EXTRACTING PROFIT FROM THE FAMILY COMPANY

The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.

Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.

So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

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Using Snapchat as a marketing tool

Snapchat is a popular video and image sharing app. It has become one of the most popular social media platforms but can it be used by businesses as a marketing tool?

Originally, Snapchat allowed Android and iOS smart-phone users to send and receive images that could only be kept for a short time, once received.

However, Snapchat has evolved and users can now use the ‘story’ function where your photos and videos can be broadcast among your followers, with the ‘snaps’ staying available for 24 hours.

According to Snapchat, the app enjoys average daily usage of 186 million people globally. The average Snapchat user uses the app over 20 times a day and spends an average of 30 minutes on the app, creating and sharing 3 billion snaps every single day.  Aside from providing a gateway to a younger, more mobile savvy audience, Snapchat has created smart marketing tools that extend reach and help businesses connect with audiences in unique ways. Snapchat provides a variety of paid marketing options to meet specific business goals. You can create a smart Snap Ad, a quirky Sponsored Geofilter, or interact with your potential clients through a Sponsored Lens.

Snap ads are paid-for, full screen, three to ten-second vertical adverts that you can create yourself on the Snapchat platform. They appear in between friends’ stories and Snapchat content such as Snapchat’s stories or publishers’ stories. The person watching can swipe up at any time for more info, maybe to read an article, or visit a website. Snap Ads are highly targeted.

Filters and lenses are paid for promotional tools. Filters add images such as your company logo or animations such as cartoon ears to faces in a photo. They are useful tools if you are trying to build brand awareness. Lenses also add content to a user’s photo, in the form of augmented reality elements such as animations. For example, your brand can be set to pop up on the screen during a selfie.

You can also build your brand, for free, using Snapchat. For example, you can build your firm’s story on the platform and tell your audience about your latest products and services. You can also build groups on Snapchat in order to share useful tips with existing customers, demonstrate new features or new products to your client-base, etc.

Rising probate costs delayed by Brexit

Bereaved families currently pay a flat fee of up to £215 to obtain the grant of probate needed in England and Wales to administer estates worth more than £5,000.

That system was due to be replaced on 1 April 2019 by a new regime, which would set fees on a sliding scale based on the value of an estate.

But a date for a parliamentary motion in the House of Commons that would pave the way for the new probate fees to be introduced has yet to be fixed.

The new probate fees system will now kick in 21 days after the motion is passed in Parliament, with the Brexit deadlock being blamed for eating into parliamentary time.

What is probate?

When someone dies, the executor of the will needs to sort out who gets any property, money, investments or possessions from the deceased’s estate.

Assuming the deceased left a will, the executor currently needs to pay £215 to get what is known in England and Wales as a grant of probate.

If no will was left, the next of kin applies for a grant of letters of administration.

The executor or next of kin then needs to obtain a grant of representation to prove their authority to administer the estate.

This is known as the probate process, which also involves gathering any assets, paying any bills, and distributing any assets in line with what’s left in the will.

What are the new probate fees?

The changes will eventually abolish probate fees for estates worth less than £50,000 in England and Wales, although estates worth more than this face paying increased fees of up to £6,000.

Value of estate before inheritance tax  Proposed fee 
 Up to £50,000 or exempt from requiring a grant of probate £0
 £50,000 – £300,000 £250
 £300,000 – £500,000 £750
 £500,000 – £1m £2,500
 £1m – £1.6m £4,000
 £1.6m – £2m £5,000
 Above £2m £6,000
Source: Secondary Legislation Scrutiny Committee, 21 November 2018

The new probate fees received approval from peers last autumn, although a separate House of Lords committee described the increased fees as a “stealth tax”.

Where do you stand with probate now?

Until the terms of the UK’s withdrawal from the EU are agreed by the House of Commons and Brussels, the status quo is very much maintained.

HMRC has confirmed that registries will accept probate applications for an indefinite period before the inheritance tax account has been processed.

Under this interim system, any probate application must include a note to say that the appropriate inheritance tax forms are also on the way.

Usually, to get probate in England and Wales, whoever is dealing with the estate must first submit an inheritance tax account to HMRC, which provides an inheritance tax reference number.

Probate registries usually do not accept an application for probate until the Revenue has confirmed that it has processed that account.

However, as an interim measure, probate registries will temporarily accept applications before HMRC processes them as long as assurance is given that the inheritance tax forms will follow shortly.

Will the new fees apply in Scotland?

The proposed changes to probate fees will not take effect in Scotland.

Subtle procedural differences exist in Scotland, where confirmation needs to be obtained before inheritance tax can be deducted and what’s left of the estate is distributed to beneficiaries.

As well as applying for confirmation, other different probate forms may need to be completed in Scotland depending on whether the estate is worth more or less than £36,000.

Talk to us about probate.

ADVISORY FUEL RATE FOR COMPANY CARS

In line with recent reductions in fuel prices, HMRC have reduced their suggested reimbursement rates for employees’ private mileage using their company car from 1 March 2019. Where there has been a change the previous rate is shown in brackets.

Engine Size Petrol Diesel LPG
1400cc or less 11p

(12p)

  7p

(8p)

1600cc or less   10p  
1401cc to 2000cc 14p

(15p)

   

8p

(10p)

 

1601 to 2000cc   11p

(12p)

 
Over 2000cc

 

 

21p

(22p)

 

 

13p

(14p)

 

13p

(15p)

Note that for hybrid cars you must use the petrol or diesel rate.  You can continue to use the previous rates for up to 1 month from the date the new rates apply. The Advisory Electricity Rate for fully electric cars is 4 pence per mile.

 

DISGUISED REMUNERATION LOAN CHARGE STARTS APRIL 2019

This new charge will apply to certain loans to directors and employees that are still outstanding at 5 April 2019 and new arrangements put in place after that date.

The charge affects arrangements involving loans made via Employee Benefit Trusts (EBTs) and similar disguised remuneration schemes adjudged by HMRC and the courts to be tax avoidance and liable to PAYE and National Insurance Contributions.

There are new reporting and payment obligations that come into force for employers using such schemes from 5 April 2019  Where the employer does not pay the tax and national insurance the liability can be passed to the individual who benefited from the loan.

Where the individual concerned had taxable income in the 2018/19 tax year of less than £50,000 they will be able to repay the liability over 5 years, and spread over 7 years if their 2018/19 taxable income of less than £30,000.

PERSONAL SERVICE COMPANY CHANGES FROM APRIL 2020

In the Autumn Budget the Chancellor announced that the “off payroll” workers rules that currently apply in the public sector would be rolled out to the private sector in 2020. The government have now issued a consultation paper that sets out proposed tax and national insurance changes that will impact on those supplying their services through personal service companies.

End users will be required to determine whether the rules apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules. The current CEST (Check Employment Status for Tax) online tool would be improved before the proposed start date.

No change for “Small” Employers

“Small” businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.

The definition of “small” has been widely awaited and the Government have confirmed that it intends to use the existing Companies Act 2006 definition. That is where the business satisfies 2 or more of the following features:

  • Annual turnover of £10.2 million or less
  • Balance Sheet total of £5.1 million or less
  • 50 employees or less

 

The new obligations to determine whether the rules apply, deduct tax and national insurance, and report payments under RTI will apply to the agency or intermediary making payments to the personal service company where the end user is large or medium-sized. There will be an obligation to pass details of the status determination up and down the labour supply chain.

The liability for tax and national insurance will be the responsibility of the entity paying the personal service company, however if HMRC are unable to collect the tax from that entity the liability will pass up the labour supply chain thus encouraging those entities further up the supply chain to carry out due diligence to police compliance.

Please contact us if you would like to discuss how the proposed changes are likely to impact on your business.

SCOTTISH INCOME TAX RATES FOR 2019/20

The Scottish Parliament has the power to set income tax rates on non-savings and non-dividend income for Scottish taxpayers. It has been confirmed that the 5 band structure and tax rates (19%, 20%, 21%, 41% and 46%) will remain the same for 2019/20. The thresholds for lower tax rates will rise in line with inflation and the higher rate threshold has been frozen.

The 41% Scottish higher tax rate will apply to taxable income in excess of £30,930 as the higher rate threshold will be frozen (at £43,430 when the personal allowance is taken into account). The 46% additional rate will continue to apply to income in excess of £150,000.

Scottish taxpayers (who live most of the time in Scotland) are given an S prefix PAYE code to ensure that they pay the right amount of tax on their employment income. It is important that HMRC are advised of their correct residential address.

Welsh Income Tax Next

The Welsh Assembly now also has the power to set its own income tax rates but have not yet exercised this power. Hence Welsh taxpayers will be subject to the same income tax rates as England and Northern Ireland.