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.
————— |
| 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.
————— |
||
| ————————— | ———————————— | ——————————————————————- |
| 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.
————— |
||
| 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.
This year has been (erm, let’s say) testing to say the least, and you might think it more important than ever to say thank you to your staff.
However, given lockdown restrictions you’re not going to be having the annual xmas party at the local bar or restaurant.
Possible alternative
HMRC has just updated its guidance, confirming that the cost of a ‘virtual’ party is an allowable expense for your salon.
“A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.”
In other words, spend up to £100 on each of your employees on something they can enjoy while attending a Zoom meeting. Say some words of thanks, then let them get on with it, and get the tax back!
Not just for xmas
And the rules mean that you don’t have to do this necessarily in December; you could do it anytime of the year, as long as it’s just the once per year.
Further reading
Here’s background to why you get the tax back on the Xmas parties and also on trivial benefits (an alternative idea to the xmas party):
Xmas staff party | the tax rules
Trivial Benefits | a tax efficient way to thank your staff – and you!
A longer read than usual for one of our posts but Nicholas Macpherson, former permanent secretary to three chancellors, hits the nail on the head, just like tax is going to hit us all in the pocket to pay for furlough in the not too distant future…
Nicholas Macpherson:
Taxes are going to have to rise.
As with war, the immediate cost of the coronavirus can be financed by borrowing. But as and when we return to normal times, the government will need to set out a plan which stabilises and then reduces public sector debt as a share of national income.
The problem is public expectations of healthcare are rising. Voters will expect greater spare capacity to guard against future pandemics and they will demand better care homes. Demographic pressures on spending are already on the rise. And Mr Johnson’s government has shown little interest in public expenditure control: it was elected on a platform of ending ‘austerity’.
My guess is that taxes will have to rise by at least £50bn a year. The question is how?
I worked on two major fiscal consolidations when I was at the Treasury: 1992–93 and 2010–12.
The first lesson I learnt is that tax reform and tax increases are difficult to reconcile. Extending VAT to domestic fuel in the early 1990s led to an almighty row and government defeat. Similarly, George Osborne had little difficulty raising an extra £13bn by raising the VAT rate from 17.5% to 20%, but he found it impossible to raise £100m by extending VAT to pasties and holiday caravans. It’s better to leave tax reform to the good times when you can lower the rate while extending the base, as Nigel Lawson demonstrated in the 1980s.
The second lesson is that introducing small new taxes can help, but if they are not to cause upset the government should not push them too far. Airport passenger duty and insurance premium tax have been nice little earners. But the revenue they raised initially was in millions not billions. Everybody is in favour of a carbon tax in principle, until they have to pay a higher price at the pump or on their fuel bills. There’s a wider point about tax acceptability: push a tax too far, as New Labour did with council tax and the fuel duty escalator, and you spend many years repenting at leisure as you freeze the tax.
The third lesson is about fairness. Voters won’t tolerate openly regressive taxes like the so-called community charge or poll tax. But at the same time, you won’t raise serious money by soaking the rich. It’s tempting to think that the rich and the companies they own can bear the burden of higher taxes. They won’t. Capital is mobile. Tax it more and it tends to move elsewhere. It’s irritating that digital companies operate out of Luxembourg or Ireland but, the United States apart, governments are never going to extract serious revenue from them. The same can be said of the rich. President Hollande’s tax hike in 2012 merely led to an exodus of the affluent, many of whom came to London.
Taxing wealth is tempting. But wealth taxes rarely raise much revenue, once the inevitable exemption for housing is introduced. And experience suggests that people will go to extraordinary lengths to avoid inheritance tax.
There’s a good case in principle for taxing land – after all, it doesn’t move. But the politics of property taxation are notoriously difficult. All the chancellors I worked for worried about the asset rich but income poor widow. And it is no coincidence that there hasn’t been a revaluation of council tax in 30 years. I much admired the Irish reform of reducing stamp duty rates and introducing a self-assessed property tax. Stamp duty rates are too high and discourage mobility. But I can’t see it happening here. And even if it did, it would be more likely to take the form of a revenue neutral package than as a serious tax raiser.
That does not mean the government should do nothing in these areas. Corporation tax rates were probably reduced too far too fast. And there’s a good case for higher tax rates on capital gains, though economists tend to overestimate the likely yield: experience suggests if you wait long enough a government is elected which will tax your gains at a much lower rate. It’s worth looking again at pensions tax relief though this is already constrained and fiendishly complicated. The government might also consider more council tax bands, though in the absence of a revaluation it might be difficult to make these stick. But measures like these will raise billions rather than tens of billions.
That takes me to the final lesson I learnt. If you need to raise serious revenue, there is no substitute for raising the main rate of one of the big taxes. There is a reason why income tax, national insurance and VAT account for the vast majority of tax revenue. They are easy to collect and they are paid by most of the population.
The problem, in the short run at least, is the government made a manifesto commitment not to raise the rates of these taxes.
Here, the solution is simple. Introduce a new tax: a ‘temporary’ social solidarity charge. It would be modelled on national insurance and based on ability to pay, but unlike NICs it would be paid by old as well as young, and on pension, dividend and rental income as well as earnings. Unlike income tax, there would be no reliefs, and so with the broadest possible base the increase in tax rates could be kept to the minimum.
The new charge could be sold as a way of spending more on health and social care. I’m under no illusion. It won’t be popular. Taxes never are. Sometimes, you have to raise taxes to recreate a coalition for lower spending. The pendulum will swing.
UPDATE:
For those who would like access to yesterday’s webinar , here’s the link to access and watch in your own time. https://bit.ly/3iKhfBJ
Salonfrog and Shine are jointly presenting a free live webinar with financial expert, Rachel Stewart of Traprain “Financial on Financial Planning for Peace of Mind”
Thursday, 8th October at 2pm.
Rachel is not your usual financial person and actually brings some ‘humanity’ to the subject.
We’ve all had a bit of a scare this year but planning our finances is something we all tend to put off. If this year has shown us anything it’s that the unexpected can happen and it can happen very suddenly.
In the webinar, Rachel will go through:
• How to create your long-term financial plan
• Understand how to spot gaps in your position – and how to fill them!
• Understand what conversations you need to have with your loved ones
• Understand the human behaviours which can get in the way of planning your finances
• Gain confidence in the facts and figures you need to be thinking about and planning for
You need to register before the event here: – bit.ly/3669KSZ
Even if you can’t make the time, by registering you can watch a replay of it.
Rachel has also offered Salonfrog clients a free 2 hour consultation. No hard sell and no tie in! I know Rachel – she just isn’t like that!
I think this is one of the most important webinars I’ve been involved with and hope to see you there!
Salonfrog was delighted to have been invited by Shine Connect to give a webinar on Tips yesterday.
A great session with some good questions at the end!
To see it, you will need to join the Shine Connect facebook group.
Also, here’s the link to our guide: Tips!
Salonfrog was delighted yet again to deliver another Zoom training session around Chair Renting – and how Salon Owners can protect themselves with this type of set up. Another great turnout!
To watch it, simply join the Shine Connect private Facebook group, for salon owners:
https://www.facebook.com/
The 6th April kicks off a new tax year 2020/21 for income tax.
We look at some of the key changes that might affect salon and spa owners:
Have a property you rent out?
If you rent out a residential property (a lot of our Clients also have a rental property business as well as their salon), there are 3 key changes from April 2020:
1a. 30 day payment and reporting
Bad news
If you sell a residential property, you now need to report the capital gains tax (CGT) you made 30 days from the date of completion of the disposal (this didn’t used to be until the deadline of 31 January following the end of the tax year).
It means you have to pay any tax due a lot earlier than before.
1b. final period exemption
Bad news
There is a reduction in the final period exemption from 18 months to 9 months (the period where you can ignore any capital gains when you make a disposal of a rental property).
It means you have to pay more tax on the disposal.
1c. Finance costs
Bad news
The transitional rules for mortgage interest relief for individual landlords (introduced from April 2017) will finally end on 5 April 2020. Which means that the buy-to-let mortgage interest relief will be 20% of the lower of:
Any excess interest instead will be carried forward to be included in the calculation for the next tax year.
Employ staff?
Employment Allowance EA
Good news
For most of our Clients, they do not have to pay the first £3,000 of employers national insurance each year under what is known as the employment allowance. For this tax year, the EA has increased from £3,000 to £4,000. Which means your payroll costs reduce.
Minimum wage levels increase
Bad news
From April, the national living wage increases.
See more here: Minimum wage increases.
National Insurance limits increase
Good news
From April, an increase in the threshold where employees and employers start paying national insurance increases.
See more here: NI limits and thresholds for 2020/21
Inheritance tax
Good news
The inheritance tax (IHT) residence nil rate band is increased to £175,000 from 6 April 2020. Taken together with the existing IHT nil rate band, an individual taxpayer will be able to leave an estate of up to £500,000 without paying IHT.