Making Tax Digital Delayed until 2020

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The Treasury have delivered what is potentially good news for many (yes, you have read that correctly).  Making Tax Digital, or MTD to give it its affectionate moniker, has been both delayed and reduced in terms of requirement.

For businesses that are VAT registered, VAT returns will still have to be submitted via MTD compatible software from 1 April 2019, but in terms of quarterly reporting for tax and national insurance (NI) purposes,  MTD has been delayed until at least April 2020.

The new timetable for income tax and NIC reporting is as follows, although the £85,000 small business threshold is subject to change.

Annual turnover

Old timetable

New timetable

Over £85,000

6 April 2018

At least April 2020

From £10,000 – £85,000

6 April 2019

At least April 2020 but on a voluntary basis

Companies

1 April 2020

At least April 2020

It appears that the Government have quite enough on their plate without launching MTD and undoubtedly many taxpayers will welcome the delay!

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.

 

National Insurance Contributions Top Up Scheme

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Those people who reach state pension age prior to 6 April 2016 are being offered the chance to make voluntary national insurance contributions to boost their state pension. The contributions are known as class 3A and the scheme through which the contributions will be collected commenced12 October 2015.

It is open to people who reach state pension before 6 April 2016 as they are ineligible for the new state pension that launches on this day.

The class 3A contributions can increase the state pension up to a maximum of £25 per week and the cost to the individual will depend on their age. The contribution level also takes into account average life expectancy.

An extra £10 of state pension a week will cost a 65 year old £8,900 and for a 75 year old it will cost £6,740.  In most cases surviving spouses/civil partners will be able to inherit at least 50% of the extra pension.

The scheme closes 5 April 2017.

More information on the scheme and an online calculator can be found at: www.gov.uk/statepensiontopup.

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

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

It’s Not Too Late To Claim Your Employment Allowance

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As the beginning of the new tax year is now well underway, we would like to take the opportunity to remind people of a government incentive to save up to £2000 on your PAYE bill.

Since April 2014, employers have been able to claim £2000 off their Employer’s National Insurance Contributions. This year, the government is again rolling out the scheme and up to 1.25 million businesses around the UK are expected to benefit. That’s up to £2.5 billion that could be wiped off their tax bills!

There are a small number of business types which cannot claim, such as public bodies, or if the work is of a personal, household or domestic nature, such as a nanny or a gardener.

However, the vast majority of businesses are eligible to claim, and most payroll software providers are ensuring that it is easily integrated into a normal pay run.

Think it’s too late in the year? Think again, it can be added from your next payroll at any point in the tax year. So if you are not already doing so, claim now.

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

Image courtesy of Stockimages at FreeDigitalPhotos.net

Nick Park analyses the Budget on BBC Radio Wales

To find out what other announcements were made in  the Chancellor’s Budget, read our Budget Summary.

HMRC To Abolish Employer’s National Insurance Contributions For Under 21s

From 6 April 2015 employer’s will no longer have to pay class 1 secondary national insurance contributions (NIC) for employees under 21, whose earnings are below the upper secondary threshold.

Under the current regime class 1 secondary NICs are due, from the employer, on payments made to employees in excess of the secondary threshold at the applicable percentage (for the tax year in question). The secondary threshold for 2015-16 is £156 per week, or £676 per month, and the employer’s NIC rate is 13.8%. So, for example, if an employee earns £1,200 per month in 2015-16, then the employer’s class 1 secondary NICs due on this salary is approximately £72.31 per month, or £867.72 per year. For those employees aged 21 and over, this will still be due.

For those employees who are under 21 and lucky enough to earn in excess of the upper secondary threshold (UST), then employer’s NICs will be due on those earnings in excess of the UST at the applicable rate. The UST for 2015-16 is £815 per week.

This new ruling does not apply to class 1 primary national insurance contributions, that are due from the employee. So, for those employees who are over 16 and who earn in excess of the primary threshold, employee’s class 1 NICs will still be payable at the applicable rate.

Also, the zero rate won’t apply to class 1A NICs, which are due on any benefit you provide to your employees by reason of their employment.

Should you require any further guidance please contact your payroll provider or Green & Co Accountants.

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

Paying Class 2 NIC Is Changing

www.greenandco.comIn an attempt to simplify the administration of Class 2 NIC, HMRC have announced changes in the way contributions will be paid from 6 April 2015 onwards.

Class 2 NIC (otherwise known as self-employed stamp) is payable by anyone who is self-employed, either as a sole trader or in a partnership. Contributions made count towards certain social security benefits, including pensions, and up until now have been collected separately from income tax, usually by monthly or quarterly direct debit.

In a step on from the announcement last year that arrears of Class 2 would be collected through PAYE codes, HMRC have decided that liability will now be calculated and paid alongside self-assessment tax and Class 4 NIC. As a result, contributions due for 2015/2016 will not become due until 31 January 2017.

The criteria for thresholds and exemptions remains the same, for example, those with small earnings or are of pensionable age are not liable, but everyone will be given the opportunity of making voluntary contributions at the end of the tax year, if they so wish.

From 6 April 2015, the Class 2 NIC rate will rise to £2.80 per week and self-employed individuals should already have received notification of the Revenue’s intention to change how they collect the contributions.

Direct debits and direct billing will cease on 10 July 2015, but more information on the transitional period and how the changes are to be implemented is expected to be released at the start of the new tax year 2015/2016.

For more information contact us.

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

Photo credit: freedigitalphotos.net

3 Pointers For Passing Your PAYE Inspection

PAYE compliance visits can be a tricky business and should your business be selected, HMRC will delve into not only the payroll records but also the expenses and reimbursement procedures, benefits in kind, employment status and shareholder-director dividends.  Should they discover errors they can go back up to four years in order to track them.

The initial interview with the payroll administrator will seek to identify any weaknesses in procedures. It is vital at this stage to understand what HMRC are trying to uncover, so that you can provide answers that prove adequacy of procedures. Here are three tips that, if adhered to, can help appease the inspector:

  1. Director’s Tax Returns: If the company pays for the completion of the director’s tax returns then this should go onto the P11D as a benefit in kind, upon which tax and NIC will be payable. It is therefore advisable to enquire whether your accountant’s invoices can show the tax return preparation fee as a nominal amount (potentially a loss leader for the main company work). The nominal amount should then be declared on the P11D.
  1. Self-Employed Status: As businesses can save on PAYE and NIC costs through hiring a self employed person, HMRC will ensure that certain criteria are met in order satisfy themselves that a worker is indeed self employed rather than an employee. It is therefore vital that the conditions under which that person works meet the self-employment criteria, and in addition to this, contracts should be in place between not just employer and employee, but also contractor and sub-contractor.
  1. Dividends: You cannot pay a dividend from the company unless there are sufficient profits to do so. Company law prohibits this and therefore the inspector will check to ensure that this has been observed. Maintaining a spreadsheet which shows the distributable profits and the dividends paid is a good way of indicating that the company is abiding by this rule.

These pointers will not guarantee success in a PAYE inspection, however they are certainly key areas of preparation. And remember, fail to prepare – prepare to fail. 

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

National Insurance cuts for Employers

In an attempt to promote job creation, it was announced in the Budget 2013, that firms based in the UK would be entitled to a £2,000 allowance towards employer National Insurance Contributions (NIC).  This Employment allowance will come into effect in April 2014 and is estimated to take 450,000 of the UK’s smallest businesses out of paying employer NICs.

For most employers, NIC’s are an additional levy of employment, charged at 13.8% of most pay. This allowance will diminish or reduce the burden on small businesses and hopefully encourage further employment.

George Osbourne announced that “For the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax.”

It was described as the largest cut in the budget and the government expects only one third of all employers to have to make NIC when it comes into effect.

According to HM Revenue & Customs, the allowance will be claimed as part of the payroll process through RTI. However, a decision has not been made on how it will be implemented and legislation is expected to be introduced later on in the year.