06.12.2010

With the VAT rise happening in January now is the time to prepare. HMRC make changes to payment dates for Class 2 National Insurance.  Christmas needn't be a taxed time - there are reliefs available.  

VAT Change - January 2011 

New payment dates for Class 2 NI 

Seasonal tax relief 

 

VAT Change - January 2011

With the VAT rate rising to 20% on 4 January 2011, businesses need to prepare by updating their systems and looking out for the inevitable anti-avoidance provisions.

The new rate will apply to all standard rate VATable supplies taking place on or after 4 January. Normal tax point rules should be used for determining when goods or services are supplied and hence the correct VAT rate. Special rules apply for supplies that span the rate change, enabling the value of such supplies to be apportioned between the old and new rates of VAT.

Anti-avoidance rules also need to be heeded, as was the case previously when the rate changed from 15% to 17.5%. These rules aim to prevent what HMRC would see as an unacceptable VAT advantage being gained by a business as a result of the rate change.

Though targeted at catching planning arrangements or deliberate avoidance schemes, innocent transactions may also be affected, hence the need for caution.

The rules are triggered by certain events, such as the supplier and customer being connected parties, a supplier providing funding to customers to enable them to buy goods or services in advance, VAT invoices being issued where the customer does not have to pay in full for at least six months, large prepayments being received or invoices issued in advance of delivery.

If the anti-avoidance rules apply, a 2.5% supplementary charge is incurred – essentially bringing the VAT rate back up to 20%.

Please contact our VAT Team for further advice and information on the VAT rate increase.

Edinburgh

Scott Craig: scott.craig@scott-moncrieff.com
Alan Glen: alan.glen@scott-moncrieff.com
Iain Masterton: iain.masterton@scott-moncrieff.com

Tel: 0131 473 3500

Glasgow

Greg McNally: greg.mcnally@scott-moncrieff.com
Anthony Cochrane: anthony.cochrane@scott-moncrieff.com

Tel: 0141 567 4500

New payment dates for Class 2 NI 

HM Revenue & Customs as announced changes to the payment dates for Class 2 National Insurance which is paid by the self employed and amounts to £2.40 per week.  As from April 2011 the payment dates for Class 2 national insurance contributions will be aligned with the self assessment tax payment dates ie 31 January and 31 July.  This will replace the quarterly demands in October, April, January and July.

If payments are normally made by direct debit, in the transition period, the monthly collection will stop in April and the first direct debit request will be made in August 2011.  Thereafter the monthly direct debit will resume.  You may however decide to change to a 6 monthly direct debit which will be collected in January and July each year.

Special mailshots should be issued by HM Revenue & Customs shortly. In the meantime if you have any queries about this please contact Morag Page, Director, Personal Tax.

Dear Santa, what tax relief is available for the season? 

At this time of year when Christmas lights are being switched on across the country and children are sending letters to Santa you might want to think about tax efficient ways to reward employees.  The favourable tax treatment of Christmas parties (or other annual events) and seasonal gifts would almost make you believe that Ebenezer Scrooge was not employed by HM Revenue and Customs (HMRC).

If you are having a Christmas party it must be available to all employees and the cost of the function must include all of the costs relating to the event including VAT and cost of transportation and accommodation, if appropriate.  The tax-free amount that can be spent on each guest is £150; this is not an allowance, therefore care should be taken to ensure that this amount is not breached as the whole amount would then attract tax and Class 1A NIC.

If you pay for a Christmas party and other annual events, for instance a summer party, then no tax or NIC liability will exist if the total amount spent on all annual events is still below £150 per head.  If you provide two annual functions and the total cost per head exceeds the £150 limit then one of these events has to be taxed but you can decide which event will be more beneficial from a cost perspective.   Where your employees are located in different locations or departments then separate parties can also qualify for the exemption provided that your Christmas parties or events are still made available to all employees.  In addition, you can reclaim all of the VAT in respect of your Christmas party provided that the party is only attended by staff.   If the party is attended by customers or clients then the VAT that is attributable to the non-employees cannot be reclaimed. 

As you can see the tax treatment of Christmas parties and other events may be favourable but it is somewhat long winded!

Seasonal gifts used to be a source of great frustration from a tax perspective.  Since the introduction of the trivial benefits legislation this is no longer the case.  Seasonal gifts that HMRC state do not result in a tax charge are a turkey, an ordinary bottle of wine or a box of chocolates.  There is no monetary limit applied to these gifts which makes this area a little more difficult to navigate.  HMRC has discretion over what constitutes a trivial benefit and agreement should be obtained from HMRC unless the benefit you are providing falls within the examples mentioned above.  You can reclaim the VAT on gifts you purchase for employees.

If a boost in morale is just what your employees need this Christmas you might want to consider taking advantage of this festive tax treatment.

Seasons greetings!

Contact:

Paul Renz, Partner, Tax

Patricia Goldie, Manager, Employment Tax