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Is Pension a taxable benefit ?

It’s that time of the year when year-end reporting for PAYE is in focus.

Everybody is confused about the yearend tasks, taxable benefits, PAYE settlement agreements.

Due to auto enrolment many of the employers are now paying pension to their staff.

I was confused about whether employer’s contribution towards pension will be a taxable benefit.

No where I have heard that it is the case but it is always good to double check if a doubt comes to your mind.

I started searching – no answers !!!

Finally I came across HMRC guide CWG2 , it clearly states that Pension contributions are NOT to be included PAYE tax or NIC ; refer Chapter 5

March 2021 – Legislation reference 

Employer’s contribution to employee’s registered pension schemes do not count as earnings or taxable benefits under ITEPA 2003, s 308.

Plus, they do not attract employers’ NICs (SI2001/1004, Sch 3)

Budget Highlights for Hospitality Sector

Budget 2021 – Hospitality industry : What you need to know

  1. Furlough Scheme to continue till September 2021:

Employers           will receive 80% of wage. NIC and Pension to be paid by
employer.

                              From July 2021 employers will need to contribute 10%

                              In August and September contribution will increase to 20%.

Employees          No change they continue to get 80% of their wage for hours not
worked. Tronc not included.

  • Self-employed Grants

Fourth grant (Feb to April 2021)                        80% of profits                   Can be claimed in late April

Fifth grant   (May to Sep 2021)                          turnover criteria as below:                         

Turnover fallen.

More than 30% – 80% of the profits ; same like before.

Less than 30%    – 30% of the profits instead of 80% before.

  • National Minimum Wage increases to £8.91 from April 2021.
  • Apprentices – Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per new hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.

5.  Local grants to end in March. New Restart grant to be given @£18k per premises.       

6. Recovery Loan Scheme. From 6 April 2021 the Recovery Loan Scheme will provide lenders with a guarantee of 80% on eligible loans between £25,000 and £10 million. This replaces Bounce Back loans and CBIL.

7. Business Rates. 100% relief for April to June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

8. VAT. 5% to continue till 30th Sep 2021. Then 12.5% for next 6 months. Full 20% from 1st April 2022.

9. Corporation Tax. From 1st April 2023 main rate at 25%. Companies with profit less than £50k will still be 19%. Taper relief for companies with profits between £50k and £250k.

10. Super Deduction. In case you are feeling brave. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. 

11. Alcohol and fuel duty frozen for another year.

12. Help to Grow. The government will offer a new UK-wide management programme to upskill SMEs in the UK over three years. Over 12 weeks, and 90% subsidised by government.

13. Help to Grow: Digital – The government will launch a new UK-wide scheme in the autumn to help SMEs save time and money by adopting productivity-enhancing software.This will combine a voucher covering up to half of the costs of approved software up to a maximum of £5,000, and free impartial advice, delivered through an online platform.

Tax treatment of Goodwill for computing trading profits?

Clear guidance given in HMRC agent toolkit Capital v Revenue – Page 18.

  1. Sole Trader and partnership : No deduction allowed.
  2. Company: treatment given below:
When was the goodwill acquired?Tax deduction
Before 1 April 2002No deduction allowed.
Between 1 April 2002 to  3 Dec 2014Deduction allowed as per amortization in accounts – under Corporate intangible assets regime ; or
At fixed rate of 4% WDA
Deduction was also allowed for goodwill purchased from related parties.
3 Dec 2014 to 7 July 2015Amortisation allowed but only if goodwill purchased from unrelated party.
From 8 July 2015 to 31 March 2019No deduction allowed
From 1st April 2019 Relief  @ 6.5%  avaliable in certain cases – please see CIRD44050
Where no qualifying IP acquired, no relief.
No relief for goodwill purchased from related parties.

Note:
1. Where deduction is not allowed for trading profits . Deduction should be taken for Capital Gains Tax calculation.
2. Please note rules only allow relief to be claimed when a company acquires a business directly rather than acquiring the shares in the target company. Purchased goodwill can only be recognized on a business acquisition but not on an acquisition of shares.

Moral of the story
HMRC has prepared fantastic tool kits, please use it regularly to avoid mistakes.

Link to tool kits

Self employed – Car expenses

You must own the the car in your name.

For claiming expenses of the car , as you are self-employed you can either use either:

  1. Actual Method

2. Simplified Method

Actual Method

You could claim a proportion of all running actual costs of the car including repairs, restricted to the business use.

That is, suppose you spend £100 on your car in a month and business use is 70%. You can claim £70 as business expense.

Under this method you will need to keep all expense receipts for 6 years.

More details

Simplified Method

You can use the simplified method of 45p per mile for 10000 miles and 25p per mile thereafter which would also cover all running costs. You do not need to keep the expense receipts.

More details

Under both methods it’s advisable to maintain a log of your journeys – attached.

mileage-paymentsDownload

Which method to use  ?

You will need to ascertain which method is most beneficial to you.
Please use this calculator to make the decision – Calculator

Its usual to chose Simplified expenses as there is no need to keep expense receipts.

Whichever method once chosen will be used till that particular vehicle is disposed.

There is no need to take the decision when buying the car you may collect all the information and take the decision at year when filing tax return.

Leasing

Claim business proportion of monthly expenses plus actual monthly running costs. Example: Your leasing expenses are £200 per month and actual running expenses £100. Business use 50%. You can claim £150 as business expenses.

Please note if CO2 emission is over 100g/Km2 you reduce your lease by 15%.

Further information

Please also see a helpful HMRC Webinar , enter your details and webnair will start.