Christmas 2023 #TaxVent calendar

As we fast approach the festive season employers may be thinking about rewarding their employees by way of a Christmas party or Christmas gift. However, what are the tax implications of this, and what do employers need to consider when thinking about the overall costs?

The annual staff Christmas party

Current HMRC legislation permits a tax relief in the form of an exemption of £150 (which equates to £125 plus VAT) per head.

This can be spread over a number of events in the same tax year provided that each event is capable of “recurring annually”. HMRC will carefully examine any staff party expenditure to see whether all related costs have been included and that the legislation has been complied with. In order to qualify for the exemption, any event should be open to all staff employed at a particular location.

Seasonal gifts to employees

Another related pitfall to avoid involves giving employees gifts at Christmas.

Generally, gifts are taxable but, there is now a statutory exemption for ‘trivial’ benefits, a benefit can be given to an employee without a tax or NIC charge arising provided the following conditions are satisfied.

• The cost of providing the benefit does not exceed £50.
• The benefit is not cash or a cash voucher.
• The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice).
• The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).

It is important to tread carefully and ensure the primary reason for the gift in related to the time of year rather than to say “well done” for good performance - therefore, being mindful of communication to employees and the reason for gifts is important to make sure you get your tax affairs in the right order and mitigate any tax liabilities that could otherwise arise.

Today's top tip was written by Ian Prescott. To find out more about this, please see the article here, or alternatively, you can contact a member of the Tax team below.

The recently announced increase to the National Living Wage/National Minimum Wage rates alongside another 9.79% increase to £11.44 and lowering the NLW eligibility to 21 hasn’t been without its issues.

So…if you’ve got concerns regarding how the recent increase to the NLW rate will impact your business, please get in touch below, or you can complete our NMW Assessor Tool to receive your free, no-obligation NMW risk report to highlight any potential gaps in your NMW compliance processes.

Today's top tip was written by Jane Gilmore.

The demands of the modern world have changed everything. What we understand started out as a sole trader enterprise with a very basic support and transport structure has evolved into a sophisticated modern operation, with different divisions of what is clearly a multinational exercise, with functions devoted to product identification and development, manufacturing, distribution, logistics, preparation and delivery.

The complexity of transfer pricing considerations is increased when different cross-group relationships occur. These considerations are even greater from this year with the commencement of the new transfer pricing documentation requirements that are now effective for all accounting periods commencing after 1 April 2023.

HMRC are anticipating additional yield of £80m per year as a result of this measure alone by 2027.

It’s worth noting that failure to keep these records will mean that any resulting inaccuracies in the figures will be presumed (as a matter of statute) to be a “failure to take reasonable care”. Thus, there will be tax-geared incorrect return penalties of typically 10%-30% should any under-declarations of tax be found as a result of HMRC enquiry.

Indeed, such HMRC enquiries into transfer pricing issues will be more likely in the future, too, as HMRC continue to recruit more staff explicitly to specialise in this field.

You can find out more about the support we can offer you here, or, feel free to get in touch with David Lewis below.

Today's top tip was written by David Lewis.

If you have key employees you would like to incentivise and retain, but would like an adviser to discuss how to structure the successful implementation of an equity incentive arrangement that’s right for your workforce and commercial realities, please get in touch with Amy Reynolds.

Does your organisation offer flexible working arrangements? Maybe you can work in a variety of locations, or at different hours. Whilst this flexibility offers many benefits, for both employer, and employee, it can be difficult for an employer to keep track and can bring additional stress during busier periods (for example Christmas). Especially if your employees are working from countries with no corporate presence – this can bring additional risks.

Some of these risks might involve:

• Permanent establishment – employees may create a corporate tax presence of in the countries they work in.
• Immigration – depending on the substance of the activity, employees may require a work permit or visa to make presents in other countries.
• Local payroll tax withholding obligations – If employees are working in a country that has a double taxation agreement with the country their company is mainly based in, and they spend less than 183 days there in any 365-day period, then these obligations can often be mitigated.
• Liability to social security contributions in these countries – whether the employees remain subject to social security contributions will depend on whether the main country their company is based in has a social security agreement with the countries the employees work in.
• Employment law – Dependent on the time these employees spend in other countries, their main contracts of employment may need to adhere to the employment law of these countries.
• Data protection – Your employees could be carrying sensitive data connected to clients, and steps need to be taken to ensure that this data can be transferred safely across borders.

If only there was a technology solution that could help manage this?

Track Global helps employers to track their business travellers and remote workers to ensure compliance with tax, social security and immigration regulations across the globe.

How can we help you?

We can work with you to roll out the Track Global app to your employees. This would mean that when employees visit another country, they are now required to submit a travel request via the app. You would then receive a traffic light risk report from Track Global which shows whether any immigration, tax or social security thresholds would be breached in that country based on the purpose and duration of the trip.

Please get in touch with Robin Bailey, or Anna Bowgett, below for more information about how we can support you with rolling this out.

It’s coming soon…a whole raft of changes to reduce net migration figures into the UK.

With application fee increases, which took effect from 4 October 2023, and the upcoming Immigration Health Surcharge increase (from £624 per year to £1,035) from 16 January 2024, it was hoped that this would be all that was planned for this year.

However, the UK government recently announced further changes to take effect in Spring 2024.

These changes include:

1. The minimum salary needed for skilled workers will hike from £26,200 to £38,700, up 50% from its current figure. The government will also end the 20% going rate salary discount for shortage occupations and replace the current shortage occupation list with a new Immigration salary list that, according to the Home Secretary, will retain a general threshold discount.
2. Social Care Workers will no longer be allowed to bring their dependants when they come to work in the UK. In line with the government statement, they have noticed a high number of visas being granted to dependants of care workers professionals, where the majority, whom they estimate do not work, still make use of public services. The government also suggested that those arriving by the Health and Care visa route will be exempted from the increase to the salary threshold for skilled worker visas.
3. The minimum income for family visas has also risen from the current £18,600 to £38,700. This is the first increase in the income requirement since 2012. This route is designed for British citizens and those settled in the UK who want to bring their family members to join them.
4. Part of the plans also involves the government’s request to the Migration Advisory Committee to review the Graduate route to ensure it works in the best interests of the UK and that steps are taken to ‘’prevent abuse’’. Any major changes to this route could have a substantial impact on companies which have graduate programmes in place.
5. Along with the above measures, the government confirmed that from next year migrants coming to the UK under the student visa will no longer be able to bring dependants with them. The government believe this will lead to 300,000 fewer entrants into the UK.

But it is not all bad news!

With upcoming changes to the business visitor rules expected in January 2024 that were announced in the Autumn statement, there will be clarification and an increase on activities that can be undertaken in an intra-corporate setting, wider coverage for the legal services sector and more simplified arrangements for those undertaking paid engagements.

Business travel into the UK looks like it will become more straightforward.

However, it is worth bearing in mind that the Electronic Travel Authorisation (ETA) scheme for visitors, which commenced in October 2023, will continue to be rolled out over 2024. This will require all non-visa nationals to obtain an ETA prior to travelling to the UK.

If you would like to know more about any of the points raised above or wish to discuss them in further detail, please get in touch with Sue Kukadia or Michelle Askew.

In the most recent Autumn Statement, the Chancellor announced a range of measures for VAT.

Firstly, we are thrilled to note his promise that there will be continuity for business via the draft clauses in the Finance Bill on EU law as it affects VAT and excise duty. These are promised to ensure that UK VAT and excise legislation continues to be interpreted as Parliament intended, drawing on rights and principles that currently apply in interpreting UK law and this will therefore ensure the stability of the UK VAT system. However, the position does seem more complicated than the press release suggests and we fear that the new rules may end up creating more uncertainty than anticipated.

The background to this is that the Retained EU Law (Revocation and Reform) Act 2023 (‘REUL’) which was passed in the summer, would have removed most of the effect of EU law and created immense changes for the VAT world, due to VAT’s reliance up to this point on EU legislation and case law to supplement and interpret the UK VAT rules. The draft Finance Bill clauses will reverse most of the effects of this for VAT and excise-specific provisions, and confirm that previous interpretation will continue, except to the extent that this would quash or disapply UK domestic legislation. However, the complex drafting involved has led to room for doubt as to what this will mean in practice, for instance as to whether taxpayers can still rely on direct effect, which in many cases has been an essential part of the taxpayer toolkit, especially where the UK legislation is deficient. 

Taxpayers would be well advised to start to identify the gaps in the UK law vs the EU laws that are relevant to their business and to seek to lobby stakeholders to amend provisions as necessary to deal with any issues. The new year looks certain to bring new challenges. If you’d like some support with how you can manage these changes, then please get in touch by contacting Linda Adelson.

Senior Accounting Officer (SAO) responsibilities apply to UK companies which, either as a standalone entity or as part of a UK group, have a turnover exceeding £200m or gross balance sheet assets in excess of £2bn. This typically happens as a result of either organic growth or M&A activity. Once within the scope of SAO, priority will need to be given to complying with the rules. For companies or groups already within the SAO rules, a change in the identity of the SAO will likely trigger a review of existing SAO processes.

Complying with SAO requirements includes filing certain documents with HMRC on a timely basis and, more fundamentally, the SAO’s fulfilment of a statutory duty. Failure to meet the filing requirements or to perform the statutory duty can result in penalties both for the company and the SAO personally. Putting in place appropriate processes and controls to manage tax risk (and documenting this) is therefore important.

In addition to SAO, tax governance responsibilities for UK companies include the requirement to publish a UK tax strategy and to review Corporate Criminal Offence risks and prevention measures. If you’d like to hear about how we can help, please contact Helen Jackson or Lucy Redding.

As of 1 April 2023, the associated company rules have changed.

For accounting periods beginning on or after 1 April 2023, the number of group companies relevant to various parts of the legislation is to be calculated by reference to the number of ‘associated’ companies a company has. This replaces the previous rules involving related 51% group companies.

• A company is an associated company of another company if one has control of the other, or both are under the control of the same person or persons.
• A company may be an associated company no matter where it is resident for tax purposes.
• An associated company is counted even if it is an associated company for only part way through the accounting period.
• An associated company which has not carried on any trade or business at any time during the accounting period is excluded.

The impact of these changes could give rise to higher rates of tax to be paid and tighter deadlines for companies to settle any liabilities due.

The rules are complex, so whether this top tip comes as the perfect present or the most unwanted gift this Christmas; we can help. You can contact Hannah Traynor for more information about how Mazars can support you with these changes.

We are all guilty of procrastinating at one time or another and with Christmas on the horizon we are all as busy as ever, but if you’re one of the millions of taxpayers caught in the Self-Assessment system, you must file your tax return by midnight on 31 January to avoid a late filing penalty. This top tip is about the other benefits of filing your tax return early, other than just avoiding penalties.

Firstly, sticking with the Christmas theme, it gives you time to plan for what you need to pay by 31 January and therefore more time to enjoy the festive season without worrying about your tax bill!

For those with income sources paid through PAYE, if your liability is less than £3,000, you can choose to have the tax collected by way of a restriction to your PAYE code.  This provides a nice cash flow advantage as the liability will be collected from your main PAYE sourced income in equal instalments between the following April and March. However, for the tax to be collected through PAYE your Tax Return must be submitted online by 30 December.

If you can’t pay through PAYE and you are struggling to pay in full on 31 January, you may be able to set up a Self-Assessment Payment Plan.  You can do this online through your Government Gateway account if your liability is less than £30,000 and your tax return has been filed and you don’t have any other payment plans or debts with HMRC.  The deadline for arranging this is 31 March although interest will still be payable from 31 January and rates have now soared to 7.75%!

Finally, let’s talk about the HMRC enquiry.  HMRC have the power to enquire into any tax return and where a return is submitted on time, the deadline for an enquiry is 12 months following the submission date.  So, for a tax return filed on 25 December 2023 (3,275 people submitted their tax returns on Christmas Day last year!), the enquiry window is open until 25 December 2024.

However, when you file ‘late’ the enquiry window is extended to the next quarter day.  The quarter days are 31 January, 30 April, 31 July and 31 October, so for a return that is filed on 1 March 2024, the enquiry window will not close until 30 April 2025.

Whilst this post may not be the most positive, let me finish by saying that we have a range of tax advisors who can assist with filing your tax return as early as possible for you. Please contact Toni Glenn for more information on how Mazars can support you with this. 

On day 11 of the Taxvent calendar, the focus shifts to innovation incentive tax reliefs.

The recent Autumn Statement confirmed that the proposed new merged R&D tax incentive scheme based on RDEC (replacing the existing SME and RDEC schemes), will be launched in April 2024. In addition, there will be a decrease in the rate of Corporation Tax from 25% to 19% for loss-making companies under the merged scheme, and a reduction in the R&D intensity threshold from 40% to 30% under the R&D intensives scheme, which potentially introduces around £280m of additional funding to innovative businesses.

It’s important to keep the points below in mind:

1. Don’t leave R&D submissions until the last minute - - These new rules mean preparing an R&D claim requires even more coordination than in previous years, and can involve many people (finance, technical staff, and tax). Put time aside to ensure that your claim is robust, meets the new regulations, and is maximised.
2. Consider a move to UK shores - From 1 April 2024, R&D activities will need to be physically located in the UK for the costs to be included in UK R&D tax relief claims. It’s advisable therefore to consider (a) looking at the impact of these changes on his claims to ensure any budgeting is as accurate as possible, and (b) to see whether it makes commercial/financial sense for these activities to be performed in the UK going forward. There are some exemptions where work outside the UK is permitted for geographical, environmental, social, or regulatory/legal requirements.
3. The impact of the upcoming changes on any R&D claims --- To make informed decisions around future innovation investment, it is vital that you consider the impact of the upcoming changes on future R&D claims. Will the organisation be regarded as an R&D intensive business, benefitting from the more attractive R&D rates? Or will it fall under the merged scheme rate of 20%? Knowing this information in advance will allow you to plan appropriately.
4. Naughty or nice? - HMRC have the final say as to who is on the naughty or nice list! To avoid being on the naughty list, it is best practice to provide a comprehensive claim report. This should detail the costs being claimed, qualification and quantification methodologies, and supporting technical narratives/cost schedules that clearly demonstrate what qualifying work was undertaken in the period. This is in addition to the new requirements, which include the claim pre-notification (if applicable) and additional information forms.

If you’d like to get in touch to discuss your own claim, or whether you are eligible, contact Chris Ridley. You can also look at our dedicated Innovation Incentives page, which has many practical videos, content and guidance. 

What is a Permanent Establishment? In brief, a PE means having a taxable presence outside your company’s state of residence.

Some businesses are facing the challenge of determining the corporate tax implications and reporting consequences when expanding operations. For example, the UK tax authorities may consider profits derived from an overseas PE, requiring those businesses affected to maintain meticulous documentation and compliance to avoid potential tax pitfalls.

For businesses establishing a PE overseas it is essential they adhere to local tax regulations, filing accurate reports to prevent any unexpected tax consequences.

In the realm of international taxation, a PE will often have a fixed place of business through which a company carries out its activities. A fixed place of business could include offices, factories and building sites to name just some possibilities! Understanding the concept of a fixed place of business is therefore vital for companies expanding overseas and understanding PE rules.

Additionally, the role of a dependent agent should not be overlooked, businesses might engage agents to act on their behalf in foreign territories. If these agents have the authority to conclude contracts, they could create a PE and trigger potential tax liabilities. Companies should approach overseas expansion strategically. Implementing efficient tax planning and consulting with experts can help minimise tax leakages and ensure a smooth transition into new markets. Businesses, too, should collaborate with tax authorities and comply with cross-border regulations to foster a harmonious global presence.

To conclude, businesses must approach the establishment of an overseas PE with strategic planning and compliance in mind. By understanding the concepts of the fixed place of business and the dependent agent in the context of Permanent Establishments, companies can unwrap success in new markets while mitigating potential tax challenges.

If you too are planning to get your international operations to be seamless and require a Permanent Establishment Risk review, please do not hesitate to contact Angelo Chirulli to find out more.