Cycle to Work Scheme

The Cycle to Work Scheme

cycling

The number of people taking to cycling each year is growing with over two million people taking to their bikes once a week according to British Cycling. In the large cities of the UK, it is seen to be one of the most efficient ways of getting from A to B. According to government statistics, 30% of people get to work on two wheels.  There was even a Cycle to Work Day on the 14th September 2016. (I missed that one). It happened in 2013, 2014 and 2015 – but I missed those as well.

Employers can put in place a cycle to work scheme, so employees listen up. Even a director only company can have one. The scheme is a UK government tax exemption initiative to help promote a healthier lifestyle as well as reduce environmental pollution. Employers can loan bicycles and cyclists safety equipment as a tax-free benefit provided the value is less than £1000*.

The equipment that can be included in the scheme:

  • A bike (handy) but the amazing thing is that it also includes those new ones that have a battery to assist peddling (I do like the sound of one of those);
  • Cycle helmets that conform to European standard EN1078 (don’t know what happens to these standards after Brittan leaves the EU but that is another post);
  • Bells and horns;
  • Luggage carriers and the straps to allow bags to be safely carried;
  • Child safety seats
  • Lights
  • Mirrors & mudguards so cyclist can see safely;
  • Locks & security chains;
  • Pumps & repair kits;
  • Protective clothing with those reflective strips build in;
  • Cycle clips & dress guards.

With all that kit, you probably need to have a car to put it in!

 

How does it work?

The two methods are via a loan scheme, or via a salary sacrifice arrangement and the employer reduces the salary of the employee.  There must be a salary sacrifice letter in the employee’s file to show this has been agreed. It needed to be noted that the sacrifice cannot take the employee below the national living wage or the minimum wage dependant on the age of the employee.

The employees enter into a hire agreement with the employer for the bikes, so the employee must be over 18 as they need to sign a legal agreement. The scheme must be available for all employees, but there can be different levels of bike to different levels of staff. I can picture the old Chopper bike versus a Felt Z6 bike.

The hire agreement or salary sacrifice letters must be in place before the commencement of the scheme for the employee. We can provide a template for the salary sacrifice letter.

 

Ownership of the Equipment

It is important to note that the title of the bike belongs to the company and does not pass to the employee. The bike should mainly be used for travelling back & forth to work and work related journeys need to account for at least 50% of its usage. There is no requirement to keep mileage logs, but the advice would be to keep one to prove the 50% use. Many people take the train city to city and then use the bike to get from the station to the office. You just need to be careful about which train journeys the bikes cannot be taken on.

The joyful news for tax is that there is no benefit in kind payable by the employee so it will not appear on the P11D for the employee, and therefore no payment of national insurance on the cost.

 

Get peddling.

 

 

 

 

 

 

*The value is to do with the consumer credit act and hire agreements.

How is my tax calculated? Why is it so high?

I’m a self-employed singer/musician – how is my tax calculated?

ReceiptsIt is a common misconception that tax is calculated on your income/revenue/billings, and that the costs incurred for your business as a singer/musician are then deducted from that tax calculation. I wish it were true but sadly not.

This blog post assumes your only income is from self-employment and you have no PAYE income, interest, dividends or pension.

At the end of your accounting or tax year (this may change from April 2018), you work out what your income is whether from teaching, concerts, adjudication, publishing, royalties etc. You then work out your allowable costs that can be offset against this income. Typical allowable costs can be found on my blog post site or you can sign up at the bottom of my webpage for a full document at www.performanceaccountancy.co.uk/musicians.

Having got those two figures, you have a profit (or loss). From here, you can deduct capital allowances for any major purchase you may have made e.g. a new piano, computer etc.

You are then left with your taxable profit. As an individual, you get a personal allowance of £11,000 for the tax year 2016/2017 and that is deducted from your taxable profit.

Income tax is then calculated on that figure if it is greater than zero. Tax is at 20% but goes up to 40% at £33,500 (after the £11,000 allowance).

That is only the first lot of tax to pay on your taxable profit. If your pre allowance taxable profit is greater than £8060, you then have to pay 9% Class 4 National Insurance over that amount. To top it off, if your taxable profit is over £5956, you have to pay £145.60 for class 2 national insurance if you are over 16 and under pensionable age. woman_puzzled_7863

As an example, Sandra earns:

Private teaching               £16,500

Concerts                              £4,200

Allowable Costs                 £3,600

iMac Purchase                   £1,200

 

Therefore her profit is £17,100 and her taxable profit is £15,900.

Her tax calculation is:

Taxable Profit                    £15,900

Personal Allowance          £11,000

Total                                      £4,900

Tax @20% on £4,900       £980

Class 2 National Ins          £145.60

Class 4 National Ins          £765.60

Bill for current year        £1831.20

 

Sadly for Sandra, it does not end there as she owes more than £1,000, she will have to make a payment on account for next year – more on that in a later post.

 

Hopefully that clears up how tax is currently calculated for the self employed.

Tax & Bank Rewards

“But it is not interest, why do I have to put it on my tax return?”

This was a question raised the other week by a client who was not happy that the reward for banking with a certain bank was taxable income. But not all amounts have to go onto the return.  How do you know which ones apply?

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Cashback rewards based on spending

The good news here is that if you get cash back from your bank depending on how much you spend, then this is not taxable income.

 

Bank switching incentives

Great news – these are also not taxable income so does not have to be in the tax return.

 

Bank Rewards e.g. Loyalty Commission

These types of rewards are given for various reasons, for example, paying a certain amount in each month, having a bank account for a period, setting up direct debits, use of online systems, etc. HMRC see these as annual payments (even though paid monthly) and are not covered by the personal savings allowance (from April 2016) so the bank should be deducting tax from such payments.

So the £5 a month that Halifax pays for meeting its criteria of paying in £750 per month, having two direct debits and staying in credit is £6.25 less 20% tax of £1.25. That means non-tax payers can complete an R40 form and get that tax back. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/535608/R40_M_internet.pdf

interest

 

Now – there is an extra twist. Some banks you have to pay a fee for the account that gives these loyalty rewards. For example, Barclays Blue account charges £3 per month for the account, so it is called a miscellaneous payment and not an annual payment. Therefore it is paid gross, and no tax is taken off which means taxpayers need to declare this income and pay tax on it. Pity you don’t get relief for the fee you pay to get the amount!

Is this new?

No – this has been around since banks introduced these incentives, but a significant number of people don’t have issues as they are basic rate tax payers and all interest is taxed. The introduction of the personal savings allowance means that these discrepancies are being highlighted as bank rewards and are not encompassed in this as interest.

Changes in Tax Reporting

For all you self-employed and landlords – this is a quick heads up. Company owners, you do need to know about this as well.

Overworked Character Showing Exhausting Workload

Back in March 2015, the government announced the end of the tax return and we all jumped for joy (except for accountants of course). Well, that state of play is getting closer for the freelancers/self-employed people and landlords if their income from this type of source is over £10,000.

Consultation documents were issued by HMRC in August 2016 all about “making tax digital” (MTD). The idea is that individuals with income which is not taxed at source greater than £10,000, will need to do quarterly reporting to HMRC via online accounting systems or apps, or via a standalone system that can send data directly to HMRC. Gone will be the days of using excel (other spreadsheet systems are available) to collate your numbers and then load the totals onto the HMRC portal. You will note that it says income, not profit. HMRC require that everybody caught will need to keep their records online, and these records include your bank transactions for your business whether it is a bank account, credit card or PayPal type systems; sales invoices, purchase invoices & receipts, plus records of cash spend and income.

The idea being is that these records are entered or electronically loaded on a regular basis, and at the end of each quarter (or more if you want to), a summary of data is transmitted to HMRC within 30 days of the quarter end. It is only a summary of the data in specified categories and not actual copies of receipts and invoices.

The consultation documents propose that this kicks off from April 2018, and the first reporting could be as early as May 2018 depending on how people want to set up their reporting. The maximum time between reporting is three months. At the end of the year, there is a nine-month period that you can amend your numbers of any adjustment like mileage allowance, home office calculations, accruals, etc. So the numbers have to be finalised by the 31st December (if your year end is 31st March) or 5th January (if the year-end is 5th April). So the 31st January will not exist when this comes in. You lose a month.

stick_figure_depression_800_wht_11168What people may not realise is if you have a year that is not the 31st March/5th April, for example, a teacher may pick 31st August for a school year. Then you still have quarterly reporting, but your final assessment deadline is nine months after the 31st August (31st May) rather than 31st January 18 months later. That is doing to be a huge change for these people as they will be effectively working on three tax returns at the same time rather than two. The year end of 31st August 2019 ends in tax year 2019/2020 would need to be on the tax return by the 31st Jan 2021 under the old scheme, but under Making Tax Digital, it needs to be finalised to the tax man by 31st May 2020.

There are specific exemptions noted in this consultation:

  • Self-employed businesses and landlords with income below £10000;
  • Charities;
  • Community Amateur Sports Clubs;
  • Insolvent businesses and insolvency practitioner;
  • The Digitally Excluded, e. those without computers or broadband, or for other reasons.

Another piece of workTo add a nail in the coffin a bit more, unlike self-assessment tax returns and payroll systems, HMRC will not be providing any free software for MTD. They are looking to the software providers to make available free software for the smallest of businesses, but commercially why would the software companies do this. It is more likely that the software is something that the company needs to pay for on a monthly basis and find ways of making it work for them and that then just adds to the administrative burden & cost for the business. I am already looking at package solutions for clients to overcome the problems of MTD from a DIY & review pack through to a fully serviced option. More on that another time.

I’ve seen things on social media sites that people are saying this is voluntary and you don’t have to do it. That is not correct. All self-employed businesses will have to go down this route unless they are in the exemption categories. The bits that are optional is if you use a cash accounting method, if you want to report more frequently than quarterly, or if you want to make payments on account after each reporting period.

Of course, if you don’t file things on time each quarter, there will be a penalty system. At the moment they are proposing that if you are late, you get a “point”, and once you have 4 points, you get a penalty. Those 4 points stay for 24 months, and each time you get another point when you have 4, another penalty. Of course, this is up for question as well.

If you run your company, don’t sit there and smirk as VAT registered companies will come into the game on the current rollout programme from April 2019, and all companies from April 2020.

 

latemanrunAs I say, this is still at the consultation stage that ends on the 7th November. Some people think the final plan will come out with the finance bill on the 23rd November; others believe it will be finalised in March 2017. A critical area of concern is the start date being April 2018 and if it should be April 2019. The starting level of £10,000 is being questioned of being too low and a look at the VAT threshold (£83,000 of income) before this comes into play.

I’ll be keeping a close eye on this as it will affect most of my clients. One of the best things you can do at the moment is take out that second personal bank account as your business account and get used to putting all your business transactions through it. Leave your real personal account as private costs like rent/mortgage, council tax, utilities, food, clothing, having fun, etc. Just do transfers from the “business account” to the real personal account when needed. When the MTD reporting comes on board, you only have one account to deal with and process through to an accounting system for HMRC. Also start to look at accounting systems and what they can do for you. At the moment, we will be considering Xero as the accounting system linked with Receipt Bank or Entryless for taking photos of receipts to load into Xero and Tripcatcher for mileage records.

If you have any questions, please feel free to ask. As this gets closer, I’ll probably need to get a support desk system in place, and use an FAQ page on my website to help people get through the pain of all this.

Should you desire to read the documents and put your opinion to HMRC, then the documents can be found >>> HERE <<<

 

Second Income – Declare it.

Do you have a second income as well as being employed?

confidential-agreement_MkJpbLwdIt is quite common now-a-days to be employed in a PAYE job, but also to work for yourself, often not just for the money sake but due to the skills you have being in demand. However, people often don’t think they need to declare this income as part of their annual earning for tax to HMRC. And that’s where they are wrong.

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Err – You Want To Set Up A Limited Company ?

So you want to start a limited company?

Companies House logo

Are you really sure?      Do you know why you want to have a limited company?     Do you know the tax implications of a limited company?    Are you a highly organised person and slightly schizophrenic to be able to split yourself from the company financially and operationally?

Yes, there MAY be tax advantages to being a company depending on the income/profit level of the company, but there are thresholds of effectiveness and subsequent budgets may change it. If being a company is marginal for tax purposes at the moment, then it is not a good enough reason.  Limited liability may come into play; a divorce on the cards and want to limit access to funds; or just for the kudos of being a company. Some bigger companies only want to trade with other companies as the perception of being a company is better than being a sole trader. BUT, you have to be ready for it or have people around you that can deal with all the accounting and admin headaches.

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Married Couples Allowance – it’s here

 

Several months ago I wrote a blog about the Marriage Allowance transfer ability – where one person can transfer £1060 of their personal allowance to their spouse. You were able to sign up for it via the HMRC website which made it a permanent election until revoked. As accountants, we heard nothing more after that.

It is now time to start submitting you 2015/2016 tax return. The election to transfer the £1060 can be made at this time if you are one of the “lucky” millions of people that need to complete a return.

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Free Money – or is it?

Bursary, Scholarship & Prize Money for Musicians & Performers

 

 

This is a topic that I have been asked about this year on my tour round music & drama colleges, so I thought it would seem appropriate to jot down a few lines.

At some stage in your musical or performing career, you may be lucky enough to be awarded a bursary, scholarship or win performing prize money. But are you sure you understand the tax implications of these?

Bursaries and scholarships are usually tax-exempt provided the person is in full-time education at a recognised university, technical college or similar education establishments that are open to the public at large and offer a range of courses – both practical & academic. This is part of S331 of the Income & Corporation Tax Act 1988.

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What VAT Schemes Are Available?

Oh – such a fun topic this is – I am sure you will be riveted to your computer screen.

 

Flat Rate

Using the standard rate scheme, you need to record the vat on every purchase and every sale that is made in the business. However, a flat rate scheme allows you to just account for the VAT on the taxable supplies you make and not make a return for the VAT you have incurred. A lower amount is remitted to HMRC which takes into account VAT you may have suffered.

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Rental Property Allowances – The U-Turn

Back in April 2013, the government withdrew the allowance for renewals of furnishings in rental properties, so only the 10% wear & tear allowance was available for furnished property rentals.

The summer budget of 2015, the government announced that from April 2016, the 10% wear & tear allowance was being scrapped and replaced with a new “replacement allowance”.  As an overview, the new allowance enables all landlords of residential lettings to deduct the costs incurred on replacing furnishings in that property. It applies to landlords of unfurnished, fully furnished and part furnished property but not to furnished holiday lets or commercial property.

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