You don’t have to pay tax on a benefit for your employee if all of the following apply: it cost you £50 or less to provide, it isn’t cash or a cash voucher, it isn’t a reward for their work or performance and it isn’t in the terms of their contract. This applies to directors as well as employees, but for directors there is an annual cap of £300.

A cash voucher is one which can be exchanged or surrendered in return for money e.g. a premium bond or postal order.

For more information visit https://www.gov.uk/expenses-and-benefits-trivial-benefits

The end of the tax year is approaching! It may be beneficial for you to review your dividend, pension and ISA payments/contributions before 5^th April.

Tax rates reminder for the year ending 5^th April 2024

• The personal allowance is £12,570 (No Tax)
• The basic rate band is £37,700 (Salaries are taxed at 20%, Dividends at 8.75%)
• Higher Rate up to £100,000 and between £125,140 and £150,000 (Salaries are taxed at 40%, dividends at 33.75%)
• The Personal Allowance goes down by £1 for every £2 of income over £100,000. This creates a marginal rate of tax of 60% for earnings between £100,000 and £125,140
• Additional Rate above £150,000 (Salaries are taxed at 40%, dividends at 33.75%).

You may want to review your income to maximise some of the thresholds, and if you have flexibility…

Dividends:

*You may wish to consider deferring future dividend payments to the following tax year, if you are reaching the next tax threshold. 

*Conversely, if you have not exceeded the basic rate threshold you may wish to maximise your dividend takings in order to utilise this. 

*If your Director’s loan account is overdrawn, you may need to draw dividends to repay this. 

*If you have taken dividends without sufficient reserves, you may need to repay these back to the company.    

Pensions:

*If you are a director making employer contributions via your company and are able to make further contributions, the additional payments will reduce your corporation tax liability.

* If you are an individual who has exceeded one of the tax threshold, an additional personal pension contribution is treated as reducing your earnings for tax.

* The lifetime allowance for most people is £1,073,100 in the tax year 2023/24.  In previous years, you would have paid a lifetime allowance charge on any pensions savings over this amount. But from 6 April 2023 that charge has been removed.  Visit www.moneyhelper.org.uk for further information.

ISAs:

*Cash ISAs are just savings accounts you NEVER pay tax on. Everyone in the UK aged 16 or over gets an ISA allowance at the start of each tax year – for 2023/24 it’s £20,000.

*The Lifetime ISA (LISA) launched on 6 April 2017 and offers a 25% state bonus on your savings, if you use them towards buying a first home or for retirement. You can only open one if you’re aged between 18 and 39.  You can save a maximum of £4,000 a year into a LISA and use the bonus to buy property worth up to £450,000. However, access your money for anything other than purchasing a first home or for retirement aged 60+, and you’ll pay a 25% withdrawal penalty. You can open a LISA and a cash ISA in the same tax year.

Please speak to us should you require our assistance.

If you regularly sell goods or services through an online marketplace, this activity could be treated as a ‘trade’ for UK tax purposes and you may have to pay tax on your profits. 

You will only have to pay tax if you are considered to be trading, or to have made a capital gain.

If you are just selling some unwanted items that have been laying around your home, such as the contents of a loft or garage, it is unlikely that you will have to pay tax.

If you buy goods for resale, or make goods with the intention of selling them for a profit, then you are likely to be trading and will have to pay tax on your profits.

However, if your total income from trading or providing services online was less than £1,000 (before deducting expenses) in any tax year, you would not be required to inform HMRC nor pay any tax on the profits (this is due to the trading allowance).

HMRC have published the following example:

Gina works full time, and in her spare time she makes greetings cards for her family and friends.

Gina then begins to sell her cards online, and is soon making a profit. With business going well, she also expands the range of items that she sells.

Gina is selling with the intention of making a profit, and she is also organising her activities in a way which commercially-minded traders would do. Therefore, this is likely to be trading, and the profits would be taxable.

It isn’t a new rule – what has changed, and the reason this has made the news, is that from 1 January 2024, digital platforms are required to collect and report seller information and income to HMRC. These digital platforms must report sellers’ income by January 2025. So if you are selling goods through these platforms, HMRC will be aware 😊.

If you sell goods or services on these platforms you will get a copy of this information. You can use this information to check the amount of income and expenses incurred through these platforms, which may be helpful in determining whether tax is due on any profits.

Self Assessment payments on account are advance payments of estimated tax liability for the current tax year. These payments are made in two instalments, usually on 31st January and 31st July, and are used to reduce the amount of tax owed at the end of the tax year. The payments are based on the previous year’s tax liability and are only applicable for individuals with taxable income over a certain threshold.

Let’s say Sara’s total taxable income for the tax year 2022-23 was £50,000, and her tax liability was £10,000. Based on this, HMRC will estimate Sara’s tax liability for the tax year 2023-24 and request payment on account of £5,000 in two instalments, one on 31st January 2024 and the other on 31st July 2024. At the end of the tax year 2023-2024, Sara’s actual tax liability for the year is calculated and compared to the payments on account. If her tax liability is £9,000, Sara will be due a refund of £1000. If her tax liability is £11,000, Sara will need to make up the difference and pay a balancing payment of £1,000 on 31 January 2025. By January 2025 she will also need to pay the first instalment on account for 2024-25.

If your income for the following year is likely to be less than the current year, you can apply to reduce the payments on account so it doesn’t lead to an overpayment.

A staff party or an annual function qualifies as a tax-free benefit for your employees providing that you meet the following conditions:

• The total cost must not exceed £150 per head, per year.
• £150 includes VAT together with any extra costs such as transport and accommodation.
• The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
• The event must be primarily for entertaining staff.
• The event must be open to all staff (in that location, if you have several branches or departments).
• The event is not just to be for directors, unless all your staff are directors.
• The cost of the whole event is an allowable expense for your business.
• You can claim back input VAT but this may be restricted where you are also entertaining customers.

An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff.

Provided the £150 limit is not exceeded, there can be any number of parties, for instance 3 parties at a cost of £50 each – at various times of the year.

Qualifying conditions

1. The party has to be for all the staff, or if you have divisions or sections you may hold a party for that division or section, separate from the other ones.
2. There is no tax relief if an event is solely for directors and their families (unless you are the owner-manager, or a family company and you happen to be the only employee(s)).
3. Other guests may be invited too (partners/ spouses for example), but the primary purpose of the event must be that of entertainment for all the staff. The cost per head is not per employee, so if you invite employee and their partners, the limit is per person present.

Corporation tax rates changed on 1 April 2023. Instead of the single 19% tax rate, there are now rates of between 19% and 25% depending on your company’s profits with thresholds set at £50K and £250K.

To prevent people setting up lots of companies to keep their tax rate at 19%, the thresholds must be shared between companies that are “associated.”

A company is an associated company of another when:

1. One of the two has control of the other, or
2. Both are under the control of the same person or persons.

This only needs to be true for 1 day in your accounting period for the companies to be associated for the whole period.

Control can be through share ownership, voting rights, rights to distributed income or entitlement to assets on winding up. But the people you are associated with are also taken into account to determine who has control of your company, and to determine whether any company is associated with yours by virtue of your relationship.

Your associates include:

• Spouses and civil partners
• Blood relatives i.e. parent, grandparent, children, grandchildren, siblings
• Business partner (in a partnership)
• Trustees where you or a relative of yours was the settlor of a trust.

When it comes to considering the business affairs of your associates, this is called an indirect interest. Where there is an indirect interest, the company will only be considered associated if there is substantial commercial interdependence between the companies.

• Claiming a fixed expense allowance (currently £6 per week or £26 per month)
• Recharging the company for a proportion of your bills or running costs
• Formalising a license agreement with your company to allow it to occupy part of your property. It will pay you rent and you can claim your expenses under Self-Assessment

• Heating & Lighting
• Metered water
• Internet Access
• Business phone calls
• Home content insurance

• Light & Heat
• Telephone & Internet (apportioned for private use)
• Insurance
• Repairs
• Cleaning
• Council Tax
• Water rates
• Repairs or re-decoration of a home office.

Should I buy an electric vehicle through the business?

• The costs of purchasing a new electric vehicle are fully deductible from corporation tax in the year of purchase (only 18% or 8% per year for petrol or diesel cars)
• The Benefit in Kind for Private use is only 2% of the list price for an electric car (up to 37% of list price for petrol or diesel cars)
• Note that VAT cannot be recovered on the purchase of cars unless they are not provided for private use – this applies to electric, diesel and petrol cars
• 50% of the VAT can be recovered on all leased cars
• 100% of the VAT can be recovered on commercial vehicles if there is no private use.
• A charging point, provided at the business premises, or at home, does not give rise to a benefit in Kind if it is for a company car.

Simplified calculations work as follows:

For a £40,000 new electric car purchased in 2023-24 through a company, corporation tax saving at 25% = £10,000 one off. Additional Personal tax on Benefit in Kind at 40% of 2% of list price = £320 each year. NET TAX SAVING = £8,720 over 4 years

For a £40,000 petrol car with emissions >160g/km purchased in 2023 -24 through a company, corporation tax saving at 25% of 6% = £600 in the first year, reducing thereafter. Additional Personal Tax on benefit in Kind at 40% of 37% of list price £5,920 each year. NET ADDITIONAL TAX COST £21,487 over 4 years.

PS: It’s important to note, you should never buy something you don’t need, regardless of the tax saving. Just making sure there’s no misunderstanding! 😉