The season of goodwill is just around the corner as Christmas approaches.

It is a time of year when employers look to reward their staff for their efforts throughout the year.

But they should be aware that certain tax, National Insurance and reporting obligations could apply.

We want to ensure that you enjoy the festive season just as much as your team, so we’ve put together our top tips to ensure that you stay on the right side of the taxman this Christmas.

What about staff parties?

According to HMRC, the total cost must not exceed £150 per head and must be for your employees and any members of their family and household who attend as guests. The total needs to include VAT and other costs, such as transport and accommodation.

All staff must also be invited. If you spend more than £150 per person, the entire amount is a ‘benefit’ and must be declared on the P11D and tax will be due.

Getting gifts right

Trivial benefits are items of value given to an employee that do not count towards taxable income or National Insurance Contributions (NICs).

To qualify, the gift must meet ALL of the following conditions:

• The gift isn’t in the terms of the employee’s contract
• It is below the value of £50
• It isn’t a performance-linked reward
• It isn’t cash or a cash voucher.

A trivial benefit in kind could include a Christmas lunch, a small Christmas present, or a gift on the day of an employee’s wedding.

If the gift does not meet all of the above criteria, it must be reported as a benefit in kind to HM Revenue & Customs (HMRC) and tax must be paid as appropriate.

What about incidental expenses?

Incidental expenses, as described by HMRC, are expenses “incurred by an employee while travelling overnight on business”.

These may include purchasing newspapers, paying for laundry or using the hotel telephone.

As long as the value of the expenses does not exceed more than £5 per night for travel within the UK and £10 per night for travel outside the UK, they do not have to be reported to HMRC.

Link: Tax on trivial benefits

The status of IR35 or off-payroll working has caused some confusion since the repeals to reforms put forward by former Chancellor Kwasi Kwarteng were subsequently scrapped by new Chancellor Jeremy Hunt.

IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).

Engagers now responsible

The IR35 rules, which originally changed in April this year under the 2021 reforms in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.

Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.

The official guidelines for businesses affected by these rules are as follows:

• Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
• Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
• Have processes in place to deal with any disagreements that arise from your determination.

If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs via PAYE.

Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.

What businesses does this apply to?

According to the Companies Act 2006, a business is defined as ‘medium’ or ‘large’ if it meets two of the following criteria:

• The company has a turnover of £10.2 million or more
• The company has a balance sheet total of £5.1 million or more
• The company has 50 employees or more.

Link: Understanding off-payroll working

Card payments rocketed during the pandemic and that trend has continued since then.

According to figures from the British Retail Consortium (BRC), card payments account for four out of every five payments made.

But as consumers switch, the soaring cost of accepting card payments is hitting retailers and adding to the cost of doing business.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), in October last year both Visa and Mastercard raised their cross-border interchange fees on purchases made by UK consumers to European businesses from 0.2 per cent to 1.15 per cent for debit cards, and 0.3 per cent to 1.5 per cent for credit card transactions.

Move to improve services

Meanwhile, transaction fees on digital wallets are also on the up as PayPal increased its fees for payments between businesses in the UK and Europe from 0.5 per cent to 1.29 per cent in November 2021.

Following a review by the Payments System Regulator (PSR), the Government watchdog announced new rules in October to improve card services and help businesses shop around and switch to more cost-effective services.

From January next year, 14 of the most significant providers of card-acquiring services will be required to remind businesses at the end of their contract term that they could compare prices to get a better deal.

In addition:

• Providers will also have to provide information to businesses about their charges and provide an initial online quotation tool of key charges to help businesses make a choice.
• Following concerns that businesses were being locked into lengthy contracts for card readers, the regulator is also limiting point-of-sale (POS) terminal contracts to 18 months.

Link: Mitigating card payment costs

If you are an owner of a limited company, taking money out of your business using dividends is a mainstay of effective tax planning, thanks to an additional £2,000 annual allowance and lower rates than apply when taking money in the form of salary.

However, there are restrictions on the circumstances in which a limited company can pay a dividend.

Crucially, the company must have sufficient profits from the current and previous financial years to cover the dividend payment.

The company will also need to pay a dividend to all eligible shareholders, so you will need to factor this into any calculations.

Dividends must be declared by the directors and minutes of the meeting must be kept, even if there is only one director.

A dividend voucher will need to be prepared, including the date, the company name, the names of the shareholders receiving the dividend and the amount.

Copies must be given to the shareholders receiving the dividend and retained on the company’s records.

Link: Running a limited company: Your responsibilities

Investing in property can still provide a strong return, but it needs careful planning to achieve the best outcomes.

Just buying new properties without a clear strategy would be risky.

While it is true that rates of interest continue to increase, as do many of the costs associated with being a landlord, with the correct approach property can continue to provide a good income.

Mortgages

Many landlords enter the market by purchasing their property using a buy-to-let mortgage.

In the past, these have provided a competitive means by which to purchase new houses with minimal deposits.

In many cases, landlords have even forgone paying off their mortgage favouring interest-only buy-to-let mortgages, which minimise their monthly outgoings to enjoy a greater overall return.

However, with the Bank of England steadily increasing the base rate, many lenders are also increasing their interest rates driving up the cost of debt.

For those on fixed-rate mortgage deals, their current rate shouldn’t change until their current offer ends, but for those on tracked and variable rates, which increase alongside the base rate, the costs of their mortgages could wipe out any profits.

Lenders are unlikely to offer any new fixed deals at lower rates for some time, so what can be done to cut mortgage costs?

One option to consider if you already have multiple buy-to-let mortgages is consolidation.

Consolidating multiple debts into a single property loan could help to reduce the amount paid overall.

Especially if you have a wide variety of rates on each previous loan. This could help to reduce the overall cost of your lending.

If you are considering further growth and you have multiple mortgages, you might want to consider a buy-to-let portfolio mortgage.

Many lenders offer this kind of product, which allows you to combine your borrowing under a single web of loans, while also allowing you to use the equity within the portfolio to cover deposits for new homes.

Incorporation

If you currently operate as a sole trader it might be worth considering incorporating your portfolio into a limited company.

This carries with it several advantages, including:

• Limited companies currently pay Corporation Tax at 19 per cent. This is lower than income tax on profits, which if you are a higher-rate taxpayer is paid at 45 per cent.
• You can still enjoy a 100 per cent tax relief on the mortgage interest your limited company pays. This is restricted on personally held properties to just 20 per cent.
• It is easier to transfer limited company shares to beneficiaries or others than privately held property.

While incorporation has its benefits it also comes with the additional Companies House administration and you would have to pay Stamp Duty Land Tax on the transfer of your portfolio into a limited company, which could be costly.

Looking to sell?

We appreciate that given the current situation, some landlords might be looking to dispose of some or all of their property portfolio.

If this is the case, then they need to consider the tax implications of doing so.

When a main home is sold, there is usually no Capital Gains Tax (CGT) due thanks to Principal Private Residence Relief, but tax may be owed on the gains you have made on a second home or investment property.

Higher and additional rate taxpayers pay CGT on property disposals at a rate of 28 per cent, while basic rate taxpayers may pay tax on some of their chargeable gains at a rate of 18 per cent.

Tax is only charged on the gains made on a property, not the total value of the sale, and most taxpayers benefit from an annual CGT tax-free allowance of £12,300 (2022/23).

Any CGT due on UK residential property disposals made by UK residents must be reported and paid within 60 days of completion.

Whether you are looking to grow or sell your portfolio it is important to have a plan in place and seek professional advice to make the most of your assets.

In his mini-Budget, the former Chancellor Kwasi Kwarteng announced plans for Tax-Free Investment Zones across England.

The Government says these new economic zones will drive growth by lowering taxes and freeing up planning to encourage development and business investment.

What are the benefits?

These zones will offer a number of advantages to the businesses that choose to operate in them, including:

• Companies within the zones will receive 100 per cent relief on business rates for newly occupied premises. The same will apply to existing businesses if they expand within the zone.
• Full Stamp Duty Land Tax (SDLT) relief will apply for land and property bought for commercial use or development or new residential developments.
• Employer National Insurance contributions will be rated at zero for new employees earning up to £50,270 per year.
• There will be a 100 per cent first-year enhanced capital allowance relief for plant and machinery to incentivise investment.

Partnership with local authorities

The scheme will involve agreeing with 38 Upper Tier Local Authorities and Mayoral Combined Authorities in England to develop dozens of Investment Zones.

They will be delivered in partnership with devolved administrations and local partners in Scotland, Wales and Northern Ireland.

The Government says it will set out further detail on Investment Zones in due course. However, a full list of local authorities working with the Government can be found here.

Link: Tax-Free Investment Zones