual employees – such as staff entertainment or shared cars

A PSA cannot be used for cash payments or for high-value items such as company cars.

Items falling within the scope of the trivial benefits exemption can simply be ignored for tax and National Insurance purposes – they should not need to be included in a PSA.

Setting up and checking a PSA

To set up a new PSA, the employer should write to HMRC setting out the benefits and expenses to be included within the PSA. Once HMRC have agreed the PSA, they will send two draft copies of form P626. Both copies should be signed and returned to HMRC. HMRC will authorise the PSA and send a form back – this will form the PSA.

A new PSA must be agreed by 6 July following the end of the tax year for which it is to have effect.

A PSA is an enduring agreement. Once it has been set up it remains in place until revoked by either the employer or HMRC. Employers should check that an existing PSAs remain valid.

Impact of a PSA

Where a PSA is in place, the employee does not pay tax on any benefits included within the PSA – instead the employer meets the liability on the employee’s behalf. Also, there is no need to report benefits included in the PSA on the employee’s P11D, or to payroll them.

Instead the employer pays tax on the items included within the PSA grossed up at the employees’ marginal rates of tax. For Scottish taxpayers, the relevant Scottish rate of income tax should be used in the calculation.

As far as National Insurance is concerned, Class 1B contributions, which are employer-only contributions are payable at a rate of 13.8% in place of the Class 1 or Class 1A liability that would otherwise arise. Class 1B contributions are also due on the tax paid under the PSA (as the tax paid on behalf of employees is also a taxable benefit).

Settling the PSA

Form PSA1 should be used to calculate the amount of tax and Class 1B National Insurance due under the PSA. This should be sent to HMRC after the end of the tax year. The tax and Class 1B National Insurance must be paid by 22 October after the end of the tax year where payment is made electronically or by the earlier date of 19 October where payment is made by cheque.

Partner note: ITEPA 2003, s. 703 — 707;Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), regs. 105 – 117; Statement of Practice SP5/96.

Voluntary National Insurance contributions – should you pay?

The payment of National Insurance contributions provides the mechanism by which an individual builds up their entitlement to the state pension and certain contributory benefits. Different classes of contribution provide different benefit entitlements.

Employed earners pay Class 1 contributions where their earnings exceed the lower earnings limit – set at £118 per week (£512 per month, £6,136 per year) for 2019/20. Self-employed earners pay Class 2 and Class 4 contributions, but it is the payment of Class 2 contributions only which provide pension and benefit entitlement. A self-employed earner is liable to pay Class 2 contributions where their earnings from self-employment exceed the small profits threshold, set at £6,365 for 2019/20. Where profits from self-employment are below the small profits threshold, the self-employed earner is not liable to pay Class 2 contributions but is entitled to do so voluntarily. For 2019/20, Class 2 contributions are payable at the rate of £3 per week.

Qualifying year

A year is a qualifying year is contributions have been paid for all 52 weeks of that year. If there are some weeks for which contributions have not been paid, the year is not a qualifying year. However, contributions can be paid voluntarily to make up the shortfall and turn a non-qualifying year into a qualifying year.

How many qualifying years are needed?

An individual needs 35 qualifying years to receive the full single-tier state pension payable to those reaching state pension age on or after 6 April 2016. To receive a reduced single tier state pension, at least 10 qualifying years are needed.

Should voluntary contributions be paid?

Voluntary contributions may be paid to make up the shortfall for a year where Class 1 or Class 2 contributions were not paid for the full 52 weeks or for a year for which there was no liability to either Class 1 or Class 2.

Before paying voluntary contributions, it is necessary to ascertain whether the payment of such contributions would be worthwhile. The starting point is to check your state pension. This can be done online at www.gov.uk/check-state-pension.

If you already have 35 qualifying years (or will do by the time state pension age is reached), there is no benefit in paying voluntary contributions. However, if you have less than 35 years, it may be worthwhile to increase your state pension. Likewise, if by state pension age you will have some qualifying years but less than 10, it may be worthwhile paying sufficient voluntary contributions to secure a minimum pension.

Class 3 contributions

Class 3 contributions are voluntary contributions and can be paid to boost the state pension.

For 2019/20, Class 3 contributions cost £15 per week. Thus, at these rates, to increase the state pension by 1/35th by paying voluntary Class 3 contributions for a year will cost £780. For 2019/20, the single-tier state pension is £168.60 per week, so at 2019/20 rates, each extra qualifying year (up to 35) is worth £4.82 per week.

Class 3 contributions must normally be paid within six years from the end of the tax year to which they relate – although extended time limits in certain cases.

Voluntary Class 2

Where a person is entitled but not liable to pay Class 2 contributions, paying Class 2 contributions voluntary is a cheaper option, at £3 per week for 2019/20 rather than £15 per week.

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474

Reporting expenses and benefits for 2018/19

Where employees were provided with taxable benefits and expenses in 2018/19, these must be notified to HMRC.

The reporting requirements depend on whether the benefits were payrolled or not.

Benefits not payrolled

Taxable benefits that were not payrolled in 2018/19 must be reported to HMRC on form P11D. There is no need to include benefits covered by an exemption (although take care where provision is made via an optional remuneration arrangement (OpRA)) or those included within a PAYE Settlement Agreement. Paid and reimbursed expenses can be ignored to the extent that they would be deductible if the employee met cost, as these fall within the statutory exemption for paid and reimbursed expenses.

The value that must be reported on the P11D depends on whether the benefit is provided via an OpRA, such as a salary sacrifice scheme. Where the benefit is provided other than via an OpRA, the taxable amount is the cash equivalent value. Where specific rules apply to determine the cash equivalent value for a particular benefit, such as those applying to company cars, employment-related loans, living accommodation, etc., those rules should be used. Where there is no specific rule, the general rule – cost to the employer less any amount made good by the employee – applies.

Where provision is made via an OpRA, and the benefit is not one to which the alternative valuation rules do not apply, namely:

  • payments into pension schemes
  • employer provided pension advice
  • childcare vouchers, workplace nurseries and directly contracted employer-provided childcare
  • bicycles and cycling safety equipment, including cycle to work schemes
  • low emission cars (Co2 emissions 75g/km or less)

the taxable amount is the relevant amount. This is the higher of the cash equivalent under the usual rules and the salary foregone or cash alternative offered. The taxable amount is the cash equivalent value where the benefit falls outside the alternative valuation rules.

Payrolled benefits

Payrolled benefits should not be included on the P11D but must be taken into account in calculating the Class 1A National Insurance liability on form P11D(b).

P11D(b)

Form P11D(b) must be filed regardless of whether benefits are payrolled or notified to HMRC on form P11D. The P11D(b) is the Class 1A return, as well as the employer’s declaration that all required P11Ds have been submitted.

Paper or online

There are various ways in which forms P11D and P11D(b) can be filed. The simplest is to use HMRC’s online end of year expenses and benefits service or HMRC’s PAYE Online for employers service. Forms can also be filed using commercial software packages.

There is no requirement to file P11Ds and P11D(b)s online – paper forms can be filed if preferred.

Deadline

Regardless of the submission methods, forms P11D and P11D(b) for 2018/19 must reach HMRC by 6 July 2019. Employees must be given a copy of their P11D (or details of the information contained therein) by the same date. Details of payrolled benefits must be notified to employees by the earlier date of 31 May 2019.

Class 1A National Insurance must be paid by 22 July where paid electronically, or by 19 July where payment is made by cheque.

To find out more please follow us on Facebook , Twitter or Linkedin. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474