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Employment Allowance: Group / Connected Companies

Employment allowance in group companies can only be claimed by any one company.

An employer gets £3,000 off their Class 1A (Secondary) National Insurance in each tax year.

The question arises – can two or more companies in a group claim £3,000 each.

The answer is No, only one of the group companies can claim employment allowance. Tax payer decides which company gets it.

I would highly recommend a read through the technical guidance link given below:

a) HMRC even includes unincorporated businesses in connected businesses.

b) Besides share-holding and control as under Corporation Tax Act 2010, HMRC has included within connected businesses – economically interdependent businesses as well.

Technical guidance in this case is highly readable with lots of examples.

Sources:

Basics

Technical guidance: Connected companies

PS – I came across this little gem of information among audience questions today on HMRC Webinar: Employers – what’s new for 2018. I will highly recommend subscribing to these webinars. They are free !

October 2019

HMRC’s latest Agent Update Issue 74 informs that from 6 April 2020 Employment Allowance will be restricted to employers with NICs liabilities of under £100,000.

That is employers will need to look at their last tax year’s Employer NIC expense and if its over £100k they cannot claim £3k Employment Allowance.

If employer is part of a group Class 1 NICs liabilities of all companies, and/or PAYE schemes, needs to be added together to assess eligibility for Employment Allowance.

Overview of taxes in United Kingdom

Below is a very brief summary of taxes in the UK but gives an idea to a businessman who is planning to start a business.

Ongoing Taxes

NameDetailRate
Corporation taxTax on profit the company makesCurrent rate 19% going up to 25% from April 2023 for profits over £250k
Dividend taxTax on dividends received by individual shareholdersFirst £2k tax free then between 7.5% to 38.1%
Payroll (PAYE) tax    Taxes on becoming an employer 
Income taxEmployee paysFirst £12,570 is tax free then between 20% to 45%.
Employee national insuranceEmployee paysFirst £8,840 tax free then 12%
Employer national insuranceEmployer paysFirst 9,568 tax free then 13.8%.

Employment allowance £4k
Value added taxSales tax when turnover crosses £85,000Usually 20%
Business rates          Municipal taxUsually, half of rent


One off taxes

NameDetailRate
Capital Gains TaxTax on the profit when you sell something that is increased in value.First £12,300 tax free then 10% or 20% depending on your income. Tax on sale of residential property is higher.
Inheritance TaxTax on the estate of someone who died.40% over £325,000

Other matters

NameDetailRate
InsuranceMinimum legal requirementEmployer’s Liability Insurance.   Certificate needs to be kept for 40 years. Requirement now removed.
Minimum WageLegal minimum wageOver 23 years: £8.91 per hour. Lower for younger people

Matters specific to restaurant industry.  

NameDetailRate
Premises LicensePermit to sell alcoholNew license can be a long process. Transfer is usually free and annual fee less than £1k p.a.
Music LicensePermit to play background musicAnnual fee under £1k p.a.

Example:

Suppose you start a restaurant and after few years it starts making some profits, you will find that you have a new partner to share in your good fortune – Her Majesty’s Revenue and Customs (HMRC)

I have given below what an owner will make and what his new partner HMRC will capture.

Owner’s share:
Sales                                                   £2,000,000
Net Profits                                        £400,000             say 20%              
Corporation Tax                              £100,000             25% rate from April 2023
Distributable Profits                       £300,000
Personal/Dividend tax                   £100,000            
Net in hand                                      £200,000

I have taken net profits at 20% this is achievable in a well-run high end central London restaurant. This profit percentage is after paying payroll taxes, VAT and Business Rates.

HMRC’s share:
Business Rate                                   £100,000             Fixed not dependent on sales
VAT                                                     £400,000            
Payroll Taxes                                    £60,000              
Corporation Tax                              £100,000            
Personal/Dividend tax                   £100,000            
Total                                                   £760,000

Above figures have been estimated and rounded off to make them easier to understand but on the whole close to reality.

In case you decide sell or just drop dead, you will meet new characters from the `Book of the Taxes` called Capital Gains tax and Inheritance tax but don’t worry, not today.

Set up a business – GOV.UK (www.gov.uk)

Providing medical insurance or life cover to employees?

When giving medical and insurance benefits to staff employer should arrange and pay the provider directly.

Medical Insurance

Step 1: Ascertain whether benefit employer wishes to provide is exempt or not.

Which benefits are exempt? Click here for answer

Step2: If benefits are not exempt, we need to report them to HMRC and deduct tax and NIC but it depends on who pays for the benefit.

Who PaysWho pays What
Employer arranges and pay directly to insurance companyEmployer Class 1A NIC via P11d

Employee – income tax via Self-assessment but pays no NIC.
Employee arranges but employer pays to insurance companyEmployer Class 1A via P11d  


Employee – income tax via Self-assessment   Employee pays NIC via payroll by adding value of benefit to employee’s earning.
Employer reimburses employeeEmployer pays Class1A and employee pay
Class1 NIC and Tax. All collected via payroll.

Conclusion: Best option is employer to arrange and pay provider directly. Please note cost of insurance and class 1A NIC will be tax deductible for employer as an expense.

Source:

Expenses and benefits: medical or dental treatment and insurance – GOV.UK (www.gov.uk)

Life Cover

No liability to income tax arises if the employer arranges and pays for a `retirement or death benefit`.

Retirement or death benefit – means a pension, annuity, lump sum, gratuity or other similar benefit which will be paid in the event of the employee’s retirement or death.

Source
Section 307 ITEPA 2003

Should I submit my return early ?

Thousands of individuals file their tax returns on the first day

The tax year has ended.

Main benefit of submitting tax return as soon as possible is that the enquiry window runs for a full 12 months from the date the tax return is received. So for example a return received by HMRC on 20 June 2018, the enquiry window will run to 20 June 2019 – EM1501

I have already filed mine.

Fascinating facts about Self Assessment

Some useful VBAs

Below are some useful VBAs I have recently used in by spreadsheets. I am publishing them as it may help others struggling with VBA code as I often do 🙂

Sub HideRows()
    ‘This command hides all the rows from 2 to 100.
    ‘I have not hidden row 1 as it has my headings.
Rows(“2:100”).EntireRow.Hidden = True
‘This command unhides the active row
Rows(ActiveCell.Row).EntireRow.Hidden = False
End Sub

Sub UnhideRows()
    ‘This command Unhides all the rows
Rows(“2:100”).EntireRow.Hidden = False
End Sub

How to assign short keys?

By assigning keyboard shortcut keys you can make is easier to run these macros.
Developer > Macros >Options> Shortcut Key

Below is a sample macro I have created for a daily task.

Sub BankFlash()

   ‘Define the variable for sheet name
Dim sname As Single

    ‘Assigning the variable with the value of Active Sheet’s number
sname = ActiveSheet.Name

    ‘ Copying Active Sheet and then telling it to paste just after the active sheet
ActiveSheet.Copy After:=ActiveSheet

    ‘ Now the Active sheet is the new sheet and we are increasing the sheet name by 4 if its  a Monday.   

If Weekday(Now) = 2 Then
ActiveSheet.Name = sname + 4
Else

‘ On days other than Monday, we increase the sheet name by 1   
ActiveSheet.Name = sname + 1
End If

‘Active sheet is the new sheet now.
‘Clears contents from specific cells in the new sheet
Range(“B7:d12”).ClearContents
Range(“B17:d24”).ClearContents

‘Clears contents from specific cells in the new sheet if today is Monday
If Weekday(Now) = 2 Then
Range(“H19:H23”).ClearContents
Else
End If

‘Links the opening balance to the previous sheet             

Range(“B4”) = “=” & Str(sname) & “!B29”
Range(“C4”) = “=” & Str(sname) & “!C29”
Range(“D4”) = “=” & Str(sname) & “!D29”

‘Last Step , this leaves the control on the box from where i wish to start inputting data
Range(“B31”).Select

End Sub

Custom functions

The below macro creates a FUNCTION for excel to add numbers by colours. I still donot know how it works fully but I find it useful sometimes.

Function SumByColor(CellColor As Range, SumRange As Range)
Application.Volatile
Dim ICol As Integer
Dim TCell As Range
ICol = CellColor.Interior.ColorIndex
For Each TCell In SumRange
If ICol = TCell.Interior.ColorIndex Then
SumByColor = SumByColor + TCell.Value
End If
Next TCell
End Function

Bonus

1. how to Unprotect an Excel Spreadsheet if you have lost your password.

2. Sometimes while using filters dates donot group together. Simply multiply all dates by 1 , using paste special function.