T: 0131 341 4250|E: andrew@salonfrog.com
T: 0131 341 4250|E: andrew@salonfrog.com
A ‘trivial benefit is something you give to an employee, such as a bottle of bubbly, flowers, or a non-cash gift voucher.
If the gift falls within HMRC criteria there is no tax or national insurance to pay for either you (as employer) or the employee receiving it. And what’s more, the cost will also be allowable against corporation tax. And as a Director, you are also eligible!
For example, you could give 6 of your staff a £50 non-cash gift voucher each, costing you £300. But as long as the gift falls within HMRC criteria, you would get £57 back as a reduction in your corporation tax and there will be no national insurance to pay.
The rest of this article tells you more.
This is what they say:
For a gift to be considered a trivial benefit, the following 4 conditions must all apply:
One where you can exchange the voucher for cash. So in the UK, they’re rare so you’d be ok with most vouchers, for example one from M&S.
Giving an employee a gift for ‘good performance’ or to celebrate the Salon having its busiest month are both rewards for work or service, so HMRC would see this as a salary or bonus. So be careful what you say the gift is for. It’s perfectly fine to give a gift to celebrate a birthday or (silly as it sounds) just the fact that it’s sunny! As long as it’s not connected to how well the employee is doing work-wise.
HMRC give a number of examples in their guidance; the basic one being:
Example A
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5.
The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
Remember, as a Director you are also an employee and so can also be given a trivial benefit. The rules are just the same however there is a total limit each year for Directors which you need to watch, which is £300 in each tax year. So this could be 6 x £50, or 12 x£25. As long as each is £50 or less, and the total of them in the year is £300 or less.
Trivial benefits can be a good tax-efficient way to give something extra to your staff at any time of the year. Some salons are now giving these to staff instead of the xmas party (or in some cases as well as). Just make sure you stay within the HMRC criteria!
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If HMRC come a knocking, what’s the top things they’ll look at, and how (as a salon owner) are you protected?
We’ve put together a summary below on how Salonfrog’s Clients protect themselves with our help; and it is definitely worth making sure that you have the same controls in place:
| What HMRC will investigate:————————— | What HMRC is after:———————————— |
Your controls: How you protect yourself from HMRC——————————————————————- |
| 1. Income | Are you declaring all your income for tax? | i. All your Client sales go through a POS system, which salonfrog independently pulls in to your accounting software.
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| ii. Rental income from your self-employed are invoiced independently by Salonfrog.
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| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
————— |
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| ————————— | ———————————— | ——————————————————————- |
| 2. Expenditure | Are you overstating your business allowable expenses? | v. Only business expenditure is paid for through your business bank account.
————— |
| iv. All expenditure is supported by adequate paperwork (i.e. you scan every bill into hubdoc), which Salonfrog attaches to the expense in your accounting system.
————— |
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| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system. | ||
| ————————— | ———————————— | ——————————————————————- |
| 3. Payroll | Are you reporting employee wages via RTI (PAYE)? |
vi. All your staff are paid via your payroll system, which Salonfrog independently runs for you; and reports to HMRC via RTI.
————— |
| Are you paying them minimum wage? Big fines if not. |
vii. Staff wages are only paid from your business bank account.
————— |
|
| Are you auto enrolling them when you should do? |
iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
————— |
|
| Are tips being declared and tax paid on them? | xi. Both you, and salonfrog check minimum wages every pay period.
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| xii. Salonfrog independently assesses each employee, every month, to ensure they are correctly enrolled, and paying in the legal amount.
————— xiii. You have a Tips Policy, which all staff have signed. Further advice here: https://salonfrog.com/2021/09/29/tips-hmrc-getting-firmer-with-a-new-employment-bill/ |
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| ————————— | ———————————— | ——————————————————————- |
| 4. Self employed
(chair and space renters) |
Are your self employed actually employees? |
xi. Salonfrog specialises in understanding the salon rental business, the related legislation, and follow HMRC attacks against salons through the courts; then keep you up-to-date with the latest.
————— |
| viii. You have up-to-date contracts with all your self employed; the terms of which are actually followed in real life (e.g. they can come and go as they please). You follow the NHBF/HMRC self employed guidance points (which Salonfrog has distrubuted) and can be found at: https://www.gov.uk/hmrc-internal-manuals/vat-taxable-person/vtaxper69100 ————— |
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| ii. Rental income from your self-employed are invoiced independently by Salonfrog. | ||
| ————————— | ———————————— | ——————————————————————- |
| 5.VAT | Are you under-reporting the VAT you owe? |
ix. Salonfrog ensures that the VAT relating to all income and expediture is correctly accounted within your accounting system; and that a VAT return is submitted on time to HMRC.
————— |
| iii. All income and expenditure is through your business bank account, which Salonfrog independently reconciles to your accounting system.
————— |
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| iv. All expenditure is supported by adequate paperwork (i.e. you scan every bill into hubdoc) which Salonfrog attaches to the expense in your accounting system.
————— |
||
| v. Only business expenditure is paid for through your business bank account. | ||
| ————————— | ———————————— | ——————————————————————- |
| 6.MTD VAT | Are you MTD compliant? | x. Salonfrog ensures that you are MTD compliant for VAT; especially that there is the required end-to-end digital link in your accounting systems; and that your VAT return is submitted via MTD approved software. |
| ————————— | ———————————— | ——————————————————————- |
| 7. Records | That you keep a copy of all your records for the minimum required time? |
There are different requirements for different records, for example: for a Ltd company, you must keep records for 6 years from the end of the last company financial year they relate to.
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| Salonfrog keeps all your records for the time you’re with us.
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|
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We don’t keep your records from before you joined us though, so make sure you keep these safe.
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Tips!
We let you know last year that a new Employment Bill would be heading our way; and the latest news is that it’s coming.
It include measures that ensure tips, gratuities and service charges must ALL go to your stylists in full.
The new law will mean that:
• You will not be able to make any deductions from tips received by your staff;
• You will be required to distribute tips through a fair and transparent process;
• There must be a written policy on tips, and records retained to show how tips have been dealt with;
• You may use a tronc to distribute tips and they must be dealt with no later than the end of the month following the month it was paid by a client;
• Your staff will be able to request information relating to an employer’s tipping record;
• You will have to comply with the new statutory Code of Practice on Tipping.
Where employers fail to comply with these measures, they can be taken to Employment Tribunal by their staff.
The Employment Bill will be brought forward when Parliamentary time allows, and it is expected the rules will commence no earlier than one year after the Bill has passed, so you have plenty of time to get anything set up.
Even if you don’t get involved with tips (and sensibly leave it as a client-stylist transaction, you should still ensure you have a written policy on tips which all of your staff should sign to say they have read it.
Here’s an article we wrote around tips that would be worth reading, even if you don’t think you get involved with them.
National insurance contributions and dividend tax rates will increase by 1.25 percentage points across the whole UK from 01 April 2022.
The effect | Summary
1. Employees
Those of your staff earning above £9,568 (2021/22 rates) will have 1.25% more NI deducted from their pay packets.
So a stylist earning £18,000 pa will be £105 worse off per year.
2. Salon Owners (as employers)
For each of your employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22), it will cost you an additional 1.25% class 1 secondary NIC.
So one of your stylists earning £18,000 pa will cost you another £114.50 per year.
For most of you, the first £4,000 of your employers NI is free (for our Clients we claim this for them).
Dividends
On top of the employers NI, you will also pay an additional 1.25% income tax on any dividends you take from your business from 01 April 2022; taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
3. Self employed (chair/space renters)
Those renters with profits above £9,568 (2021/22 rates) will pay an additional 1.25% class 4 (self-employed) national insurance.
Then from 01 April 2023.
From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels (so you’ll pay NI as usual but have an additional ‘health’ tax to pay of an equivalent amount.
Heading out of lockdown, and with the safe haven (for your employees) of furlough coming to an end, we’re seeing an increase in staff leaving salons. It happens. For whatever reason. And here’s a checklist of what you need to do as soon as it does:
Part 1. Financial Control & Information Security
Part 2. Look after your clients and staff:
8. Make sure you contact the stylist’s clients asap
Have a positive story ready, keeping it up beat, and letting them know who will be taking over (giving a short paragraph about them); and that you’re really looking forward to seeing them at their next appointment.
9. Ensure your staff are on board
Give all your staff a clear sentence or two to say if anyone asks about the stylist who has left. Again, make it a positive message and be clear to your staff that there should be no gossiping with their Clients!
10. Monitor the stylist’s Clients
Some of their clients may well go with the stylist but you still have their contact details, so keep them on any marketing emails. They may well return!
11. Find out why the stylist is leaving
The more information you can glimmer when someone leaves, the better. Ask them 2 things:
i. why they are leaving (but probe, as it’s not always the first thing they say which is the real reason!)
ii. what do they think the salon could be doing better (don’t be defensive – just reflect later on what they say as they may well have a point and maybe discuss it with your more trusted stylists)
Salonfrog were asked by The Salon Magazine for our advice to salon owners now we’re heading out of the pandemic.
It’s a really good read (ok, we would say that!) and we advise all salon owners to have a look.
It starts on page 54:
https://thesalonmagazine.co.uk/may-2021-issue/
HMRC has published a policy paper giving details of the fifth Self-Employment Income Support Scheme (SEISS) grant which will be available from late July 2021.
The fifth SEISS grant, available to self-employed individuals and members of a partnership, was announced at Budget 2021.
Key conditions
The fifth grant has similar qualifying conditions to the fourth SEISS grant. To be eligible:
What is different?
The amount of the grant is determined based on how much turnover has decreased in the year April 2020 to April 2021, and where turnover has decreased by:
30% or more: The full grant of 80% of three months’ average trading profits, capped at £7,500, will be paid.
Less than 30%: A reduced grant of 30% of three months’ average trading profits, capped at £2,850, will be paid.
Rishi Sunak has expanded the Bounce Back Loan Scheme’s (BBLS) Pay As You Grow repayment plan.
Businesses can delay repayments for a further six months and extend their loan term:
Delay repayments
Originally you had to start repaying your loan 12 months after taking it out. You can now extend this another 6 months – i.e. start repaying it after 18 months rather than 12.
Extend loan term
Also, you can extend the loan repayment period from its original 6 years, to 10 years.
All options summary
In summary, all businesses will be offered the following options by their lender:
Talk to the Bank you took your bounce back loan out from to organise any of these changes.
As we reported last year (here), if you took advantage of HMRC’s scheme to defer your VAT payments between 20 March and 30 June 2020 (as most did), you are required to pay the VAT debt in full by 31 March 2021.
Pay over 11 months
However, you can now pay the amount owed over 11 months by applying via an online portal which will be open from 23 February 2021, but tax agents (like Salonfrog) cannot do this on behalf (although you will be charged interest at 2.6% from 1 April 2021).
HMRC is asking businesses to pay their VAT debts in full by 31 March 2021 if they can. Where the cash is not available the business must apply online to spread the payment of the debt over up to 11 instalments ending in January 2022.
If you don’t pay the full amount by 31 March 21 or join this scheme to pay over 11 months, HMRC will impose penalties for late payment, and possibly initiate debt collection action against you.
Online portal
The company director or business owner must access this portal themselves, tax agents nor their accountants can’t use it to arrange a VAT payment plan on behalf of clients.
This is because as part of the payment plan the business must set up a direct debit to make regular payments from their business bank account. Tax agents don’t have the authority to make payments out of clients’ bank accounts, so can’t enter the agreement on behalf of clients.
Conditions
Before a business can use this new VAT deferral scheme it needs to get all its VAT ducks in a row as follows:
The good news is HMRC will allow businesses to arrange a payment plan for the deferred VAT even if they have already entered a time to pay arrangement for other taxes.
The business owner/ director must have the authority to set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up, perhaps because there is no UK bank account, or the account has two signatories, the business owner must call HMRC on 0800 024 1222.
If the business doesn’t have the cash to even pay the first instalment of VAT, the owner should contact the HMRC payment support service on 0300 200 3835.
Join sooner rather than later
HMRC wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to this scheme to spread the payments, the fewer instalments will be available to it.
For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March 2021, but if it joins the scheme in June 2021 it can only spread the debt over eight instalments.
If the business owner can’t use the online portal, they should call HMRC on 0800 024 1222 to arrange a payment plan, and this telephone service will be open until 30 June 2021.
Claims for the third SEISS grant must be submitted by 29 January.
Here’s further guidance on making the claim and what to add to your tax return.
Deadline
The window to apply for the 3rd SEISS grant closes on 29 January and it is not usually possible to make a late claim under the scheme.
Conditions
The additional conditions for the 3rd grant have caused some confusion:
i. When deciding whether a taxpayer meets the “significant reduction in trading profits” test for the 3rd SEISS grant, the taxpayer does not need to take into account the first and second SEISS grants, nor any other COVID-19 government support payments received.
ii. If the 1 November 2020 to 31 January 2021 eligibility period for the 3rd grant straddles two basis periods, it is sufficient to be able to show a significant reduction in trading profits for one of the basis periods. The taxpayer does not need to show a significant reduction in both basis periods to be eligible for the third grant.
iii. When assessing whether there has been a significant reduction in trading profits, the comparison period is not specified in HMRC’s guidance. The taxpayer can use the previous year or an average of say the last three years trading profits, but a reduction against an earlier forecast for the relevant basis period would also be valid.
iv. Where a taxpayer has more than one trade it is sufficient to show that one of the trades has suffered reduced activity, capacity, or demand, or has been temporarily unable to operate since 1 November 2020, and that the taxpayer reasonably believes that this will cause a significant reduction in the profits compared with what they would otherwise have expected for that trade. The taxpayer does not have to consider the two trades together.
v. In some cases, the reduction in activity, capacity, or demand may be only partly due to COVID-19 restrictions. For example, a taxpayer might decide to take on a part-time job or college course alongside their reduced self-employment. So long as at least some of the reduced activity, capacity or demand is due to COVID-19 restrictions the taxpayer would be eligible for the third grant.
Reporting SEISS grants on tax returns
SEISS grants are all taxable in the 2020/21 tax year, whatever date the taxpayer prepares their accounts to. No element of the SEISS grants should be reported in the 2019/20 self assessment tax returns that are due to be filed by 31 January 2021.
Fourth grant
The government has announced that there will be a fourth grant, covering the period February to April 2021. The conditions for the fourth grant, and the amount, have not yet been released . Pending a further announcement it would be advisable to ensure that 2019/20 tax returns are filed by the 31 January deadline.
It is not yet know whether information from 2019/20 tax returns will be taken into account for the fourth grant, but suggests it would be wise to ensure that they are filed on time in case that does happen.