Santa Claus on the tax naughty list
Whilst drinking my second cup of Yorkshire Tea this morning, I was reading the latest topical taxation headlines and thought that I’d share some of them with you.
Whilst this update may be in keeping with the season, there are some serious tax matters to be aware of which I hope this Christmas message will bring to your attention and provide food for thought over the Christmas period.
For years, Santa received his tax advice through a mixture of Google searches and polar bears down the local Ice Station.
Santa has now appointing All Paul Accountants to provide some proper friendly tax advice and to get his books up to date. Santa had thrown away his computer for being too slow. With living in a remote location, his internet connection was a little slow. That’s all sorted now, with new high speed broadband from Igloo installed last year from the Polar Icecap to his grotto.
Santa could consider taking out a Bounce Back Loan for his small business, though he must remember to only use the loan for business expenditure and not to withdraw it for private use.
Moving to Elf employment
Santa’s first taste with HMRC was a result of the elves’ request to be treated as elf-employed, rather than directly employed by Santa.
Some of the elves had helpfully set up limited companies and offered Santa their toy-making services through newly incorporated personal services companies. The elves through that a limited company would save them tax. On the basis that Santa had previously agreed to flexitime, this new arrangement seemed a natural next step, and of course, the reduced National Insurance for self-employed helpers was welcome.
Unfortunately, the National Insurance and dividend rates will increase by 1.25% from 6 April 2022 for the next three tax years
When HMRC queried the reduction in PAYE monthly payments from Santa, HMRC reviewed the elves’ employment status. They were asked to complete an employment status checklist using the HMRC approved CEST (Check Employment Status Tool) to ascertain is they were really self-employed.
Santa now understood that he should also have taken into account the regular amount paid to each elf (or their company), his provision of all tools and equipment and materials for the toy-making, the job-related accommodation provided and the holiday pay provision in the employment contract. He didn’t really understand the difference between being employed and self employed. He had listened to the elves just wanting to be self-employed, when in reality they were actually employees of Santa.
We think some of the new tax claus(es) in the elves' contracts this year are causing Santa problems.
Perhaps calling their half-page written agreement with Santa an ‘employment contract’ was not really true and it was now causing taxing issues for Santa at this busy time of the year.
It seemed spending 183 days in the UK wasn’t all there was to worry about. Mrs Claus and the children were living in a posh lodge in the North Pole for only some of the tax year was an issue.
All those visits to the UK toy factory and weekends with the children had added up and the Statutory Residence Test had come to bite him.
As the elves all claim to work off-shore, in the North Pole, rather than in the UK factory, they are claiming to be outside of HMRC's grasp. The recent working from home initiative because of furlough is not particular helping HMRC’s case.
It has been suggested that the elves may work for the gnome-office and so, as Crown servants, they must pay their taxes as if they lived full-time in the UK.
Now that Mary Christmas has married Father Christmas they could consider whether they could be Claiming the Marriage Allowance to reduce their overall tax liability.
Santa had been playing golf with his team of pixies. He was happy to hear that he could reclaim VAT paid on all purchases of materials, tools etc needed to make the seasonal toys.
Santa was disappointed when the VAT officer explained the meaning of ‘outside the scope of VAT’, and stopped his VAT claim on the basis that Santa did not charge for the gifts or delivery service and was not running a commercial business.
We had previous advised Santa to cease trading due to recurrent losses every year which were being propped up with personal loans and financial help from his investment in Tooth Fair Enterprises.
HICBC (High Income Child Benefit Charge)
That was followed by the oddest bill Santa had come across. He knew that since 1990, he and Mrs Claus had been taxed separately. He hadn’t told his wife about the increasing rental income he’d received from his properties across the globe. How was Santa to know that Mrs Claus had been claiming Child Benefit?
After his income had crept into the higher rate of tax band, over £50,000, Santa did not appreciate that he’d have to repay the child benefit money that Mrs Claus had received for all their children.
It was fortunate that the pixies had managed to charm the Self Assessment tax inspector, who accepted that somehow, Santa was trading with a view to a profit, so tax relief was available for the losses on the construction Christmas gifts.
Capital gains on residential property
In order to fund some of his Christmas expenditure this year he had sold some residential property and created a capital gain. He did not realise that he had to declare this gain and pay the capital gains tax within 30 days and that he could not wait until the end of the tax year and deal with everything with his friendly accountant.
Research & Development Tax Credits
Santa had been designing a new range of slays for his business last year that could simultaneously be in multiple places at the same time. His accountant had explained to him that as he was pushing the boundaries of new scientific and technological knowledge he could more than double his R&D expenditure and then claim a 14% tax credit on all his inflated research activities. Santa was keen to make this tax claim as soon as possible after his year end of 31 December therefore providing additional cash inflow for the new accounting year.
MTD (Making Tax Digital) on the horizon
Santa had appointed his new accountant; one with real qualifications, and a professional body that Santa could complain to, should things go wrong.
Santa was horrified to hear that his tax filing methods would be changing, and Santa’s accounting records would need to change too.
Santa had missed understood the recent advertising campaign by HMRC. He thought it strange that HMRC had called the new system Making Tax Difficult. It was only following discussions with his new accountant that he realise that the ‘D’ in MTD meant that he had to move to ‘Digital software’ from April 2024, which of course would be difficult for him with his old computer.
The nice, qualified accountant agreed that Santa’s records were well-kept and accepted that Santa wrote them up promptly. In spite of Santa’s well-kept paper records, he was going to have to move with the times and keep digital records on a new computer or face penalties from HMRC. He would soon have to submit quarterly updates to HMRC.
Santa wasn’t sure this was simpler and he really didn’t understand how this was going to benefit him, but apparently, it would and if this was the new way forward. We told Santa to read more about MTD and quarterly income tax and VAT return filings
We were discussing when Santa would start drawing his private pension. He did not realise that the private pension age is increasing to 57 by 2028 and is expected to increase to 58 a few years thereafter. Santa had thought that he could draw his private pension from the age of 50, even though the state retirement age is steadily increasing for everyone to 68.
We have heard that Santa may be spending some of his crypto currency that has accumulated during the year within his digital wallet to pay for some materials and staff costs. We have of course reminded him that any sale of crypto currency to use to incur his expenses, incurred wholly and exclusively for the purpose of this trade, would generate a capital gain or loss when they are sold and translated into a fiat currency, like sterling, dollars and euros. You can read more about this on our blog article
I think we are all starting to wonder whether the ‘old’ furlough scheme will be reintroduced in the near future.
There does appear to be positive news on the horizon. A spokesman at the drugs company Pfizer has confirmed that they have entered into a partnership with Santa Claus to keep the coronavirus vaccination in freezing temperatures at the North Pole until required by the NHS. He is expecting to empty his warehouse of children’s toys on 25 December and will have surplus capacity to store the vaccinations.
In a further development this morning, Santa Claus has confirmed that rather than putting his elves on to furlough, should the scheme be reintroduced, that he will be making his National Elf Services available to the NHS to distribute the coronavirus vaccination.
The office party
Make best use of the Christmas period in getting your information up to date and sending it to your friendly accountant in the very near future.
Remember to consider the tax consequences of food and drink for customers and staff and if you are having an annual office function to use your £150 exemption.
Must go now…..
I’ll have to break off now, as I have Santa on the phone calling me. He is wondering if he sets up a warehouse on a floating iceberg, which has broken away from the North Pole due to global warming, whether he can avoid payment of tax on its profits as they will have arisen ‘off-shore’.
I will be taking some time off over Christmas, though I’m sure some of my clients will be sending things in over the Christmas period to help reduce my anticipated frantic workload in January.
Wishing you all a Merry Christmas and Happy New Year.