Updated calculator on calculating holiday entitlement

The Government has published a revised holiday entitlement calculator, intended as a temporary replacement while the original calculator “undergoes maintenance”, to enable workers to calculate the minimum statutory annual leave they should receive based on their time in employment. The calculator is accompanied by online guidance for employers on how to calculate statutory holiday entitlement for workers on different types of contract and a similar downloadable guide on calculating statutory holiday entitlement for workers. The guidance states that for those workers who do not have a regular working pattern, holiday entitlement should generally be calculated in weeks.

This guidance does not cover the calculation of holiday pay, only holiday entitlement.
 

Shared parental leave entitlements

The shared parental leave and pay rules offer working parents’ far greater choice as to how they share the care of their child and take time off work during the first year of their child’s life. The rules apply equally for children that have been adopted. There are various work and pay criteria that must be met in order to be eligible and the parents must share responsibility for the child. For example, in cases where only one parent in a couple is eligible, the leave cannot be shared.

Under the rules, mothers must take at least two compulsory weeks (four weeks if working in a factory) of maternity leave immediately after birth, but after that working couples can share up to 50 weeks of shared parental leave and up to 37 weeks of statutory shared parental pay. These rules, which were introduced in 2015, give families greater choice over how they arrange childcare in the first year of their child’s life by allowing working mothers the option to end their maternity pay and leave early and to share leave and pay with their partner.

New parents can choose to be at home together or to work at different times and share the care of their child during the important first year after birth. This means that parents can take their leave simultaneously or they could opt to take leave in phases. For example, 20 weeks for the mother/adopter, followed by 20 weeks for the father/partner, followed by 10 weeks for the mother/adopter. Statutory shared parental pay is currently paid at the rate of £148.68 a week or 90% of an employee’s average weekly earnings, whichever is lower.

Child Benefit tax charge

The High Income Child Benefit tax charge could apply to you or your partner if either of your individual taxable earnings exceeds £50,000 and you are in receipt of child benefit. The charge effectively claws back the financial benefit of receiving child benefit either by reducing or removing the benefit entirely.

If you or your partner are likely to have exceeded the £50,000 threshold for the first time during the last tax year (2018-19), then you must take appropriate action. If both you and your partner have an income that exceeds £50,000, the charge will apply to the partner with the highest income.

If you continue to receive child benefit (and earn over the relevant limits) you must pay any tax owed for 2018-19 on or before 31 January 2020. The child benefit charge is levied at the rate of 1% of the full child benefit award for each £100 of income between £50,000 and £60,000. If you or your partner's income exceeds £60,000, the amount of the charge will equal the amount of child benefit received.

Planning note

If the High Income Child Benefit charge applies, it is usually still beneficial to claim Child Benefit for your child as it can help to protect your State Pension and will make sure your child receives a National Insurance number. However, you have the choice – to keep receiving child benefit and pay the tax charge or elect to stop receiving child benefit and not pay the charge.

When Inheritance Tax applies to pensions

Inheritance Tax (IHT) is levied on a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. The rate of Inheritance Tax payable is 40% on death and 20% on lifetime gifts. There is a nil-rate band, currently £325,000 below which no Inheritance Tax is payable.

A pension is normally free of IHT and unlike many other investments is not counted as part of a deceased persons taxable estate. However, any money taken out of a pension before death becomes part of the deceased estate and could be subject to IHT. This includes any tax-free cash allowance which might not have been spent.

IHT charges relating to pensions can arise in relation to the following:

  • Lifetime transfers
  • Benefits within the estate
  • General power over benefits
  • Omission to exercise a right
  • Alternatively secured pensions

 

Income excluded from property business

HMRC publishes a list of income streams that are excluded from a UK property businesses' taxable income. The list includes fishing concerns, hotels and guest houses, tied premises, caravan sites, lodgers and tenants in your own home, extra services to tenants and letting surplus trade accommodation. In most cases the income from these activities will be taxed as income of a trade and not as property income.

There are also certain receipts which can arise out of the use of land and which are specifically excluded by statute from a rental business. These include yearly interest, income from the occupation of woodlands managed on a commercial basis, income from mines and quarries and income from farming and market gardening.

There is also a £1,000 property income allowance that applies to income from property (including foreign property). If a taxpayer’s annual gross property income is £1,000 or less then the amount is exempt from tax and does not need to be reported on their tax return.

Accounting periods if company has two or more trades

A tax accounting period for Corporation Tax purposes cannot exceed a 12 month period. If company accounts cover less than 12 months then the accounting period will normally end on the same day, and thus will be shorter than 12 months. This can happen if the company stops trading or shortens its company’s year-end: also known as its accounting reference date.

There is an interesting anomaly if the company has more than one trade. If this is the case, the company may make up accounts for one or more of them with different accounting dates, instead of one account for all its activities. In a case like this, the company should agree the accounting date it will use. Normally a date which achieves an unbroken succession of 12-month periods is preferable.

Companies may also have to contend with having two different company accounting periods. This is because there are different rules for Companies House filings and for HMRC to whom any Corporation Tax due is ultimately paid.

Loss of tax personal allowance

If your income is expected to exceed £100,000 for the first time, we would like to remind you of the effects this can have on your personal allowance and marginal tax rate.

If you earn over £100,000 in any tax year, your personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes your income over £100,000 will result in a reduction in personal tax allowances. Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.

For the current tax year if your adjusted net income is likely to fall between £100,000 and £125,000 you would pay an effective marginal rate of tax of 60%. This is because your £12,500 tax-free personal allowance is gradually withdrawn (see previous paragraph). If your income sits within this band you should consider what financial and tax planning opportunities are available to avoid this outcome.

For example, you could increase charitable donations, pension contributions or consider participating in certain tax effective investment schemes.

Tax planning tip

A higher rate or additional rate taxpayer who wanted to reduce their tax bill last year, 2018-19, could make a gift to charity in the current tax year, 2019-20, and elect to carry back the contribution to 2018-19. A request to carry back the donation must be made before or at the same time as the 2018-19 Self-Assessment return is completed and filed.

New advisory fuel rates published

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

If employees can use the advisory fuel rates to repay the cost of fuel used for private travel, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates became effective on 1 December 2019. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

 

Engine size  Petrol – amount per mile LPG – amount per mile
1400cc or less    12p 8p
1401cc to 2000cc     14p 9p
Over 2000cc     21p 14p

 

Engine size    Diesel – amount per mile
1600cc or smaller 9p
1601cc to 2000cc   11p
Over 2000cc 14p

   
Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.

Tax Diary December 2019/January 2020

1 December 2019 – Due date for Corporation Tax payable for the year ended 28 February 2019.

19 December 2019 – PAYE and NIC deductions due for month ended 5 December 2019. (If you pay your tax electronically the due date is 22 December 2019)

19 December 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2019. 

19 December 2019 – CIS tax deducted for the month ended 5 December 2019 is payable by today.

30 December 2019 – Deadline for filing 2018-19 self-assessment tax returns online to include a claim for under payments to be collected via tax code in 2020-21.

1 January 2020 – Due date for Corporation Tax due for the year ended 31 March 2019.

19 January 2020 – PAYE and NIC deductions due for month ended 5 January 2020. (If you pay your tax electronically the due date is 22 January 2020)

19 January 2020 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2020. 

19 January 2020 – CIS tax deducted for the month ended 5 January 2020 is payable by today.

31 January 2020 – Last day to file 2018-19 self-assessment tax returns online.

31 January 2020 – Balance of self-assessment tax owing for 2018-19 due to be settled on or before today. Also due is any first payment on account for 2019-20.

Life policies and Inheritance Tax

A life policy is a contract with an insurance company. In exchange for premium payments the insurance company provides a lump-sum payment to beneficiaries if the policy holder dies during the terms of their policy. There are various types of life policies available. The main types are 'term', typically covering a set period of time or 'whole of life', meaning that they are active until death.

The policies are often used as Inheritance Tax mitigation and avoidance devices. HMRC is clear that where a person transfers a policy to another, its value at the date of transfer may be taxable as a gift. If a person takes out a policy for the benefit of another person, the cost of effecting the policy will also be taxable as a gift. Similarly, if they pay the premium on a policy owned by somebody else, the amount of the premium considering any exemption due may be a Potentially Exempt Transfer or a chargeable transfer.

When the life assured dies, the proceeds of the policy will be payable to the person who owns the policy or to some other person specified under its terms. In cases where the beneficial owner of a life policy dies before the life assured, there will be a transfer on their death of the life policy with the other assets in the estate.