A Free Gift from The Taxman

In the run-up to Christmas, it’s normal to see plenty of national charity adverts tugging at our heart-strings and asking us to donate to various worthy causes. Everyone will ask the giver to gift aid their donation. Yvonne Lovett of Barnett & Turner Accountants expresses astonishment at how few of her own charity clients take advantage of the scheme.

It never ceases to amaze me that when we first meet a new charity client, how many are not making Gift Aid claims.

Why wouldn’t you? It’s free money and a no-brainer!

Charity trustees should always seek to maximise income for their charity, but we are often given excuses that it’s ‘too difficult to make a claim’, it’s ‘not worth it’ or there is ‘not much money involved’.

Here’s a reminder. For every £100 donation from an individual that a charity receives which can be gift-aided by the giver, the charity can reclaim back £25 from HMRC (while the basic rate of tax is 20%).  Just think. £2,000 in gift-aided donations yields £500 tax back. Surely that’s easier than organising a coffee morning or table top-sale?

So, what’s involved with making a Gift Aid Claim?

Gift Aid Declarations: To claim Gift Aid, every donation must be supported by a declaration. There’s no need to reinvent the wheel here, as model declarations and guidance are readily available from HMRC’s website or from charity support websites. If you are a church charity, for instance, then the Parish Resources website is a great help.

Gift Aid Claims: Before your charity can claim Gift Aid, you must register with HMRC by completing and submitting the online application CHA1. If it’s a requirement that you are registered with a charity regulator (such as the Charity Commission or OSCR), you must have done so before registering with HMRC.

There are three ways to claim Gift Aid:

·       Online claims through the Charities Online Service;

·       Use of compliant donor management software; and

·       Paper Claims (it’s still possible to claim using paper forms contrary to popular belief).

 As you would expect, there are some time limits to consider and rules regarding certain types of donations where the donor might receive some benefit, but these are not too onerous and they don’t apply to most straightforward monetary gifts.

Record Keeping:Charities must maintain auditable records of declarations and of receipt of donations on which Gift Aid has been claimed. Most charity’s accounting systems should be able to provide the audit trail required

Oh, and there are more freebies to be had under the Gift Aid Small Donations Schemeor GASDS for short. 

A charity can claim a Gift Aid-like top-up payment on small cash donations (notes, coins and contactless card payments) of £20 or less, a figure which will rise to £30 at the start of the 2019-2020 tax year. There is no requirement to obtain and store Gift Aid declarations. The scheme does not extend, however, to card payments, cheques and bank transfers. The top-up is calculated in the same way as Gift Aid. This means, with basic rate tax at 20%, the top-up payment is worth 25% of the value of the donation. The total value of donations eligible for the top up payment is capped at £8,000.

There we have it. Gift Aid is not too difficult, is it?  So speak to your accountant about it and get claiming! 

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Get insured or get fined!

Employers’ liability insurance provides cover for businesses in the event of accidents in the workplace. Your business can be fined up to £2,500 for every day that it doesn’t have proper Employers’ Liability insurance. It can also be fined up to £1,000 if the insurance certificate isn’t adequately displayed in the workplace.

This legislation applies to all businesses except those who employ only family members, including:-

·      Spouse or civil partner

·      Parents & grandparents

·      Siblings & half-siblings

·      Children & grandchildren

·      Step-parents & step-children


Employees who are not ordinarily resident in the UK are also normally exempt. Any insurance policy must be purchased from an authorised insurer and the minimum level of cover is £5 million, as per the Employers’ Liability (Compulsory Insurance) Act 1969.

It’s also worth remembering that any officer of a business who consensually, or neglectfully, fails to put an appropriate policy in place may be proceeded against personally. So, such cover not only makes sound business sense, but ensures you are not breaking the law!

If you’re unsure about your responsibilities, or if you’d like and introduction to an authorised broker to arrange your policy, then make sure to contact your accountant for some guidance.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Ransomware - are your systems protected?

Ransomware is a word that can strike fear into businesses and individuals alike, especially after the recent news articles about the NHS infection and other global attacks from WannaCry and its derivatives.

So what exactly is ransomware?

It’s a malevolent piece of software which goes through your computer files and ‘encrypts’ them so they cannot be opened or ‘decrypted’ without a special unlock code.  Once the files have been altered, the ransomware then displays a message explaining how much it will cost to obtain the unlock code and how long you have until the files are destroyed.  Some users have reported that even though they have paid the fee, they’ve not received the unlock code and lost their files.

Ransomware is not a new thing; it has been around in various forms since 1989. It’s only recently been making the headlines due to the untraceable nature of new payment methods, such as Bitcoin.

How is it spread?

The most common method of transmission is through email attachments sent to you (eg inside Word documents, pdfs, spreadsheets etc), although your machine can also be infected by other machines on the same network already infected by the ransomware.  This can even happen at home if you have multiple computers connected to the internet at the same time.

There are many types of malware all working in different ways to achieve the same result, blocking you from your files.  Once you are infected, your options are limited: you either pay to release your files, pay a specialist to try to recover them (not normally successful) or lose all the data.

What can you do to reduce your risk or the impact of infection?

There are a number of simple and inexpensive ways to stay clear of ransomware

·      Keep your antivirus and Windows Defender updated

·      Keep your machine updated with the latest Windows updates issued by Microsoft

·      Review all emails and their attachments before opening them.
 

If the email is not from a sender you expect or recognise (ie a friend, bank, gas/electric supplier, online shop etc), then delete it.  If it is from a known source, don’t just open it, as people can fake where emails are from. Have a look at the content and the attachment name and see if they are related. Just as importantly, ask yourself whether you expected an email from the sender. If you are at all concerned, delete the email.

Make a copy of your files to a portable storage device, such as a USB stick or a USB hard drive which is only connected to your computer to back up your files. Alternatively, you could use a DVD/Blu-ray disk or one of the many cloud storage options available on the internet. You should also create a factory reset disc or learn about ‘Restore Factory Settings’.

If your computer is running a version of Windows pre 8, 8.1 or 10, then you can create a factory reset disc/ USB drive.  For Windows 8, 8.1 or 10 users, you have the facility to ‘Restore Factory Settings’. In both cases, this wipes all information from your computer and reinstalls Windows to its original factory configuration.  Once complete, you will need to reinstall your software and upload your files from the location in which you stored them.

While ransomware can be disastrous for the unprepared, following these straightforward suggestions can alleviate your main fear: the loss of business or personal data.

 If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

HMRC proposals signals cross-border tax change

Taxation has long been based around the physicalpresence of a business in a particular country.

The huge expansion of the digital sector has, however, challenged our preconceptions. Many people would argue that if a global tech firm, for example, makes profits in a particular country, they should be taxed there – regardless of whether they have offices, plants or facilities in the jurisdiction.

Governments and global tax authorities are currently working together on a more uniform and coherent approach to the digital economy. And as part of this process, HMRC are proposing a significant change. 

Right now, if a UK company pays royalties for the exploitation of intellectual property and similar rights to overseas entities, they are subject to the deduction of UK tax at 20%. The only exception is if there’s an international agreement to reduce this amount.

The UK now proposes to include payments made by a non-UK entity to a fellow non-UK connected party in a jurisdiction (often with low or zero tax), with which the UK does not hold a suitable double tax treaty. 

In the example below, Company A derives UK income, but has no UK taxable presence and pays no UK tax. It may obtain a tax deduction in its location of residence for the royalty it pays to B. If B is in a location which has low or zero tax, the structure is very efficient.

Under the proposed reform, a 20% UK tax could apply on the royalty paid from A to B. It closes a loophole, but may have a wider scope than imagined, as it signals a radical shift away from current principles on the taxation of cross-border payments.

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 If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Could changing your accounting date help reduce your tax bill?

If you’re an unincorporated business (a sole trader or partnership), you have free choice when it comes to your accounting date says Barnett & Turner’s Jono Wilson. Some choose a date for commercial reasons – for example to fit in with a cyclical trading pattern or to fall in a slack period – and for others the logical choice may be 5 April (or 31 March) to align with the tax year.

Choosing the right year end will not only make life administratively easier for a business, but choosing a year end other than 5 April (or 31 March) can also give you a cash-flow advantage and create outright tax savings, if the circumstances are right.

Depending on the choice of accounting date, new businesses and individuals joining existing partnerships may see some of their profits taxed twice because of special rules which dictate when – and to what extent – business profits are assessed. Profits taxed twice are known as “overlap profits”. 

Businesses trading when self-assessment was introduced in 1996/97 may be carrying overlap profits and changing a business’ accounting date can also cause profits to be doubly assessed.

The value of any doubly assessed or overlap profits is subsequently carried forward and given as a tax-reducer when a business ceases, when an individual leaves a partnership and on certain changes of accounting date.

The thought of profits being taxed twice naturally gives rise to a common misconception that overlap profits are bad. In reality, a change of accounting date can be used to your advantage, which is illustrated in the very simple case study below.

 A partnership with a 30 April year end went from being highly profitable to being loss making, almost overnight. A 30 April year end is great, as it allows a lengthy period between making profits and paying tax on them, but, where a business falters as above, tax becomes payable when the business has no cash (unless it has a very prudent and very disciplined tax provision policy). In this case, changing the year end to 31 March enabled the partners to use their significant overlap profits and it also enabled earlier access to trading losses; this not only created significant cash-flow benefits for the business, but it also got rid of the overlap profits.

A few years later, the business returned to significant profitability, almost as spectacularly as it became loss making, resulting in significant tax bills made worse by the catch-up effect of a large self-assessment balancing payment plus payments on account. In the light of this, the partnership year end was returned to 30 April, which created some new overlap profits, but it also had two additional and significant benefits:

o   It deferred payment of significant amounts of tax by 12 months, creating positive cash flow and allowing the business to get its tax provisioning in check; and

o   It pushed profits into a later tax year, giving the opportunity to undertake some income tax planning and reduce the deferred tax liabilities.

So if you’re unincorporated and interested in finding out more about this specific issue of your accounting date, it’s certainly worth starting a conversation with your accountant.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Are you really geared up to tackle fraud?

While many businesses believe they are doing all they can to counter fraudulent activity, they often lack the latest data analytics, argues Jono Wilson of Barnett & Turner. And that could prove costly.

Many companies still rely on old-fashioned human intervention to spot potential fraud, but in the modern era they may well be missing a trick. Data analytics are an excellent tool and can prove to be surprisingly cost-effective.

There are actually numerous tests available to help you identify red flags.

Take occupational fraud schemes, for example. You can easily compare purchasing rates between vendors and look for discrepancies or search for vendor preference patterns. 

Why not check sales prices and margins by customer? If you find unexpected anomalies or unusual pricing, it could suggest an internal fraud involving a member of your staff. 

Be on the look-out for ‘kickbacks’ too – expense reimbursements or sizeable petty cash withdrawals prior to an important contract being signed.

And it’s often useful to focus on the sums involved in cash payments to agents or customers, as round figures can be revealing of suspicious activity.

Some organisations will undertake a very good data matching test by comparing payroll records (name, address, postcode, bank account details) with records on a suppliers’ list. Any duplications will automatically raise concerns.

You might well think that your internal or external auditors will be doing this kind of work, but have you actually checked that they’re making use of the latest data analytics themselves? Of course, it’s also possible for you to invest in the tools yourselves. The important thing is to be proactive and to avoid complacency that might cost your company a lot of money. 

Did you know?

·      A typical organisation loses 5% of revenue each year through fraud

·      Smaller firms will usually have far fewer anti-fraud controls in place than larger ones

·      The more authority a person has within a business, the greater the scale of their typical fraud

·      Organisations with specific anti-fraud controls in place reduce losses significantly and detect frauds up to 50% quicker

Source: Report to the Nations on Occupational Fraud and Abuse, 2016, Association of Certified Fraud Examiners

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

How to handle termination payments correctly

Tracy Henson of Barnett & Turner tackles some frequently asked questions on the payments made when you terminate an employee’s contract.

With careful planning, you can save tax and national insurance when you make termination payments, but it’s important to bear a number of different factors in mind. Remember that the first £30,000 of any such payment can, in theory, be made tax free, but there are a number of conditions attached.

What are the current conditions which for the exemption to apply?

Currently, if you have a contractual right to make a payment in lieu of notice (‘PILON’), that payment is subject to income tax and national insurance contributions (‘NICs’).

If there is no PILON clause and the employer grants a termination payment to the employee at the end of the employment, the first £30,000 can be paid tax-free. Any amount above this threshold is taxable, however no NICs are due.

What are the conditions which must be met after 5 April 2018?

From 6 April 2018 all payments in lieu will be taxable. The intention of these reforms is to ensure that the basic pay an employee would have earned had the employee worked his or her notice in full will be subject to tax (any amount above this may benefit from the £30,000 exemption).

The reforms will therefore require employers to identify the amount of basic pay that the employee would have received if they had worked their notice period and to split a termination payment between (1) amounts treated as earnings and (2) amounts which are being paid in true compensation for loss of employment and which may benefit from the £30,000 threshold for tax exemption.

And from April 2019?

Currently, where the exemption is available no National Insurance (NI) will be due on the payment made. However, from April 2019, this rule will change with employer’s NI being payable on the balance over £30,000. 

Can some payments qualify for a higher limit?

Yes. Some can even be paid tax free, where the payment relates to injury, disability or death. However, HMRC interpret the exemption for termination on injury or disability very narrowly.

What are the rules about non-cash benefits?

There is a requirement to include the cash equivalent of any non-cash benefits made, for example the provision of a company car. Any non-cash benefits are treated as income in the year in which the benefits are enjoyed.

Does the timing of the payment make a difference?

Where a qualifying termination payment is made to the employee before they leave, the excess over £30,000 is subject to deduction of tax under PAYE under the normal rules. If payments are made to an employee after they leave, and after a P45 has been issued, then the employer must deduct tax under PAYE at the basic rate. The employee is then liable for any additional tax charge on the termination payment received under the self-assessment system.

What planning opportunities do you have?

There are a few possibilities where the termination is to exceed the £30,000, such as:

  • making a contribution towards the employee’s legal fees, which may include, for example, the fees for their solicitor to review a compromise agreement;

  • deferring the tax point – there may be a saving to the employee by spreading the payment over two tax years, where the entitlement to deferred consideration should be specified in the settlement agreement;

  • making a contribution into the employee’s pension fund; and

  • considering whether any element of the payment made could be identified as compensation for discrimination, or injury/disability, which may be tax free.

 Given the complex nature of the legislation, it’s always good to seek advice before a termination payment is made, to avoid any potential bear traps. Failure to take reasonable care in analysing the nature of the payment and describing it in the settlement agreement may result in the parties facing unnecessary or unexpected tax liabilities. 

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Your shares are worthless? Things may not be as bad as you thought...

It’s a nightmare scenario. You’ve invested in a company and then discover that it has collapsed and that its shares have become worthless. 

Imagine, for example, owning a slice of Carillion – which went from being one of the UK’s largest construction businesses to a company revealed to have £1.5bn in debt and whose shares were suspended.

If HMRC declares shares to have ‘negligible value’ (as they have in the Carillion case), you’re entitled to capital gains relief, which will help you to reduce your tax liability. 

Here are some commonly asked questions:

How does it work in practice?

In effect, you can set the original cost of the asset against other capital gains in the current tax year or even carry it forward against gains in future years. 

Can I backdate a claim?

Yes. You can treat it as a loss arising in either of the two preceding tax years.

Can I claim loss from unlisted, negligible-value shares against income?

In theory, yes, but you’ll need to consult your accountant as you’ll need to meet a significant number of conditions.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

A grand idea for would-be business people writes Tracy Henson of Barnett & Turner

Are you a budding entrepreneur who’s selling products over the web from your back bedroom? Or perhaps you’re renting out one of your rooms via Airbnb?

From the start of the 2017/18 tax year, it’s been possible to claim annual tax-free allowances – one related to trading and the other to property. These provide an exemption from income tax and an excellent opportunity to test the water with a business idea without having to worry about tax compliance issues. There’s no need to register with HMRC if you are generating income of a thousand pounds per annum or less.

Property Allowance

This applies to both commercial and residential lettings and gives you full relief from tax if your annual income before tax is less than £1,000. If the property is jointly owned, each individual can claim the allowance against their share of the gross rental income. If you’re earning more than £1,000, partial relief is available. 

Trading Allowance

This is designed for people who are trading in small amounts or receiving miscellaneous income from goods, services or assets. You might, for instance, be selling items on a website such as eBay. Again, with some exceptions, you can claim the allowance where total income is less than £1,000 and partial relief is available for sums under this amount.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Businesses prepare for tightening of data rules writes Jono Wilson of Barnett & Turner Chartered Accountants.

Next year’s General Data Protection Regulation (GDPR), which comes into effect on 25th May 2018, is causing quite a lot of angst among IT professionals, marketers and other business people. And the UK’s exit from the EU isn’t necessarily going to change things. Whatever your personal view on Brexit, you might be forgiven for thinking that British businesses are no longer going to have to worry too much about EU regulations.

The reality, however, is that directives from Brussels are still going to be a fact of life until the point of formal departure.

There is a further reason, however, to take note of the GDPR.  According to the trade magazine and website Computer Weekly, the rules will affect any UK business which offers any type of service to the EU market, ‘regardless of whether your business stores or processes data on EU soil, and whether the UK stays in the EU or not’.

The UK Information Commissioner’s Office describes GDPR as operating on similar principles as the Data Protection Act, but with an added layer of detail and an additional concept of accountability. So what are the key issues you’re likely to confront?

Lawful processing

If you are processing personal data, you need to have a legal basis for doing so and must be able to document it. Relying on someone’s consent? Well, you may be find that they have greater rights in future – particularly to have their data deleted.

Consent

People need to take affirmative action to give consent to their data being used. If they are silent or you have pre-ticked boxes for them, that won’t count.  You need to record when and how the consent was given. What’s more, it can be withdrawn at any time.

The rights of individuals

The GDPR gives a number of protections to individuals that your organisation must observe:

The right to be informed – you need to provide ‘fair processing information’, which will usually involve a privacy notice. It’s important to be transparent over how you use data.

The right of access – individuals will have similar rights to those under the Data Protection Act. They can ask you to confirm you hold data and request access to that data.

The right to rectification – if information you hold is incorrect or incomplete, an individual has the right to demand that you correct it.

The right to erasure – also known as ‘the right to be forgotten’. Someone is entitled to request that you delete or remove personal data if there is no compelling reason for your continuing to process it.

The right to restrict processing – if an individual asks for the processing of their data to be blocked, you must respect their request. You are only allowed to store the data and retain enough information to ensure their wish is respected.

The right to data portability – this allows people to obtain and then reuse their data – transferring it from one IT environment to another.

The right to object – an individual can object to profiling conducted in the public interest or for direct marketing purposes. They can also object to the use of data for scientific or historical research and statistics.

The detail of the regulations is understandably complex, so if you feel that you are likely to be impacted, it’s important that you read more online or take professional advice on how to prepare.

https://ico.org.uk/media/1624219/preparing-for-the-gdpr-12-steps.pdf

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk