Category: Taxation

Key Budget 2018 Highlights for Restaurant Trade

A summary of key changes.

  • Minimum wage: From April 2019 the National Living Wage will increase from £7.83 an hour to £8.21. An increase of 38 pence, an above inflating increase of 5%.

 

  • Personal Allowance will rise from 11,850 to £12,500 from April 2019 and will remain the same in 2020.

 

  • Higher Rate Threshold will increase from £46,350 to £50,000 in April 2019

 

  • Duty on beer, cider and spirits remains frozen.

 

  • Annual Investment Allowance will increase from £200k to £1 million from 1 January 2019 and will remain at this level till 31 December 2020.

 

  • New Capital allowance (Structure and building allowance): Relief will be provided on eligible original construction costs incurred on or after 29 October 2018, at an annual rate of two percent (flat rate) on a straight-line basis off their profits before they pay tax.

 

  • Business rates: Business rates will be cut by a third for two years for shops, pubs, restaurants and cafes in England with a rateable value of £51,000 and under.

 

 

Other interesting points:

  • 2% digital services tax on large digital firms

From April 2020, large social media platforms, search engines and online marketplaces will pay a 2% tax on the revenues they earn which are linked to UK users.

 

  • Non-resident landlord companies

From 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax as at present.

 

  • Annual Capital Gains allowance increases to £12,000 for individuals.

 

Source:

Budget 2018

Can a child hold shares in a company ?

Can a child hold shares in a company

There is no statutory provision prohibiting a child from owning shares.

Please note contracts cannot be forced against minor thus it’s advisable that that shares are fully paid up.

Dividend income is deemed under ITTOIA/S629 to be that of the parent for tax purposes, and is not treated as the child’s. So there is no tax advantage in holding shares in a child’s name.

I read a good article which gives alternatives to registering child as a shareholder. Click here.

If the client still wants to allot share to a child. Then a bare trust is needed. There is no legal requirement to create a formal document to create a bare trust.

Name in the register of members can be simply – Mr Parent as bare trustee of Mr Child.

Training Costs: employees, directors and self employed

Employees and Directors: BIM 47080

Usually all expenses are allowable as revenue1 expense, except where employee and employer has some link outside work e.g. employee is son/daughter of the employer.

In such cases it should be ascertained whether the expenditure would have been incurred on an otherwise unconnected employee doing the same job.

 

Self-employed: BIM 35660

Expenditure is revenue expenditure if the course merely updates existing expertise or knowledge. Expenditure on a course which provides new expertise or knowledge is capital.

Capital expenditure makes it an intangible asset. Self-employed are not allowed capital allowance on Intangible assets. Only companies are allowed capital allowance on intangible assets.

 

Notes:

  1. Considered revenue as an employee can resign anytime.

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.

 

 

PAYE Tax Code change resulting in employer being out of pocket

My client employs a nanny for his children. This used to be nanny’s second job and we were using `BR` tax code to process her salary.

She left her first job, making this her only job. We advised her to call HMRC to get her tax code changed. HMRC sent us a notification with the changed tax code.

On changing her tax code on the payroll software it resulted in a massive refund for the nanny. This refund employer has to pay from his own pocket.

This client has only one employee and after change of tax code future months PAYE bill would also be zero thus no scope of set off with future months PAYE bill.

I called the employer helpline, they were very helpful and they advised me to apply for a funding via link: https://www.gov.uk/payroll-funding

Via this link either employer or agent can apply for funding.

HMRC advised me that if the application was approved, funds would be credited in the nominated account in circa two weeks’ time from date of application.