Registering with HMRC online for new businesses

Registering with HMRC online, is quick, relatively easy and efficient (usually).  This note is aimed at anyone who’s new to the system and needs to register to file a tax return.  Known as registering for self-assessment.   It’s not intended for limited companies.  HMRC is an abbreviation of HM Revenue and Customs, the UK’s tax authority also known as the tax office.

If you’ve filed a tax return in the past, and have a 10 digit number called the UTR, or unique taxpayer reference, you don’t need to register each year.

Sole traders, self-employed people, freelancers and landlords

If you’re new to self-employment or self-assessment tax returns HMRC’s website can be confusing.  HMRC uses the government site, www.gov.uk for its online services now.  It’s the same site you’ll use to pay your car tax,  renew your passport, look into benefits etc.  Easy to find, easy to read and full of information that may or may not apply to you.

It’s easy to sign up for online services, or your ‘Personal Tax Account’, but please don’t assume that registers you to file a tax return.  It doesn’t.   You may have a Government Gateway Account, Personal Tax account, or gov.uk Verify account, but you’re not registered for self-assessment unless you have a UTR.

To register for self-assessment

If you have no unique taxpayer reference (UTR), you’re not registered to file a tax return.  Your first step in registering with HMRC gives you access to the online service too.  This link has options for everyone, whether or not you have a government/online services account.   https://www.gov.uk/log-in-file-self-assessment-tax-return

Deadlines

The deadline for registering for self-assessment is 5th October following the end of the tax year.  So for the 2017/18 tax year, which ended 5th April 2018, you need to be registered before 5th October 2018.

The tax return filing and payment deadline is 31st January 2019.

Not sure where you’re up to?

Please get in touch, we can help with everything from registering you, to helping with your business records and preparing and filing your tax return.

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.

A Welcome Delay for Making Tax Digital

The government today announced a welcome delay to Making Tax Digital (MTD).

Under the new timetable:
  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes
  • they will only need to do so from 2019
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020

The original plan would have forced small businesses and landlords to report their finances to HMRC quarterly from April 2018.  Given that little information has been forthcoming as to what will be required, the timescale for that would have been difficult for many businesses to meet, and most likely caused problems for HMRC.

The Treasury document states that:

  • only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes;
  • they will only need to do so from 2019; and
  • businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.

We still need to be prepared for digital record-keeping and quarterly reporting, and the full-blown MTD is expected to be in place by 2020.   For help with digital record-keeping, 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.

 

Making Tax Digital

Making Tax Digital for Business (MTD)

Last minute. Every year. You make it through the festive season, get back to work, kids at school, New Year resolutions already forgotten. A pile of paperwork crammed into a box, shuffled off to the accountant just in time for the January deadline.

Then something worse happens. It’s not once a year any more. You’re going to have to report your finances every three months. Really?

Bookkeeping for MTD
HMRC said ‘just press a button’

Well, maybe. Maybe not.  Small businesses with sales of up to £10,000 per year will be exempt.  There have been calls for this threshold to be higher, and HMRC have said they’ll consider that.   We’ll have to wait and see.

So what does ‘Making Tax Digital’ mean?   Briefly, it’s a change from the annual tax return, to quarterly reporting with a final year-end check.   So business owners will need to tell HMRC their sales and expenses each quarter.  The requirement will be phased in from April 2018.

HMRC believe that everyone uses a computer, keeps everything perfectly up to date, consequently they think we will ‘just press a button’ to upload data.  We know differently. Your focus is on running your business and making sales while engaging with customers. Any energy left goes into running your life.  Quarterly reporting is going to happen, but it doesn’t need to be too painful.

Unfortunately we don’t yet know exactly what HMRC will be asking for. We don’t know what free software or apps will be available.  If you already use bookkeeping software, it should be updated in time.  If you use spreadsheets, or paper records, that’s fine.   A lot of the information we have on MTD is vague, but yes, really, businesses will need to update records every three months.

We help with bookkeeping, finding software, quarterly reporting and the year-end check of your tax liability.  Please get in touch if you’d like to discuss any of this.

We will update you if you’re signed up for our newsletter. (Email addresses are never shared.)  Just enter your email address and click ‘subscribe’.

 

 

Budget 2013

The Budget 2013 introduced a new National Insurance for employers. The increase in personal allowance to £10,000 has been brought forward a year, to 2014. There will be very few changes to tax rates.

Employer’s NI (National Insurance) Contributions 

A completely new measure introduced in this budget is the employment allowance.  This will be a deduction in employer’s NIC of £2,000 per year for all businesses and charities from April 2014. It is intended that this will be easy to administer, and the Government will be consulting with stakeholders on the practical aspects. It should be easy to administer, and be done through the normal payroll and RTI (Real Time Information) reporting process.

Currently employer’s NI contributions reduce profit and business tax liability.  If all else is equal, employers will pay £400 more tax (at a rate of 20%). So the true saving for many employers will be £1,600.

Income Tax

The increase in the personal allowance to £10,000 is being introduced a year earlier than anticipated and will come in from April next year. When there is a rise in the personal allowance this usually means the Chancellor lowers the threshold for the higher rate of tax, so that it only benefits people on lower incomes. There have been no changes to income tax rates.

The basic personal allowance is available to people born on or after 6 April 1948. In the current year, 2012/13, it is £8,105; in 2013/14 (as previously announced) it will be £9,440. Once the personal allowance has reached £10,000 in 2014/15, it will then increase in line with inflation based on the Consumer Prices Index (CPI) in future years, starting from 2015/16.

VAT

The annual turnover threshold for VAT registration will go up from £77,000 to £79,000 from April 2013. The deregistration turnover limit will go up from £75,000 to £77,000.

Corporation Tax

The main rate of corporation tax is already scheduled to decrease to 23% from 1 April 2013. From April 2014 it will go down to 21%, and from April 2015 to 20%. There is no change to the rate for small companies, which remains at 20%.

Capital gains tax

The annual exempt amount in 2013/14 will be £10,900, increased from £10,600 in 2012/13. The exemption for most trustees will be £5,450.  There are no changes to capital gains tax (CGT) rates.

Small Company Shareholder/Directors’ Loans

The Government will close three loopholes to counter attempts to avoid the tax charge on loans from close companies to individuals with a share or interest in the company. The measures will have effect from 20 March 2013 and are expected to bring in just under £70m annually in the four years beginning 2014/15.

Later this year the Government will consult on the structure and operation of the tax charge on loans from close companies to their participators (shareholders). If legislation is needed it will be in the Finance Bill 2014.

The full Budget can be accessed at hm-treasury.gov.uk

If you would like any help with budget 2013 changes please contact us.

RTI – Real Time Information

Real Time Information (RTI) has been introduced to improve the PAYE system by assisting HMRC in gathering critical data on a more frequent basis.  It begins on your first pay date after 6th April 2013, so it is important to act very soon to ensure you can meet the requirements.

This change applies to your business if you have any employees, including those paid below the tax/NIC threshold, those paid just once a year, casual and temporary workers (unless they are paid by an agency). The main changes being implemented are:

  1. Reporting to HMRC: currently your payroll data is reported to HMRC annually on the  Employer’s End of Year Return (P35).  The 2012/13 tax year is the last time this will be done.  From 6th April 2013, employers will report their payroll data to HMRC every time they pay employees,
  2. Employees paid below the tax/NIC threshold must now be added to your PAYE scheme,
  3. It will no longer be necessary to file P46 and P45 starter and leaver forms: however, new starter information is still needed, and the employee must still be provided with a P45 when he/she leaves.

One of the first things you need to do to, before you even begin to consider the impact of RTI on your business, is talk to your existing software provider. It is important that you find out whether or not your software is currently RTI compliant or will be compliant before April 2013. This is when most employers will start operating the new PAYE process.

Collins Accountancy Ltd uses fully compliant software and provides a full payroll service. If you prefer to process payroll in-house please ask for software recommendations, some options are free.

RTI and payroll

The biggest exercise you may need to do is the data cleansing process and what HMRC refers to as ‘payroll alignment‘.

To minimise rejection due to a mismatch with HMRC records, it is important that the payroll records are reviewed for any missing and incorrect compulsory data. Where this data is not available, it must be obtained from the employee. The next step would be to transfer the amendments onto your computer system using your payroll software.

Using Collins Accountancy Ltd as your RTI provider

The introduction of RTI needs to be properly managed.  It is important to know that:

  • once the return has been filed there can be no more changes to the pay run,
  • All of the data needed for new starters must be obtained on a timely basis or the new starter may not get paid (in practice this may put you in a difficult position as you may have a legal and contractual duty to pay your employees).

Get help and advice with RTI

For information on Real Time Information visit the HMRC website and select the link which states ‘I confirm that I want to view guidance on operating PAYE in real time’. HMRC publications, such as the Employer Bulletin are usually worth reading too.

If we can help with any of the above please contact us.