U-Turn On Self Employed Class 4 NIC Increases

The Chancellor has announced on 15 March that he would not be going ahead with his Budget proposal to increase the National Insurance Contribution rates for self-employed people. 

In the Budget of 8 March 2017, he announced that Class 4 NIC rate for the self-employed would rise by 1% to 10% in 2018/19 and by a further 1% in 2019/20. The proposed increases provoked a widespread outcry, not least because the Conservatives 2015 election manifesto stated “we can commit to no increases in VAT, Income Tax or National Insurance.”

A week later, perhaps appropriately on the Ides of March, the Chancellor issued a letter to MPs saying that there would be no increase to Class 4 NICs “in this Parliament”. However, the abolition of Class 2 NICs will still go ahead from April 2018, meaning that the self-employed will generally see their NICs bill fall from 2018/19.

At Prime Minister’s Questions, Mrs May has said that the government would review areas of difference in the treatment of the employed and self-employed following a forthcoming report of modern working practices being prepared by Martin Taylor.  Mrs May’s comments reiterated a point made by the Chancellor, who also wrote in his letter that “The cost of the changes … will be funded by measures to be announced in the Autumn Budget.”

2017 Spring Time Budget Update

The Spring Budget brought good news and some bad news for businesses. A summary of key points are as follows:

  • UK economy to grow 2% rather than 1.4%, the Chancellor says.
  • In 2018 growth is forecast to slow to 1.6%, before picking up to 1.7%, then 1.9%, and back to 2% in 2021
  • Inflation is forecast to hit 2.4% this year, according to the Office for Budget Responsibility.
  • No business losing small business rate relief will see their bill increase next year by more than £50 a month
  • 90% of local pubs will have a £1,000 discount on their business rates bill
  • On tax avoidance he announces tackling abuse of foreign pension schemes, Introducing UK VAT on roaming telecoms services & Implementing new financial penalties for professionals who enable a tax avoidance arrangement that is later defeated by HMRC
  • Lower National Insurance contributions from self-employed workers is forecast to cost public finances £5bn this year alone.
  • NI contributions will rise for the self-employed by 1% to 10% from April next year. That will then rise again to 11% in 2019
  • He announces that he will reduce the tax-free dividend allowance for directors/shareholders from £5,000 to £2,000 with effect from April 2018
  • A further 650,000 people expected to be in employment by 2021

 

Please download our budget summary under our publications page

CHANGES TO SAGE SOFTWARE LICENCES

From the 1st April 2017, sage will not longer offer perpetual licences (one off payment for complete ownership)  for upgrades, all customers will be moved onto subscription contracts on a pay monthly basis.

Will you be affected?

The programs affected will be :

  • Essentials
  • Accounts
  • Accounts Plus
  • Accounts Professional
  • Sage Cover Online / Extra / Premium (where clients don’t have an existing contract in place)

Will you be supported?

Sage will be withdrawing support for the following products :

  1. Sage 50 v2013 – unsupported from 31st Jan 2017
  2. Sage 50 v2014 – unsupported from 31st Mar 2017
  3. Sage 50 v2015 – support begins to be withdrawn from 1st Mar 2017

 

What you need to do:

If you would like to upgrade your sage product on a perpetual licence, you will need to do so before 31st March 2017.

Alternatively, now may the best time for you to consider changing to a cloud based bookkeeping package.

Clay Shaw Thomas can help you make the right choice for your business, if you would like to discuss  your options in further detail please contact me on melaniej@clayshawthomas.com or telephone 01656 867167.

Finance Wales Micro Loans

Finance Wales are providing a more streamlined process for their micro loans of up to £10,000. Eligible Welsh small and medium sized businesses can apply for the micro loans from the Welsh Government’s Wales Micro Business loan fund. There is now a two day streamlined application process for Welsh businesses that have been trading for more than two years.

However there is also a micro loan fund for up to £50,000 if Welsh businesses have not been trading for two years.

Please go to:  http://www.financewales.co.uk/thisistheyear/growing-a-business/micro-loans-under-%C2%A310,000.aspx for more information and where you can apply online via the website or email.

If you have any other business finance needs or require advice please contact 01656 867167.

Making tax digital

At the March 2015 Budget, the Government set out the vision for a transparent and accessible tax system fit for the digital age – putting an end to the tax return for good.

Millions of small businesses are already using HMRC digital accounts. In 2016, every individual and small business will have access to their own secure digital tax account – like an online bank account – that enables them to interact with HMRC digitally.

By 2020, HMRC will have moved to a fully digital tax system where:

  • Businesses have access to digital accounts enabling them to register, file, pay and update their information at any time
  • The tax system operates more closely to ‘real time’ keeping the business up to date and stopping tax due or repayments owed from building up
  • Businesses will no longer have to wait until the end of each tax year before knowing how much tax they should pay, avoiding any nasty surprises
  • For the vast majority there will be no need to fill in an annual tax return – most businesses will keep their records using digital tools and send that information quarterly to HMRC.

Quarterly in-year updates

Under the new Making Tax Digital for Business changes, businesses will only need to report summary information produced direct from the software, on a quarterly basis. This will exclude transaction data.

The software will help the business to categorise and summarise the information, so the process of providing the quarterly update will be a straight forward process.

The business will finalise its taxable profit after the end of the period of account as part of the end of year process and be able to make amendments at any time it chooses up to the final declaration.

These quarterly submissions are for summary information only and there will be no requirement for businesses to submit four tax returns over a twelve month period.

HMRC will begin piloting digital record keeping and quarterly updates for a full year from April 2017 with some businesses, but the full implementation is not expected until April 2018 at the earliest.

 

 

Apprenticeship Levy

The Apprenticeship Levy is being introduced from 6 April 2017 and will be payable by large employers. The Levy will be 0.5% of the employer’s pay bill, which is explained later in this article, but there is an annual allowance of £15,000.The allowance will be given on a pro-rata basis throughout the tax year.

The recent HMRC guidance confirms employers will need to report their Apprenticeship Levy liability each month:

  • from the start of the tax year if:
    • their annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million
    • they believe their annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million
  • if an employer’s annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million. In which case the employer will need to start reporting when this happens.

An employer’s annual pay bill is all payments to employees that are subject to employer Class 1 secondary NICs. Broadly wages but excluding benefits and expenses. HMRC have confirmed that employers must include payments to employees for whom there are no employer NICs including:

  • all employees earning below the NIC lower earnings and secondary thresholds
  • employees under the age of 21
  • apprentices under the age of 25

The Apprenticeship Levy will need to be reported each month on the Employer Payment Summary (known as the EPS) and should include the following:

  • the amount of the annual Apprenticeship Levy allowance which has been allocated to that PAYE scheme
  • the amount of Apprenticeship Levy you owe to date in the current tax year

HMRC have confirmed that it is not necessary to report Apprenticeship Levy if the employer has not had to pay it in the current tax year.

If you would like advice on the Apprenticeship Levy or other payroll matters please contact us.

Internet Link: GOV.UK apprenticeship levy

Grandparents could be eligible for parental leave from 2018

It’s a long way off but the time does fly!

 

Shared parental leave (SPL) and pay is to be extended to working grandparents, Chancellor George Osborne has announced.

 

A consultation is scheduled for 2016 where the policy, intended to give parents more flexibility during a child’s first year, is expected to be implemented in 2018.

 

The policy aims to benefit single parents and families where one parent is self-employed and cannot take SPL.

Pay & Benefits Magazine reported that recent research conducted amongst new mothers showed that they are reliant on grandparents for childcare on their return to work, enabling older workers to stay in employment longer. Almost two million people had given up work, reduced their hours or taken time off work to help family members who could not afford childcare.

 

Source:

Payandbenefitsmagazine.co.uk – November 2015

Making the most of the Annual Investment Allowance

If you are considering investing a considerable amount in plant and machinery, it’s worth considering the tax implications first.

The annual investment allowance (the amount of capital expenditure you can write off against your tax able profits in the period they are purchased) is set to reduce from £500,000 to £200,000 per annum on 1 January 2016.

Although this is still a significant allowance, where your accounting period spans this date, the transitional rules mean that if you time your spend incorrectly you could be losing out on valuable relief.

For example, if your accounting period ends on 31 March 2016, the amount of relief you would be entitled to would equal the time apportioned allowance of £500,000 for the period to 31 December 2015 ie 500,000 x  9/12 = 375,000 plus the time apportioned allowance of £200,000 for the period to 31 March 2016 ie 3/12 x 200,000 = 50,000, giving a total allowance of £425,000 for the whole accounting period.

However the relief available for any expenditure incurred in the period 1 January – 31 March 2016 is limited to the apportioned amount for that period ie £50,000.

Office refit needn’t be taxing

Organising and managing an office refit out comes with a long list of ‘to-dos’ and one thing to take into consideration is the tax relief opportunities that may be available.  If there’s an opportunity to offset these costs, you are likely to want to do as much as you can to benefit from it.

 

What should you consider?

A large amount of your office fit refit costs could be eligible for 100% tax relief against your taxable profits in the year they were incurred. It is prudent to seek advice prior to any spending to ascertain where you could benefit from tax relief. This will ensure that tax relief is maximised by structuring the fit out in the most tax advantageous way. Keeping detailed costings from your office fit out also means that every potential £1 of tax relief can be identified.

For example, if you are considering partitioning off separate offices within your building space, tax relief can be created simply by ensuring that the partitioning is movable and not fixed in place.

 

What’s available for tax relief?

Tax relief isn’t just available on the items you would expect, such as office furniture, but also on electrical and air conditioning systems under the relatively new integral features rules.

It may be that you are considering an office refit on a property that you have recently purchased, in which case there may be further tax reliefs available, which are often overlooked.

 

What are ‘integral features’?

It’s likely that on purchasing a building, you will have purchased along with it ‘integral features’. These are items such as water and electrical systems.

The rules concerning this are complex but, dependent on the facts of each case, it’s likely that some tax relief, and potentially a lot, will be available for the cost of the integral features that would have been included in the cost price of the building, along with any other fixtures and fittings that may have been included in the sale.

If this type of relief has not been identified and claimed at the time of a property purchase, all is not lost, there is no time limit for claiming the relief.

 

How can I make it as easy as possible?

The process can be complicated and confusing, so it’s always best to use the knowledge and expertise of an accountancy firm such as ourselves as we know what elements you can gain tax relief on. With help and advice, you can make the right decisions that will not only result in an impressive office design but also get the most out of your tax planning and any budget you have allocated to complete the project.

 

 

Do you pay professional fees and subscriptions?

When paying any professional fees or subscriptions to professional bodies on behalf of your employees, check that your organisation is among those which receive tax relief from HMRC.

 

This can be checked on the approved professional organisations and learned societies list found on HMRC’s website as follows:

https://www.gov.uk/government/publications/professional-organisations-approval-for-tax-relief-application

 

Form P356 should be used to apply for inclusion on the list of professional bodies and learned societies approved for tax relief (list 3).

 

This will indicate whether a tax exemption can be applied.

 

The basis of taxation will depend on whether the invoice is made out to the employee or the employer. Taxation of expenses relating to professional subscriptions and fees is covered under the Income Tax (Earnings and Pensions) Act 2003.

 

Should your business type not be included in HMRC’s list 3, the payment must be included in the gross pay and subject to both PAYE Income Tax and Class 1 NI.

If the employee pays directly to an organisation which is included in the list on HMRC’s website as earlier indicated and you have no dispensation to exempt you from reporting the payment, the cost needs to be added to your employee’s earnings, it needs to be included in the gross earning and PAYE income tax will need to be deducted. This type of payment is subject to Class 1A P11D (employer’s NI only).

 

Sources:

Pay & Benefits magazine

HMRC