HMRC are carrying out a review of rent a room relief to discover whether the scheme, introduced back in 1992 provides the right incentives for the rental market. The current scheme exempts from tax, gross rents up to £7,500 where rooms within the taxpayer’s main residence are rented out.
Most accountants that responded to the call for evidence were keen for the relief to continue as it encourages taxpayers to let out spare rooms and provides them with additional income.
Note that where the gross rental income exceeds £7,500, say £12,000, the excess of £4,500 would be taxable. Alternatively the taxpayer may deduct costs of providing the living accommodation such as a proportion of mortgage interest and light and heat. If these allowable expenses amounted to £9,000 then it would be more appropriate to be taxed on the net rental profit of £3,000.
Note also that the current scheme only provides relief where the rooms let are in the taxpayer’s main residence and if the property is jointly owned, the relief would be £3,750 each. Where the lettings are in another property, the new £1,000 property allowance could be set against the gross rental income, however this allowance applies to each taxpayer.
The Tax Tribunal decision involving Christa Ackroyd Media Ltd, a company set up by a TV presenter to supply her services to the BBC, was held that the IR35 personal service company rules applied to the arrangements. In a recent case involving a night manager on a building site, another tribunal decided that the IR35 rules did not apply.
The facts of the recent case involve a Mr Daniels supplying his services via his company MDCM Ltd. These are entirely different from those in the Christa Adcock case but it indicates that the current rules are very unclear and open to interpretation by the courts.
For the IR35 rules to apply it must be inferred that under the hypothetical contract between “worker” and client that worker would be regarded as an employee if directly engaged. There are numerous factors taken into account, but the most important factor considered by the courts is the extent to which the “worker” is under the control of the client.
Please contact us if you wish to discuss whether these recent cases impact on your particular circumstances.
Employers need to report all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) or “salary sacrifice” arrangements, to HMRC on form P11D from 6 April 2018, unless they are registered to voluntarily payroll benefits.
OpRAs are where an employee gives up the right to an amount of earnings in return for a Benefit in Kind (BiK) and includes flexible benefit packages with a cash option, cash allowances and salary sacrifice. All BiKs are now valued at the higher of the cash given up or the value of the BiK. Many previously non-taxable BiKs are now taxable, valued on the cash given up.
Note however that cars with emissions of 75g CO2 / km or less, pensions, pension advice, childcare and Cycle to Work benefits are unaffected.
Subject to a few specific exceptions, arrangements entered into on or before 5 April 2017 kept their previous tax treatment until the earlier of a renewal or variation of the arrangement. Such arrangements moved into the new rules on 6 April 2018.
As a VAT registered hospitality business, keeping your book-keeping records in digital format will be mandatory from April 2019. All businesses, whether sole trader, partnership or limited company, which are VAT registered and trading over the VAT threshold will be required to use compliant software for the purpose of submitting their VAT Returns. There is no choice in the matter, this is compulsory. The current on-line HMRC VAT Account will not meet the new requirements.
It may be a year away but this is why you need to act now
Easter was early this year but hopefully the tourists will turn out following a winter of exceptionally bad weather, particularly in Saint and Co’s homeland of the Lake District and Dumfries & Galloway.
Next year Easter falls later between 19th and 22nd April 2019. Spring should be in full bloom by then and bookings should be in abundance. With lots of guests to look after, the last thing you will want is to have to get to grips with a new accounting system so you can submit your first VAT Return for the period after 1 April 2019 digitally!!!
It is, therefore, essential to learn about and think about how you are going to deal with MTD now.
In an ideal world I would recommend making the switch to compliant digital software from the beginning of your next financial accounting year. This will mean that you will have had time to get used to the new system and can deal with any teething problems without getting into a state of panic. It will also make production of the annual accounts easier if your financial year end is after 1 April 2019 – otherwise the accounts may have to be produced from data on two different systems which is cumbersome and expensive.
An ideal world, however, is not always possible and with the 2018 Season getting underway the best thing you may be able to do now is arm yourself with the facts and plan to take action at the end of the Season in say October 2018.
I set out below some pertinent facts about Making Tax Digital:
What is digital record-keeping
Eventually every taxpayer whether business or individual in the UK will have a Digital Tax Account set up with HMRC. This Digital Tax Account will hold information HMRC has gathered from other sources relating to payroll, interest, dividends etc so there is no need to separately declare this income on a tax return. All tax data will be held in one place on the Digital Tax Account.
Business accounting records need to be kept on specialist commercial software which will keep the data in digital form. It will create a VAT Return from the digital records. This will enable a seamless flow of data from the business to HMRC and vice versa.
Bank statements can be either fed directly into the software or imported.
Spreadsheets can be used but you will need to acquire software which will allow returns and updates to be made directly from the spreadsheets.
Paper records will no longer be sufficient.
Why is this happening?
The UK tax system is known as one of the most complex in the world. The Government, therefore, plans to transform the tax system so it is more effective, efficient and simpler for taxpayers. MTD is intended to improve the accuracy of business records and minimise errors.
Timing of First Digital VAT Return
Applies to the first VAT period starting on or after 1 April 2019
If you are on monthly returns your first digital VAT Return will be for the month of April 2019.
VAT stagger period
1st Digital Return
30 June 2019
31 July 2019
31 August 2019
Users of the annual accounting scheme will only have to submit one digital report and those with a 31 March accounting period end will have to submit their first digital VAT Return for the year ended 31 March 2020.
It may be appropriate to re-consider your hospitality business’ financial year end, VAT stagger or even a switch to Annual Returns in readiness for the change to MTD.
How much will it cost?
Businesses need to buy their own software so you need to decide what system you would like to acquire. There are around 75 providers who have been working with HMRC on producing the required software. The software is not overly expensive to purchase and is generally acquired on a monthly subscription basis. Whilst most of the systems are similar, Saints Tourism & Leisure have been using “Xero” for some time now. There are two Xero packages suitable for VAT registered businesses as follows:-
Price per month exc. VAT
Simple VAT Cash book
Full VAT package with Purchase Ledger
How is this going to be enforced?
A points based system is to be put in place to deal with late digital submissions [along similar lines to driving offence points]. Once points have been accumulated up to a certain threshold a penalty will be charged for every subsequent late submission – the Government has yet to announce the penalty amount! They have, however, indicated that they will be lenient for the first 12 months.
Download and complete a simple questionnaire and I will let you know about the best way for you to deal with MTD for your hospitality business. Send your completed questionnaires to me at the Carlisle Office or email to email@example.com.
Care is always required when employees are made redundant or payments are made on the termination of employment. Not only are there employment law considerations, there are also important tax implications and this is an area where professional advice is strongly recommended to avoid unnecessary pitfalls. The tax treatment of these payments changed from 6 April 2018 and further changes come into effect in 2019.
Pay In Lieu of Notice
Employers now need to pay Income Tax and Class 1 National Insurance Contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments. The element that is now chargeable to Income Tax and NICs is the amount of the termination payment that represents payment in lieu of notice (PILON), sometimes referred to as “garden leave”.
The first £30,000 of genuine ex-gratia continues to be exempt from income tax and national insurance. The £30,000 limit includes statutory redundancy payments. Payments in excess of £30,000 are taxed as employment but there is currently no NIC on such payments. It was originally proposed that employers’ NIC would be applied to such payments from 6 April 2018 but the delayed introduction of the National Insurance Contributions Bill means that employer NICs on termination payments above £30,000 will now take effect from 6 April 2019.
Periods of Foreign service
In addition, foreign service relief on termination payments was removed for all UK residents – apart from seafarers – from 6 April 2018. Previously, this provided a further exemption from income tax and NIC depending on the period of time working abroad.
UK residents whose employment ends after 6 April 2018 who receive a payment or benefit in connection with that termination made after 13 September 2017, will not now be eligible for tax relief for any period of foreign service as part of that job.
A disaster recovery plan is a documented process designed to help recover and protect a business and its infrastructure in the event of a disaster. It provides a clear plan of action to be taken before, during and after a disaster.
A disaster could be man made or a natural occurrence. A disaster recovery plan is designed to allow your business to get back on its feet as quickly as possible. In terms of managing risks to your business, a disaster cannot be eliminated from your risk register. You cannot prevent a disaster from occurring but you can manage your business through it.
The first step in creating a disaster recovery plan is to make a list of all the office jobs / tasks that would have to be relocated to an alternate location so the business can continue to run. Identify the most critical roles and create a list of the areas that should be prioritised in order to ensure that the business can continue to run during a crisis.
The next step is to identify alternative office space. This could be a serviced office at a nearby location that can be up and running in a matter of hours. You don’t need to rent this space right now. Instead, you should just identify a number of alternatives that could be up and running quickly, if needed.
You should ensure that your firm has sufficient insurance and budget available to handle a disaster situation. For example, if your office was wiped out due to a fire, you would need to have a budget available to purchase necessary office equipment, computers, etc. to get your business back up and running as quickly as possible.
Most businesses are highly dependent on I.T. You should have your servers and systems backed up at a secondary data site. This data site should be accessible in a disaster situation so that your business can continue to function.
Finally, you should document a list of key personnel and their contact details. In the event of a disaster, they should be contacted in order to make alternative arrangements for the firm.
Under the General Data Protection Regulation (GDPR) organisations/businesses will have to provide their employees with information that explains how they as employers are processing an employee’s personal data. This is often by means of a “Privacy Notice”. This is an important document that an employer will need to prepare in order to become GDPR compliant. You must therefore ensure it contains all the required information.
Interesting to note that this will also apply to job applicants as well, so it may be necessary to tailor the privacy notice accordingly.
The privacy notice can either be a hard copy or electronic. Employees must also acknowledge receipt of the policy notice, perhaps by means of a duplicate copy or reply email.
What information must be included in an employee privacy notice?
The identity and contact details of the employer;
A description of the personal data that is collected;
The purposes for collecting, recording, storing, amending, reviewing, using and deleting personal data;
The legal basis on which the data is collected and used;
Who the personal data is shared with;
Whether personal data is transferred outside of the EEA and if so, details of the safeguards that are in place to protect the security of the data;
How long the personal data will be kept for; and
Details about the rights that employees have in relation to that personal data, for example the right to request that the employer rectify any incorrect information
Refer to our other GDPR updates or contact us if you require further help with your planning.
In order to maintain business links with EU countries, the UK will need to create EU equivalent rules and regulations. GDPR is an example of this and must be complied with if businesses want to trade with the EU. The GDPR regulations are more favourable to consumers than businesses.
As personal information becomes more regularly shared and businesses now hold huge volumes of customer data, there is a need for management and control over what businesses can do with that information.
GDPR gives regulators the ability to apply large fines of up to 20m Euro or 4% of global annual turnover – whichever is higher, for non-compliance. As such, businesses need to take these new regulations seriously and will need to implement changes to the way they operate, depending on the type of personal data that they hold. This will include customer records, databases, CRM systems, etc.
In addition, firms will need to ensure that they have appropriate policies and procedures in place with regard to any personal data that they hold or process.
It’s also worth reviewing supplier contracts to ensure that these contracts are GDPR compliant. Finally, your recruitment and HR policies and procedures should be reviewed to ensure that personal data is managed in a way that is compliant with GDPR.
There isn’t a lot of time left before GDPR comes into force. For businesses that haven’t yet prepared for GDPR, the best approach is probably to consider hiring an external consultant to advise the firm on getting up to date as quickly as possible.
How can we help?
We have produced a checklist of actions you should undertake before 25 May 2018 to ensure you have a policy for compliance to ensure you have the correct permissions and data is stored as securely as possible. For a copy of this checklist please click here.
Contact us if you require further help with your planning.
Google Analytics is a free service which allows you to analyse visitors to your website. You could have thousands of visitors to your firm’s website every month, but those visitors don’t mean much if you don’t know anything about them.
Google Analytics is one of the best of many tools available to analyse traffic to your website as it is designed to be easy to use and is free of charge. Used properly, it can help you to understand who is visiting your website and enable you to turn them into potential customers.
The system allows you to track everything from how much traffic your website is getting, to where that traffic is coming from, the behaviours of visitors, what they are clicking on, etc. In addition you can track mobile app traffic and identify trends to assist you in making decisions in relation to how you market your business.
To use Google Analytics you simply sign up for a free Google account, click on Google Analytics from your Google Account home page and go through the various steps. Then you must click on Get Tracking ID. You can install this tracking ID on your company’s website and this will allow you to monitor traffic and start using Google Analytics.
The Traffic Sources section allows you to analyse where the visitors to your website are coming from. You can also set up custom reports in order to monitor metrics based on data specific to your business. For example, if you are an online retailer, you can monitor product codes in order to track which products are being purchased by your online visitors who are based in the EU.
You can also connect Google Analytics to your firm’s social media accounts. This allows you to track the results of your social media marketing. For example, is the article you published on LinkedIn driving people to click through to your website, etc.