Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

The new world of Working from Home

A firm of lawyers has offered permanent home working to all of its employees in return for a 10% cut in pay. How many other professional firms or indeed any other company, will we see following suit.

This will result in a considerable saving of National Insurance both for the employer and the employee.

I think we can assume that, as they are a medium sized firm of layers, they have looked into the legalities of this move.

How efficient is of homeworking.

Some employers will not trust their staff to work efficiently if they cannot see them. It is certainly open to abuse. On the other hand it seems to ne the case that staff in may cases actually work longer hours when working from home.

There are then the practical considerations of meetings with clients. Some of these meetings may involve tense negotiations sitting alongside the client and opposite the other side’s lawyers. Can this be done as effectively over Zoom.

There will be those who suspect that this firm of lawyers is just trying to cut costs.

If significant numbers of staff decide that this offer is too good to miss, the firm will be able to cut its establishment cost considerably at a time when city-centre property prices remain material and power costs are becoming extortionate.

Some employees will undoubtedly love the opportunity to work from home full-time. Anyone wishing to live in the country far from their normal workplace or even overseas might be able to save enough to justify the pay cut.

It will be interesting to see who follows this lead, and whether the trend is limited to certain trades or professions.

Interest Rates

The rate has gone up by 0.25% from the current 0.75%. Rates are expected to continue to rise over the next 12 months with the Bank of England expecting the rate to peak at 2.5% in  2023.

The Consumer Price index which is the measure of inflation is similarly expected to rise to 10% by the end of 2022.

The war in Ukraine is adding to inflationary pressures already existing.

MTD – Businesses not yet ready for the next phase

A recent survey of 8,900 accountants revealed that 14% of accountants think that their clients are ‘unprepared and will not be ready’ while  40% think their clients are ‘partially prepared’ for the extension to MTD.

There is less than two years until MTD for income tax becomes mandatory for sole traders and landlords in April 2024. At this stage there seems to be a lack of awareness about the forthcoming changes.

The responses from Scotland suggest that 50% of accountants believe that their clients are only partially prepared and so, if these surveys are accurate, we are trailing the rest of the UK.

Russian Sanctions and Accountants

Foreign Secretary Liz Truss has banned accountants, management consultants and public relations firms from working with businesses based in Russia

UK services account for around 10% of 10% of Russian imports in these sectors. Russia is heavily reliant on Western services companies for the production and export of manufactured goods. However, law firms are not affected by the ban which means that expert tax advice will still be available.

The financial sanctions on Russia has already meant that accountancy firms were unable to legally provide tax and accounting services to Russian clients.

In early March, the largest accounting firms all pulled out of Russia, announcing the closure of offices across the country. This saw PwC, EY, Deloitte and KPMG cutting ties with their operations, transferring ownership to local partners and separating Russian based firms from their global networks.

When do you need to register as an employer with HMRC?

Employers need to set up and register a PAYE scheme with HMRC if any of the following apply when:

• any employee is paid at or above the national insurance contributions (NIC) lower earnings limit, which is £123 per week in 2022/23, equivalent to £533 a month or £6,396 a year;

• any employee already has another job;
• any employee is receiving a state, company, or occupational pension; or
• benefits-in-kind are provided to any employees.

Employers who have just one employee necessitating registering a PAYE scheme with PAYE must include all employees in the PAYE scheme and make returns under real-time information (RTI) for all employees – even for those for whom there is no tax or NIC liability.

Employers who do not need to register nevertheless must keep some basic information about employees, including how much they are paid, provide all employees with payslips and comply with wider employer obligations.

What is a Spouse

Generally, within the tax legislation, a spouse will include within a same-sex marriage or civil partnership.

However, a deed, trust or other document might refer to a spouse and the document date to a time when ‘spouse’ could only mean a person of the opposite sex with whom one had contracted marriage.

A recent case in the High Court considered the interpretation of the provisions of an employee trust and an employee share ownership plan.

The task before the court was to ascertain: “The objective meaning of the words used, and the objective intentions of the parties to it by interpreting the whole of the words used against their documentary and factual context.”

It was held that, in the context of the arrangements in Goodrich, ‘spouse’ was to be taken to include both civil partners and same-sex spouses.

However, a distinction could be drawn because this case related to a more flexible ‘living and breathing’ long-term employee trust; a key feature of which is to reward officers or employees for past contributions. The same conclusion might not be reached in other circumstances.

So, the most that can be said is that ‘spouse’ is capable of including same-sex spouse and civil partner – not that it will always do so.

You could say that we are really none the wiser but what it does tell us is that you cannot always take the modern interpretation of spouse for granted in every situation.

Directors, Are you due a Pay Rise?

It is customary in owner-managed companies to pay the directors who own the shares the maximum amount possible without incurring a class 1 national insurance contributions (NIC) liability, with the balance of drawings paid by way of dividends. 

The Spring Statement announced an increase in the primary threshold to a figure that works out as £11,908 on an annualised basis for directors in 2022/23. The secondary threshold (Employers NIC) was left at £9,100pa. 

Therefore, directors need to be paid at the rate of £9,100 (£758 per month) to produce a £nil primary and secondary class 1 NIC liability.

Provided that on an annual basis the directors are paid more than the lower earnings limit of £6,396 per year (£533 per month), they will receive credit toward their state pension and other contributory state benefits in their national insurance contributions record.

Basic IHT Reliefs

The following are a few simple questions to consider.

Is the estate worth no more than £325,000, including the deceased’s share of any property, but excluding charitable gifts? If yes, no IHT is due.

If you are married, is your entire estate left to your surviving UK domiciled spouse? If yes, the estate is covered by the spousal exemption, and no IHT is due.

If you are a widow/widower and who can benefit from the transfer of the nil rate band from your deceased spouse? In this case, the nil rate band may be up to £650,000.

Is your main home been left to your direct descendants in your will? If so, the residence nil rate band (RNRB) of up to £175,000 comes into play. Where your spouse has pre-deceased you, the RNRB may be doubled.

The RNRB can apply to the value of the main home that is left to direct descendants, even if you are not living in at the time of your death. This will often be the case where you have moved into a care home or hospice.

If your estate has a value above these exemptions then you need to consider what further reliefs may be available such as agricultural Property Relief or Business Property Relief.

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.