What is a Share Incentive Plan?

Posted on 2nd March 2023 by Solutions Accountancy

Share Incentive Plans (SIPs) were first introduced in July 2000 to give employees tax and NICs savings when they buy or are given shares in the company they work for.

Provided all the qualifying conditions are met, shares which are obtained under a SIP are not liable to Income Tax or NICs at the time they are acquired and there is no CGT for accrued gains whilst the shares are held in a SIP. This includes holding the shares in a SIP for 5-years.

There are four different ways that shares can be obtained in a SIP:

An employer can give employees awards of free shares (which can be performance related e.g., based on the performance of individuals, teams, divisions or work units) up to a maximum of £3,600 p.a. tax-free.
Employees can buy shares valued at up to £1,800 per year out of their pre-tax salary. This is subject to this being no more than 10% of an employee’s annual salary.
Employers can give up to two free shares for each share an employee buys.
Dividends from any of the free, partnership or matching shares can be reinvested tax free in the purchase of further shares (if allowed by the employer).

National Living Wage rates from April 2023

Posted on 2nd March 2023 by Solutions Accountancy

New National Minimum Wage (NMW) and National Living Wage (NLW) rates come into effect on 1 April 2023.

The new rate for the NLW will be £10.42 which will represent a 92p increase over the current rate. The NLW is the minimum hourly rate that must be paid to those aged 23 or over. The hourly rate of the NMW (for 21-22 year olds) will increase to £10.18 (a rise of £1). The rates for 18-20-year-olds will increase to £7.49 (a rise of 66p) and the rate for workers above the school leaving age but under 18 will increase to £5.28 (a rise of 47p). The NMW rate for apprentices will increase by 47p to £5.28. The accommodation offset will rise to £9.10 per hour (an increase of 40p).

It is important that employers update their systems, by 1 April 2023, to reflect the new rates as there are significant penalties for employers who are found to have paid workers less than the above rates.

If you have underpaid an employee, you must pay any arrears immediately. There are penalties for non-payment of up to 200% of the amount owed unless the arrears are paid within 14-days. The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face a possible 15-year ban from being a company director as well as being publicly named and shamed.

Bereavement Support Payment

Posted on 27th February 2023 by Solutions Accountancy

The amount of Bereavement Support Payment you can claim will depend on your relationship to the person who died and when you make your claim.

Your payments will be paid into your bank, building society or credit union account.

If you were married or in a registered civil partnership with the person who died

If you were receiving Child Benefit when your partner died (or did not get it but were entitled to it), you will get the higher rate.

This is made up of:

a first payment of £3,500; and
up to 18 monthly payments of £350.

If you were not entitled to Child Benefit, you’ll get the lower rate unless you were pregnant when your partner died.

This is made up of:

a first payment of £2,500; and
up to 18 monthly payments of £100.

You must claim within 12 months of your partner’s death to get the first payment. If you claim after this time, you will only get monthly payments.

If you were living together as though you were married with the person who died

You’ll get a first payment of £3,500 and then up to 18 monthly payments of £350.

You may get fewer payments if:

your partner died after 9 February 2023, and you claim more than 3-months after your partner’s death; and
your partner died before 30 August 2018.

If you receive benefits

Bereavement Support Payment will not affect your benefits for a year after your first payment. After a year, money you have left from your first payment could affect the amount you get if you renew or make a claim for another benefit.

You must tell your benefits office (for example, your local Jobcentre Plus) when you start receiving Bereavement Support Payments.

Breaking even – checking the numbers

Posted on 27th February 2023 by Solutions Accountancy

In previous newsfeeds we have described how you can calculate the level of turnover you need to create in order to meet all your costs whether they be fixed costs (rent, rates etc.,) or variable costs (goods you need to buy to convert into goods you sell).

For example, if your fixed costs are £50,000 per annum and your variable costs are 25% of your turnover, the annual turnover you need to breakeven will be £200,000. The formula is:

Annual fixed costs divided by 25 (the gross profit) multiplied by 100.

If you have no variable costs, your breakeven turnover will be your fixed costs. And be sure to include your drawings/dividends/salary as part of the fixed costs.

Unfortunately, you will need to make this calculation each month to have any certainty that you have a realistic estimate of your breakeven turnover.

Over time, you could probably place more reliance on any underlying trend in the numbers you calculate.

The main factors that will change your breakeven calculations are increases or decreases in:

The amount you pay for any direct costs, to purchase goods or labour to convert into the products you sell.
The amount you pay for fixed costs – that do not tend to increase or decrease based sales volume. For example, premises costs, professional fees and admin support costs.

While inflation is high these costs will quickly escalate.

And what if you need to invest in your business? If you do not have retained funds to meet investment costs you may need to borrow to fund the investment. This will increase your costs (interest charges) and require that you produce enough retained profits, as a result of your investment and general trading, to meet lending repayments.

We can help. Call if you need help to consider your planning options. To find a way out of the present difficult trading conditions we may all need to do more than just breakeven.

The digital pound

Posted on 23rd February 2023 by Solutions Accountancy

A new consultation has been published jointly by HM Treasury and the Bank of England to consider the launch of a potential digital pound, or central bank digital currency (CBDC). The possible new digital pound has also been referred to as ‘digital sterling’ and ‘Britcoin’.

The digital pound would be a new type of money issued by the Bank of England for individuals and businesses to use for day-to-day spending in-store or online and to make payments. The digital pound would be denominated in sterling and its value would be stable, just like banknotes. £10 in digital pounds would always have the same value as a £10 banknote.

If introduced a digital pound would be interchangeable with cash and bank deposits, complementing (not replacing) cash. The Bank of England has committed to continue to issue cash for as long as people want to keep using it.

The digital pound would not be a cryptocurrency or cryptoasset. As opposed to cryptocurrencies, which are issued privately, the digital pound would be issued by the Bank of England and be backed by the Government.

Whilst no decision has yet been made, other countries around the world are considering similar proposals including the Eurozone and the US and China.

HM Treasury has stated that a decision about implementation of a digital pound will be taken around the middle of the decade and will be based on future developments in money and payments. The earliest stage at which the digital pound could be launched would be the second half of the decade.

VAT – transfer of business as a going concern

Posted on 23rd February 2023 by Solutions Accountancy

The transfer of a business as a going concern (TOGC) rules concern the VAT liability of the sale of a business. Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate.

Where the sale of a business includes assets and meets certain conditions, the sale will be categorised as a TOGC. A TOGC is defined as 'neither a supply of goods nor a supply of services' and is therefore outside the scope of VAT. Under the TOGC rules no VAT would be chargeable on a qualifying sale.

All the following conditions are necessary for the TOGC rules to apply:

The assets must be sold as part of a 'business' as a 'going concern'. In essence, the business must be operating as such and not just an 'inert aggregation of assets'.
The purchaser intends to use the assets to carry on the same kind of business as the seller.
Where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer.
Where only part of a business is sold it must be capable of separate operation.
There must not be a series of immediately consecutive transfers.
There are further conditions in relation to transactions involving land.

The TOGC rules can be complex, and both the vendor and purchaser of a business must ensure that the rules are properly followed. The TOGC rules are also mandatory which means that it is imperative to establish from the outset whether a sale is or is not a TOGC. For example, if VAT is charged in error, the buyer has no legal right to recover it from HMRC and would have to seek to recover this 'VAT' from the seller.

Beneficial loans that are exempt

Posted on 23rd February 2023 by Solutions Accountancy

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are a number of scenarios where beneficial loans are exempt and employers might not have to report anything to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

The list also includes loans provided:

in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee);
to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out;
under identical terms and conditions to the general public as well (this mostly applies to commercial lenders);
that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief; and
using a director’s loan account as long as it’s not overdrawn at any time during the tax year.

Miscellaneous benefits in kind

Posted on 23rd February 2023 by Solutions Accountancy

The list of miscellaneous company benefits that can be provided tax-free to employees is quite short. However, some of the benefits that can be provided include the following:

Medical insurance or medical treatment for employees working abroad.
One annual medical health check and / or health-screening assessment.
Exempt loans to employees. There are a number of scenarios where beneficial loans are exempt and employers might not have to report anything to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.
Living accommodation. There are special rules for the provision of living accommodation to employees under certain circumstances. In most cases, employees will pay tax on any living accommodation provided by an employer unless they qualify for an exception.

An exception for living accommodation will usually apply in cases where:

the accommodation is necessary for an employee to do their job properly;
it’s customary to have living accommodation with the job and it means the employee can perform their job better; and
the employee faces a special threat to their security because of their job, and the living accommodation is in place to help protect them.

There is no requirement to pay tax on benefits and expenses covered by concessions or exemptions and they do not need to be included on a tax return.

Properties not let at commercial rates

Posted on 23rd February 2023 by Solutions Accountancy

There are special rules where a property is let at less than a commercial rate or isn’t let on commercial terms. These rules also apply if a property is occupied rent free or at less than a commercial rate, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are incurred ‘wholly and exclusively’ for business purposes. Problems may also arise when considering the deduction of expenses during periods when the property is lived in by ‘house sitters’ who do not make any payment whilst staying at the property.

HMRC generally accepts that if a property is let at below the market rate (as opposed to providing it rent-free), the landlord can deduct the expenses of that property up to the rent they get from it. This means that the uncommercially let property produces neither a profit nor a loss, but the excess expenses cannot be carried forward to be used in a later year.

If the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. Relief for capital expenditure on uncommercial lettings may also be restricted.

Tax codes for employees

Posted on 23rd February 2023 by Solutions Accountancy

The P9X form is used to notify employers of the tax codes to use for employees. The latest version of the form has been published and shows the tax codes to use from 6 April 2023. The form states that the basic personal allowance for the tax year starting 6 April 2023 will, as expected, be £12,570 (£12,570 in 2022-23) and this means that the tax code for emergency use will remain at 1257L.

The basic rate limit will be £37,700 (£37,700 in 2022-23) except for those defined as Scottish taxpayers who have a lower basic rate limit as well as an intermediate rate. The new form P9X is available online on GOV.UK to download or print.

The P9X (2023) form also includes information to help employers in the new tax year. The document also reminds employers that have new employees starting work between 6 April and 24 May 2023 and who provide you with a P45 to follow the instructions at www.gov.uk/new-employee.