Employment Status

Are you a contractor? If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor.

Your employment status will determine the charge to tax on income from your employment or self-employment. It will also determine the class of NICs, which are to be paid.

Umbrella Companies employ you for tax purposes and complete central returns for all their contractors. It's less hassle and more flexible for you but take home pay is typically less than that the limited company option.

The best option for you depends on your plans, 'one off' contract or 'contractor for life'? [Read More...]

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Expenses and Benefits Part 2 Christmas

Company Benefits - Christmas Time

Tax deductible Christmas expenses!  Yes, even the tax man likes Christmas.  In this article we continue are look at expenses and limited company benefits and pull back the curtain on tax deductible expenses.  It's your money, your earned it, ensure you claim for all relevant and compliant limited company expenses.

Ensure you read part 1 - transport expenses

Expenses and Benefits Part 2 - Christmas

Cash Christmas Bonus

When an employer gives an employee a cash Christmas Bonus, it must be treated as earnings and PAYE tax and Class 1 National Insurance Contributions NICs apply, as per the usual payroll procedures.

Non-monetary Seasonal Gift with a cash resale value

When an employee who earns less than £8,500 a year receives a gift which can be resold or exchanged for cash, no tax or NICs are paid on the item. However a form P9D must be completed by the employer.

In the case of Company Directors and employees who earn £8,500 or more per year, a form P11D must be completed and Class 1A NICs paid on the value of the benefit.

Non-monetary Seasonal Gift without a cash resale value

When an employee who earns less than £8,500 a year receives a gift which cannot be resold or exchanged for cash, there is no requirement for the employer to report the gift to HMRC or pay tax and NICs.

For Company Directors and employees who earn £8,500 or more per year, a form P11D must be completed and Class 1A NICs paid on the value of the benefit. However, HMRC has the discretion to exclude certain benefits from deductions, if they are considered 'trivial'. Please see below for a description of the Trivial benefits remit.

Trivial benefits

A trivial benefit is a small gift, e.g. a bunch of flowers, given to an employee to celebrate a personal event, e.g. birth of a child.

An employer can apply to HMRC to request an exclusion from paying tax, NICs and reporting on the grounds that a gift is trivial. Though there is no absolute definition of a 'trivial benefit', HMRC considers; a) the cost to the employer of providing the benefit to each employee, b) the reason for the benefit, c) the administration cost to both the employer and HMRC, relative to the amount of tax and NICs.

Christmas Party

If an employer provides a Christmas party for employers, there are no requirements to pay tax, NCIs or report to HMRC providing the event is open to all employees and the cost per head isn't more than £150.

Please note that if other social functions have taken place during the year, it may affect the £150 per head allowance if the total amount of all of the functions is more than £150. e.g. Three events have taken place; An annual Barbecue at £40 per head, a Summer ball at £60 per head and a Christmas party at £100. The total benefit is then £200. In this instance, the exemption should be applied to whichever combination of events best 'use up' the £150 threshold. In this case, the best combination would be the Barbecue and Christmas party, with a combined value of £140 per head. This is within the exemption threshold. However, you could not combine the Summer ball and Christmas party as that would be above the £150 threshold.

If costs are more than £150 per head for any single event, there is no exemption and full reporting, tax and NICs apply, for the full amount, not just the excess amount over the £150 threshold.

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HMRC Compliance

It's the basics... Compliance with Tax, VAT, PAYE and fiscal arrangements is mandatory for contractors regardless of whether you use an umbrella company or your own limited company.

Incredible then that there are still rogue umbrella companies and limited company accountants who expose their contractors to fraud. Umbrella Compare provides THE solution, we thoroughly vet all umbrella companies and limited company accountants that we list [Read more...].

Umbrella Compare provides a holistic overview of contracting with the aim of helping new and old contractors find the right payroll solutions. Contracting should be about focusing on the contract, not payroll, accounting, HMRC and bureaucracy.