The Rising Tide of Auto Enrolment

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Over the course of the next two years Auto Enrolment Pension contribution rates are rising. These changes will affect you as an employer as well as your employees.

Currently the total minimum amount is 2% of qualifying earnings, of which the minimum for the employer to pay is 1%. This means that the employee normally also pays 1%.

From 5 April 2018, these rates will increase. The new total minimum will be 5%, with the minimum employer contribution rising to 2%. From 5 April 2019, they will rise again to 8% and 3% respectively.

Of course, both the employee and the employer can chose to pay more into the scheme should they wish. For instance, if an employer wishes to contribute to his employees’ pension the whole 2% currently prescribed, the employee would not need to add anything, as the minimum amount has been reached.

If you are staging soon, or have perhaps passed your staging date, and would like any help don’t leave it too late! Our dedicated payroll team will be happy to help ease the burden.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Some Employee Perks Are Being Lost and It Could Be Costly

Green & Co

Green & Co feature in the South Wales Argus discussing the tax changes for employee perks.

The new tax year has seen a raft of changes, with more legislative reform scheduled to come into effect over the next few years.

From changes in dividends, stamp duty, and national insurance (with a U-turn thrown in for good measure) the way that people are taxed is an ever-evolving landscape. However, it’s not just directors, landlords and the self-employed who have been targeted with new legislation.

Barrie Kenyon, partner at Green & Co Accountants and Tax Advisors said: “From 6th April, the tax and employer national insurance advantages of a salary sacrifice or salary exchange scheme was removed. This means that any employees who have swapped their salary for benefits, which typically include additional holiday days, will now pay the same tax as if they were buying them out of their post-tax income. The Chancellor, Philip Hammond, announced the changes in the autumn statement believing the previous schemes were unfair. From earlier this month, they have started to come into effect.

“However, these changes do not affect those employees who have reduced their salary for pension contributions, childcare purposes such as vouchers, workplace nurseries or directly contracted childcare, the cycle to work scheme and ultra-low emission company cars with co2 emissions of or less than 75g/km.

“The schemes were seen as attractive to both employees and employers, with reduced tax liabilities benefiting both parties.”

Mr Kenyon stressed that there were some caveats that accompany the changes: “If any arrangements which were in place before April 2017 relate to cars with co2 emissions over 75g/km, accommodation or school fees: these arrangements will be protected until April 2021. Also, other arrangements agreed prior to April 2017 that do not fall into the aforementioned categories will be protected until the end of the current tax year in April 2018.”

It is estimated that millions of workers from across the UK will pay more tax due to these changes, with the Treasury believing that these schemes are costing too much in lost tax receipts and national insurance contributions. It is estimated that the reform will cost employers in the UK around £85M this tax year, whilst increasing another £260M by April 2021 when the full changes will come into effect.

If you are worried about any of these forthcoming changes, please contact us at Green & Co for further help and guidance.

Green & Co Accountants and Tax Advisors specialise in business growth and tax minimisation for businesses across Wales and the South West of England.

For proactive advice, contact Green & Co Accountants and Tax Advisors on 01633 871 122, follow @Green_and_Co on Twitter or email barrie@greenandco.com.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Class 2 Voluntary Contributions

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Although the self-employed heaved a sigh of relief when the Chancellor reversed his decision to raise the rate of Class 4 NIC recently, other changes in the structure of National Insurance will give cause for concern, particularly for those with low earnings.

The abolition of the self-employed stamp (Class 2 NIC) from April 2018 means those who are currently below the Small Earnings Exemption and have been paying voluntary Class 2 contributions in order to secure contributory benefits will no longer be able to do so.  From that date they will have to pay Class 3 voluntary contributions which is currently £14.10 per week, compared to the Class 2 amount of £2.80 they are currently contributing.  In addition, the special rates for share fishermen (currently £3.45) and volunteer development workers (£5.60) will also be abolished, so they too will have to pay the higher Class 3 amount to maintain their contributions.

The situation is further complicated as in the past those with income below the Class 2 limit had to opt out of paying the stamp by applying for exemption, whereas now low earners have to opt in if they wish to make contributions – a fact many may not have been aware of, and may give rise to gaps in their records.

You can check your Class 2 record by logging onto your personal tax account at HMRC on-line, by post or by phone – details can be found here. If you have gaps in your contributions you can now backdate your Class 2 contributions for up to 6 years but you will need to do so before Class 2 is fully abolished.  You need 35 years of contributions paid or credited to be entitled to the full state pension.

If you would like to discuss your situation with one of the team at Green & Co, please contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Some employee perks are losing their tax breaks.

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From 6 April 2017 the tax and employer national insurance advantages of a salary sacrifice or salary exchange will be removed, with the exception of:

  • Pensions
  • Childcare (Vouchers, workplace nurseries or directly contracted childcare)
  • Cycle to work
  • Ultra-low emission cars with co2 emissions of or less than 75g/km.

Any employees who have swapped their salary for benefits, for example, additional holiday days, will now pay the same tax as if they were buying them out of their post-tax income.

If any arrangements which were in place before April 2017 relate to cars with co2 emissions over 75g/km, accommodation or school fees, they will be protected until April 2021. All other arrangements (arranged before April 2017) that are not detailed above will be protected until April 2018.

If you are worried about any of these forthcoming changes, please contact us at Green & Co for further help and guidance.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

National Living Wage and National Minimum Wage

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As announced by the Chancellor in the Autumn Statement, the rate of the National Living Wage is set to increase to £7.50 per hour from April 2017.

In line with this, the government has accepted the recommendations of the Low Pay Commission for the National Minimum Wage and from April 2017 the new rates will be as follows:

£7.05 per hour for 21-24 year olds
£5.60 per hour for 18-20 year olds
£4.05 per hour for 16-17 year olds
£3.50 per hour for apprentices (under 19 or 19 and over and in the first year of their apprenticeship)

The National Living Wage and National Minimum Wage are legal requirements. If H M Revenue and Customs (HMRC) find that an employer has not paid the correct minimum wage, they can send a notice for the arrears as well as a penalty.

If you are unsure what you should be paying, please consult a specialist. Green & Co run a dedicated payroll department that can organise this for you. If you would like more information, please contact us on 01633 871122.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

 

Year End Tax Planning Tips For Companies

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Corporation tax is set to reduce to 19% with effect from 1 April 2017 but opportunities still remain to reduce and defer corporation tax liabilities. Here are some you may wish to consider.

MAXIMISE CAPITAL ALLOWANCE

The annual investment allowance (AIA) provides 100% tax relief for qualifying expenditure incurred up to a limit of £200,000 for 12 month periods starting on 1 January 2016. The allowance can only be claimed in the period in which the expenditure was incurred. You should be aware that cars are excluded from this relief.

If you have a 31 March year end, it would be sensible to review capital expenditure plans and consider bringing forward any purchase to before 31 March, thereby utilising this allowance which might otherwise be lost.

On the other hand, if the £200,000 limit has been exceeded, then further purchases should be delayed until after the year end, if possible.

PENSION CONTRIBUTIONS

Relief for employer contributions is given in the chargeable accounting period in which the contributions are paid. In most cases it is sensible to ensure that all contributions are paid before that date in order to accelerate the relief. In the context of a 31 March year-end, if the payments are made before 31 March, relief is given at 20%. This would reduce to 19% for contributions paid after this date.

DEFERRING INCOME OR PROFITS

Consider delaying a transaction to shift profits forward into the next financial year, so as to delay by one year any corporation tax payable. This will also have the effect of reducing the corporation tax payable from 20% to 19%.

There are several ways of deferring income to the next tax year. Sales could be pushed forward to the next period, selling goods on consignment, or if a seasonal trade, changing the year end to exclude a more profitable period or to include a loss-making one.

CLAIM RESEARCH & DEVELOPMENT TAX CREDITS

Companies that have undertaken research and development work could qualify for generous tax reliefs. For an SME, for every £1 of qualifying R & D expenditure, an additional £1.30 is allowed in the tax computation. A loss making SME may be able to surrender the loss arising as a result of the R & D claim for a cash credit of 14.5%

CLEAR OVERDRAWN LOAN ACCOUNTS

The tax charged on a company loan to a “participator” is equal to 32.5% of the amount of the loan outstanding at the year-end, unless the loan has been repaid or cleared within nine months of the end of the accounting period. Companies should therefore review outstanding loans and consider clearing them within the nine months to avoid the tax charge.

CONSIDER ROLL OVER RELIEF

Any company that has realised gains on the disposal of land and buildings used in a trade should consider whether the corporation tax on this can be deferred by way of business asset roll over relief. This may be available if the company reinvests all of the disposal proceeds in new qualifying assets, either within 12 months before the disposal or up to 3 years after. Partial relief could be available if all the proceeds are not reinvested.

For further information please contact the tax team at Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Proposed NIC rise has been dropped!

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As mentioned in the recent Budget, the Chancellor had intended to increase the Class 4 National Insurance Contributions (NIC). The NI rate for the self-employed (Class 4) was meant to increase from 9% to 10% in April 2018, followed by another rise to 11% in April 2019. This would have brought NIC for the self-employed more in line with the employment rate, which is currently 12%.

Today, however, the Chancellor Philip Hammond has made a complete u-turn, announcing that the government will scrap the increase. This action has been taken because many feel the change would break the manifesto promise not to increase National Insurance, Income Tax or VAT.

Chancellor Hammond has explained that “it is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made. In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”

This means that the 4.8 million Britons who are currently self-employed  can rest assured that, for now, the Class 4 NIC rate will stay at 9%.

If you have any questions regarding this change, or any of the other changes announced in the Spring Budget, please don’t hesitate to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

 

2017 Budget Review

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

Budget Summary

Tax Data
The main changes include:

  • The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
  • Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
  • Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

  • The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
  • The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
  • Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Concerns for small businesses using the VAT flat rate scheme

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From 1 April 2017 HMRC are changing the rules for using the VAT Flat Rate Scheme (FRS). 

In an attempt to wipe out what HMRC has seen as abuse of the flat rate scheme, businesses will now need to determine whether they fall into a “limited cost trader” category, by comparing the percentage of goods they purchase in relation to their turnover. Limited cost traders must use the new 16.5% rate; previously, the rate was entirely dependent on the nature of the trade, the highest of which was set at 14.5%.

However, the Chartered Institute of Taxation (CIOT) has warned that the changes could have a considerable negative effect on many of the 400,000 businesses currently using the flat rate scheme, the majority of which are compliant.

They suggest that new regulations will all but wipe out the original intent of the scheme, which was to simplify VAT for the small trader. The criteria for being a limited cost trader must be reviewed for every VAT quarter, meaning that taxpayers could be remitting different rates in different quarters – hardly a simplification! Tax points and cut-off dates will be crucial in determining status for the scheme but, say the Institute, some will undoubtedly find ways to tweak the figures to avoid falling into the limited cost category. The goal of eradicating abuse of the scheme would therefore seem unrealistic.

The CIOT suggests there could be other ways for HMRC to tackle the problem, such as perhaps making it unavailable to those who register voluntarily, and are calling for them to re-think the proposals. In the meantime they expect that many businesses will opt to go back to the standard VAT scheme rather than wrestle with the complexities of the new regime.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.