The View from No 50

 

 

 

 

May 2009

K P Bonney & Co

Chartered Accountants and

Chartered Tax Advisers

50 Cleasby Road  Menston

Ilkley  LS29 6JA

Tel:  01943 870933

Fax:  01943 870925

Email:  keith@kpbonney.co.uk

www.kpbonney.co.uk

 

 

PHONES

In the month of May we find ourselves once again in the P11D (expenses and benefits) reporting season.  This is therefore a good time to review the provision of business phones to employees. 

Here is a quick illustration of how the various costs are charged to tax and national insurance.

Yes denotes a liability.

No denotes no liability.

Can you spot the obvious answer?

                                                                                            NIC             NIC          Income          PAYE

                                                                                         Class 1       Class 1A          tax

 

Reporting and payment procedure                                   Payroll          P11D           P11D          Payroll

 

Rate of NI / tax

Employer                                                                           12.8%         12.8%             -                  -

Employee                                                                         11%/1%            -          20%/40%   20%/40%

 

Home phone

Contract is between employee and provider

Rent met by employer                                                         Yes              No              Yes              No

Rent reimbursed to employee                                             Yes              No               No              Yes

Rent – phone used exclusively for business                         No               No              Yes              No

Business calls                                                                      No#              No             Yes~             No

Private calls met by employer                                              Yes              No              Yes              No

Private calls reimbursed to employee                                  Yes              No              Yes              Yes

 

Contract is between employer and provider

Phone provided solely for business use and

private calls insignificant                                                      No               No               No               No

Private calls significant                                                         No              Yes             Yes              No

Private calls significant but paid for by employee                 No               No              Yes              No

 

Mobile phone

Contract is between employee and provider

Fixed charges met by employer                                           Yes              No              Yes              No

Fixed charges reimbursed to employee                               Yes              No               No              Yes

Fixed charges where phone is used

exclusively for business                                                        No               No              Yes              No

Business calls                                                                       No               No             Yes~             No

Private calls met by employer                                              Yes              No              Yes              No

Private calls reimbursed to employee                                  Yes              No              Yes              Yes

 

Contract is between employer and provider

All costs                                                                                No               No               No               No

 

~ But the employee can claim a deduction for business use in his / her tax return.

# Provided the cost is supported by evidence.  Without evidence NI is chargeable.

As can be seen from the table above employee contracted arrangements are expensive and the attendant compliance routines are horrendous.

 

Our Advice:  Simple.  Make sure your phone contracts are between the employer and the provider.  If you don’t you will burden yourself unnecessary tax and national insurance costs and with no end of compliance.  The compliance is so horrendous you will probably get it wrong and when HMRC discovers you have got it wrong it will fine you 30% of the tax and NI lost.  It’s a no brainer.


PENALTY SHOOT OUT

The names and characters in this piece are fictional. Any similarities to the names or characters of real people are coincidental or unintended.

 

Alan Shortshift is caretaker manager of perpetual underachievers Toontown United. 

 

Alan is keen to retain the services of the club’s highly talented but injury prone striker Michael Broken.

 

Michael, whose contract expires at the end of the season, is quietly keen to leave Toontown and practise his recovery techniques in treatment rooms elsewhere.

 

Alan brings in the club’s deputy caretaker manager, Ian Dour and he in turn liaises with the club’s owner, the previously wealthy Mike Cashless.

 

They all think long and hard and come up with their own ideas on how to entice Michael to sign a new contract.

 

Alan reckons Michael could be persuaded to stay if the club were to pay for the running costs of his private helicopter.

 

Ian reckons a bundle of cash in a brown paper bag could do the trick.

 

Mike suggests making up a false purchase invoice for consultancy services, paying the invoice by transfer to an offshore bank account and then moving the money on from there to Michael.

 

Having fallen out with its financial advisers the club now uses the very affordable services of street accountant Foggy Waterman.  Foggy, having devoted no effort to training and competence, has no idea what the tax consequences of these ideas might be.  Accordingly, when the time comes, the club fails to apply the proper procedures.

 

There is nothing wrong with the plan thought up by Alan.  But the club’s failure to operate the proper PAYE and national insurance procedures amounts to careless behaviour.  Upon discovery of these kind of mistakes H M Revenue and Customs will impose a penalty on the club equal to 30% of the potential lost revenue (PLR).

 

Whereas Alan’s plan led to a careless mistake, Ian’s plan is a deliberate attempt to by pass the normal PAYE procedures.   Upon discovery of this kind of offence H M Revenue and Customs will impose a penalty on the club equal to 70% of the PLR.

 

Mike’s plan is the most blatant of them all.  This plan not only involves committing an offence but concealing it as well (the false invoice).  Upon discovery of this kind of offence H M Revenue and Customs will impose a penalty on the club equal to 100% of the PLR.

 

Up until recently we had different rules for determining the level of penalties applying to different taxes.  Following the merger of the Inland Revenue with Customs and Excise penalties have now been standardised across all taxes.

 

In the past penalties averaged about 15% of tax under declared.  From 2008/09 onwards the level of penalties will be determined by the behaviour of the taxpayer.  The rates will be (expressed as a percentage of potential lost revenue):

 

Careless                                         30%

Deliberate but not concealed         70%

Deliberate and concealed            100%

 

The compliant majority of taxpayers have nothing to fear from these changes.  If you make a mistake despite having taken reasonable care you will not be penalised.  Nor will you be penalised if, unprompted, you correct a careless mistake.

 

Our Advice:  So long as you take reasonable care over your tax affairs you will not be penalised for making mistakes.

 

If you become aware of a careless mistake in a return you should consider seriously the making of an unprompted disclosure as such a disclosure can reduce any potential penalty to nil.

 

If you are unsure about the tax treatment of a particular transaction consult us.

 

Don’t follow the example of our footballing friends.

 

CHILDISH BEHAVIOUR

Three footballers walk into a bar and order pints of beer.  They raise their glasses and make a toast, “Here’s to 59!”  After downing their beers they order another round and make the same toast, “Here’s to 59!”  This happens again and again.  Finally the barman asks the footballers what the significance of the toast is.  “Well,” says one of them, “we put a 1,000 piece jigsaw puzzle together in just 59 days!”  “And that’s a big deal?” asks the barman.  “You bet,” replies the footballer, “the box said 4 to 8 YEARS!!” 

 

 

 

Copyright:  K P Bonney & Co LLP 2009.  All rights reserved.  No part of this publication may be produced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording or otherwise without prior written permission of the publishers.  Disclaimer:  The publishers have taken all due care in the preparation of this publication.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publisher.

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