Can Micro-Companies Organise Christmas Parties Tax Free?

Can Micro-Companies Organise Christmas Parties Tax Free?

It’s not just large firms that can benefit, it’s possible for one-person limited companies to benefit from this tax relief.

 

Staff exemption

Most companies that have a staff count of over 5 probably organised their 2016 Christmas party months ago. To make sure that their staff won’t receive a BiK (Benefit in Kind) tax bill, they will have kept the cost within HMRC’s £150 exemption. However for micro-companies, this probably wasn’t the case. Micro-companies with only one or two staff (including directors) might be wondering if they can go for a meal with their partner and still benefit from this tax exemption.

What the law says

The legislation defines fairly clearly who exactly can claim this tax exemption. Section 264 of the Income Tax (Earnings and Pensions) Act states, “Where in the tax year only one annual party or similar annual function to which this section applies is provided for the employer’s employees, no liability to income tax arises in respect of its provision if the cost per head of the party or function does not exceed £150.” Although there are a couple of extra conditions, there’s no cap on the size of the business, meaning the exemption applies for one person limited companies. You can also include guests in the tax exemption, so your spouse/partner can tag along without paying tax or National Insurance.

Company tax deduction

When it comes to CT (Corporation Tax), it doesn’t matter whether or not the Christmas Party is a taxable BiK as it can claim a deduction for the cost either way. However don’t jump the gun and expect a financial advantage. In order to make this tax break, you must maximise the BiK exemption.

My Digital Accounts Tip: Spend whatever you like within the £150 budget, but by going £0.01 over you’ll be taxed the full amount along with a NI charge.

Get-out clause

Naturally you’ll be eager to maximise the annual party tax and NI exemption but it’s not always that simple to keep track of your budget on the night. For example, if you forgot to account for the end of the night Sambucas, you might go over your budget by £5 which would rack up a hefty Tax and NI bill. However there’s a simple way to escape this trap.

My Digital Accounts Tip: Always book the venue in the company’s name and should the £150 budget be exceeded, the director should personally pay the bill and claim back only up to £150 per head from the company, with receipts to prove the costs. This is a great way to make sure the company stays within the tax exemption.

 

Autumn Statement 2016

Autumn Statement November 2016

Recruitment Industry and Accounting Provider Soundbites

The below summary includes direct ‘lifts’ from the Chancellor’s Announcement (the red boxes) for ease of reference. The My Digital Accounts Comment is an initial view and is subject to change following more detailed consideration and additional information such as Guidance Notes and the Draft Legislation which will be published in the next few weeks.

Personal Service Companies (PSCs)

1. Off Payroll Engagement in the Public Sector (‘IR35’)

 As widely predicted, those entities paying limited companies in the public sector will now be liable for any PAYE or NICs which is not deducted before payment is made to a Limited Company where the worker is operating “inside IR35”. Draft legislation is not yet published.

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My Digital Accounts Comment: This will be the biggest change in the temporary labour market since IR35. Recruitment Agencies will not be comfortable taking the risk of paying a limited company ‘gross’ and the end users are unlikely to want to help with the assessment. This may well lead to the establishment of a new type of “IR35 expert” intermediary who conducts the IR35 assessment and immunises the Agency from any potential liability.

2. Tackling inappropriate use of the Flat Rate VAT Scheme

A new flat rate VAT rate of 16.5% is introduced from 1st April 2017 for business with “limited costs”, such as labour-only businesses. A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either less than 2% of their VAT inclusive turnover in a prescribed accounting period or greater than 2% of their VAT inclusive turnover but less than £1,000 per annum if the prescribed accounting period is one year.

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My Digital Accounts Comment: Draft secondary legislation will be published on 5th December 2016 so we need to wait before commenting further. It seems this ruling may have been introduced to combat the rise of the “micro-umbrella” which has emerged since the Travel and Subsistence and Employment Allowance rule changes in April 2017.

3. £30,000 tax free redundancy payments remain

From April 2018, termination payments over £30,000 which are subject to Income Tax will also be subject to employer National Insurance Contributions

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My Digital Accounts Comment: A sensible clarification of the rules

Self-Employment

4. Employer’s National Insurance on Self Employed Payments?

The Chancellor stated that the “growth of self-employment erodes tax revenues”. The announcement implies that Employer’s NICs may applied to certain payments to the self-employed and that payments without NICs may even be disallowed for Corporation Tax purposes.

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My Digital Accounts Comment: The detail on this legislation change is yet to come but the threat that certain payments may not be eligible for Corporation Tax relief (if Employer’s NICs have not been applied) is a very aggressive proposal. Clearly patience is running thin with those who still operate “gross payment” arrangements

Umbrella Companies and Recruitment Agencies

5.Salary Sacrifice arrangements to be ceased

The tax and Employer NICs advantages of salary sacrifice schemes will cease, except for pensions, childcare, Cycle to Work and ultra-low emission cars. Arrangements in place at April 2017 will remain until April 2018 and arrangements for cars, accommodation and school fees will be remain until April 2021.

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My Digital Accounts Comment: This is the continuation of a policy designed to ensure that all payments to employees fall within the income tax and NICs legislation. Salary sacrifice schemes which have been popular for the last 2 decades will no longer be viable

6.National Minimum Wage

 The NMW will increase to an annual equivalent of £13,500, continuing it’s ‘inflation busting rise’ since 2010

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My Digital Accounts Comment: This move will put further pressure on the viability of travel and subsistence arrangements

Tax and National Insurance Thresholds

7.Income Tax and National Insurance Thresholds Increased

 In April 2017, the tax free personal allowance will be rise to £11,500 and the higher rate threshold will rise to £45,000 From April 2017, employee and employer (secondary) National Insurance Contributions will be aligned so the threshold for both will be £157 per week

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8.Small Entrepreneurs can earn up to £1,000 with no tax implications

Some good news in the Autumn Statement for budding entrepreneurs or those earning money from a hobby. As long as the income (presumably the net income), remains below £1,000, there is no need to report the income8.

My Digital Accounts Comment: A small but interesting concession indicating the government’s pragmatic approach to small micro businesses

Digital Accounts

9.The Digital Tax Accounts Initiative continues with Quarterly Reporting on the horizon…

There will obviously be a need for accounting software providers to engage with government on some significant changes which are planned for the longer term. As per the announcement below, it is suggested that tax payers will be more engaged with HMRC and there is the distinct possibility that tax payments will be made earlier (corporation tax is currently not due until 9 months after a company’s year end for example)

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My Digital Accounts Comment: The Online world has arrived and the role of the accountant is changing in the modern era. Embracing technology and the use of Apps and online software will be essential HMRC and accountant tools in the very near future.
The intent from HMRC in this area can be accurately predicted in that the above initiative is likely to be coupled with Quarterly reporting of landlord and limited company incomes during the 2017/18 fiscal year

 

My Digital Accounts 7.0 updates

My Digital Accounts 7.0 has also now been released.

Our New/Improved features are: Timeline, SMS Integration, Yodlee, Cache and the NI Category.

Timeline:

When viewing the contact details, a timeline of all the notes created for that contact is also displayed.

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Clicking on any one of the notes will display their full details.

SMS Integration in Payrolls:

Employees can now receive text messages informing them of pay once a payroll has been run.

This feature is only available for Umbrella and SafePAYE companies. To be able to use this, you will need to have a subscription to TextAnywhere.

Yodlee:

There is now an option to choose how the Yodlee connection is to be setup – either accounting organisation or company level.

This option is accessible via the settings.

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Cache:

The cache is now being automatically refreshed. Gone are the days of pressing <Ctrl> + <F5>!

NI Category:

The NI category now automatically updates based on the age of the employee.

Support

For feedback and suggestions please visit our support page https://mydigitalaccounts.atlassian.net/servicedesk/customer/portal/2.

or send an email to

mda.support@mydigitalaccounts.com

Social Media

Follow My Digital Accounts for regular updates, news and information on our social media channels:

Twitter icon  @MyDigitalAcc

Facebook icon  @MyDigitalSoftware

LinkedIn icon  www.linkedin.com/company/my-digital-accounts

 

 

My Digital Accounts 6.1 Updates

Here’s a summary of our new update that is now live across My Digital Accounts!

These features are in the new release of My Digital Accounts: 6.1

The main update to our software is our new Data Fluidity.

Data Fluidity:

This new feature allows finalised expenses and invoices to be amended or removed.

If the invoices have already been paid, they can also be unmatched from the bank transaction.

Editing Invoices:

In the new My Digital Accounts software 6.1 you can amend an invoice even after it’s been finalised.

To do this you select the view icon and then edit each detail you need to amend.

You are now able to edit any of the invoice details except from the invoice number.

Follow the same method for expenses

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(Full step to step guide on how in the My Digital Accounts training guide).

Support

For feedback and suggestions please visit our support page https://mydigitalaccounts.atlassian.net/servicedesk/customer/portal/2.

or send an email to

mda.support@mydigitalaccounts.com

Social Media

Follow My Digital Accounts for regular updates, news and information on our social media channels:

Twitter icon  @MyDigitalAcc

Facebook icon  @MyDigitalSoftware

LinkedIn icon  www.linkedin.com/company/my-digital-accounts

My Digital Accounts 6.0 Updates

My Digital Accounts has a new update live across the software: release 6.0.

In this update our new features to My Digital Accounts are the Balance Sheet Report and also the User Log.

Balance Sheet Report:

This menu option is accessed by going to Financial Accounting -> Reports -> Balance Sheet Report.

The report shows a breakdown of the company’s assets and liabilities.

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User Log:

This feature is only available for the Accounting Firm Admin.

The User Log page shows records of who logged in to MDA and at what time.

To view this page, navigate to the Manage Users page which is accessible by clicking on the avatar situated at the top right hand corner of the page and then select Manage Users.

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The log can be filtered by company name.

Support

For feedback and suggestions please visit our support page https://mydigitalaccounts.atlassian.net/servicedesk/customer/portal/2.

or send an email to

mda.support@mydigitalaccounts.com

Social Media

Follow My Digital Accounts for regular updates, news and information on our social media channels:

Twitter icon  @MyDigitalAcc

Facebook icon  @MyDigitalSoftware

LinkedIn icon  www.linkedin.com/company/my-digital-accounts

 

Practice Excellence Awards 2016

We are very pleased to announce that our business analyst Daniel Moss won the Technology Champion of the Year award at the Practice Excellence Awards on Thursday 20th October.

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With over 173 firms and individuals contending the 11 categories, Daniel was up against some very tough competition. He won the award for his outstanding innovative work on the online tax return pack at his previous position.

Daniel managed to greatly reduce the hassle of submitting tax data by designing a secure online questionnaire now used by more than 70% of the firm’s clients.

The judges agreed that Daniel is “a model technology-led accountant, making sure he ensures compliance while embracing new ideas and technology.”

Daniel has been with My Digital Accounts for 8 weeks now and he has already proven to be a great asset to our team. We are delighted that his skills have been recognised with this award.

Practice Excellence Award Logo