MAKING YOUR MONEY WORK HARDER!
<LOCATION>-BASED TAX AND ACCOUNTANCY SPECIALIST <NAME>ADVISES ON Working in the
UK, Providing Employees with Living Accommodation, Theft of income by an employee, Do you
need a PAYE scheme? Storing VAT invoices, records and returns electronically, Amending my
income tax return , Charities and VAT, Information required for payroll.
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Working in the UK
Q: I have just arrived in the UK on a 6 month work placement from Canada. I will be living and
working in the UK for approximately 6 months over the summer, returning to Canada in August to
start University. My employers advised that I would be paying UK income tax on this employment
income. I thought I wouldn’t have to pay any tax in the UK, as I am only here for 6 months and not
a UK citizen? If I do have to pay, how do I claim back my tax rebate for this period of work before
I leave at the end of August?
A: As you are employed by a UK based employer you will be subject to the same standard deduction of Income
Tax and National Insurance under PAYE as all other UK based employees, irrespective of where you originate.
When you arrive in the UK you should complete a Form P86 to notify the HM Revenue & Customs of your arrival
and before you leave you should obtain a form P85 to notify of your departure. These are vitally important for
the authorities to decide on your liability to tax in the UK. They will need to establish your liability to UK income
tax on your earnings for the two tax years you are here in the UK. As you are a commonwealth citizen you can
claim the normal UK personal tax allowances, which for the 2005/06-tax year is £4,895, and depending on how
much you earn, may entitle you to a tax refund for the 2005/06 and 2006/07 tax years.
Providing Employees with Living Accommodation
Q: I have recently been granted 24 hour licence for my public house, and due to the increasing
number of hours we will be open I have offered a managers job. Part of the package is that they
can live in a flat above the pub. Are there any tax implications I need to consider for this as I am
not going to be charging the manager any rent?
A: If you allow an employee to live in accommodation supplied by you, they are liable to a benefit in kind on the
annual value of that property. They will however be exempt from this charge if the accommodation is provided
for the better performance or proper performance of the job, or is provided for security reasons. Usually in the
public house industry the accommodation is supplied for security purposes and assuming the contract of
employment specifies this, it will be job related accommodation and exempt from a benefit in kind.
However, if you are also paying the bills for the gas, water, electricity and other ancillary services such as
redecorating, on behalf of the manager, he will be assessed on a benefit in kind. This amount chargeable is
equal to the lower of: the total of all bills paid or 10% of managers earnings in the tax year. Also, if you provide
the flat furnished, then there is an additional benefit based on 20% of the market value of the furniture at the
beginning of the tax year that the accommodation is first provided.
Theft of income by an employee
Q I recently took an extended holiday over the Christmas period and left one of my staff members
in charge of my newsagent business. On my return I noticed the report showing the takings, cash
expenses and the amounts banked did not reconcile with the till receipts by quite a substantial
amount. On speaking to my staff member, she admitted that she had taken the missing amounts,
and agreed to repay me. The next day she did not turn up for work and I have been unable to
contact her about the debt. The police do not seem that interested in finding her, although they
have now logged a theft report. Will I still have to pay over the VAT on the missing monies and is
the amount stolen allowable for tax?
A As you have actually made the sales, HM Revenue & Customs will insist on the relevant VAT being paid over
for the VAT period in which the sales were actually made. For tax purposes, as an employee was responsible for
the theft, the amounts stolen will be an allowable deduction. However, if your business insurance covers theft
and your insurers allow you to make a claim, then only the element which relates to the uninsured loss can be
allowed against tax. If you cannot make a claim, and do not receive an insurance payout for the loss incurred
then the full amount will be allowed. As the police have filed a report on the matter, you should have received a
crime number, which should be kept if the Inland Revenue query the loss in your accounts.
Do I need a PAYE scheme?
Q I have recently set up limited company but do not wish to take any salary in the first few years
to assist the cash flow of my business. I have a number of personal investments which mean I
already pay tax at basic rate and can live off the income that these provide for a few years. As I
am not paying any wages do I still need to set a up payroll scheme for the company, as the
accountant wants to charge me for doing this?
A You will not need a PAYE scheme until you propose to take salary or begin to employee staff. However, you
must also ensure you do not receive any benefit or expenses payments from the company. You may also wish
to consider paying a small salary to preserve your entitlement to state benefit and state pensions. Currently this
will need to be between £82 and £94 per week. Unfortunately, if you do have a scheme set up, you will still
need to file end of year forms P35 and P14, but if you do it online you will benefit from the tax free filing
incentive of £575 over the next 4 years, which should be enough to pay your accountants fees.
The HMRC will normally set up a PAYE scheme once it receives the new company notification form (CT41G).
This is because they assume that all companies will have at least one director and normally (though not
inevitably) that director will receive salary which is should be subject to PAYE deductions. If no salary or wages
are being paid, the HMRC suggest that a covering letter is submitted with the form (or on receipt of the end of
year form (P35)) which highlights this and they will update their records to show no PAYE scheme is required,
and this will save you paying the accountant for a service that isn’t required.
When you decide to start taking a salary or employee a staff member you should contact the employers helpline
or your local HMRC office immediately to re-set up a PAYE scheme.
Storing VAT invoices, records and returns electronically
Q: I recently upgraded my IT equipment for my business, and now have the ability to store and
produce all of my VAT information on my computer system. I usually have boxes of invoices and
records relating to VAT each year, can I dispose of these?
A: A business is not obliged to keep VAT invoices and records in any particular format, but they must be kept in
one that means they can be readily accessible in to VAT inspectors in a legible form. Records must be kept of all
taxable goods and services received and supplied in the course of a business.
HM Customs & Excise has rights of access to VAT-related records on a computer and can check its operation
and the information stored – in doing this, they can ask for help from people in a business who are in charge of
or who operate the computer or its software.
HMRC suggests that on first registering for VAT a business should notify the local VAT Business Centre if it
intends to use a computer for VAT accounting. Businesses like yours also now have the ability to complete VAT
returns online using the ‘eVAT’ service, which removes the requirement to complete paper forms. If you pay by
an approved electronic method, your business will also receive additional time to make returns and payments.
Amending my income tax return
Q: I rushed the submission of my tax return in January, and realised that I missed off the tax
return the interest I received from my bank accounts and dividends received from some
investments during the 2004/05 tax year. Can I revise my tax return and will I incur any fines for
A: Just as the Revenue has the right to repair an obvious error or mistake on a return the taxpayer has the right
to amend it, within 12 months of the filing date for the tax return, which in the majority of cases is the following
31 January. The amendment to your tax return may be in the form of a letter detailing the omissions, an
amended return, an extra supplementary page that shows the relevant source of income, or an amended
supplementary page of one originally submitted with the return.
The Revenue will normally accept an amendment to a return or self assessment under Section 9(4)(b) of the
Taxes Management Act, whether it is notified by the taxpayer or by their agent. However, you must ensure the
amendment is supplied in writing.
No penalties for late filing will be applicable, but you need to be aware that if the amendment results in
additional tax to pay you will be charged interest from the due date of payment, which in your case was 31
January, and may be liable to a 5% surcharge if this is not paid by the end of February.
Charities and VAT
Q I am forming a charity to provide funds for a local hospice. Am I right in thinking that because
we are a charity, we will not be charged VAT on the equipment we donate?
A I’m afraid that just being a registered charity does not entitle you to VAT exemption. If the charity registers
for VAT, which it must if its business activities exceed the usual VAT registration limit, which is currently
£60,000, then it will be able to reclaim the input VAT charged on purchases. However, some items you may
supply carry a reduced rate of 5%, and some have no VAT charged on them at all. Examples may include some
advertising services and certain equipment supplied in caring for the disabled. You should speak to your
accountant who will be able to supply more details on the rate of VAT, which applies to the sales you make.
Information required for payroll
Q I have recently secured some larger contracts for my business and need to take on some
employees. I will not have time to calculate the weekly wages and tax deductions for my staff and
I would like to get some help with this. I understand that there are bureaus that will do this for me.
What sort of information will they need?
A There are indeed bureaus that will manage your payroll – as indeed an accountant can, and it may be worth
getting quotes for carrying out this work before you proceed. You may be pleasantly surprised! Whichever route
you choose, you will need to supply the full name, address, sex, tax code, date of birth, national insurance
number, national insurance letter, gross pay to date, tax paid to date and the totals from columns 1a to 1e on
the from P11 that you must be using currently for each of your employees. The bureau or accountant you
choose should send you a pro forma to use, ideally two or three weeks before you need to commence - and
can supply it in good time for the payroll to be processed without disrupting expected pay dates.
You should also consider if the accountant or bureaus can offer to deal with this electronically, as this will save
you even more time, and if they file your end of year form P35 online from the 2005/06 tax year onwards, you
should qualify to a tax free lump sum of £575 over the next 4 years.
xxxxx (insert name) specialises in managing tax and accountancy affairs for small business owners –
and can be contacted by xxxxx (insert telephone number) or by email xxxxxxx (insert email address).
TaxAssist Accountants is located at <insert address>.
Disclaimer – advice shared in this column is intended to inform rather than advise. Taxpayer’s circumstances do vary and if you feel that the
information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of
reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.