This month we are covering Christmas gifts and parties, tax
deductions for professional subscriptions, a note of changes
to company law, and what to do if you are absent from home and
want to avoid capital gains tax complications,
In the tax diary we have noted the 31 December 2006 deadline
for registering a payroll giving scheme. A grant of £500 is
available and the government will match the first £10 donated
by each employee, every month, for a period of 6 months. Please
call if you need more information, or you could visit the website
www.payrollgivinggrants.org.uk.
Don't forget to call if you need more information on any of
the issues raised. The next newsletter will be published on
Thursday 4 January 2007.
Christmas gifts and entertaining!
As the Christmas season is upon us yet again, we thought we
would provide readers with a few tips to maximise the tax relief
on expenditure to fund gifts and/or entertaining.
Gifts to customers
For tax purposes the items given must not exceed £50 in value
for each recipient. Also:
-
they must not comprise food, drink or tobacco, and
-
should bear the business name conspicuously so that they
may be regarded as advertising.
For VAT purposes the requirements are less stringent. The value
of gifts given to any recipient in any twelve month period must
not exceed £50, but otherwise there is no restriction on the
type of gift, nor is there a requirement that the gift bears
the donor’s name. This opens up the possibility of recovering
VAT on seasonal gifts such as bottles of wine or even a modest
bottle of malt whisky. However tax relief would still be denied
- for the reasons set out above.
Christmas parties and other events
Entertaining of any type including parties, trips to the ballet
or a concert, are all treated in the same way for tax purposes.
All costs of entertaining anyone except staff are disallowed
for tax, and must be added back to profit. This includes any
type of entertaining or hospitality - including related expenditure
such as travel and accommodation. The element which relates
to the members of staff attending the function will also be
disallowed, but would not under normal circumstances provoke
a benefit in kind assessment on the member of staff concerned.
The costs of a staff party would be deductible for tax purposes!
VAT input tax can be recovered on staff entertaining expenditure.
If staff partners/spouses or clients are also invited to the
event the input tax has to be apportioned, as the VAT applicable
to non-staff is not recoverable. However if non-staff attendees
make a contribution to the event, all the VAT can be reclaimed
and of course output tax should be accounted for on the amount
of the contribution.
For benefit in kind purposes, staff entertaining does carry
a limited tax exemption. An annual Christmas party or other
annual event offered to staff generally is not taxable on those
attending provided that the average cost per head of the function
does not exceed £150.
All costs must be taken into account, including the costs of
transport to and from the event or accommodation provided, and
VAT. The total cost of the event is merely divided by the number
attending to find the average cost. If the limit is exceeded
then individual members of staff will be taxable on their average
cost, plus the cost for any guests they were permitted to bring.
The event must be open to all staff, or all staff at a particular
location. Employers should also note that strictly the exemption
is not available for a one-off event, but applies to an annual
party whether held at Christmas or another time of the year.
A final note on staff parties. The cost is only tax deductible
for employees and their partners which would include directors
in the case of a company but not sole traders and business partners
in the case of unincorporated organizations.
Trivial seasonal gifts for employees!
Not withstanding the comments made previously, you may find
the following Revenue concession useful - we have copied the
note directly from the HMRC handbook:
An employer may provide employees with a seasonal gift, such
as a turkey, an ordinary bottle of wine or a box of chocolates
at Christmas. All of these gifts are considered to be trivial
and as such are not taxable. For an employer with a large number
of employees the total cost of providing a gift to each employee
may be considerable, but where the gift to each employee is
a trivial benefit, this principle applies regardless of the
total cost to the employer and the number of employees concerned.
Deductions for fees and subscriptions
Many professionals, teachers, accountants, lawyers, health
professionals and so on, are required to make a subscription
to a professional body or learned society. If the following
conditions apply the cost of the subscription may be claimed
against taxable income.
-
the statutory fee or contribution must be made out of your
net taxed earnings, and
-
membership of the professional body must be a requirement
of your employment.
Further the activities of the professional body must be relevant
to your employment, particularly:
-
the performance of duties is directly affected by the knowledge
concerned, or
-
involves the exercise of the profession concerned.
The Revenue have a published list of the organisations that
they will accept as valid professional bodies. This list is
updated from time to time.
If you are required to make subscriptions to professional organisations
make sure that you let us have full details at tax return time
so that we can ensure you get the correct relief.
New Companies Act 2006
Although the new Act largely consolidates existing legislation,
there are a number of relaxations that apply to private companies
that we would like to point out. The changes noted will be effective
at some date before October 2008. The exact timing is yet to
be announced.
-
Accommodation addresses. It will be possible for directors
and shareholders to post accommodation addresses to Companies
House records, and thus avoid the disclosure of their home
address.
-
Company Secretary. There will no longer be a requirement
for the appointment of a company secretary, unless the company
wishes to appoint someone to that post.
-
AGM. There will no longer be a need to have an annual general
meeting, unless again the company chooses to do so.
The new Act applies to the whole of the UK, so there will no
longer be separate legislation for Northern Ireland.
Main residence and capital gains tax
It is a well known fact that potentially any profit you make
from selling your own home is free of capital gains tax. To
qualify you need to be resident in the property for the entire
period of ownership. However there are a number of circumstances
where temporary absence from your home will not affect your
tax exempt status.
Periods of absence may qualify as follows :
The final three years in all cases.
Provided that the residence has at some time been occupied
as the main residence, then the last three years are always
treated as occupied, even if another property also qualifies
for main residence relief at the same time.
A period of up to 4 years while the owner is working
elsewhere in the UK, any period of absence not exceeding 3 years
in total, and any period during which the owner is employed
abroad.
These rules allow those absent from their property for some
time due to work commitments to sell the property without paying
tax on the gains. However, in most of the above situations,
it is important that you reoccupy the property as your main
residence after the period of absence.
A common mistake that taxpayers can make is to leave the UK
for work abroad, say for four years, and if at the end of this
period the house is sold without reoccupation - the deemed occupation
rule cannot apply, and the taxpayer is left seeking the shelter
of the last 36 months rule to protect the gain.
Also, there must be no other property occupied as a residence
during the period of absence (hotel accommodation is OK) - but
this issue can be resolved by making elections within 2 years
of moving into the other accommodation.
Non-residence - the 5 year rule
If you have been absent for at least 5 complete tax years,
and therefore not UK resident for tax purposes, any potential
gain would not be taxable - as long as the disposal was completed
while you were not UK resident for tax purposes.
Letting the property.
If you let your home for whatever reason you may also qualify
for "letting relief" to shelter any potential capital gain.
The relief applies to any gain attributed to the period when
you let the property. The lettings relief will exempt this let
gain up to a maximum of the lower of the exempt gain and £40,000.
Where the property is jointly owned (e.g. if you are married
or in a civil partnership) you will each have the £40,000 relief.
As you can see being absent from your house for any period,
and for whatever reason, can possibly affect the capital gains
tax status of any profit you make on a subsequent sale. So that
we can advise you properly we would request all clients advise
us in advance if changes in residence are planned. In this way
we can ensure that you maximise the tax free gain available
when you sell.
Tax Diary December 2006/January 2007
1 December 2006 - Corporation tax due for
companies with a tax liability for the trading year ending 28
February 2006.
19 December 2006 - PAYE and NIC deductions
due for month ending 5 December 2006. (If you pay your tax electronically
the due date is 22 December 2006)
30 December 2006 - If you file your 2006 Tax
Return via the Internet you must send it back by this date if
you want the Revenue to consider collection of outstanding tax
for the year through your tax code. This will only be possible
where you owe less than £2,000.
31 December 2006 - Deadline for registering
a payroll giving scheme to qualify for the £500 grant.
1 January 2007 - Corporation tax due for companies
with a tax liability for the trading year ending 31 March 2006.
19 January 2007 - PAYE and NIC deductions
due for month ending 5 January 2007. (If you pay your tax electronically
the due date is 22 January 2007)
31 January 2007 - Due date for payment of
any residual self assessment liability for the year ending 5
April 2006, and due date for the first instalment on account
for the year ending 5 April 2007.
31 January 2007 - Deadline for filing your
self assessment tax return for the year ending 5 April 2006.
DISCLAIMER - PLEASE NOTE: The ideas shared
with you in this email are intended to inform rather than advise.
Taxpayers circumstances do vary and if you feel that tax strategies
we have outlined may be beneficial it is important that you
contact us before implementation. If you do or do not take action
as a result of reading this newsletter, before receiving our
written endorsement, we will accept no responsibility for any
financial loss incurred.
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