We Live in a Digital Age

Whether we like it or not, the digital age is here. It will stay and it will grow. Those who try to ignore it will get left behind and become marginalised. Those nearing retirement may, at a push, have an excuse of sorts to ignore this inevitable global movement. They have survived up to now, and no doubt feel that they will get to the point where they can retire without needing to change their ways. This, however, is not the case with the rest of the business community who are looking to grow their businesses into the future. A lack of digital presence, whether in the form of a web site, a blog, a YouTube channel, a Twitter Feed or other form of social media, will mean that your business may effectively disappear from the view of prospective new customers. As such, you will have to rely upon the traditional means of marketing such as newspaper ads which are being used increasingly less by potential customers. If you are not visible on the internet you risk losing business to someone else who can be found more easily.

It used to be the case that this only affected the younger generation, who may not necessarily have been your target market. However, the first young generation to use computers extensively are now well into their thirties and forties with children of their own. Thus, a more substantial sector of the market is now computer-savvy and internet-ready. Even reliance on the older generations being conventionally accessible would appear to be a risky strategy. Businesses lacking an online presence will see even this source of business shrink significantly over time, as more and more of the older generations discover the significant benefits of the internet.

Those business owners who bury their heads in the sand are in for a shock. They are already being marginalised as more of their potential customers drift away from sharing their outdated view of the world. Those who are not familiar with the internet, smart phones and social media are now very much part of a shrinking minority and are in grave danger of going the same way as the dinosaurs. You only have to look at the lessons provided by Kodak and Encyclopaedia Britannica, companies which were the leading players in their respective fields until their reluctance to embrace digital media lead to their inevitable and spectacular demise.

The greatest thing about many Social Media resources that should not be over-looked, is that, in many cases they are free. They are thus not as expensive as other conventional forms of marketing. Furthermore, they create a level playing field that enables smaller businesses to compete with those that have far greater resources. Not taking advantage of such powerful resources should therefore be seriously reconsidered. Even if you do not know anything much about websites and social media, it is not too expensive to get someone to get you started with a simple website, and anyone is capable of learning about social media provided that they invest a little of their time.

It is for this reason that we at DEB Chartered Accountants encourage all our clients to get on board the technological bandwagon. We feel certain that this advice has been heeded by many, as nearly 95% of our clients are now benefitting from our award-winning communication system DEB-Connect which reduces their costs, speeds up their access to valuable resources and information, and generally makes communication with us so much easier for them. Even some of our more computer-phobic clients have take the leap and are now enjoying the benefits.

Please do not ignore what is happening out there. We urge all our clients to embrace the changes rather than resist them. If you are not a client but would like to discuss this issue or any other that affects your business, then please do not hesitate to contact us on 01226 245824. We would be delighted to hear from you.

Are Corporate Sponsorship Deals Tax Deductible?

Corporate sport sponsorship deals have widely been seen as a good way for companies to increase their exposure whilst at the same time offering a valuable corporation tax deduction. However, a recent tax case heard by the Court of Appeal has raised serious questions about the attractiveness of these deals.

In June 2014 the Court of Appeal rejected the appeal by a Plymouth-based seafood supplier, Interfish Ltd, who argued that there should be permitted tax deductions in respect of sponsorship payments made to a local rugby club. HMRC had argued that because the payments had two purposes in terms of both increased publicity for Interfish Ltd and improving the financial position of the rugby club, that the sponsorship payments were not made ‘wholly and exclusively’ for the purpose of the trade and consequently Interfish Ltd was not allowed to claim a corporation tax deduction. This view was upheld by both the First Tier Tribunal and the Upper Tribunal before being finally confirmed by the Court of Appeal.

Interestingly, the Tribunal ruled in this case that there could be no apportionment where dual purpose sponsorship expenditure is deemed to have been made. The expenditure is either wholly allowable or wholly disallowable. However, the tax legislation does not prohibit a deduction for any expenditure that is identifiable as being wholly and exclusively for the purpose of trade. In the Interfish Ltd case, a deduction was allowed in respect of £25,000 which were identified as having being spent on advertising hoardings.

This case would appear to suggest that all sponsorship is non-deductible for tax purposes but other conflicting court decisions suggest that it is not quite that cut and dried. In a similar case, South West Communications Group was granted a tax deduction for a large sponsorship payment made to Exeter Chiefs Rugby Club and in the case of McQueen v HMRC the proprietor’s interest in rally cars was deemed to be ‘incidental’ to the purpose of promoting his business’s name when making rally driving sponsorship payments. A tax deduction for the expenditure was subsequently allowed.

So, what can you do to maximise the likelihood of securing a tax deduction for sponsorship expenditure? There are a number of things that could be advisable for you to do. Firstly, it would be a good idea to undertake a review of the anticipated business benefits that are expected in return for the sponsorship expenditure so that you can argue a business case for going ahead with the sponsorship. This review and its conclusions should be documented in board minutes. Secondly, we would recommend that there be a formal sponsorship agreement outlining the payments that are to be made and what benefits will be received in return. Care should be taken to ensure that the cost does not appear excessive in relation to the stated benefits. Finally we would recommend that the company receives proper invoices in respect of any sponsorship payments made.

If you are thinking of going down a corporate sponsorship route and feel that you would benefit from some further guidance please feel free to give us a call.

British Accountancy Awards

It is again time for entries for the British Accountancy Awards – a year seems to be go by ever so quickly! DEB Chartered Accountants , aspiring to be the leading firm of accountants in Barnsley, has been extremely successful in the last two years in getting to the finals in no less than three different award categories.

DEB director David Edwards-Brown says “It is important that we let DEB be judged by the most prominent judging panels, and against the toughest competition in the country, to see how far we have come in creating a better service for our clients. By getting to the finals of business awards, particularly the British Accountancy Awards, we gain external confirmation of excellence in what we have achieved, and the direction in which we are heading”.

In 2013 DEB was the only independent firm from Yorkshire in the North of England division of the awards. In 2014 it was Yorkshire’s sole representative in the division covering both North of England and Scotland. As a measure of the quality of the competition that DEB faced, it is worth noting that the winners of both divisions also went on to win the award for being the top firm in the whole of the UK. Whilst it was disappointing not to win the award, it was extremely pleasing to be competing at such a level, and on both occasions, to only lose out to the best firm in the country.

Last year was an extremely successful year as DEB picked up an award at the Barnsley & Rotherham Business Awards held at the Barnsley Metrodome in November. It was great to get recognition at a national level, but it was perhaps more rewarding to be successful in our home town awards. We are hoping that 2015 will be equally as good, if not better than last year.

Auto Enrolment and Workplace Pensions – Is the writing on the wall for the State Pension?

All business owners that have employees are facing the reality of having to introduce a workplace pension for their employees at a specified date called their ‘Staging Date’.  You will be excused for having the feeling that you have heard this all before.  The ill-fated Stakeholder Pensions came and went with hardly a ripple as they were largely ignored by many employees in the UK.  However, believing that workplace pensions are just more of the same is a much misguided perception.

Under the Stakeholder regime employers with over five employees had to provide access to a pension scheme in case employees wanted to participate by opting in.  Under Auto Enrolment it works the other way round.  Everyone is in, unless they opt out.  Even if employees do opt out they are automatically enrolled back into the scheme after three years.  Employers have to provide a workplace pension scheme for their employees, and deal with all the admin of running it.  Failure to do so will leave them liable to a battery of penalties.

Again, unlike with Stakeholder pensions, employers will have to contribute to the scheme:  one percent to start with, rising to three percent after three years.  The employee will contribute one percent in year one, three percent in year two, and five percent in year three.  The loss of the employer’s contribution will be make employees think twice about opting out.  Take note employers, workplace pensions are here to stay.

Whilst the implications of the first few years are known, the real question is where such arrangements are going in the future.  You cannot help but feel that the current maximum of eight percent funding will only be a starting point, and, over time, the levels of contributions for both employers and employees will increase.  Faced with the reality of an ageing population, the cost of the State Pension has become an ever-increasing strain on Government  finances.  Will there come a day when an announcement is made that workplace pensions, paid for by both the employer and their employees will replace state funded pensions entirely?  No doubt this will take time.  No Government would dare risk removing State Pensions for those who have worked all their lives in the anticipation of getting a state pension at some ever-increasing age.  However, as workplace pension percentages increase it may be the writing on the wall.  Perhaps State Pensions will become means-tested initially.  The prospect of no Government funded pension however, may arise for future generations as they start their working lives.

At this time, this is nothing more than mere speculation.  However, there will be many of you reading this who are old enough to remember Statutory Sick Pay being once paid by the Post Office.  Over time, the cost of the admin was passed on to employers, with the amounts paid out  being recoverable through the PAYE system.  The burden of the cost was initially passed on to large employers, and eventually on to all employers.  A step-by-step process has slowly but surely resulted in the Government effectively divesting the cost of, initially the administrative burden, and, ultimately, the cost of funding sick pay.

Whether or not this speculation proves to be accurate, only time will tell.  For now though, employers will have to cope with the new demands that are being placed on them.  We have been warning our clients about this oncoming issue for some time now.

The starting point for employers is to establish their Staging Date.    Watch the video below to learn how to do this:

Our second video on Auto Enrolment provides details of what needs to be done by employers prior to their Staging Date. 

As the fear factor increases there are a variety of responses being put forward by the assortment of  professionals that business owners commonly rely upon.  Some accountants and payroll providers are having nothing to do with workplace pensions, leaving their clients to deal with it themselves or look elsewhere.  Independent Financial Advisors are very much stepping into this void, and are value-pricing the provision of both the set up and the administration of their services.  Software providers have also been quick to jump on the bandwagon.  They talk up the administrative burden of Auto Enrolment and workplace pensions, and charge accordingly.

Faced with the prospect of additional and unwelcome costs where can business owners turn to?  At DEB we have sourced a low-cost solution that we can offer.  Rather than taking advantage of the situation and charging premium prices for helping businesses, we hope it will provide an opportunity for us to meet with new clients and enable us to demonstrate the many ways in which DEB Chartered Accounts can provide valuable assistance.  Please watch our latest video on Auto Enrolment.

All business owners will need help from somewhere.  If you are not getting the help that you need, we would be delighted to hear from you.  Give us a call on 01226 245824 for a free introductory meeting to discuss your needs for Auto-Enrolment and workplace pensions, or indeed, any other matters.

HMRC’s ‘Connect’ System

Over recent years HM Revenue & Customs (HMRC) has invested significantly in developing a state-of-the-art technological system to aid its fight against tax evasion. In 2009 HMRC launched its ‘Connect’ system after it proved outstandingly successful in proof of concept trials. This system which has cost in excess of £80million was built by the BAE Systems-owned Detica in conjunction with computer experts from HMRC’s Risk and Intelligence Service, and HMRC claims that since its inception it has already secured an additional £3billion of under-declared tax revenue.

So how does it work? The Connect system looks for inconsistencies by comparing information from 28 data sources, including Companies House, Land Registry, the Benefits Agency and the Banks (both UK and Overseas) with the information provided by taxpayers on their self-assessment tax returns. The system then flags up potential discrepancies or helps HMRC identify where self assessment returns have not been filed when they should have been. Spider diagrams produced by the system link taxpayers to the properties they own and companies, partnerships and trusts they are associated with to produce unique financial fingerprints for each taxpayer.

The information produced by the system is accessed and analysed by a team of over 3,000 investigators who are able to supplement this data by purchasing further information from commercial sources or even trawling through social media. These investigators then examine the available data and evaluate whether or not it is appropriate to raise an enquiry into the taxpayers affairs. In addition to this a team of about 150 HMRC analysts examine the data to identify patterns and behaviours by groups or sectors of taxpayers. This in turn leads to the formation of specific task forces which focus on particular industry sectors in different areas of the country.

The Connect system is still in its infancy but has already justified its cost many times over and future refinement will only make the system more successful in detecting tax evasion. It would seem that the days of people getting away with not declaring property rental income, interest on overseas bank accounts and inheritance tax liabilities are extremely numbered.

Given the penalty regime that exists in relation to under declaration of income and wealth, now could be the time to come clean if there is any historic income that you have not declared.

Should you Obtain Proof of Posting?

Failure to submit certain documents, such as personal tax returns, to HMRC by a specified deadline date can result in considerable penalties. It has been widely held that obtaining a ‘Proof of Postage’ certificate is a good idea to mitigate any penalties that arise when the trusty British postal service lets you down and those documents go astray leading to them not arriving with HMRC on time. However, recent court cases have cast doubts on whether or not these ‘Proof of Postage’ are really worth the paper they are printed on.

In May 2014 a First-Tier Tribunal judge heard three cases appealing penalties arising as a result of the late submission of Construction Industry Scheme Contractor returns. In all three cases the judge dismissed the appeals and upheld the penalties on the grounds that no proof of posting had been obtained. These cases would suggest that there is considerable merit in obtaining proof of postage where possible. However a similar case heard this year quoted a 2011 case which observed that ‘obtaining proof of posting is not a legal obligation and HMRC cannot insist upon it’.

On balance, we feel that it is a good idea to obtain proof of postage when sending time specific documents to HMRC or, better still pay the extra for special delivery so that you know it was received on time. If it is not possible to get to your local post office you should ensure that you log the date of posting in your diary. Given that proof of posting is not required by law this should be sufficient to convince a tribunal.

The Cost of Company Cars is on the Rise

HMRC has published tables showing the percentages that will be applied in the calculation of company car benefit charges for the next few years. It is immediately evident from the tables that, for the majority of the CO2 emission bands, the percentage applied to the list price of the car will be jumping up by 2% year on year. This will have the effect of making the car benefit charge for the same car considerably higher each year despite the car being older and presumably less desirable to drive around in. As an illustration of this, a car with a list price of £20,000 and CO2 emissions of 118g/km would generate a benefit in kind value of £3,200 in 2014/15 (based on an appropriate percentage of 16%) and a benefit in kind value of £4,800 in 2018/19 (based on an appropriate percentage of 24%). The benefit value would therefore be 50% higher on the same car despite it being 4 years older. This in turn would result in an increased tax charge from £640 to £960 over the 4 years for a basic rate tax payer or from £1,280 to £1,920 for a higher rate tax payer. The percentage hike is even more significant in respect of very low CO2 emission cars (<50g/km) which, after a similar 2% increase each year for the next 3 years, will experience a 4% hike from the 2017/18 tax year to 2018/19.

In light of this, clients with older company cars may wish to consider switching to a newer vehicle with a simlar list price but lower CO2 emissions to prevent the car benefit charge from escalating.

HMRC Clarifies it’s View on Repairs and Renewals for Unfurnished Rental Properties

Historically, landlords with unfurnished rental properties were permitted to claim 100% tax relief by claiming the ‘renewals allowance’ for the cost of replacing furniture. However this renewals allowance was removed by HMRC on 6th April 2013 and there has been considerable uncertainty amongst landlords regarding the tax relief for repairs and renewals, prompting HMRC to recently clarify their position.

Under the new regulations, landlords are unable to claim a deduction for the cost of replacing items of furniture which include white goods, such as fridges, freezers and free standing cookers. It also means that tax relief is no longer available in respect of replacing carpets and curtains. As such this could represent a significant financial blow to many landlords. There is, however, a concession that integrated white goods, such as fitted washing machines, constitute part of the property itself and, as such, tax relief will be allowed in respect of the replacement of these items. Tax relief will also be available in respect of equipment such as boilers, water heaters and air conditioning systems provided that less than 50% of the system is being replaced.

It should be noted that the removal of the ‘renewals allowance’ is only relevant to the letting of unfurnished properties and that the 10% wear and tear allowance will still be available in respect of furnished rental properties, provided that the property contains sufficient furniture to warrant the ‘furnished’ status. There have been stories recently of HMRC rebutting the claims that rental properties are furnished on the grounds that insufficient crockery and cutlery were provided by the landlord. Similarly, rental properties which qualify as ‘Furnished Holiday Lettings’will be unaffected and continue to be eligible for capital allowances in respect of replacing furniture and fittings.

If you are a landlord and have any uncertainty about what tax reliefs are available, you should contact your accountant for guidance.

Beware of PPI Interest

We’ve all had them over the past few years…. an endless barrage of calls from legal claims companies claiming to be able to recover Payment Protection Insurance (PPI) that was mis-sold to us by banks and other credit providers. For some of us they have been simply an unwelcomed nuisance but for many others they have been the start of a journey towards an unexpected windfall. We all know of someone who has been able to claim back hundreds of pounds in respect of credit cards that they have long since stopped using or a loan that has been long-since repaid. If you were one of those people there is something that you need to be aware of to avoid falling foul of HM Revenue & Customs (HMRC).

The refunds of PPI premiums paid are non-taxable and, as such, do not need to be disclosed on self-assessment tax returns. Similarly, any repayment of interest where the PPI premiums were added to the loan amount are also non-taxable. The refund of these simply put the claimant back into the position that they would have been in had they not taken out the PPI and represent what is referred to as ‘general redress’. However, in many cases the amount received will have included an additional 8% interest on the total refunded amount, paid as compensation for the mis-selling of the PPI. This compensation, unlike the refunded PPI premiums and historic interest, is taxable and needs to be reported to HMRC as taxable income. Some institutions will have paid the interest net of basic rate tax, whereas others may have paid the interest gross with no deduction of tax. In either case, the institution issuing the refund should provide a breakdown of the amount repaid in the redress offer letter indicating whether or not basic rate tax has been deducted at source.

So, what do you need to do? Well, if no tax has been deducted or if you are a higher rate tax payer and only 20% basic rate tax has been stopped, then you will have a tax liability which will need to be reported to HMRC. This should generally be paid in the tax year in which you received the payment but you have an obligation to declare any income on which tax is due in the last six years, so, if you received a payment a few years ago, it will still need to be declared to HMRC this year if you haven’t previously done so. If you complete a self assessment tax return, the amount received (an any tax deducted at source) will simply need to be included on your tax return along with any other income received during the year. If you are employed and don’t complete a tax return you will need to inform your tax office so that adjustment can be made to your tax code allowing the owed amount to be collected through the PAYE system. If you have any concerns or are unsure what you need to do in respect of a PPI refund that you have received contact your accountant who will be able to advise you.

A Cautionary Tale

Once upon a time there was a man called Jeremy.  Jeremy was the son of Mr Clark a prominent businessman who owned a chain of clothing retailers called ‘Top Gear’.  Despite having fairly extreme views about people towing caravans, Jeremy was, on the whole, a respectable law-abiding citizen. One day on his travels around the country he found himself driving in the environs of Barnsley on the M1 motorway.  All of a sudden, in his rear view mirror, he saw the dreaded flashing blue lights and was gestured to pull over by a police motorway patrol officer.

Now, Jeremy had been using his cruise control at a steady 68 miles per hour and was therefore in a confident, if not slightly belligerent, mood as the police officer approached his vehicle on the hard shoulder.  “Good morning sir” said the police officer, “do you know that you are driving a black Range Rover?”  “Of course” replied Jeremy somewhat perplexed.  “Well sir” said the officer, “last week in court we succeeded in a court action for speeding against a driver of a car the same colour and make as yours.  Since you are driving a car that is similar, we feel that that it is reasonable to assume that you were also speeding.  As such I am compelled to issue you with this fine of £100″.

“You cannot be serious” joked Jeremy in a poor impression of John McEnroe.  “That is totally stupid and no-one will believe and accept your view.”.  “Oh that does not matter” said the police officer calmly “the law has been changed recently, and now it does not matter what anyone else thinks. It is only our point of view that matters.”  “That is ridiculous” exploded Jeremy, “there is no way that I am going to pay this, I will see you in court first”.  The police officer smiled smugly and said “if you refuse to pay, then we will simply take the money from your bank account without your permission, and, as for the court, we will already have your money so there will be no rush to take the matter to court any time soon.”  “You can’ t do that!” blustered Jeremy “I will appeal against your demands”.  Again the police officer smiled and said “I am sorry sir but I’m afraid that you have no right to appeal.  If we say you have to pay, then, quite simply, you have no choice but to pay.  You have a nice day now!”

Jeremy drove back to his office in total bewilderment thinking things could not get any worse, but when he arrived there he realised that they already had.  He found that the police had been there before him and, unbeknownst to him, had taken copies of all his mileage records over the last 10 years and shortly thereafter he received numerous demands for payment relating to all the other trips that he had historically made up the M1 near Barnsley.

The local police chief inspector came to learn of these penalty fines and thought that they were a great idea, so much so that he quickly conveyed the idea to his counterparts throughout the country. Soon, all drivers of black Range Rovers up and down the country were faced with, what they considered to be, unfair penalty notices.  Despite their obvious outrage, the police issued statements through the national media about the dangers of Range Rover drivers speeding which would inevitably result in the the loss of lives and consequently, on moral grounds, such action on their part was cleverly justified to the masses.  Despite the howls of protest from black Range Rover drivers across the land, they were in a very small minority and the apathetic majority did not care as it did not affect them.

However, one day, the Government who were short of money to fund the struggling National Health Service, decided that they would start applying this money-spinning ruling to other makes of cars.  This resulted in obvious public outrage. How could such unconstitutional behaviour be allowed, whereby the police, an arm of the executive, could act  as judge, jury, and executioner against the general public with no right of appeal.  There was talk of going to the European Court of Human Rights and public riots as disaffected drivers protested in the streets. Then Jeremy woke up.  “Oh thank God” he cried. “It was just a bad dream.  Nothing like that could ever happen in this country, could it?”

You would think so wouldn’t you, but as you read this cautionary tale the wheels of a similar plan are already being put in motion.  The Government are currently bringing in measures whereby HM Revenue & Customs can demand money from individuals if they think that they are involved in tax arrangements that it believes are similar in nature to ones that it has previously won rulings against in court.  Under these new rulings, HMRC will not have to prove that its view is correct to make demands and can take the money directly from the bank accounts of those concerned with limited scope for appeal.  Furthermore, they propose going back over the last 10 years looking at arrangements that they have previously failed to take to court and apply such demands to these.

As in the nightmare scenario above, HMRC, an executive of the Government, will be authorised to act as judge, jury and executioner despite a history in this country of Parliament (the legislature) creating the rules, the police, HMRC, DHSS etc (the executive) applying the rules, and the courts (the judiciary) being the ones who judged whether or not the actions of the executive were lawful.

HMRC can say that it is morally justified in doing this as it is combatting people who are effectively depriving the state of the funds that it needs to operate.  As this is principally targetted at what are perceived to be wealthy ‘fat cats’ who are exploiting legal loopholes to get an unfair advantage, then the silent majority will not be too concerned by the lamentations of those who have been affected.  Nothing much will be said and, consequently, new laws will be established.

Even if you feel that this doesn’t directly affect you there is still reason that you should be concerned. As the saying goes ‘power corrupts, and absolute power corrupts absolutely’ and there is a very real danger that this could represent the proverbial ‘thin end of the wedge’. HMRC has a long-standing history of exploiting any loopholes that it can, in much the same way as the tax scheme providers it is vehemently opposing.  Eventually, the principles it has applied against the few, once established, could be applied against the many.  When HMRC begin to use similar devices to hit the pay packets of the wider public without a right to appeal the voice of mass public opinion will be awoken… but by then it could be too late! The time to act to stop this is now.  No matter what the evils are that are being combatted, any action that is taken must be applied in a manner that is congruent with the accepted legal constitution of the country.  We urge you to let your local MP know that such unconstitutional measures simply cannot be allowed to pass before a very dangerous precedent is established.