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Christmas is the time of giving – but what are the tax implications of holding a staff party?

25 November 2013 •

Providing your staff party is open to all your employees, HMRC allows an exemption from tax for those who attend; here is an outline of the rules that apply:

·         There is a £150 (average cost per person) per tax year limit

·         The average cost per person must include the VAT and any accommodation and/or transport provided.

·         £150 is not an allowance but the threshold for exemption; if the cost is £151, the whole benefit is taxable.

Are you allowed more than one party per tax year?

You can offer staff more than one party per tax year providing the combined total does not exceed £150; for example you could have a low cost summer party at £40 per head and then a Christmas party at £100 per head.

If you have two functions, at say £100 and the other at £75 per head, you can choose which party to make exempt.  If you opt to make the £100 function exempt, then the £75 function is taxable in full which means that if an employee only attended the £75 function, they would be taxed on the £75 benefit in full. If the employee attended both functions, they would still only be taxed on the £75. Obviously, if an employee does not attend either function or just the one with a cost of £100, no taxable benefit would arise.

In practice employers will often settle any tax due on behalf of employees. If you are in any way uncertain how to apply these rules please do not hesitate to contact us on 020 77316163 or email info@warrenerstewart.com

 

Tax Video Update - Seed Enterprise Investment Schemes

14 October 2013 •

Warrener Stewart Tax Update

Seed Enterprise Investment Scheme (SEIS)

Why the reminder?

FA 2012 introduced the Seed Enterprise Investment Scheme (or SEIS) which offers great tax efficient benefits to individuals while also encouraging investing in small and early stage start-up businesses in the UK. SEIS applies for shares issued on or after 6 April 2012.

We are concerned that not enough investors and investees are coming together to use the relief.

Tax reliefs available

Income tax relief is available at 50% of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. It is possible to carry back relief to the preceding tax year. The shares in the new SEIS company must be retained for at least three years.

In addition, 50% of chargeable gains realised from disposals of any assets in 2013/14 and reinvested via the SEIS in the same year will be exempt. This was 100% for gains made in 2012/13.

Chargeable gains on disposals of SEIS shares will be exempt from Capital gains tax provided the shares are held for at least three years.

Finally, provided the business does not perform well, the capital loss (up to the amount of income tax relief obtained) can be converted into an income loss and set against income tax of 2013/14 and/or 2012/13 tax year.

Qualifying company and investor

There are number of factors to take into account to be eligible for the reliefs.

First of all, the qualifying activity must be a new trade (less than 2 years old) and the money raised via SEIS must be spent on a qualifying business activity within 3 years of the issue of the shares. SEIS company must have a permanent establishment in the UK, cannot have assets of more than £200,000 immediately before the share issue and the number of full-time equivalent employees must be less than 25 when the shares are issued. The total amount raised by the company through SEIS cannot exceed £150,000; this is a cumulative limit and not an annual one. The company cannot previously have raised funds through the EIS or VCT schemes.

Employees of qualifying companies cannot invest, nor can directors who own or hold shares for more than 30% of the company.

Conclusion

SEIS is one of the most generous tax schemes available in the UK and is intended to be available for only a short period of time. The availability of any tax relief depends on the individual circumstances of each investor and of the company concerned. If you are in doubt whether you can benefit from the above changes, please get in touch and we will be happy to answer any queries you may have.

A Brighter, Better Economy?

02 October 2013 •

For the first time since 2008 over 1,000 business leaders highlighted that outlook for the UK economy is now brighter, according to the latest poll from the Institute of Directors.

The IoD poll1 asked members to assess the statement that ‘the outlook for the UK economy is now brighter than at any stage since the onset of the financial crisis in 2008’; which 62 percent agreed with. The poll highlighted that there is a renewed confidence in the UK economy with 34 percent of members agreeing that they had high confidence in the economy, with a further 44 percent citing medium confidence.

When looking at their own organizations members maintained this positive outlook with over half, 59 percent, ranking their confidence about the outlook for their own organization between the scales of 7-10.  Overall the mean score for all those polled was 6.3, a good indication that the economy is buoyant.

A further indication that the economy is moving can be seen by 42 percent of members being positive about their own company’s revenue with 29 percent of them believing they would remain profitable. 

Commenting on this latest poll, Colin Edney, director at Warrener Stewart said; “Confidence in the economy and in business is improving. Through our work with owner managed businesses we have witnessed the highs and lows that economy has dealt them, but are finally seeing a level of positivity returning.

With unemployment levels falling by 57,000 in the last three months2 and UK retail sales rising by 0.2 percent in June3, according to the Office for National Statistics latest figures, businesses are right to feel optimistic, now is a good time to review their business plan and assess additional opportunities.”

 

Reference:

1. http://www.iod.com/influencing/press-office/press-releases/new-iod-poll-economic-outlook-at-its-brightest-since-2008
2. http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/july-2013/index.html
3. http://www.ons.gov.uk/ons/index.html

Tax Video Update - IHT changes for non-domiciled spouses

09 September 2013 •

Warrener Stewart Tax Update

Inheritance Tax Changes for non-domiciled spouses, September 2013

What is the change?

The Finance Act 2013 includes the following changes:

1.    An increase in the spousal exemption to the nil rate band in force at the time of the relevant transfer.
2.    An election can now be made to allow non-domiciled spouses to be treated as UK domicile for inheritance tax purposes.  This can be made either during their life time or on death.

Increase in spousal exemption

For deaths occurring before 6th April 2013, the exemption for transfers from a UK domiciled spouse and their non-domiciled spouse was limited to £55,000.  Transfers above this life time limit were subject to an immediate charge to inheritance tax.  This change will allow estates of up to £325,000 to be passed on death from a UK domiciled individual to his non-domiciled partner without suffering any charge to inheritance tax.

Election to be treated as UK domiciled for inheritance tax

Where an IHT liability would arise on death, the non-domiciled spouse should consider whether to make an election to be treated as UK domiciled.  The election will allow a non-domiciled spouse to be treated as UK domiciled for inheritance tax purposes.  The election does not affect the position for income tax or capital gains tax, so the individual may continue to claim the remittance basis in respect of foreign income and capital gains if they wish.

Conclusion

The obvious tax advantage of the making the election is not only will the couple be able to transfer assets freely during their life time but will also qualify for a further nil rate band.  However, once the previously non-domiciled individual is treated as UK domiciled, their worldwide assets will be within the scope of IHT and not just UK situs assets.  Although there are steps which could be taken to ensure the non-UK assets remain outside the scope of UK inheritance tax.

Conditions attached to both the life time election and the death election to ensure they are valid.  Care needs to be taken when advising clients whether to make an election as it can have a significant effect on the amount of inheritance tax that becomes due, especially given that current rate of this tax is 40%.
 

Tax Video Update - Streamlined US Tax Filing

16 August 2013 •

Warrener Stewart Tax Update

Streamlined US Tax Filing, August 2013

Need to file an old US Individual tax return?

The IRS has announced a new streamlined filing compliance procedure for non-resident U.S. taxpayers, put into effect from September 1, 2012.  The new streamlining has been introduced after recognizing that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs).  The aim is to provide an efficient means for low compliance risk taxpayers to bring their US tax affairs to date.  

What is streamlining?

The streamlining procedure will bring taxpayers up to date with regards to the past 3 years of federal returns and the past 6 years of FBARs.  For those taxpayers presenting low compliance risk, review of the streamlined tax returns will be expedited by the IRS and no penalties or follow-up actions will be pursued.  If the submitted returns show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.   Taking advantage of streamlining is simple and can be obtained by simply sending your completed return and streamlining questionnaire to a specific filing address and noting on the return that the streamlining process is being used.

Eligibility

Streamlining is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009 and who have not filed a U.S. tax return during this same period.

Conclusion

It is always advisable to keep on top of your US tax affairs to avoid penalties and administrative problems (e.g. obtaining passports).  With the new streamlining process in effect, there really is no excuse!

Tax Video Update - Enterprise Management Incentive Scheme changes

01 July 2013 •

 

Warrener Stewart Tax Update

Enterprise Management Incentive scheme, July 2013

What is the change?

The draft Finance Bill 2013 includes the provision to allow the period from the date the share options are granted under an Enterprise Management Incentive (“EMI”) scheme to count towards the 1 year period needed to qualify for Entrepreneur’s Relief.

What is an EMI scheme?

EMI is an HMRC approved share incentive scheme to reward and retain key staff by offering them options to purchase shares in the employing company.  The idea behind EMI is that the option price (the amount payable for the shares) is set at the open market value of those shares at the date the options are granted; as the key employees increase the value of the company over time they can then exercise the options and acquire the shares (at the price set when granting the options) without any tax consequences.

Why is the change important?

Entrepreneur’s Relief allows a 10% capital gains tax rate to be used (subject to satisfying certain criteria) on the sale of shares.  Two of the key criteria surrounding the sale of shares owned by employees are that the employee needed to own at least 5% of the shares in a company and they needed to have owned those shares for at least 1 year.

HMRC had previously announced the removal of the need for the shareholding to exceed 5% of the employing company where those shares were acquired under an EMI scheme but until now the 1 year ownership period only counted from the date the shares were actually issued to the employee (i.e. the period from date of grant of the options did not previously count).

Most EMI share options include a provision to allow unexercised options to be exercised immediately prior to a possible sale/takeover of the company to allow the employees to sell the newly acquired shares.  Without the recent change the employee would have faced a capital gains tax rate of up to 28%, however, after the change mentioned above as long as the options had been granted one year prior to the sale the employee should face a capital gains tax rate of 10%.

Conclusion

The change to allow the period from date of grant of the options to count toward the 1 year period for Entrepreneur’s Relief has brought back the EMI scheme into sharp focus as an extremely tax efficient way to reward key members of staff and, more importantly, to retain those key members.

We would be more than happy to explore with you the mechanics of setting up an EMI scheme and the potential tax savings both for the employees and the employing company.

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