Christmas and the tax inspector Grinch

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Christmas is the season of goodwill, but employers providing their staff with a seasonal ‘thank-you’ need to pay attention to HMRC rules, otherwise they could find that they incur hefty bills, say accounting and tax advisory firm Blick Rothenberg.

The firm’s Robert Salter said: “It is easy for employers to inadvertently break the rules and create unforeseen tax and NIC liabilities. A real life bah humbug to Christmas and the season of goodwill to all! For example, cash bonuses and gift vouchers can be treated as regular salary and subject to PAYE and NIC.

“Even cash gifts from third parties to your employees can be regarded as earnings for tax and NIC purposes and may need to be reported on the payroll, though this will depend upon the precise nature of the payment. For example, a payment that is genuine present, like a bottle of wine or a hamper, should not be taxable.”

Salter said: “The rules for employee gifts can differ. For example, small gifts with a value of under £50 per employee can usually be made to employees on a tax-free basis under the ‘trivial benefits’ rules – this could be a Christmas hamper or a bottle of wine, for example. However, gifts which are more substantive in nature like a piece of jewellery or a free holiday can create both a tax and NIC liability.”

He added: “Providing a Christmas party for employees can also trigger tax and NIC liabilities for employers as tax liabilities can add up over the year. If an employer has provided a summer drinks party and then a Christmas party and cost per head for both is more than £150 then the employer is liable to extra PAYE and NIC charges.

“The problem is that many employers who want to do the right thing for their employees just don’t realise how things can add up. They need to be extremely careful.

“Companies usually cover the tax costs associated with these Christmas gifts – as a goodwill gesture. However, they may not realise that the overall tax costs can add, in many cases, a further 90% or more to the initial cost of the event or gift under HMRC rules because of the tax on tax charge that arises in such cases.”

142,000 directors running business beyond retirement age

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Some 142,000 directors in the UK are still running their business past the retirement age of 66, according to research by UHY Hacker Young.

Rising life expectancy has shifted work patterns and it has become increasingly common for people to work beyond what was traditionally considered retirement age. 19% of small business directors are aged 66 and over.

As people live longer, private pension pots have to stretch further, which may force some directors to continue working in order to have enough for retirement.

Individuals are also becoming less likely to stay in one job for long periods of time, which can make it difficult for directors to plan their succession. The average worker in the UK will change job every five years according to some estimates.

Directors looking to retire by the state pension age may find it difficult to sell their business, which can extend the length of time they work.

The sale price of a small business can take time to negotiate and is influenced by a number of factors including revenues, location and cash flow multiples. The average length of time it takes to sell a business is nine months but can take years.

James Price, Partner in UHY Hacker Young’s Letchworth office, said: “For directors who want to retire on time, an exit plan is very important. Small business directors often play a crucial role in day to day operations and the success of their business. Many will be looking forward to the opportunity of retiring but their outsized role can make the hand over process difficult.

“Exit plans should be a priority to mitigate against the risk of having to sell a business for much less than expected. The Brexit outcome could make it even more difficult to sell a business quickly. There is likely to be a period of economic adjustment which may make it harder to secure either a willing buyer or agree a price that is truly reflective of a business.”

The research – analysis of 740,000 SME directors by age – shows that directors should look to ensure that the sale of their business is tax efficient. Tax reliefs, including Entrepreneur’s Relief and Business Property Relief can help to reduce tax liabilities on the sale price.

To qualify for Entrepreneur’s Relief, you must have owned the business for at least two years before the date of sale. Business owners claimed Entrepreneur’s Relief on £23.9bn of gains last year, up 37%, from £17.5bn the year before.

Price added: “There are tax breaks available for directors looking to sell their business – these can be very powerful and should not be overlooked.”

Sustainability is just a game!

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A new game, called Accounting Bissim, has been launched by a group of academics to encourage accountancy students to think about sustainability when making business decisions.

De Montfort University’s Darren Sparkes, along with Matt Davies and Lisa Weaver, have developed the game. In a business simulation students act as the board of directors running a robot manufacturing business in a competitive marketplace, making decisions and analysing results.

They can make decisions on a range of sustainability issues such as choosing ethical suppliers, cutting waste, reducing CO2 emissions and power usage, eliminating water pollution, and even the level of pay and training of their staff.

The winning team is the one that is judged to have left the business in the best position for the future, by creating a long-term sustainable business rather than concentrating on short-term profits.

The game was recently a finalist at the Finance for the Future awards.

Banks hike fees after FCA changes overdraft rules

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Millions of people will have seen changes to their available bank balances this week as new overdraft rules from the financial watchdog covering how overdrafts are displayed come into effect.

The Financial Conduct Authority (FCA) has ordered UK banks to stop including overdrafts in funds marked as ‘available’ to customers, in a move designed to make it clear that overdrafts are a form of debt, rather than the customer’s own money, City AM reported.

“Unfortunately, too many people fall into the trap of believing that’s their money rather than a debt,” FCA director Christopher Woolard told Radio 4’s Today programme.

The regulator is hoping the change will stop customers accidentally dipping into their overdraft, or becoming confused about their actual bank balance. The rule change is of a wide-ranging shakeup of overdrafts announced by the FCA in June to “fix a dysfunctional overdraft market”.

Under measures that will come into force in April next year, banks will be prevented from charging more for unarranged overdrafts than for arranged ones.

Fixed fees for borrowing through an overdraft will also be banned, and banks will be required to advertise arranged overdraft prices with an annual percentage rate to make it easier for customers to compare different accounts.

“These important changes will give consumers more clarity about their finances and should help them make informed spending decisions and avoid going into the red,” said Gareth Shaw, head of money at Which?

“We hope to see more banks now coming forward with competitive overdraft pricing and for the regulator to ensure that its transformation of current account overdrafts delivers for customers,” he added.

Over half of the UK’s 52m current account holders use overdrafts, which generated £2.4bn revenue for banks in 2017, according to the FCA.

Under the new rules, the watchdog expects to see the typical cost of borrowing £100 via an unarranged overdraft to fall from £5 per day to less than 20p per day.

Some banks have already raised fees in anticipation of the new rules coming into force, including:

  • Nationwide was the first lender to announce a shake-up of its overdraft pricing in response to the new FCA rules. The building society announced in July that it would set its effective annual rate (EAR) for overdrafts at 39.9% for all customers from October. The new flat rate is over double the 18.9% Nationwide used to charge standard current account customers for its overdraft.
  • HSBC announced it would raise overdraft fees currently set between 9.9% and 19.9% APR to 39.9% for all customers with arranged and unarranged overdrafts. The rules will come into effect from March, and HSBC said it expects them to adversely affect three out of 10 customers who use an overdraft.
  • Monzo is scrapping its daily fixed overdraft fee of 50p, replacing it with a risk-based system charging customers up to 39% from April. The challenger bank’s new overdraft pricing will change customers an EAR of 19%, 29% or 39% depending on their credit score. Monzo is also scrapping its free £20 overdraft buffer. The bank said that 87% of its customers would either be better off or receive monthly charges of less than £1 under the new system.
  • Starling Bank is also introducing a sliding EAR rate dependent on customers’ credit scores, charging them either 15%, 25% or 35%. It had previously charged customers a single flat overdraft rate of 15%.
  • First Direct customers are set to be charged 39.9% EAR from next year on any overdraft over £250. The bank is also scrapping its £5 daily usage fee for unarranged overdrafts, and reducing the maximum monthly cost of using the facility to £20.
  • M&S Bank is also introducing a 39.9% EAR charge for all overdrafts over £250. It is also removing its current £50 buffer on unarranged overdrafts, which means customers will no longer be able to go over their overdraft limit by any significant amount without facing charges.

Stamps literally laundered in £270k fraud

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A man who washed 700,000 used stamps and sold them on as new as part of a £250,000 fraud operation has been jailed.

Paul Harrison, 52, and his wife Samantha, 44, were both convicted of fraud as they used the money made through stamp sales to go on holiday and buy a BMW with a personalised number plate.

Harrison was jailed for four years for adapting, supplying and possessing articles for fraud. He had admitted money laundering and another charge of supplying articles for fraud.

Birmingham Crown Court heard that Harrison would buy second hand stamps, remove them from envelopes and sell them on eBay and Amazon as new. He would stick the used stamps onto grease proof paper to make them appear unused. His wife ‘turned a blind eye’ to her husband’s activities, the court heard.

His wife was convicted of money laundering and sentenced to two years in prison, suspended for two years, and ordered to do 150 hours of unpaid work.

A third person, Graham Rought, was also involved in the operation and had previously admitted adapting, supplying and possessing articles for fraud and money laundering. Rought was involved in washing off the franking marks on the stamps so they could be used again. The former dental technician was handed an 18-month sentence, suspended for 18 months, and ordered to do 85 hours unpaid work.

Rought had been involved in the fraud for two-and-half-years but Harrison had operated an account called Affordable Stamps since June 2007, the Court heard. Harrison would by stamps in kiloware – a term for packages of postage stamps sold to stamp collectors by weight rather than by quantity – which were generally used stamps on paper from mail clippings.

Police began investigating when a large number of envelopes were rejected at a sorting office in Glasgow and traced back to the Harrisons’ home. It emerged that Harrison had been involved in the sale of around 700,000 stamps that had resulted in loss to Royal Mail of £421,000. Just over £215,000 had gone into an account held by the Harrisons while Rought’s benefit had amounted to around £43,000 and he had caused a loss to the Royal Mail of £113,000.

Passing sentence, recorder Naomi Ellenbogen QC told Harrison: “It is clear to me this was a calculated business activity, the proceeds of which were your prime income. The fraud took place over a period of just short of nine years. You made considerable gain from these offences.”

New digital bank targeted

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Bo, a new digital bank set up by the Royal Bank of Scotland, became an instant target for fraudsters, according to reports in The Times.

Featuring a bright yellow Visa card and a mobile app, some 30% of applications received by Bo in its first two weeks were fraudulent. The figure underscores the scale of the challenge faced by banks in the digital age as they try to counter money laundering and cyber-crime.

Bo CEO Mark Bailie revealed that criminals who wanted accounts for money laundering had been blocked. He said it was “interesting how keen the criminals are to get hold of bank accounts”, adding that it happens with all the big banks.

The new bank has entirely separate technology systems to the rest of RBS, and is run from London.

The Data Protection Fee: who needs to pay?

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The Information Commissioner’s Office (ICO) have launched a campaign to remind all registered companies in the UK of their legal responsibility to pay the Data Protection Fee. The move marks the start of an extensive programme to make sure the fee is paid by all those who need to pay it.

Under the Data Protection Act 2018, organisations processing personal information are required to pay a data protection fee unless they are exempt. You can quickly and easily find out if your client needs to pay the fee by using the ICO’s checker (see https://tinyurl.com/ycu4ny94), but if they hold personal information for business purposes on any electronic device, including using CCTV for crime prevention purposes, it is likely an annual fee payment is due.

ICO Deputy Chief Executive Paul Arnold said: “You can avoid us needing to contact you by either visiting our website to pay your organisation’s Data Protection Fee, or completing a form (https://ico.org.uk/no-fee) to tell us why your organisation is exempt from paying the fee.”

Since the new annual data protection fee was introduced in May 2018, over 600,000 organisations have registered to pay it. They have gone on to access the range of services and support the ICO provides to help them to comply with the law and give their customers, clients and suppliers trust and confidence in the way they process personal information. At the same time, between 1 July and 30 September 2019, the ICO issued 340 monetary penalties to organisations that have not paid the Data Protection Fee.

Arnold said: “We know data protection legislation can be complicated and we are here to help. The reminders we are sending to organisations are to help make it easy to comply with the law as well as access a great deal of advice and support available from the ICO. This includes a Helpline and Live Chat service dedicated to supporting small businesses and organisations; a series of self-assessment tools and products on our website; and advisory visits and support designed to help small businesses and organisations to comply with the law.”

The cost of the data protection fee depends on a company’s size and turnover. There are three tiers of fee ranging from £40 and £2,900, but for most organisations it will be £40 or £60. The cost is reduced by £5 if you sign up by direct debit.

For further advice call the ICO’s small business helpline on 0303 123 1113.

UK SMEs ‘stretched by late payments’

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Late payments to UK small and medium-sized firms have doubled from 12 days in 2018 to 23 days in 2019, according to research by MarketFinance Business Insights.

Its survey of 100,000 firms also found that:

  • 39% of invoices were paid late in 2019, a marginal improvement from 43% in 2018.
  •  On average £34,286 was owed in late invoices, with businesses waiting on £34bn in late payments at any one time.
  • Larger businesses take longer to settle bills.

The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over £34bn) were paid late, an improvement on 2018 when 43% of invoices were paid late. However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (£34,286) than those paid on time (£24,624).

Bilal Mahmood, External Relations Director at MarketFinance, commented: “It’s great to see that fewer invoices were paid late in 2019, but worryingly, those that were paid late took twice as long as in 2018, up from 12 days to 23 days. Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency.

“Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cash flow constraint owing to late payments. Overall, it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cash flow.

“Government measures such as the ‘Prompt Payment Code’ have helped create awareness but need more bite. Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”

Call waiting time down to five minutes, says HMRC

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UK taxpayers are increasingly opting to use HMRC’s online services, leading to a fall in waiting time for those contacting it for advice by phone.

HMRC received 3.17m phone calls in October, down from 3.65m the previous month, and improved the average speed of answering a call to five minutes. This beat the average response time for the first nine months of 2019, where it took seven minutes and 18 seconds to answer calls. Its target time for call answering is five minutes.

Despite a 13% fall in calls in October and the pressure to move taxpayers online, the number of calls year on year was up.

However, the five-minutes is the waiting time for the call to be answered and put through the automated answering system, not the length of time a person waits to be dealt with by a tax official. This is just the first contact with the HMRC call centre. Nearly one in five people (17.6%) had to wait more than 10 minutes to speak to an adviser at the tax office, breaking the HMRC target of only 15% of callers.

In October, 400,000 taxpayers signed up for an individual personal tax account (PTAs), up a third on the previous month, bringing the total number of PTAs to 21.3m, since they were launched in December 2015.

There was some improvement in taxpayer satisfaction with HMRC’s digital services, up 3% in the last six months, with 82.1% satisfied or very satisfied, according to the October 2019 HMRC Performance Report.

However, 17.9% of taxpayers were still not satisfied with the digital services, reflecting research issued over the summer that showed significant levels of confusion about the information online and criticism that it was too technical and inaccessible for many users.

Scammers ‘posing as bailiffs and enforcement officers’

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The Courts & Tribunals Service (CTS) is calling on people to stay vigilant against fraudsters posing as enforcement officers and bailiffs.

A spokesman said: “We have become aware of scammers phoning members of the public, posing as County Court bailiffs, High Court Enforcement Officers (HCEOs) and Certificated Enforcement Agents (CEAs). During the calls, the fraudsters claim that the person owes money, and demands that they transfer funds into a bank account.”

The CTS does contact people by phone to discuss a warrant of control and will offer to take debit or credit card payments over the phone. But it states it will never:

  • telephone you to ask for your bank details.
  • telephone you to ask you to make a bank transfer using your sort code and account number.

“If anyone claiming to be a county court bailiff, an HCEO or CEA calls asking for this information, you should not make any payment and not give their bank details,” the spokesman added.

It is advising that in these circumstances you should end the call and contact: