Category: HMRC

PAYE and Payroll IDs:

Which payroll ID to give a old employee joining back.

Sometimes clients re-employ a person who use to work for them. The question crops up about payroll Ids. Below is the extract from HMRC guidance.

  • If an employee leaves and is re-employed you should use a different payroll ID and start their year to date information again – do not report the pay and tax figures from the earlier employment.
  • You should never re-use a previous payroll ID. A different Payroll ID must be used even if the employee is re-employed in a different tax year.
  • If you change an employee’s payroll ID, on your next submission use the indicator that the payroll ID has changed this pay period and also use the field to report the old payroll ID.

 

Source: HMRC Employer’s Bulletin : December 2017

Leases under FRS 105

How to account for a hire purchase lease in case of a Micro company – FRS 105

Background

Client a freight company bought couple of trucks on Hire Purchase. This compelled a visit to FRS 105 (Client Company being a micro entity).

First step in lease accounting is classification of lease either as operating or finance lease. Hire purchase is clearly a finance lease. So we move forward.

Lease classification is made at the inception of the lease and is not changed during the term of the lease unless the lessee and the lessor agree to change the provisions of the lease (other than simply by renewing the lease), in which case the lease classification shall be re-evaluated.

Now to bookkeeping:

Initial recognition:

Recognized as an asset and liability.

Subsequent measurement:

A lessee shall apportion lease payments between interest (PL) and principal (BS).

A lessee shall also depreciate the asset.

If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.

Now we turn to our case.

I wrote a long blog but then found a better example. See link below:

AAT Website

Business Rate: Local discretionary relief

Local Councils are helping small businesses with business rate relief

Since April 2017 business rates in London have increased significantly.

Local Borough Councils are helping businesses by giving a discretionary relief.

Each Council have their own eligibility criteria.

Relief can be worth c£2,000 or more for eligible businesses.

Restaurant trade is one of the eligible businesses.

You will need visit your Council website for more information and details of how to apply.

We have given below links to two council websites, with which we had recent interaction on this matter,

Westminster

Kensington & Chelsea

 

 

 

Donations and Tax Computation of Limited Company

A client made donations to charities but at year end there was `Net loss` in profit & loss account.

This brought the question of how to treat the donation in tax computation.

Below I have listed few examples of how donations should be treated.

 

Example 1: Taxable profit and donation

Company A has a net profit of £3,000 and has made donations of £50001.

 

Computation of Tax

Net Profit 3,000
Add: Donations 5,0002
Taxable Profit 8,000
Less: Qualifying donations 5,000
Profits chargeable to corporation tax 3,000

 

 

 

Example 2: Taxable Loss and donation

Company A has a Net Loss of £3,000 and has made donations of £5000.

Computation of Tax

Net Loss (3,000)
Add: Donations 5,0002
Taxable Profit 2,000
Less: Qualifying donations 2,0001
Profits chargeable to corporation tax Nil

 

Please note donations are restricted to the amount of taxable profits. Qualifying donations cannot create a loss. Thus in this case £3,000 donations cannot be carried forward to be set-off against future profits and are lost forever.

In case this company was part of a group, the excess could have been used as group relief.

 

Example 3: Taxable loss and a small donation

Company A has a Net Loss of £3,000 and has made donations of £1,000.
Computation of Tax

Net Loss (3,000)
Add: Donations 1,0002
Taxable Profit (2,000)
Less: Qualifying donations Nil
Profits chargeable to corporation tax Nil
Unused trading losses to carry forward 2,000

In this case none of the donations were used, as even after adding the donations there was no taxable profits. Again in this case whole of £1,000 donations cannot be carried forward to be set-off against future profits and are lost forever.

Again, in case this company was part of a group, the excess could have been used as group relief.

 

Notes:

  1. Assumed all donations made were qualifying.
  2. Add back all donations made by the company.

 

 

Acknowledgements:

The above was determined with help of my good friend Gagan Anand a fellow accountant.

 

References:

  1. Basic guidance on gov.uk
  2. Tolley also has provided detailed guidance.

 

 

Tenant paying rent to a non-resident Landlord directly – no agent involved

Gross rent can only be paid to the landlord after written confirmation is received from HMRC by the tenant.

Process:

Landlord will contact HMRC (Non-resident telephone helpline) and give details of tenant. Then HMRC will write a letter to the tenant authorising them to pay gross rent without deduction. Till then rent can only be paid after deduction of tax at basic rate (currently 20%).

Sample letter below:

Sample NRLS Approval Letter

Change of tenant or agent

Landlord or his tax agent needs to call HMRC NRLS Helpline on 0300 322 9433 and inform them about the change. Before the call get Agent’s NA number as HMRC will need it to send the authorization letter to the right agent.