Proposals for consumer protections when companies collapse

The government is to consider new laws to protect consumers who have prepaid for products when a business becomes insolvent.

• Government to consider new laws to protect consumers who have prepaid for products when a business becomes insolvent

• proposed measures will include guaranteeing consumer schemes like Christmas savings clubs can safeguard customers’ money

• reforms are part of the government’s modern Industrial Strategy to ensure markets work in the interests of consumers

New laws to protect consumers who have already paid for products but not received them when businesses go bust will be considered by the government, it was announced Thursday 27 December 2018.

Business Secretary Greg Clark confirmed that during 2019 the government will consult on laws requiring consumer prepayments to be protected in particular sectors. This would further strengthen the government’s ability to respond quickly to problems involving consumers who have prepaid for goods or services before a firm becomes insolvent. Common forms of prepayment include internet orders, the purchase of gift vouchers and money saved in payment schemes marketed as forms of saving like Christmas savings clubs.

If a business running a savings club becomes insolvent, consumers’ money is not protected unlike when it is saved in a UK-regulated bank account. New laws proposed today would see this money safeguarded, with legislation requiring businesses to adopt measures to protect customers against losses – whether that is through trusts, insurance or other mechanisms.

If enacted this announcement by the Department for Business will help to protect consumers who have laid out funds and are waiting for delivery of the relevant goods or services. As much of the concerns of Parliament are Brexit focussed at present it will remain to be seen if meaningful legislative change is completed this year.

Time for a tax-free seasonal bash?

Time to let your hair down? Enjoy a festive moment or two with your business colleagues and staff? If you are careful with your budgeting, you can enjoy the event without increasing your tax or National Insurance payments. Here’s what you need to consider:

What's exempt?

You might not have to report anything to HMRC or pay tax and National Insurance. To be exempt, the party or similar social function must all of the following criteria:

  • The cost must be £150 or less per head.
  • The event must be an annual event, such as a Christmas party or summer barbecue.
  • The event must be open to all your employees.

If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also have separate parties for different departments, as long as all of your employees can attend one of them.

As long as the combined cost of the events is no more than £150 per head, they are still exempt.

You do have to report how much social functions and parties are worth to each employee if they are a part of a formal salary sacrifice arrangement.

A few additional considerations

  • The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
  • The figure of £150 is not an allowance. For functions that are outside the scope of the exemption directors and employees are chargeable on the full cost per head, not just the excess over £150, in respect of: themselves and any members of their family and household who attend as guests.
  • If the employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, where the cost(s) per head do not exceed £150 in aggregate. Where there is more than one annual function potentially within the exemption, HMRC do not expect employers to keep a cumulative record, employee by employee, of functions attended. But for each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the others taxable.

If you need help organising your annual celebration in the most tax effective way, please call.

 

Merry Christmas

From a business perspective there is not much to be merry about this year especially if you need some clarity regarding our impending exit from the EU.

Never-the-less, business owners would be wise to consider the tax-free gifts that can be made to ease the financial needs for extra funds over the festive season.

In particular, make the most of the trivial benefits allowance. Here’s what is available and how you can benefit:

You don’t have to pay tax on a benefit for your employee (including working directors – but see note below) 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
  • it isn’t in the terms of their contract

This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HMRC know.

Be careful as:

  • you may have to pay tax on any benefits that don’t meet all these criteria, and
  • if you provide these benefits as part of a formal salary sacrifice arrangements, they won’t be exempt.

Special rules for directors of ‘close’ companies

As you might expect, HMRC are not keen for owner/directors of small companies to benefit unduly from these tax-free benefits. Accordingly, you can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company.

A close company is a limited company that’s run by 5 or fewer shareholders.

Disqualified from acting as a director

When a director has been found guilty of mismanagement verging on fraud, one of the remedies that the courts can impose is disqualification as a director. But what does this actually mean?

A disqualified director has to abide to the following restrictions:

  • While the order or undertaking is in force, it stops a person acting as if they were a director. Accordingly, you cannot avoid the order, or undertaking by simply changing the job description.
  • The order or undertaking also means that you must not get other people to manage a company under your instructions. If you do, those people may also be prosecuted for assisting you in contravening the order or undertaking.

The order or undertaking does not stop you having a job with a company, but unless you have court permission it does stop you:

  • Acting as a director of a company
  • Taking part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
  • Being a receiver of a company's property.

You also cannot act as an insolvency practitioner.

In addition to companies, you must not do any of the prohibited acts in relation to the following organisations: Limited liability partnerships (LLPs), Building societies, Incorporated friendly societies, NHS foundation trusts, Open-ended investment companies, Registered societies and Charitable incorporated organisations.

A disqualification order will not stop you carrying on a business as a sole trader. You could also trade in a partnership, but not a Limited Liability Partnership (LLP).

Tax free perks at Christmas time

This article is our usual reminder of the tax breaks available if you are organising a Christmas party for your staff.

Many businesses take time out to provide their employees with a work based party or similar event. If you are concerned about the tax consequences of Christmas celebrations, read on. We have included in this article ways to organise these events without falling foul of HMRC.

December gives us an excuse to let our hair down and enjoy a well-earned celebration with our work colleagues and partners. The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of an unincorporated organisations. Also, it does not include ex-employees.

If the criteria below are followed there will be no taxable benefit charged to employees:

 

  1. The event must be open to all employees at a specific location.
  2. 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 functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is 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.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable 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.

Merry Christmas…

What is AEO?

Businesses that presently trade with the EU block may like to consider applying for Authorised Economic Operator (AEO) status. The following notes explain why this may be helpful.

AEO status is an internationally recognised quality mark that shows:

  • your role in the international supply chain is secure
  • your customs controls and procedures are efficient and meet EU standards

It’s not mandatory, but gives quicker access to some simplified customs procedures and, in some cases, the right to ‘fast-track’ your shipments through some customs and safety and security procedures.

AEO status is for businesses that:

  • are a legal entity
  • are established in the territory of one of the 28 member states of the EU
  • are actively involved in customs operations and international trade
  • have an Economic Operator Registration and Identification (EORI) number

Anyone involved in the international supply chain that carries out customs related activities in the EU can apply for AEO status, regardless of the size of their business.

This includes:

  • manufacturers
  • exporters
  • freight forwarders
  • warehouse keepers
  • customs agents
  • carriers
  • importers
  • others (for example, port operators, secure freight parking operatives and airline loaders)

Types of AEO authorisation and their benefits

You can apply for AEO status customs simplification (AEOC), AEO status security and safety (AEOS), or both.

AEOC status

If you hold AEOC status, you could also benefit from:

  • a faster application process for customs simplifications and authorisations
  • reductions or waivers of comprehensive guarantees
  • completing self-assessment (when implemented)

Whatever the outcome from the current Brexit impasse, AEO status does seem to offer advantages to importers and exporters.

Brexit may be in limbo, but Making Tax Digital is not

As we have highlighted in many posts to this blog, from 1 April 2019, ALL VAT registered businesses with turnover above the £85,000 VAT registration threshold will have to submit their VAT returns from within software that can link with HMRC’s networks. In techno- speak, your data will need to be transferred using a designated API (HMRC’s application programming interface).

The fact that you have always prepared your VAT returns electronically, for example, by using a spreadsheet to record transactions and create the data for your VAT returns, will not be enough. Your spreadsheet will not have the functionality to link with HMRC’s API. In these circumstances you will need to acquire bridging software that will draw data from your spreadsheet and forward it the HMRC in the required format.

HMRC have now clarified that only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from Making Tax Digital (MTD). You will therefore need to keep an eye on your taxable turnover, especially if you think it is close to the VAT registration threshold.

Additionally, you may be excused from applying the MTD filing obligations if:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers);
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason; or
  • you are subject to an insolvency procedure.

For the rest of us that are required to observe the MTD regulations, we should be using accounts software that will be MTD compliant come 1 April 2019. If you have consulted us on this issue you can be confident that any software that we have recommended will pass muster.

If you are still unsure which way to jump, please call so that we can help. As far as we can tell HMRC are on track to convert to this new filing process and the clock is ticking.

Are you eligible to claim the Marriage Allowance?

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.

This reduces their tax by up to £238 in the tax year. To benefit from this arrangement, you (as the lower earner) must have an income below your Personal Allowance – this is £11,850 for the current tax year.

You can backdate your claim to include any tax year since 5 April 2015.

If your partner has died since 5 April 2015 you can still claim – phone the Income Tax helpline. If your partner was the lower earner, the person responsible for managing their tax affairs needs to phone.

 

Who can apply?

You can benefit from Marriage Allowance if all the following apply:

  • you’re married or in a civil partnership,
  • you do not pay Income Tax, or your income is below your Personal Allowance (£11,850 for 2018-19),
  • your partner pays Income Tax at the basic rate, which usually means their income is between £11,851 and £46,350.

 

If you’re in Scotland, your partner must pay the starter, basic or intermediate rate, which usually means their income is between £11,850 and £43,430.

It will not affect your application for Marriage Allowance if you or your partner:

  • are currently receiving a pension
  • live abroad – as long as you get a Personal Allowance.

If you or your partner were born before 6 April 1935, you might benefit more as a couple by applying for Married Couple’s Allowance instead.

Tax Diary December 2018/January 2019

1 December 2018 – Due date for Corporation Tax due for the year ended 29 February 2018.

19 December 2018 – PAYE and NIC deductions due for month ended 5 December 2018. (If you pay your tax electronically the due date is 22 December 2018)

19 December 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2018.

19 December 2018 – CIS tax deducted for the month ended 5 December 2018 is payable by today.

30 December 2018 – Deadline for filing 2017-18 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2019-20.

1 January 2019 – Due date for Corporation Tax due for the year ended 31 March 2018.

19 January 2019 – PAYE and NIC deductions due for month ended 5 January 2019. (If you pay your tax electronically the due date is 22 January 2019)

19 January 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2019.

19 January 2019 – CIS tax deducted for the month ended 5 January 2019 is payable by today.

31 January 2019 – Last day to file 2017-18 self-assessment tax returns online.

31 January 2019 – Balance of self-assessment tax owing for 2017-18 due to be settled on or before today. Also due is any first payment on account for 2018-19.

A possible, unwelcome increase in service charges

From 1 November 2018, owners of properties on estates or sites that are obliged to pay service charges to a management company – for example, for the maintenance of common areas, gardens, or the employment of a site warden or caretaker – may be in for an unwelcome surprise.

It would seem that HMRC have applied a concession in the past that allowed the management companies to treat service charges collected on behalf of a landlord as part of an exempt supply for VAT purposes – in other words, when the management company charged a resident, no VAT was added to the fee.

From 1 November 2018, if the right circumstances apply, the management company will need to treat the supply of services as a standard rated supply for VAT purposes. As the current rate of VAT is 20%, residents affected may see an equivalent increase in their charges.

However, if the management company for your property is obliged to charge you VAT, it will also be able to claim back VAT on expenses related to your service charge: this is VAT that in the past was a cost to the management company. It is estimated that a more likely service charge increase due to this change in VAT rules will be between 10% to 15%.

Smaller management companies should not be affected by these changes.

As always, unpicking the various “grey” areas of the VAT regulations will likely prove to be a headache for residents and the management companies affected. If you are reading this short article and have concerns, please call for more information.