Author: Amit Roy

Tronc Guidance

A summary of new rules for Tronc.

Summary

  • Coming in force from 1st October 2024
  • All tips (without any kind of deduction) to be passed to workers (agency workers included) by end of following month.
  • Businesses required to have a written tipping policy to ensure fairness and transparency.
  • Code or Act does not affect taxation of tips.
  • Cash tips (if no control exercised by employer) are out of scope of Tipping Act and Code.
  • Tips will be distributed in the restaurant where collected. One restaurant’s tips cannot be paid to staff of other restaurant.

Tipping policy – Factors to Consider

Businesses need to prepare and distribute the tipping policy to all staff members including agency workers. Tipping policy needs to inform staff the basis of tips allocation. Basis can be on several factors, see example list below:

a. Type of role/work e.g. distribution between front of house and backroom workers

b. Basic pay (and how workers are engaged)

c. Hours worked during period when tips are received

d. Individual and/or team performance

e. Seniority/level of responsibility

f. Length of time served with the employer

g. Customer intention

Employers should consult with workers to seek broad agreement in the workplace that the system of allocation of tips is fair, reasonable and clear.

Records

Workers can ask for past 3 years records. Employer will need to provide total tips collected during their employment and amount allocated to the worker making the request but not the specific amounts paid to other workers.

If a worker does not wish to participate in Tronc, Tronc master should get this in writing.

Action:

Restaurants should start preparing a written Tronc policy.

How Capital Allowance interact with Capital Gains Tax

This article explains how capital allowance effects capital gains calculations.

A common occurrence in trading businesses is sale of plant & machinery or vehicles used in the business. Rules shown below are applicable both in moveable and fixed plant & machinery for a business following accrual based accounting , for business following cash basis see Bonus point 4 below.

Two scenarios could happen:

  1. Disposal proceeds are less than purchase cost – a loss (usual case)
  2. Disposal proceeds are less than purchase cost – gain

We will try to explain these scenarios, by way of an example.

We need to prepare two calculations – one for capital allowance (CA) and other for capital gains.

X is an individual trader for many years. He brings forward main pool expenditure of £40k. In year 1, he buys a van for £20k and a computer for £5k. He claims AIA on all expenditure. In year 2, he sells the van for £12k and the computer for £8k.

We have illustrated below, how these transactions will affect the Capital Allowance and Capital Gains calculations.

Capital Allowance calculation

Year 1                                                                          Main pool                                        
WDV b/fwd                                                                  40,000
Additions                                                                     25,000
AIA                                        25,000                                                              
                                                                                         40,000
WDV 18%                                                                       7,200                                                              
WDV c/fwd                                                                   32,800

Year 2
WDV b/fwd                                                                   32,800
Disposal value                                                             17,000 a
                                                                                          15,800
WDV 18%                                                                      2,844                                                              
WDV c/fwd                                                                   12,956

a. Disposal value = £12k (van) plus £5k (computer), as disposal value is restricted to original purchase cost.

Capital Gains Calculation

Capital gains is only applied on assets if sold above its original purchase price. Thus, van is ignored for Capital Gains.

                                                                                   Computer b         
Disposal proceeds                                                 8,000
Purchase cost c                                                        5,000
Unindexed Gain                                                      3,000
Indexation allowance (estimated)                 (500)
Indexed Gain                                                             2,500

Note:

b. Gain or loss is computed on each asset individually.
c. Capital allowance taken on assets are completely ignored. TCGA 1992 sec 41

Practice notes:

  1. We should keep note of each item added to the pool – date added/purchased and amount added. Date is important as companies get indexation allowance for items purchased before 31st December 2017. Usually, commercial tax filing software will have the facility to record assets individually and calculate indexation allowance.

Source:

  1. Book – Taxation by Alan Melville
  2. Book – Tolley’s Tax Guide para 22.19, 22.46 and 38.4

Bonus:
1. In case X sells a table to his friend for £1k (market value £2k). Disposal value will be £1k if his friend runs a trading business where he can claim Capital Allowances . In case his friend does not run a trading business and cannot claim Capital allowances disposal value will be £2k.

2. In case X gifts the table to his employee, disposal value will be nil. But tax maybe payable by employee under ITEPA 2003.

3. In case X gifts the table to his brother, disposal value will be £2k (market value).

See HMRC Manual CA23250 on disposal values.

4. For business following cash basis accounting – When a asset is disposed off for more than its purchase price, business owner will be taxable on the full disposal value even if it is higher than purchase price. Source ICAEW Tax guide 04/24.

Foreign gains under remittance basis

What happens when gain accrues in one year and is remitted in a later year

When will be the gain chargeable to UK tax?

A chargeable (i.e. taxable) gain is treated as accruing in any tax year in which any of the foreign chargeable gains are remitted to the United Kingdom (TCGA92 Sch1 1(2)).1

Will annual exemption limit available on capital gains remitted in a later year?

The annual exempt amount may not be deducted from chargeable gains to which paragraph 2 of Schedule 1 applies (foreign gains of non-UK domiciled individuals accruing in one year and remitted in later year). 2

Can I go back and change the tax return from arising basis to remittance basis and vice versa?

If a remittance basis claim is made within a return a request to revoke the claim can be made no later than 12 months from the statutory filing date i.e. within the amendment window.3

Alternatively, if you need to make a remittance basis claim it can be done within 4 years.4

You can read about foreign losses under remittance basis on this blog.

Source:

  1. CG25313
  2. TCGA92, Sec 1K (3)
  3. RDRM32020
  4. RDRM32030

Taxation of UK Mutual funds

A simplified guide to HMRC rules for individual investors.

The tax rules aim to put the investor broadly in the same position as if they had invested in the fund’s assets directly (rather than investing in the fund)2.

Income

Investors may receive dividend distributions and/or interest distributions3:

  1. Dividend distributions are treated in the same manner as any other UK company dividend.

  2. From 6th April 2017 interest distributions are paid gross and taxed in the same way as interest income from a bank4. 

In case of an accumulating fund (instead of distributing dividends or interests it re-invests them in the fund) amounts reinvested are taxed as income (dividend or interest) accruing to investors in the same way as if they had been distributed. Remember to deduct these on sale when computing capital gains tax5.

Disposal

A sale will give rise to capital gain6.

Units are treated as shares in a company and capital gains tax is computed in a similar way7.

Bonus

  • In India tax rates for equity and debt funds differ, its not the case in UK.

Source:

  1. Tolly Tax Guide: 37.27 to 37.28
  2. IFM01000
  3. IFM03110
  4. IFM03350
  5. IFM03120 and CG57707
  6. CG57680P
  7. CG57682 and CG57751.
  8. Detailed information given in Investment Funds Manual.
  9. To know about offshore/Indian Mutual funds [click]