To claim or not to claim - baffled by subsistence expenses?

Travel and subsistence expenses

We are not alone at SAIL in reporting that one of the most frequently asked questions by contract and freelance workers are regarding the rules defining a 'temporary workplace'. The key concern is to ensure people are correctly accounting for their travel and subsistence expenses.

Queries often arise concerning the perceived inequalities of subsistence expenses such as food and accommodation. An example is of an individual who is out for the day travelling for business can claim a tax deduction for a lunch they purchase on the go but someone who prepares a packed lunch at home to take with them can claim nothing.

The special foreign travel rules which allow deductions beyond the basic travel rules are complicated and very subtle. HRMC notes that ‘in many cases a deduction is due’ without listing the examples. It goes on to list contradictory sections where travel may or may not be deductible.  

But there is no need to leave our shores to see examples of the travel rules confusion. Some employers have received some unhelpful decisions from HMRC with regard to workplaces in London. HMRC have declared that all of London (within the M25 perimeter) is one workplace even though two workplaces could be one-two hours apart yet still within the London conurbation.

The Office of Tax Simplification (OTS) has recently published 'Review of employee benefits and expenses:  Interim report' as part of their remit to report areas of complexity and recommend priorities for further review.

The OTS were struck by the number of relatively minor things that are proving problematic. It believes that making a number of relatively small changes could make a big difference. Some ideas on how to effect change would need legislation but others just need a change in approach by HMRC. With this in mind the OTS have come up with 43 'quick wins' including:

Area	Proposed Solution	Needs Legislation?
Trivial benefits	HMRC should publish a list of benefits they consider to be trivial, presumably with limits on the amounts.	No
Mileage rates	Align tax and NIC treatment of mileage rates over 45p.	Yes
Mileage rates	HMRC should not require retention of fuel VAT receipts for expenses claims where only a mileage rate has been claimed.	No
Subsistence rates	HMRC should give better guidance on what qualifies for subsistence expenses.	No
Subsistence rates	HMRC should reinstate the practice of having a 'friends and family' scale rate.	No
Travel and subsistence	HMRC should commit to revising and updating the booklet 490 to fit better with modern working patterns.	No
Travel expenses	HMRC to publish guidance on temporary workplace rules for projects carried out in phases.	No
Travel expenses	HMRC should stop treating London as one workplace regardless of travel time.	No

 

The OTS and Treasury Ministers have been in discussion over the summer with plans to publish their recommendations in stages before the end of the year and early into 2014.

The key as users is results. Discussion is good, but the proof of the pudding is in the eating. We at SAIL Business Solutions will be keeping our clients aware of updates and ensuring that they are fully compliant with the changing legislation.

As ever, if you are not getting the service you should be from your contractor accountant, contact us and find out why 96% of our clients say and do recommend SAIL.

Declare unpaid capital gains tax from the sale of a second property in the UK, or overseas, or face fines from the Revenue

Home owners who haven't paid capital gains tax (CGT) from the sale of their second homes could face a penalty of 30 to 100 per cent of overdue tax - or even a prison sentence - if it is not declared by Friday reported the Daily Telegraph today (6^th August, 2013).

Taxpayers who come forward by the deadline then have until September 6 to pay. Those who do declare any unpaid tax will be charged a penalty of 10 to 20 per cent of overdue tax.

HM Revenue & Customs have sent letters to 35,000 taxpayers during the past month who had not yet registered to pay CGT from the sale of a second home, holiday home or buy-to-let property. The Revenue will target anyone who hasn't paid tax going back as far as 20 years.

Property which is the owner's main residence is free of capital gains tax. But other property falls within the CGT net, including those abroad.

The Telegraph reports that almost 1.6 million people have a second home in England and Wales, with 820,000 owning a second property abroad, according to the 2011 consensus.

CGT is charged at 18pc for basic-rate tax payers and 28pc for people in the higher and top-rate income tax bands.

Marian Wilson, head of HMRC campaigns, said: “Some people will not understand that selling a second home, a holiday home or a property disposed of as a gift could attract capital gains tax. They need to look at our website or contact us.

"It is better to come to us before we come to you.”

The CGT campaign by HMRC, which began in March, is also targeting those who rent out a second property and have so far failed to pay income tax on the rent.

Buy-to-let investors have faced stricter tax rules from a HMRC special task force in recent months to clamp down on the sector.

____________________________

Edited and adapted from an article by Sophie Christie in The Telegraph, 6^th August, 2013. 

CHANGING MESSAGES FROM HMRC

Confused by RTI? You’re not alone.

PAYE real time information (RTI) is causing quite a debate among contractors and personal service accountants.

How is RTI working for you? Is it a huge cost or administrative burden? Have you been dogged by unanswered questions and uncertainty by the forever changing guidance issued by HMRC?

Just last week HMRC issued further guidance extending the relaxation to the ‘on or before’ provision for employers to send their RTI returns to HMRC that has been in place since April 2013 until 5 April 2014. This change will allow employers with 49 or fewer employees to send in their RTI returns by the end of the tax month in which they pay their employees.

The debate is lively, and the ICAEW has a dedicated RTI webpage which both carries formal help sheets and advice as well as a forum of members discussing the issues, and benefits they are experiencing. Impossible deadlines, software that doesn’t do what it should, RTI submissions not happening and HMRC’s helplines not being very helpful or understanding the issues have all been mentioned on the downside. Yet some report only positive experiences.

What has become clear is the importance of seeking good and timely advice on payroll matters. As contractors work in a competitive market place, to tight deadlines and often long hours the added burden is proving to be a strain. Using a dedicated contractor’s accountant has never been more important.

Join SAIL today, and remember if you’re an existing client you can earn John Lewis vouchers for referring friends and colleagues to us.

Vacancy - Business Development Manager (part time)

Title: Business Development Manager (part time)

Reports to: Managing Director

Package: £18 an hour

Part Time: Two days a week with potential to increase number of days if successful

About SAIL Business Solutions

SAIL Business Solutions is a small accounting services firm founded in 2002. Based just off Trafalgar Square, SAIL provides accounting, taxation and secretarial services to limited companies and individuals in the United Kingdom. SAIL prides itself on its close customer relationships and strives to relieve the administrative burden that its clients’ face.

Job Objective:

• Responsible for the winning of new business and developing strategic relationships as well as the development and performance of all sales and marketing activities, the establishment of plans and strategies to expand the customer base and the delivery of sales growth.

Responsibilities:

• Develops a business plan and sales strategy that ensures attainment of company sales goals and profitability.
• Prepares action plans for effective search of sales leads and prospects.
• Initiates and coordinates development of action plans to penetrate new markets.
• Develops and implements marketing plans as needed.
• Provides timely feedback to senior management regarding performance.
• Provides timely, accurate, competitive pricing on all completed prospect applications submitted for pricing and approval, while striving to maintain maximum profit margin.
• Maintains accurate records of all pricings, sales, and activity reports
• Develops and maintains a database of market size, market participants, key individuals and decision makers in order to drive the sales and marketing strategy and business plan;
• Creates and conducts proposal presentations and RFP responses.
• Controls expenses to meet budget guidelines.
• Adheres to all company policies, procedures and business ethics codes and ensures that they are communicated and implemented within the team.

Relationships and Roles:

Internal / External Cooperation

• Maintains contact with all clients in the market area to ensure high levels of client satisfaction.
• Demonstrates ability to interact and cooperate with all company employees.

Job Specifications:

• Extensive experience in all aspects of Supplier Relationship Management.
• Strong understanding of customer and market dynamics and requirements.
• Willingness to travel.
• Excellent communication skills.
• Good excel capabilities (modelling will be required)

Networking with the neighbours

It has been a week since we moved into our new offices in Duncannon Street, just off Trafalgar Square.  We are loving the fact that we are now so much closer to the majority of our clients.  We would welcome to opportunity to address any queries you may have regarding our services and how we can best serve you.  If you have any comments and or suggestions, we would love to hear from you.  Please do leave us your comments.  Team SAIL.

Claiming back VAT on capital assets under the Flat Rate Scheme

If you use the Flat Rate Scheme, you can't normally claim back the VAT you spend on capital assets you buy for your business. This is already taken into account in the flat rate percentage for your type of business. However, you may be able to claim back the VAT on certain capital asset purchases with a VAT-inclusive price of £2,000 or more. You make these claims by putting the amount of VAT you were charged in Box 4 of your VAT Return.

These are the rules for claiming back VAT when you buy capital assets:

• It must be a single purchase of capital goods with a VAT-inclusive price of £2,000 or more. That doesn't mean you are restricted to claiming back the VAT on a single item - for example, you could buy a pizza oven, fridge and dishwasher, as long as you buy them at the same time from the same supplier and the price is more than £2,000 including VAT.
• It must be a purchase of capital goods, not services. Capital goods are goods you can use in the business but are not used up by it - for example, a van, computer or bottling machine are capital goods, but not the fuel, printer ink or bottles that go in them. A van leased or hired to you is a continuous supply of services, but one bought on hire purchase is considered a supply of capital goods.
• You can't claim back VAT on goods that you intend to either resell, or incorporate into other goods to supply on to someone else.
• You can't claim back VAT on goods that you will let, lease or hire out - for example, a bouncy castle.
• You can't claim back VAT on goods that you intend to use up (consume) within a year.
• Building materials and work are not capital goods. You can't claim back the VAT if you have building work done (even if it includes expenditure on materials), and you can't claim back the VAT if you buy building materials yourself for someone else to build with.
• As long as all the other conditions are met, you can claim back all the VAT even if the goods will have some private use. For example, if you buy a van but employees are allowed free use at weekends to move private belongings, you can still claim back all the VAT.
• There is an upper limit on claims for certain items. If you buy something that falls within the Capital Goods Scheme you must write and tell HMRC and leave the Flat Rate Scheme immediately. Goods that fall within the Capital Goods Scheme are computers or items of computer equipment with a VAT-exclusive price of £50,000 or more, or land and buildings, civil engineering works and refurbishments with a VAT-exclusive value of £250,000 or more.

UK Tax residence – things are changing if you are planning to go abroad

Liability to UK income tax and capital gains tax is dependent, very significantly, on the residence status of the individual. The term ‘residence’ appears many times in UK tax legislation but until now this has never been properly defined in that legislation.

Instead, the determination of an individual’s residence status can depend on a whole range of factors, particularly how long they spend in the UK in a tax year. For almost 200 years the courts have been establishing a range of other factors which can affect the position. Some recent high profile cases have highlighted just how difficult it can be to become not resident and how even short periods of time in the UK can be decisive. This makes tax planning very difficult and uncertain for individuals planning to leave the UK permanently or even just for periods of work outside the country.

New statutory proposals

Things are now about to change. A consultation process is underway which will lead to the introduction of a ‘Statutory Residence Test’ (SRT) to determine residence from 6 April 2012. The legislation is likely to be in next year’s Finance Bill but since it could affect plans being made now, we wanted to let you know the basic changes as they relate to individuals planning to leave the UK. We must stress however, that these rules may still change.

One step at a time

The SRT will consist of a series of tests that need to be considered in sequence. If residence status can be determined by the first set of tests then there is no need to proceed to any further tests.

Satisfying any condition in the first set of tests (Part A) will lead to the conclusion that an individual is not resident in the UK for a relevant tax year.  However, only one of these conditions can potentially be satisfied by an existing UK resident. This is where an individual is leaving to take up full time employment or self-employment outside the UK.

Full time work overseas

To initially qualify as not resident under this condition all of the following criteria must be met:

·         the work must cover at least one complete UK tax year   

·         the work must amount to at least 35 hours per week

·      when working full time outside the UK, any working days (defined as at least 3 hours) in the UK must not exceed a total of 20 and

·      the individual must not spend more than 90 days in the UK in any relevant tax year.

A day counts as a day of presence if you are in the UK at midnight.

The significant difference in this new rule, compared to current practice, concerns the time spent in the UK. Currently return visits to the UK are allowed provided they do not exceed 90 days per year on average during the period of employment abroad. The new limit is an absolute and so time back in the UK for whatever purpose must be carefully monitored.

What if Part A does not apply?

If Part A cannot be satisfied then Part B has to be considered. This determines that you are conclusively UK resident if any one of its three conditions is met:

·         either you spend more than 183 days in the UK (this reflects the current situation) or

·         you work full time in the UK whether employed or self-employed or

·         your only home(s) is/are in this country.

What if the tests so far are not conclusive?

If a conclusion has not been reached on either of the two previous tests, it is necessary to move to Part C. Here a distinction is made between ‘arrivers’ and ‘leavers’.

The process in Part C is to look at a combination of the time an individual spends in the UK in a tax year and the factors that connect them to the UK. In simple terms, the greater the number of connecting factors which apply, then the smaller the number of days permitted in the UK before residence is triggered.

How Part C works for leavers

A ‘leaver’ is an individual who has been resident in the UK for at least one of the three previous tax years and the combination of factors and days is as follows:

Days in UK	Number of factors
<10	Always not resident
10 - 44	4 factors to be resident
45 - 89	3 factors to be resident
90 - 119	2 factors to be resident
120 - 182	1 factor to be resident
183 or more	Always resident

The proposed factors can be summarised as follows:

·         where spouse and children under 18 are resident in the UK (there are special rules where the children are only at school in the UK)

·         there is accessible residential accommodation in the UK which is actually used in the year

·         you undertake substantive employment or self-employment in the UK covering at least 40 working days

·         there are at least 90 days of presence in the UK in either of the two preceding years

·         you spend more time in the UK than in any other single country.

Planning considerations

Clearly the presence of these factors can change from year to year and it will always be important to plan time in the UK with great care. There could be particular implications if you plan to work outside the UK but leave your family here. For example, if you spend more than 90 days in the UK (and so cannot satisfy the Part A test) you will be treated as resident here if your spouse and family are here and you have accessible accommodation because those will constitute the two factors needed to trigger residence.

What should you do now?

If you have plans to make a move away from the UK either for work purposes or retirement or any other purpose then you need to take into account these proposed changes which we will be happy to discuss with you.