A summary of tax changes from April 2018

Changes to tax and NIC from April 2018

MTD

From the beginning of April 2018 the personal tax allowance will increase to £11,850 per year.   Tax rates will be:

England and Wales
Basic rate 20% On the next £34,500 above the personal tax allowance
Higher rate 40% On £34,501 to £150,000 (the personal allowance reduces once earnings reach £100,000)
Additional rate On earnings above £150,000

 

Scottish rates and bands

On the 20 February 2018 the Scottish Parliament set the following income tax rates and bands for 2018/19.

Bands Band name Rates (%)
Over £11,850*-£13,850 Starter Rate 19
Over £13,850-£24,000 Basic Rate 20
Over £24,000-£43,430 Intermediate Rate 21
Over £43,430-£150,000** Higher Rate 41
Above £150,000** Top Rate 46
Tax on Dividends

The dividend allowance of £5,000 at 0% personal income tax, will reduce to £2,000 per year from April 2018.  Shareholders will be worse off by £225, £975 or £1,143 a year depending on whether they pay tax at the basic rate, higher rate or the additional rate.   Dividend tax rates have not changed, and the rate of tax on dividends remains at 7.5% for basic rate taxpayers, 32.5% above the higher rate threshold and 38.1% for those in the additional rate band (ie. Earning over £150,000).    For many owner-directors, the dividend/salary split will still be the most tax efficient method of remuneration, but it may not suit all.

Corporation tax remains at 19%

National Insurance

Self-employed people will continue to pay Class 4 and Class 2 National Insurance Contributions (NIC).  The abolition of Class 2 NIC was scheduled for this April, but it has been delayed until April 2019.  Class 4 NIC will be 9% on profits over £8,424. Class 2 NIC will be £2.95 per week, to be added to your 2018/19 tax bill as one total for the tax year.

Other changes

The national living and minimum wage rates increase from 1st April 2018 to:

Category of worker Hourly rate
Aged 25 and above (national living wage rate) £7.83
Aged 21 to 24 inclusive £7.38
Aged 18 to 20 inclusive £5.90
Aged under 18 (but above compulsory school leaving age) £4.20
Apprentices aged under 19 £3.70
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.70
Pension Contributions

Minimum auto-enrolment (workplace pension) contributions have been 1% from both the employee and employer.  From 1st April this changes to 3% contributions paid by the employee, and 2% paid by the employer.  This will change again in April 2019.

GDPR

Something not directly related to tax and accountancy, but that will affect all businesses will be the introduction of the General Data Protection Regulation (GDPR).  This is a fairly significant upgrade from the Data Protection Act 1998, which just wasn’t sufficient for the online environment that we use now.  The GDPR comes into effect from 25th May 2018.  There is no exemption for small business, and fines for non-compliance will be from 4% of turnover.

Businesses complying with the DPA 1998 shouldn’t have too much trouble preparing for 25th May, but assessing the data you hold, documenting what you do with it, rewriting policies and communicating with data subjects (customers, suppliers, employees) can be time consuming.   The ICO website is a good place to start, if you’ve not already looked at this.

Making tax Digital (MTD)

Making tax digital (aka quarterly accounting), has been delayed for a couple of years.  It will start for VAT only from April 2019.  The new rules will encompass VAT registered businesses with a turnover above the VAT threshold (currently £85,000)  From 1st April 2019 records will need to be kept using ‘functional, compatible’ software. Compatible meaning it must be able to upload information direct to HMRC each quarter.

MTD for income tax, corporation tax etc. will follow after 2019.  It will mean 5 updates to HMRC being made each year, instead of the one annual tax return.  There will be an obligation to keep records electronically.  You’ll upload sales, expenses and profit figures each quarter, then a 5th report (if necessary) will be used to claim allowances and reliefs that are not included in normal day-to-day bookkeeping.

The well-known software companies are developing solutions, as well as some of the lesser known software houses. HMRC has said it will not be providing free software, as it currently does for both VAT and personal self-assessment tax returns.

This is a very brief summary, and there could be many other factors to consider in your own business. If you’d like any help with your tax, bookkeeping or accountancy, please get in touch.

Spring Budget 2017 – What you need to know

In yesterday’s Spring Budget 2017 the government announced that its aims are to:

  • help young people from ordinary working families across the country get the skills they need to do the high-paid, high-skilled jobs of the future, vital for a competitive workforce,
  • give more children the chance to go to a good or outstanding school that sets them up to succeed,
  • support the social care system with substantial additional funding, so people get the care they deserve as they grow older, and support both local NHS plans and improvements to Accident and Emergency with new capital investment,
  • invest in cutting-edge technology and innovation, so Britain continues to be at the forefront of the global technology revolution,
  • continue to bring down the deficit so the UK gets back to living within its means.

I think most of us will read that with cynicism, and we want to cut through the chancellor’s jibes and digs at the opposition and find out how we’ll be affected.   There was little in the way of surprises, or measures to help small businesses.   I’m not going to address every aspect of the budget, but here is a brief round up of the main headlines relevant to small businesses:

Income Tax

From April 2017 the personal tax allowance will be £11,500. The higher rate threshold increases to £45,000.

National Insurance

For self-employed people:  from April 2018 class 4 NIC increases from 9% to 10% on taxable profits above the lower profits limit.  The lower profits limit in 2017/18 will be £8,164.  Class 2 NIC will be abolished from April 2018.

Self-employed people earning a taxable profit of over £16,250 will pay more NIC from April 2018.

Making Tax Digital

From April 2018 small businesses must to report financial data to HM Revenue and Customs quarterly.  This won’t be implemented until April 2019 for those with a turnover below the VAT threshold.   Businesses with a turnover of £10,000 or less will not need to change to quarterly reporting.

VAT

The registration limit will increase to £85,000 from April 2017, and the de-registration limit will be £83,000

Business Rates

Increases will be capped at £50 for businesses coming out of Small Business Rate Relief.  There will be a £300 million discretionary fund for local authorities to help businesses affected by rates revaluation.

National Minimum and Living Wage

Increases will apply from April 2017

Spring Budget 2017: Living and minimum wage rates UK
Changes to the National Living and Minimum Wage

Consumer protection

Something to be aware of – a new green paper will be published on protecting consumer rights. Changes will include new protections against unfair clauses, unexpected fees when subscriptions renew or free periods end, and steps to simplify terms and conditions.

Spring Budget 2017: Limited Companies

Dividend Allowance

The dividend allowance will be reduced from £5,000 to £2,000 per year from April 2018.  Costing from £225 for owner/directors of small limited companies.

Corporation tax

A little good news for limited companies will be the fall in corporation tax rate to 19% from April 2017, and to 17% in April 2020.

R&D Tax credits

The government will make administrative changes to the Research and Development Expenditure Credit, to increase the certainty and simplicity around claims. They have also promised to take action to improve awareness of R&D tax credits among SMEs.

Summary

The Spring Budget 2017 was the last time a budget will be held in spring.  From 2018 there will be a Spring Statement and the budget will be held in autumn.

In the short-term it could be beneficial for some self-employed people to incorporate their business. Traders would gain a little control over their remuneration, splitting between salary and dividend payments. However, the trend over the last couple of years has been for the government to try to reduce the difference in taxation between different business vehicles.  It could be just a matter of time before we see an increase in tax on dividends, or the introduction of an NI charge on dividend income.

The government budget documents provide further information.

If you’re concerned about how any of the changes in the Spring Budget 2017, please get in touch.

 

Leadership in Micro-businesses

Why, if your business has no or fewer than 10 employees, would leadership be the most important business skill you can have?

The Statistics Bit

A micro-business is defined, by the European Commission, as one with fewer than 10 employees, and a turnover (annual sales figure), or balance sheet value of less than 2 million euros. Micro- businesses are hugely important. In 2014 there were 5 million micro-businesses in the UK, employing 33% of the workforce, and generating 19% of turnover (annual sales figure).*

Sole-proprietorships and self-employment has increased over the last few years, with fewer businesses employing staff.*

So as the owner of a micro-business you are making an important contribution to the national economy. What can you do to keep it going, improve your prospects and grow?

The answer is that you need to lead your business forward. There are several steps you can take.

Have a clear vision

All businesses exist for a purpose. Most share a common goal to make money, but each individual business has its own reason for operating.

A business owner/manager needs to have a clear vision of their company’s place in the market, its products or services and its target customers. This vision can evolve and change, but many organisations start with one or just a few products or services and build from there. A narrow focus allows the development of expertise, which can be an asset to building a reputation and a niche.

The standard structure of a small business is one person, perhaps with employees or subcontractors fulfilling operating activities.

Can you describe what your business does in one or two sentences? Is it interesting and does it engage you? Examples of company’s visions (sometimes called mission statements ) are:

‘to make natural, delicious, healthy drinks that make people live well and die old’ Innocent Ltd

‘we’re a leading UK charity enabling people to travel by foot, bike or public transport for more of the journeys we make every day’  Sustrans

‘to bring inspiration and innovation to every athlete in the world’ Nike

You can see that each one is concise, specific in nature, but vague enough to allow for room to grow, and introduce complementary products/services.  The vision is a starting point for what you are or will be striving to achieve.

Effective planning

It’s time to flesh out your ideas, be more specific about your goal(s), and come up with a method to make it happen. Planning occurs in a cycle:

  1. Identify your requirements & define the scope of your activity
  2. Document your plan – note your assumptions, costs, timescales, resources, potential pitfalls. It doesn’t have to be a text book, nobody else needs to see it, so use your own method.
  3. Implement – put your plan into action, keep checking you’re on target, tweak, nudge, adjust whatever you need to do.
  4. Monitor your progress – is your business operating efficiently? Are you spending less than is coming in? Are you getting closer to achieving your objectives? Do your activities focus on your objective, or do you get side-tracked?
  5. Review – what is going well, what needs improvement, do you need to sell more, or cut costs?

Planning is not a one-off activity. When you reach the review stage, start again with a fresh look at your objectives and go back to stage 1. You’ll find that you make different decisions, with the knowledge that you’ve gained and documented.

Communication

Effective communication is the cornerstone of a successful venture. You may be a sole trader, but you don’t operate entirely without other people. Open and engaging relationships with suppliers, customers and employees will encourage loyalty and increase your chance of referrals. Always aim to be clear, consistent and approachable.

If you employee people, give each one a clear job description. Be clear about their remuneration, your expectations, and consider their aspirations too. Set objectives, and if feasible, get them involved in the planning process. People who ‘own’ their jobs derive more job satisfaction, and are more likely to remain loyal and valuable workers.

Motivation and ideas

We often assume that ‘motivation’ is something to bestow on others. Managers need to motivate their employees, dog trainers motivate their dogs, and coaches motivate athletes. If you have your own business, what motivates you?

Nobody else will do it for you. Find ways to keep your interest in your business. Do you have new ideas? Did you have ideas that you’ve not tried out? What are your competitors doing? Can you do it better, or differently?

*source: House of Commons Library, Briefing paper No. 06152

Further reading:

Businessballs – a huge online business manager’s resource library

 

 

Summer Budget 2015 – Small business essentials

The Summer Budget 2015 will have an impact on all UK businesses, and many individuals.  Changes are being introduced from April 2016.  What follows is a summary, with extracts, from the Summer Budget 2015 Policy Paper, published 8th July 2015.

Income Tax and Individual Taxpayers

The personal allowance will increase to £11,000 in 2016-17 (it is currently £10,600). The higher rate threshold will increase from £42,385 to £43,000.

The effective inheritance tax threshold will be £1 million, where a main residence is passed to descendants. This will be paid for by the introduction of a taper to the annual allowance for pensions tax relief for people whose total income is above £150,000 per annum.

Insurance premium tax will increase from 6% to 9.5%

Businesses

Corporation tax will be cut from the current 20% to 19% in 2017, and 18% in 2020.

The Annual Investment Allowance will be £200,000 from January 2016. This allowance means businesses can claim capital allowances on tangible fixed assets of up to £200,000 in the year of purchase, rather than spreading the tax relief over several years.

From April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance (the £2,000 reduction in employer’s national insurance contributions).

In the March Budget 2015, the government announced it would transform tax administration for individuals and small businesses over this Parliament, leading to the end of the tax return. Small businesses will be able to manage their tax through a digital account linked to business software. HMRC will begin discussions with businesses and software providers about how best to integrate tax reporting and payment with everyday business activity, to inform a roadmap the government will publish by the end of 2015 setting out the policy and administrative changes needed.

Sunday trading – The government will consult on devolving powers on Sunday trading to city mayors and Local Authorities. This will look at allowing mayors or councils to extend Sunday trading for additional hours within parameters that they would determine.

Enterprise Zones – The government will hold a bidding round for a new programme of Enterprise Zones for this Parliament.

Tax lock – The government will legislate to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT, and employer and employee (Class 1) NICs rates, ensuring that they cannot rise above their current (2015-16) levels. The tax lock will also ensure that the NICs Upper Earnings Limit cannot rise above the income tax higher rate threshold; and will prevent the relevant statutory provisions being used to remove any items from the zero rate of VAT and reduced rate of VAT for the duration of this Parliament. (Summer Finance Bill 2015)

Business tax roadmap – The government will publish a Business tax roadmap by April 2016, setting out its plans for business taxes over the rest of the Parliament.

Self-employed National Insurance contributions – The government will consult in autumn 2015 on abolishing Class 2 National Insurance contributions (NICs) and reforming Class 4 NICs for the self-employed

Simplified expenses: legislative amendments – The government will amend the simplified expenses regime introduced in Finance Act 2013 to ensure that partnerships can fully access the provisions in respect of the use of a home and where business premises are also a home. (Finance Bill 2016)

Business skills, infrastructure and regional development

To support innovation throughout the country, the government will invest £23m in 6 Next Generation Digital Economy Centres over 6 sites (London, Swansea, Newcastle, Nottingham, York and Bath), leveraging £22 million of additional funding, and partnering with LEPs, regional councils, and local SMEs. These centres will exploit opportunities across sectors of the digital economy including the creative industries, finance, healthcare and education.

The so-called Northern Powerhouse seems to fail to recognise that the UK doesn’t end at Leeds. Although there is mention of upgrading the final stretch of the M1/A1 route between Newcastle and London to motorway. The government will look into the case for renaming the A1(M) north of Leeds as the M1. The A1 will be dualled north of Newcastle as far as Ellingham,

Employers

The Employment Allowance will rise from £2,000 per year to £3,000 from April 2016. This reduces the cost of Employer’s National Insurance contributions. Most small businesses will be eligible, but as mentioned above, the allowance will no longer be available to companies where the sole director is the only employee.

A National Living Wage is being introduced for workers aged 25 and over. National Living Wage – The government will introduce a new premium for those aged 25 and over starting at 50 pence leading to a new National Living Wage (NLW) of £7.20 in April 2016. The target is £9.00 per hour by 2020.

National Minimum Wage – The combined 50 pence premium with the 20 pence minimum wage increase on the current rate will benefit 1.7 million workers and means that a current NMW worker working 35 hours a week will see their annual salary increase by over £1,200 from April 2016.

Taxation of employee benefits and expenses – As announced at Autumn Statement 2014, from April 2016 the government will simplify the tax system by introducing a statutory exemption for trivial benefits in kind costing less than £50. (Finance Bill 2016)

Apprenticeships levy – The government will introduce a levy on large UK employers to increase the number of apprenticeship starts. In England, employers will be able to access this funding for apprenticeship training. Details including rates and implementation will be set out in the Spending Review.

Dividends

Dividend tax credits will be replaced with a tax-free Dividend Tax Allowance of £5,000, and new dividend tax rates. The tax rates will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers.

Landlords

Tax relief on mortgage interest for individual landlords will be restricted to the basic rate of income tax.

Individuals renting out a room in their main residence will benefit from an increase in Rent-a-room tax relief to £7,500 from April 2016 (currently £4,250).

Reform of the Wear and Tear Allowance – From April 2016, the government will replace the Wear and Tear Allowance with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets. The government will publish a technical consultation before the summer. (Finance Bill 2016)

Further information

The full Summer Budget can be found here https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015

If you are concerned about how any of these changes could affect you please contact us.

 

Employment Law Changes

Employment law changes come into effect twice a year, in April and October.  This year, from the beginning of the new tax year on 6th April 2015 there are several changes for employers to be aware of.

Key Employment Law Changes April 2015

Parental Leave

Parents of children born or adopted after 5th April 2015 will have more flexibility as to which partner takes time off work to care for the child or children, by opting for shared parental leave.

Parental leave is to be extended to parents of any child under 18 years old.  Adoption pay is being brought into line with maternity pay, and the 26 week qualifying period will no longer apply.

Statutory Pay

Statutory parental leave increases to £139.58 per week. Statutory sick pay increases to £88.45 per week.

The limit for a week’s pay when calculating redundancy pay will rise to £475.

Managing sickness absence

A health and work assessment and advisory service is to be introduced, offering free occupational health assistance for employees, employers and GPs. The service can provide an occupational health assessment after four weeks of sickness absence.  The service is being rolled out during 2015, in England and Wales. More information is here: https://www.gov.uk/government/collections/fit-for-work-guidance

If any of the above concerns you or your staff, you can get more information from ACAS free of charge, or from your human resources department if you have one.