Newsletter December 2012

This month's articles provide ground rules for ensuring you get tax relief for the cost of your Christmas party, an update on the relaunched Business Record Check campaign, details of HMRC initiative to target the rag trade and alcohol industry, and a warning for Swiss bank account holders.

George Osborne delivered his Autumn Statement yesterday and it looks as if there continue to be challenging times ahead. Even so, we wish all of our readers a very happy Christmas and prosperous New Year and sincerely hope that you manage to take a well earned rest over the holiday period. Our next newsletter will be published 9 January 2013.

Merry Christmas...

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.

Also, as long as the criteria below are followed, there will be no taxable benefit charged to employees:

  1. The event must be open to all employees at a particular location.
  2. An annual Christmas party or other annual event offered to staff generally are not taxable on those attending, provided that the average cost per head of the functions does not exceed £150 p.a.. The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

A final note on 'Trivial' gifts for employees.

Employers may find the following Revenue concession useful - we have copied the note directly from the HMRC handbook:

"An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned."

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys however, are zero rated for VAT purposes!

Business Records Checks

HMRC relaunched its Business Record Check (BRC) initiative on 1 November 2012.

When the program was first unveiled in January 2011 HMRC intended to visit 50,000 small businesses across the UK. A year later the whole process was reviewed and subsequently suspended following concerns raised by professional bodies and accountants. According to HMRC:

"Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.

Following a review, HMRC announced a fresh approach to its pilot BRC programme on 3 February 2012.

The review of the pilot programme, which included discussions with trade and professional bodies' representatives, found clear evidence that the programme was effective in improving record-keeping practices amongst SMEs. However, it recommended that the checks were better targeted in future, and linked to wider education and support activities.

In order to implement the review's recommendations all new BRC activity was paused from 3 February to 31 October 2012 to allow HMRC to redesign the BRC process."

Essentially, a BRC is just what it says on the tin, an enquiry from HMRC staff to make sure that record keeping is adequate. The relaunch has introduced a change of emphasis:

HMRC now intends to:

  • Write to those SMEs selected for a BRC.
  • Telephone the selected SMEs to talk through their business record keeping. The call is expected to last 10 ­ 15 minutes.

Based on the responses received:

  • The HMRC officer will assess whether a face to face BRC visit is required.
  • If the business records are deemed to be adequate, the HMRC officer making the call will tell the SME and then confirm the decision in writing.
  • If the business records are deemed to require improvement, an HMRC officer from the Business Education and Support Team will make contact with the SME.
  • If the business records are deemed to be inadequate and a visit required, the HMRC officer will ask one of their colleagues on the booking team to call to make the arrangements.

This appears to be very similar to the traffic light system used by HMRC prior to the suspension. Adequate records were given the green light, records in need of improvement were given the amber light and inadequate records awarded a red light.

Rag trade and alcohol industry targeted

The first taskforces to tackle tax cheats in the rag trade and alcohol industry were launched on 19 November by HMRC.

The specialist taskforce teams will target those who do not pay the right amount of tax in:

  • the rag trade in the Midlands, North Wales and North West, including manufacturing, wholesale, retail and textile recycling;
  • the alcohol industry in Scotland, including Aberdeen and Inverness;
  • the rental property sector in the South East;

They are expected to recover around £17 million.

David Gauke, the Exchequer Secretary, said:

"The vast majority of people play by the rules. We will not tolerate tax evasion and will crack down on the minority who choose to break the rules.

It cannot be fair that, while most people are paying the right tax, a tiny minority are not paying what they should.

HMRC is on target to collect more than £50 million as a result of taskforces launched in 2011-12."

Swiss bank account holders beware.

UK residents with Swiss bank accounts should be aware that new taxation arrangements are scheduled to come into force on 1 January 2013.

The new tax agreement between the UK and Switzerland means that account holders must either provide full details to HM Revenue & Customs (HMRC) or pay over a proportion of the money in their account and a future withholding tax.

Jennie Granger, HMRC Director General, Enforcement and Compliance, said:

"Swiss banks or accountants are writing to people affected by the agreement. Some may be asking customers to close their accounts. If this happens, UK residents must ensure that any outstanding tax liabilities are paid. Anyone in these circumstances is strongly advised to contact HMRC as soon as possible."

The agreement includes a withholding tax to deal with the tax on income and gains. Rates currently range from 27 per cent on capital gains up to a maximum of 48 per cent for interest or other non-dividend income. Where the payment option is chosen, any past liability to specified taxes will be dealt with by paying a one-off charge of up to 41 per cent of the total value of the account.

Tax Diary December 2012/January 2013

1 December 2012 - Due date for Corporation Tax due for the year ended 29 February 2012.

19 December 2012 - PAYE and NIC deductions due for month ended 5 December 2012. (If you pay your tax electronically the due date is 22 December 2012.)

19 December 2012 - Filing deadline for the CIS300 monthly return for the month ended 5 December 2012

19 December 2012 - CIS tax deducted for the month ended 5 December 2012 is payable by today.

30 December 2012 - Deadline for filing 2011-12 Self Assessment online where claiming for under payments (under £3,000) be collected via tax code in 2013-14.

1 January 2013 - Due date for Corporation Tax due for the year ended 31 March 2012.

19 January 2013 - PAYE and NIC deductions due for month ended 5 January 2013. (If you pay your tax electronically the due date is 22 January 2013.)

19 January 2013 - Filing deadline for the CIS300 monthly return for the month ended 5 January 2013.

19 January 2013 - CIS tax deducted for the month ended 5 January 2013 is payable by today.

31 January 2013 - Last day to file 2012 Self Assessment tax returns online.

31 January 2013 - Balance of Self Assessment tax owing for 2011-12 due to be settled today. Also first payment on account for 2012-13 due today.

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