Payroll reporting December 24. Are you paying staff early this month?

As the festive season approaches, many businesses consider adjusting payroll schedules to accommodate holiday closures or to provide employees with early payments. While this gesture is thoughtful, it’s crucial to adhere to HM Revenue and Customs (HMRC) guidelines on Real Time Information (RTI) reporting to prevent unintended consequences for your employees, particularly concerning their eligibility for income-based benefits like Universal Credit.

Understanding RTI reporting obligations

Under the UK’s RTI system, employers are required to submit a Full Payment Submission (FPS) to HMRC on or before the date employees are paid. This submission includes details such as the payment date, amounts paid and deductions made. Accurate reporting ensures that HMRC has up-to-date information which is essential for the correct calculation of tax liabilities and the administration of benefits.

Impact of early December payroll payments

Paying employees earlier than usual in December can inadvertently affect their benefit entitlements. For instance, if an employee typically receives their wages on the 31st of each month but is paid on the 20th in December, reporting the actual payment date as the 20th could result in two payments being recorded within a single Universal Credit assessment period. This could reduce or eliminate the employee’s benefit entitlement for that period, as the system may interpret it as increased income.

HMRC’s reporting guidance for early payments

To mitigate such issues, HMRC has provided specific guidance:

  • Report the Regular Payment Date: If you pay employees earlier than usual over the Christmas period, you must report the normal or contractual payment date on the FPS, not the actual early payment date. For example, if the regular payday is 31st December but payment is made on 20th December, you should still report the payment date as 31st December.
  • Timing of FPS Submission: Ensure that the FPS is submitted on or before the reported payment date. In the example above, the FPS should be sent on or before 31st December, even though the actual payment was made on 20th December.

Adhering to this guidance helps protect your employees’ eligibility for income-based benefits by ensuring that payments are recorded in the correct assessment periods.

Please also see: https://www.gov.uk/running-payroll/reporting-to-hmrc 

Practical steps for employers

  1. Review Payroll Schedules: Assess your planned payroll dates for December and determine if they differ from the usual schedule.
  2. Communicate with Payroll Providers: If you use external payroll services, ensure they are aware of HMRC’s guidance and will report the regular payment dates, not the early payment dates.
  3. Inform Employees: Notify your staff about the reporting practices to alleviate any concerns regarding their benefit entitlements.
  4. Maintain Accurate Records: Keep detailed records of actual payment dates and the corresponding reported dates to ensure compliance and for reference in case of any discrepancies.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/tax-free-christmas-celebration/ 

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Tax-free Christmas celebration

As the festive season approaches, many employers look to host Christmas parties to show appreciation for their staff. In the UK, there are specific tax exemptions that allow businesses to provide annual social events, like Christmas parties without incurring additional tax liabilities for either the employer or the employees.

Key conditions for a tax-free staff party

To ensure that the cost of a staff Christmas party is exempt from income tax and National Insurance contributions (NICs), the following criteria must be met:

1.     Annual Event: The function must be an annual occurrence, such as a Christmas party or summer barbecue. One-off events, like a celebration for a company’s milestone anniversary, do not qualify for this exemption.

2.     Open to All Employees: The event should be open to all employees. If your business operates across multiple locations or has distinct departments, it’s acceptable to hold separate events for each, provided that every employee has the opportunity to attend at least one of them.

3.     Cost Per Head: The total cost per attendee must not exceed £150, inclusive of VAT. This amount covers all expenses related to the event, such as food, drink, entertainment, transportation and accommodation.

Calculating the Cost Per Head

To determine the cost per head:

·         Total Expenses: Sum all costs associated with the event, including VAT.

·         Number of Attendees: Count all individuals present, both employees and their guests.

·         Calculation: Divide the total expenses by the number of attendees to arrive at the cost per head.

For example, if the total event cost is £3,000 and there are 20 attendees (employees and guests combined), the cost per head would be £150. Please see: https://www.gov.uk/expenses-benefits-social-functions-parties/whats-exempt

Multiple events within the same year

You can host multiple annual events and the exemption can apply to more than one, provided the combined cost per head does not exceed £150. If the combined cost surpasses this threshold, the exemption can be applied to the event(s) that best use the £150 limit, with any additional events being taxable.

Implications of exceeding the £150 limit

It’s crucial to understand that the £150 per head is an exemption, not an allowance. This means that if the cost per head exceeds £150, even by a small margin, the entire amount becomes taxable, not just the excess. In such cases, the benefit must be reported on each employee’s form P11D, and both income tax and Class 1A NICs would be applicable. Alternatively, employers can opt to settle the tax through a PAYE Settlement Agreement (PSA), thereby covering the tax on behalf of the employees.

VAT considerations

For VAT purposes, input tax on employee entertaining is generally recoverable. However, if guests (such as spouses or partners) are invited, the VAT reclaimable should be apportioned accordingly, as the definition of employees for VAT purposes does not include guests. Additionally, if an event is provided solely for directors or partners, HMRC may not accept that input tax has been incurred for business purposes.

Tax deductibility of costs

The expenses incurred for staff Christmas parties are generally tax-deductible for the business, as they are considered a cost of employee welfare. This is distinct from client entertaining which is typically not an allowable expense for corporation tax purposes.

Gifts to employees

If you’re considering giving gifts to employees in addition to or instead of a Christmas party, certain gifts may qualify as ‘trivial benefits’ and be exempt from tax. To qualify, the gift must:

  • Cost £50 or less per employee
  • Not be cash or a cash voucher
  • Not be a reward for work or performance
  • Not be provided under a salary sacrifice arrangement

If these conditions are met, the gift is exempt from tax and NICs and there’s no need to report it to HMRC. However, if the cost exceeds £50 the entire amount becomes taxable.

Conclusion

By adhering to the specified conditions, you can host a tax-free Christmas party for your staff, enhancing morale without incurring additional tax liabilities. It’s essential to meticulously calculate the cost per head and ensure that the event is inclusive and annual to fully benefit from the available tax exemptions.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/tax-deadlines-december-2024/

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Tax deadlines December 2024

As we approach December, it’s crucial to be aware of the upcoming tax filing and payment deadlines to ensure compliance and avoid potential penalties. Here’s a detailed overview of the key dates and obligations for December 2024:

VAT Returns and Payments

7 December 2024: If your VAT quarter ended on 31 October 2024, your VAT return and any payment due must be submitted to HM Revenue & Customs (HMRC) by this date. Timely submission is essential to avoid late filing penalties and interest charges.

PAYE and National Insurance Contributions (NICs)

19 December 2024: For employers who pay their PAYE and NICs by non-electronic methods, this is the deadline for payments to reach HMRC for the month ending 5 December 2024. Ensure payments are sent in advance to compensate for postal delays.

Self-assessment tax returns

30 December 2024: If you have a tax liability of less than £3,000 and wish for it to be collected through your PAYE tax code during the 2025/26 tax year, you must submit your online Self-Assessment tax return for the 2023/24 tax year by this date. This option allows the tax owed to be spread over the following tax year, easing immediate payment burdens.

Corporation Tax

1 December 2024: Any Corporation Tax due for the accounting period ending 28 February 2024 should be paid by this deadline to avoid interest on late payments.

 31 December 2024: Companies with accounting periods ending on 31 December 2023 must file their Corporation Tax returns (CT600) by this date.

Other considerations

Pension Contributions: Whilst not a December deadline, it may be prudent to review your pension contributions as the tax year-end approaches on 5 April 2025. Maximising contributions before the end of the tax year can provide tax relief benefits and higher rate tax relief.

Charitable Donations: Similarly, consider making any planned charitable donations before the tax year-end to take advantage of Gift Aid and potential tax benefits by expanding the amount of income you can earn at basic rates of income tax.

By staying informed and proactive, you can navigate the December tax deadlines with confidence and avoid unnecessary penalties.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/reviewing-minimum-wage-payments/

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Reviewing minimum wage payments

In this alert, NMW refers to the National Minimum Wage and NLW to the National Living Wage.

Hopefully, you will have seen the Budget that included increases in the above rates from April 2025. This alert describes the consequences if you forget to update employee remuneration rates and includes a section for directors who have a contract of employment and that have adopted the low salary, high dividend tax planning approach.

A reminder of increases in NMW and NLW from April 2025

The UK government has announced the following wage rates effective from 1 April 2025:

·         National Living Wage (21 and over): £12.21 per hour

·         18-20 Year Old Rate: £10.00 per hour

·         16-17 Year Old Rate: £7.55 per hour

·         Apprentice Rate: £7.55 per hour

These rates represent significant increases aimed at supporting workers and ensuring fair compensation, but of course there is a flip side, employers will have to consider the effects on their costs and revise budgets for 2025-26.

For more information please see the following HMRC link: https://www.gov.uk/national-minimum-wage-rates

Penalties for non-compliance

Employers who fail to pay the correct NMW or NLW rates may face the following consequences:

1.     Arrears Payment: Employers are required to pay back the arrears to the affected workers, calculated from the date of underpayment to the date of repayment.

2.     Financial Penalties: In addition to repaying arrears, employers may be fined up to 200% of the total underpayment, capped at £20,000 per worker. This penalty is reduced by half if paid             within 14 days.

3.     Public Naming: Employers who owe arrears of £500 or more may be publicly named by the government, which can damage the business’s reputation.

4.     Criminal Prosecution: In severe cases, employers may face criminal charges, leading to unlimited fines and potential disqualification from being a company director for up to 15 years.

Complications for directors with service contracts

If you are a director and you have a service contract with your company, you are considered to be employees and must be paid at least the National Living Wage (NLW) or the appropriate National Minimum Wage (NMW) for your age.

This requirement can pose challenges for directors who have opted for the common “low salary, high dividend” remuneration strategy to optimise tax efficiency. Paying a low salary might fall below the NLW or NMW threshold, leading to a potential breach of wage regulations.

To comply with the law while maintaining their tax planning strategy, directors in this position may need to reassess their remuneration structures, ensuring their salary meets at least the minimum wage levels, particularly for the hours they are contracted to work.

For any other accounting issues please call us today on 01473 744700.

Please see another An Accounting Gem blog:  https://www.aag-accountants.co.uk/tax-on-savings-interest/

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Tax on savings interest

Many clients are confused by the special rules that govern tax payments due, if at all, on interest received from savings. Banks now pay interest gross, without deduction of tax, and so any interest received on savings interest is potentially taxable.

Savings in this context include regular savings accounts, bonds or fixed-rate savings accounts, and interest from peer-to-peer lending or similar savings schemes.

This alert sets out the main reliefs that apply for 2024-25.

The Personal Savings Allowance (PSA)

Since April 2016, most taxpayers in the UK benefit from the PSA, which means that part of the interest they earn can be received tax-free, depending on their income tax bracket:

·         Basic-rate taxpayers (20% band): Up to £1,000 of interest earned in savings accounts is tax-free.

·         Higher-rate taxpayers (40% band): Up to £500 of interest is tax-free.

·         Additional-rate taxpayers (45% band): No PSA is available, so all interest is taxable.

In which case a basic-rate taxpayer that receives £800 in interest during the year, would not pay tax on that amount because it’s within their £1,000 PSA. But if a higher-rate taxpayer earned £800 in interest, they would still be within their £500 allowance, meaning only £300 would be taxable.

Please see the following link for more information : https://www.gov.uk/apply-tax-free-interest-on-savings

Starting Rate for Savings

For low-income taxpayers, there is also a starting rate for savings, which allows up to £5,000 of savings interest to be tax-free. This is in addition to the PSA.

However, this is only available if their other income (such as wages or pensions) is less than £17,570 in total. The more they earn from non-savings income, the smaller the starting rate band becomes. For example, if their non-savings income is £15,570, they’ll be able to claim a starting rate of £2,000 on savings interest.

This rule is helpful for pensioners and those on lower incomes, who might be living off savings, as they could potentially avoid paying tax on their interest altogether.

Interest on ISA accounts

Income earned on ISA accounts is by concession tax-free. Taxpayers do not need to include ISA interest when working out their taxable income.

Declaring interest to HMRC

HMRC’s PAYE system: HMRC often adjusts a tax code to account for interest earned on savings. If HMRC knows about the interest (from banks or building societies reporting it directly), they might automatically adjust the code, so the tax is collected via PAYE (Pay As You Earn) rather than through a self-assessment.

 

Self-assessment tax return: Taxpayers who are self-employed or need to file a self-assessment tax return for other reasons, will need to include their interest earnings on the tax return. Any tax due will be calculated and paid via the self-assessment system.

 

For any other accounting issues please call us today on 01473 744700.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/unclaimed-child-trust-funds-reclaiming-funds-for-18-22-year-olds/

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Unclaimed Child Trust Funds – Reclaiming funds for 18-22 year olds

According to government sources, there are over 670,000 young people (aged between 18 and 22 years), who may have cash languishing in a Child Trust Fund Account. And they – and their parents – may not be aware that such an account exists.

Read on to make a claim.

What is a Child Trust Fund?

Child Trust Funds are long-term, tax-free savings accounts that were set up, with the government depositing £250, for every child born between 1st September 2002 and 2nd January 2011. Young people can take control of their Child Trust Fund at 16 and withdraw funds when they turn 18 and the account matures.

Where are the funds held?

The savings are not held by the government but are held in banks, building societies, or other saving providers. The money stays in the account until it’s withdrawn or re-invested.

How are the accounts funded?

Parents were allowed to deposit funds in these accounts, but the government also chipped in. Initial government deposits of £250 were made when accounts were opened (£500 if the child came from a lower-income family), and the same amount when the child turned 7 years old. Children entitled to the Disability Living Allowance received additional annual top-ups of between £100 and £200.

The child’s parents or guardians had to be receiving Child Benefit for the child to qualify for the government contributions.

Do you remember setting up an account?

If teenagers or their parents and guardians already know who their Child Trust Fund provider is, they can contact them directly.

If they do not know where their account is, they can use the online tool on GOV.UK to find out their Child Trust Fund provider. Young people will need their National Insurance number – which can be found using the HMRC app –  and their date of birth to access the information.

THIS IS A FREE SERVICE, resist seeking the advice of third-party agents advertising their services offering to search for Child Trust Funds. Agents will always charge – with one charging up to £350 or 25% of the value of the savings account.

Pass on this email

Please pass on this email to any friends or associates who have children in the 18 to 22 age range. As we have stated in this alert, there are still over 670,000 unclaimed accounts.

To see another An Accounting Gem blog please click the following link: https://www.aag-accountants.co.uk/restarting-child-benefits-consequences-of-higher-income-limits-for-hmrcs-high-income-child-benefit-charge/

For other accounting issues please call us today on 01473 744700.

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Restarting Child Benefits – Consequences of Higher Income Limits for HMRC’s High-Income Child Benefit Charge

Changes to the High Income Child Benefit Charge (HICBC) for 2024-25, mean that where a child benefit claimant or their higher earning partner has adjusted net income of between £60,000 and £80,000 (previously £50,000 to £60,000) they will now be able to keep some or all of their child benefit for 2024/25.

Importantly, if they have previously opted not to receive child benefit in order to avoid the HICBC payment, they will need to restart their Child Benefit claim if still eligible to do so.

The HICBC for 2023-24

Up to April 2024, parents earning more than £50,000 would have suffered a partial or complete clawback of their Child Benefit receipts. Rather than pay this charge, parents may have elected to stop receiving benefits.

The HICBC from April 2024

The income limits changed for 2024-25. Now, you may have to pay the High-Income Child Benefit Charge if you or your partner have an individual income that is over £60,000 and either you or your partner gets Child Benefit or someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It does not matter if the child living with you is not your own child.

What counts as income for HICBC purposes?

Your adjusted net income is your total taxable income before any allowances and not including things like Gift Aid. Your total taxable income includes interest from savings and dividends.

Restarting previously cancelled Child Benefit payments

To avoid the HICBC during 2023-24 or earlier years you may have opted out of receiving Child Benefit payments. Now that the income limits have increased it may be beneficial to re-apply. To do this, use the online forms at https://account.hmrc.gov.uk/child-benefit/make_a_claim/hicbc/opt-in, or call the Child Benefits claims office on 0300 200 3100 (+44 161 210 3086 from outside the UK).

Planning note

If at any time you choose to opt out of getting Child Benefit payments you should still fill in the Child Benefit claim form. You need to state on the form that you do not want to receive payments.

You need to fill in the claim form if you want to get National Insurance credits, which count towards your State Pension, and get your child a National Insurance number without them having to apply for one – they will usually get the number before they turn 16 years old.

To see another An Accounting Gem blog please click the following link: https://www.aag-accountants.co.uk/registering-for-pension-credits-the-importance-of-registration-winter-2024-searching-for-the-880000/

For other accounting issues please call us today on 01473 744700.

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New-business challenges 2024/25

Setting up a new business is not a project for the faint of heart. In this fact sheet, we have set out a few of the roadblocks you are likely to encounter on your journey and a few ideas that will help you stay on track.

 

What to do before taking the plunge

Most people who set up their own business will tell you it was more of a challenge than they expected and that it took longer to achieve business success than they anticipated. Here are some of the personal issues you might like to consider.

 

  • Personal sacrifice. Starting a business is a life-changing event and will require hard work and long hours, especially in the early stages.
  • Financial insecurity. We all hope that our efforts will be financially rewarding, but what if they are not in the early days of your new business?
  • Loss of employment rights. You will need to take care of yourself as you may no longer receive sick pay or be paid when you are on holiday – indeed you may not have time for holidays.
  • Pressure on close relationships.
  • Do you have the necessary skills? Are you an engineer with a yen to open a restaurant?

 

Planning – a must-do before you start

A detailed business plan is the key to making a success of your new business.

You will need to show it to anyone who you ask to invest in your business. You will also need to show it to your bank or other institution who you approach to help finance your new business.

They will all want to know that your ideas have been thought through and that there is a good chance of getting their money back.

Your plan should include an explanation of how your business will start, build, and develop. You also need to know who you are competing with and what will enable you to be successful. The plan should describe the business, product, or service, your marketplace, mode of operation, capital requirements, and projected financial results.

It’s your business and your ideas.

 

Economic challenges

The exceptional disruption to the UK and global economy during the past few years has forced us to reconsider what we have assumed is “normal” in terms of business activity.

Accordingly, timing your launch date is important.

Also, if you need to raise capital to fund the launch of your business, lenders may not be that enthusiastic about financing the purchase of a business in a sector that was previously, adversely impacted by COVID lockdowns.

 

Online trading

If your new business intends to trade in goods rather than services, you may want to plan to have an online sales platform, especially if you are selling directly to consumers.

 

Supply disruption

If your business intends to trade with the EU, you would do well to research the customs regulations you will need to comply with.

If you are importing goods from abroad, you would also be wise to investigate any delays to deliveries affected by any hostilities.

 

Eyes wide open

Taking on a new business start-up is a dream that needs a dose of realism to succeed.

The comments we have made in this fact sheet are not intended to put you off your new venture, but to help you succeed by avoiding the pitfalls that budding entrepreneurs now face.

Other matters that you may like to consider as part of your planning include:

 

  • See if you can discuss your business plans with someone – preferably not a likely competitor – who already runs a successful business of the type you intend to launch. Ask them to describe the sort of difficulties you are likely to encounter and how best to tackle them.

 

  • You will need professional advisors to help you set up and manage your business. These may include a: surveyor (if you are buying property), solicitor, financial advisor, insurance broker, and – very important – an accountant.

 

  • Be sure to select a business structure that protects your personal assets, particularly your home. The key phrase here is limitation of liability.

 

Please see the following link: https://www.gov.uk/set-up-business

 

We can help

We have been fortunate in helping many new business owners set up and successfully establish their business dream. You can tap into this wealth of experience by discussing your new business plans with us.

In the coming months there will always be room for new business owners who are informed, have done their homework, have a detailed business plan, and have the backing of a professional advisor committed to their success.

Pick up the phone and call today 01473 744700 we would love to talk with you.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/vat-registration-do-you-need-to-register/

 

 

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Pre-budget planning options – Considering possible tax planning opportunities before the 30th of October budget announcements

 

It is unusual for a Chancellor to make tax changes in a budget and backdate these to take effect before the budget announcements are made.

 

When Rachel Reeves steps up to the dispatch box to present her first budget on 30th of October, the likely dates from which any changes are effective will probably be:

 

  • From the 30th of October 2024
  • From April 2025
  • Or some later date.

 

The comments we have made below are necessarily speculative, we do not have a crystal ball, but they are based on informed commentary in recent months as our new government seeks to plug the hole in government finances and keep to its promise to avoid any changes to income tax, National Insurance and VAT.

 

If any of the points raised are relevant to your personal or business finances, please call us today at 01473 744700 so we can help you consider planning options available to action before 30th October 2024.

 

Capital gains tax (CGT)

Currently, CGT on chargeable asset disposals is charged below income tax rates. It is possible that the budget may seek to tax these gains, perhaps from 30th October, at income tax rates.

 

There are also several CGT reliefs – including the Business Assets Disposal Relief which allows qualifying gains to be taxed at 10% – which could be withdrawn.

 

PLANNING ACTION: If you are considering the disposal of an asset, you might be advised to consider acting before the budget date.

 

Inheritance Tax (IHT)

Likewise, the Chancellor may withdraw reliefs that presently exempt business assets from your estate.

 

She may also reduce or withdraw the option to make lifetime gifts and take advantage of the present Potentially Exempt Transfer rules that remove the value of the gift from the donor’s estate if they live for seven years after making the gift.

 

PLANNING ACTION: Take advantage of the present IHT reliefs before the budget date.

 

Mansion or Wealth taxes

There has been speculation that Labour may be tempted to introduce either or both taxes to raise revenue. Taxing personal assets in this way is fraught with administrative difficulties, not least of which would be an annual valuation of assets.

No planning options, we will have to wait and see if the Chancellor grasps this particular nettle or settles for less expensive tax increases.

 

For other accounting issues please call us today on 01473 744700.

Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/registering-for-pension-credits-the-importance-of-registration-winter-2024-searching-for-the-880000/

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Registering for Pension Credits – The importance of registration winter 2024, searching for the 880,000.

We all have elderly folk in our family or ageing neighbours, and many may or may not be eligible for financial support this coming winter. But recent government announcements have shifted the goalposts, and the welcome Winter Fuel Allowance is now restricted to pensioners receiving Pension Credits or other means-tested benefits.

According to government sources, there are upwards of 880,000 pensioners who could qualify for Pension Credits and have not yet applied.

The following alert sets out what needs to be done to ensure that your family members or acquaintances, who may be eligible for this support, take the necessary steps.

Eligibility

If you are a pensioner, single with a total weekly income under £218, or if you are a couple, both of pension age, with a weekly income under £332, you should investigate and see if you could claim Pension Credits.

Pension Credits bonuses

If you are eligible to claim Pension Credits making a claim is a gateway to additional benefits including the Winter Fuel Allowance. Other benefits might include a free TV license, council tax reductions, and the Warm Home Discount.

How to apply

You can apply via Gov.uk if you have already claimed the State Pension, otherwise phone the Pension Service on 0800 99 1234 (or the Northern Ireland Pension Centre on 0808 100 6165). You can backdate a claim for three months, so the quicker you check, the quicker you will benefit.

The application process will filter out claimants who are not eligible. Accordingly, if you are not sure if you can make a successful claim, call the above application line and find out.

To see another An Accounting Gem blog please click the following link: https://www.aag-accountants.co.uk/tax-increases-on-the-way-the-chancellors-veiled-announcement/

For other accounting issues please call us today on 01473 744700.

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