For businesses that incur expenses on behalf of clients, understanding the VAT treatment of these costs is essential. Relevant cases include legal disbursements in the course of property conveyancing transactions, but it also applies to many disbursements in general. VAT treatment depends on specific conditions that must be met for costs to be treated as disbursements and, therefore, outside the scope of VAT.
In the context of VAT, a disbursement is an expense that a business pays on behalf of its client, acting as the client’s agent. If certain conditions are met, these costs can be passed to the client without VAT, as they are considered outside the scope of VAT. Common examples include services like MOT tests, court fees, or postage costs.
If you’re arranging a service on behalf of your client and want to pass this expense on as a disbursement, it must meet the following criteria:
If you add any markup or charge a service fee for arranging the test or third-party service, this additional amount is not a disbursement. Instead, it represents consideration for the arranging service you’re providing. As such, it would be taxable at the standard VAT rate of 20%, separate from the disbursement itself.
Example Scenario
Consider a garage that arranges an MOT test on behalf of a customer and follows all the conditions above. The MOT test fee paid to the test centre would be outside the scope of VAT if it is passed on exactly as a disbursement. However, if the garage adds a small fee for the convenience of arranging the MOT, that fee is not outside the scope of VAT and would incur VAT at the standard rate.
Understanding these distinctions ensures compliance and clarity for both the business and its clients. For businesses, adhering to these rules means more accurate invoicing and a clear approach to VAT when handling disbursements.
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Autumn Budget 2024
With the UK tax burden already at an all-time high, it’s safe to say that the Rt Hon Rachel Reeves didn’t have any tax giveaways tucked up her sleeve this Autumn Budget. Instead Reeves, the first woman to hold the position of chancellor in the 800-year history of the post, kept a steady drumbeat on the dire state of public finances and the £22 billion ‘black hole’, a familiar tune that set the stage for tax increases worth an estimated £40 billion. The message was clear: buckle up, because “necessary investment” has a price tag, and taxpayers are footing the bill.
Throughout her speech, Reeves pointed to soaring costs in public services, underscoring the need for additional tax increases. These, she assured, were “small asks” in the grand scheme of revitalising everything from potholes to the NHS- though businesses and investors might see it a little differently. The 10-year gilt yield climbed to 4.37 per cent from a low of 4.21 per cent during Reeves’ speech.
Income Tax thresholds will remain frozen until April 2028 as per the government’s “let’s do less with more” strategy, with Reeves insisting this would contribute to “stability.” Meanwhile, employers’ National Insurance, Capital Gains Tax and Inheritance Tax changes mean making friends with even higher deductions.
Finally, on the housing front, the government has decided that buying a second property should be even more of a luxury, hiking the Stamp Duty Land Tax on additional dwellings from 3% to 5% starting 31 October 2024.
So, in case you were holding out for a pleasant surprise this budget season… consider yourself surprised. We’ll be here to help you navigate the fine print and any implications these changes may bring.
The highlights are as follows:
Personal tax
Capital Gains Tax (CGT)
Inheritance Tax (IHT)
Employment
Business
Other matters
Visit our Budget Highlights and tax data for a summary of the Autumn Budget 2024.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Corporate retreats offer huge benefits for team building and professional development. They enhance an employer’s value proposition, increase retention and boost engagement. However, the tax implications of these trips should not be overlooked. Understanding which expenses are deductible and what constitutes a taxable benefit for employees is crucial for compliance– and maximising tax deductibility– all while having fun!
Corporate retreats are tax deductible if they are incurred “wholly and exclusively” for business purposes, such as enhancing skills, strategic planning or expanding business operations. When retreats blend business activities with leisure, only the clearly identifiable business-related expenses are deductible.
For example, if a marketing firm organizes a retreat costing £75,000 that comprises travel costs, seminars and group activities, the entire £75,000 may be deductible. Corporate retreat providers, such as Get Lost, who curate transformative journeys for organisations, recommend working closely with HR and tax teams to ensure the retreat aligns with both business goals and tax motivations. A good provider will offer an analytical quote of what each retreat includes such as meals, accommodation, transfers, workshops and team-building activities, helping companies plan retreats that tick all the boxes for decision-makers.
Costs related to training that directly enhances job performance or qualifications are exempt from being taxed as employee benefits. For instance, a healthcare company offering a first aid certification course during a retreat can treat these expenses as tax-exempt.
The Mouktaris & Co tax team advises on how best to segregate, or combine, training and leisure activities to create a tax-deductible corporate retreat. For example, team-building activities designed to improve workplace efficiency and cohesion, such as structured problem-solving workshops, can be tax-exempt if they are professionally structured and integral to the retreat’s purpose.
Meals provided during training or work-related events are typically not taxable benefits, although extravagant banquets or special events could trigger tax liabilities. However, “blowing out” on high-end expenditures might not be taxable at all if they align with the company’s standard practices. Take, for instance, the lavish “billionaire summer camps” held by Waystar RoyCo in the hit series Succession– a prime (albeit fictional) example of how extravagant events may avoid being taxable if they fit within the organization’s usual way of doing things.
Travel expenses for attending a retreat focused on work-related training or meetings are generally tax-exempt. Other expenses, such as accommodation, venue hire, and equipment, must be evaluated individually.
Corporate retreats often involve a mix of deductible and non-deductible expenses. By carefully planning a retreat that meets the needs of both HR and tax teams, companies can maximise efficiency- whilst ensuring employee satisfaction is all but guaranteed!
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Spring Budget 2024
The Chancellor managed to find some optimism in the deteriorating economic forecasts, as most Chancellors, of whatever political hue, seem to do before an election. Mr Hunt announced a further 2% cut to national insurance, although it appears that the current budget deficit and the anticipated fall in inflation to 2% did not arrive in time to arm the Chancellor with the fireworks needed to queue an election. With this in mind, the Autumn Statement 2024 is now likely to be the “main event”, if we may, for the Conservatives to bring in a final raft of measures, including perhaps Mr Sunak’s long-forgotten “promise” to slash the basic rate of income tax from 20p to 19p by 2024.
Indeed the speech from Mr Hunt did not feel like a genuine election push; he rather serenaded the opposition and there was an absence of an impassioned pre-election tone. The Conservatives have accepted this election will go very late, or perhaps they have accepted that they will go down with dignity (and cheques that will bounce back).
Whereas in years gone by ministers responsible for leaks to the press resigned on the spot, party politicians have warmly embraced the new age of “populism” and the Budget was leaked, in drips and drabs over the course of the past few days, to various news organisations.
Headlines and commentary as follows…
Spring Budget 2024
Personal taxes
National Insurance contributions – whilst any “tax” cut is welcome, one must recall that the same percentage increase was levied by the same party in order to fund “social care”. Have then, the problems of social care been solved? Or do they no longer matter? The state of our public services will quite possibly be the biggest challenge of the next elected party.
Property
Excise and Duties
Business taxes
Tax administration
Visit our Budget Highlights and tax data for a summary of the Spring Statement 2024.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
What is a Benefit in Kind?
Benefits in kind (BIKs) are benefits that employees or directors receive from their employer which aren’t included in their salary or wages. BIKs are popular elements of many people’s salary packages and can be used by an employer to structure an effective and tax-efficient salary package.
Some BIKs aren’t taxed, but most are. As well as the impact on an employee’s personal tax, national insurance contributions are payable by companies, such that the tax treatment is broadly similar to that when paying a salary (although employer pension contributions are not due on BIKs).
What is Payrolling Benefits?
We are encouraging employers to take advantage of using payroll facilities for the purpose of reporting expenses and benefits. Rather than filing an annual P11D, an employer can report and deduct tax on the value of benefits provided to an employee each pay period though PAYE. This means doing away with the end of year P11D process, as taxes are submitted in real time.
HMRC will issue an employee with a new tax code to automatically account for the benefit provided and charge the correct amount of tax, in real time.
An employer will still need to complete and submit a P11D(b) form and pay Class 1A National Insurance on the value of the benefit provided to employees.
Employer Duties
Once an employer has registered to payroll benefits, they must give employees written notice explaining which benefits will be payrolled, the cash equivalent of the benefits, and details of benefits that will not be payrolled. Details on communicating with existing and new employees are set out on gov.uk.
Working out the taxable amount of a benefit in kind
The taxable amount of the benefit is the same as its cash value. This is then divided by the number of paydays the employee has in each pay period, so that tax is applied appropriately.
What if the value of the benefit changes?
It’s fairly common for benefits such as gym memberships and car costs to change during the year. If this happens, it’s simple to process the change. You must however ensure to keep us updated with changes when you communicate with us in the normal course of operating payroll. Examples of changes to the value of the benefit provided to the employee include:
We recommend you discuss any benefit you plan to offer your company’s directors and employees with one of our expert accountants. As you can see, the rules around benefits in kind are complex and each example needs to be looked at based on its individual circumstances to see if any tax is payable by the employee and/or your company.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
ATED Update
Certain companies owning UK residential property need to submit an Annual Tax on Enveloped Dwellings (ATED) return every year. ATED is payable by companies that own properties valued at more than £500,000 if none of the various reliefs apply.
Valuation dates and the 2023-24 ATED return
Valuation dates are relevant for determining a company’s ATED position. It is the value of the property on the most recent of these valuation dates which is relevant for determining the annual chargeable amount due on the property. The previous “valuation date” was 1 April 2017, which applied for the 2018-19 ATED year and all ATED years up to and including this 2022-23 ATED year.
For the forthcoming ATED year 2023-24 and all ATED years up to and including the 2027-28 ATED year, ATED charges will be rebased to 1 April 2022 property values and so a revaluation of properties will be required as at 1 April 2022. ATED Returns are due within 30 days of the start of the relevant chargeable period i.e. by 30 April 2023 for the 2023/24 period.
Property Valuation
If a revaluation has not been carried out on properties, directors should consider doing so as a matter of urgency to ensure that future ATED liabilities are based on the correct valuation. This is especially important if the property is valued close to the ATED bands detailed below. Even if the company’s property is currently relieved from ATED, it would be prudent to have a 1 April 2022 valuation should circumstances change.
Property values were particularly volatile post-Brexit and there were instances where values actually fell when the April 2017 revaluation exercise was undertaken. Given the effects of the coronavirus pandemic on property values, similar considerations may apply when the 2022 valuation exercise is undertaken, although different considerations will apply to different regions and properties.
Directors can ascertain the property value or a professional valuer can be used. Valuations must be on an open-market willing buyer, willing seller basis and be a specific amount.
ATED Annual Chargeable Amounts
Annual chargeable amounts can be found on gov.uk.
Pre-return banding check
If your property falls within 10% of the above value bands and you can’t take advantage of a relief to reduce your ATED charge to nil, we can ask HMRC for a pre-return banding check (PRBC) in advance of submitting your return. If HMRC complete your PRBC after you’ve submitted your return and they don’t agree with your valuation, you’ll need to complete an amended return.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Back to the Future
Following the “Growth Plan” mini budget delivered by Kwasi Kwarteng on 23 September 2022, Jeremy Hunt took centre stage for the second time on 15 March 2023 to deliver a…”Budget for Growth”.
Fiscal policy can be assessed in three measures: efficiency, effectiveness and equity and whilst the announcements were fairly safe, a handful are poorly timed or likely to be ineffective:
As regards equity, the Budget is fairly safe and business-focused, but it does not appeal particularly to small and medium-sized enterprises (SMEs) who now face a rise in corporation tax and who are unlikely to benefit from the full expensing capital allowances policy. In addition the chancellor has failed to take any action to make it easier for small firms to recruit people locked out of the labour market.
In other news regarding:
Visit our Budget Highlights and tax data for a summary of the Spring Statement 2023.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Taxing Times
In the latest decisive swoop of indecisiveness, Jeremy Hunt performed a 180 degree turn from the Mini Budget delivered less than two months ago by his predecessor. If the Mini Budget was dubbed “The Growth Plan”, can the Autumn Budget also be a plan for growth?
It was a step in the right direction: re-implementing fiscal discipline in an effort to re-galvanise trust in HM Treasury. Notwithstanding, it’s disappointing that fairer and more creative means of collecting taxes were not applied, rather than manipulating the tax bands in a move which fiscal-drags one and all. The 40% band no longer applies to the wealthiest. The capital gains tax rates on investment income are still only 50% of those paid on working income.
There were surely opportunities missed to rebalance the tax-system in a much-needed fairer way. Especially now in the face of a looming recession – or potentially depression, when the smallest tweaks in taxes and spending will have knock on effects on the amount of money that is spent on our high streets.
Taxes aside, there is risk of a continued disintegration of public services – this will come home to roost in two years if inflation continues its current trajectory amidst public spending cuts of £28bn.
Visit our Budget Highlights and tax data for a summary of the Autumn Statement 2022.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
A pay rise or bonus that takes one’s annual income above £100,000 is cause for celebration. Tread though carefully these muddy waters, for additional income earnt up to £125,140 attracts the highest rate of marginal tax across all other taxpayers, including those richer than you. Read on for tax-saving tips on how to navigate the 60% Tax Trap…
One’s Personal Allowance goes down by £1 for every £2 earnt over £100,000, increasing the amount of income that is taxed at the higher rate of 40%. One loses their Personal Allowance in full when their income reaches £125,140. The graph below illustrates how tax payable accelerates as income increases in the Tax Trap Band. Note the steepest gradient for income earnt in this range.
Avoiding the 60% Tax Trap
The incentive effect, or disincentive effect rather, of working to receive income in the Tax Trap Band, is punitive. For every £1 earnt, 60 pence are paid to the exchequer. Fortunately, there are several ways of avoiding or mitigating the 60% Tax Trap Band:
If you anticipate that your income will exceed £100,000, talk to your employer about strategies to manage your tax position. As ever, Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
With the dust still settling on the Mall following a triumphant celebration of Her Majesty The Queen’s Platinum Jubilee, one may begin to consider the tax deductibility of hosting Diana Ross, Ed Sheeran and the like – a figure reported to be around £28m.
As a general rule for tax, expenditure on entertainment or gifts incurred in the course of a trade or business is not allowed as a deduction against profits, whether incurred directly or paid to a third party such as an events organiser. HMRC are not however completely devoid of holiday spirit and provided conditions are met, certain types of entertainment are allowable. Hurrah.
Promotional Events
Events which publicise a business’ products or services are not deemed to be entertaining expenditure and so direct costs are allowable for tax if they meet the “wholly and exclusively” test. The cost of related food, drink or other hospitality is however disallowed. For example if a car manufacturer organises a golf day at which test drives are available, only the direct costs of the test drives and of any publicity material provided are allowed, together with any immaterial costs such as teas and coffees.
Gifts
Costs are allowable where gifts incorporate a conspicuous advertisement, do not exceed £50 in value (for all gifts made to the same recipient in a year) and are not food, drink, tobacco or tokens or vouchers exchangeable for goods. This could be merchandise branded with the business logo.
Staff Entertainment
Entertaining staff is allowable provided that it is not merely incidental to customer entertaining. Regardless of any deduction allowed against the profits of the business, a tax charge may arise on the employee personally. Employers may need to report the event costs to HM Revenue & Customs (HMRC) on each employee’s form P11D and pay class 1A National Insurance. Generous employers can though opt to pay the Income Tax and National Insurance Contributions on behalf of employees by entering into a PAYE Settlement Agreement (PSA).
To avoid this complicated scenario and to ensure that staff entertainment is allowable, an event would need to meet the following conditions:
To avoid a tax charge, the event would need to meet the additional condition of taking place annually! If an event were to include entertainment for staff as well as customers, the apportionment of expenditure on staff would be fully allowable, whilst the apportionment of expenditure on clients would generally be disallowable (with the exception of any gifts).
Recovering VAT on Entertainment
As a general rule, a business cannot recover input VAT related to client entertainment. VAT incurred on staff entertainment is however recoverable provided the following conditions are met:
1. Entertainment is not only provided for directors/partners
2. Costs incurred are not related to entertaining non-employees. For events which entertain both employees and non-employees, an apportionment of employee-related expenses and VAT would again be made.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.