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.

 

Tax changes from April 2016

Tax changes from April 2016 – what’s new?

There are many changes being implemented in UK taxation and accounting rules this year.  This is a very brief summary aimed at owners of small businesses, sole traders and sole directors.

Personal tax allowances and tax bands

  • The income tax personal allowance increases to £11,000 and the basic rate limit increases to £43,000.
  • Married couples’ can share part of their allowance, for low income families.
  • Income tax remains at 20% (basic rate) 40% (higher rate) and 45% (upper rate).
  • The capital gains tax (CGT) exempt amount is £11,100.
  • CGT rates remain at 18% (basic rate taxpayers) 28% (higher rate taxpayers).

Savings

  • There is a 0% savings tax band of £5,000 and a new 0% personal savings allowance of £1,000 for basic rate payers and £500 for higher rate payers.
  • There is a new range of ISAs savings including a right to buy ISA and it is anticipated a crowdfunding ISA will be launched.

Dividends

  • A new tax regime for dividends begins from April 2016.
  • Dividends will be taxed at 0% for the first £5,000, then 7.5% (basic rate), 32.5% (higher rate) and 38.1% (upper rate).

Employers

  • The compulsory National Living Wage (NLW) is being introduced from 1 April 2016. It is the legally required minimum level of pay for workers aged 25 and over.  The penalty for failure to pay either the NLW or the NMW of these will also increase from 100% of the underpayment to 200% of the underpayment on 1 April 2016.
  • National Minimum Wage increases have been announced for October 2016.Age 25 and over: £7.20 – (This is the National Living Wage effective from April 2016 and so will not increase in October 2016)Age 21 – 24: from £6.70 to £6.95

    Age 18 – 20: from £5.30 to £5.55

    Age 16 – 17: from £3.87 to £4.00

    Apprentice rate: from £3.30 to £3.40

    Please note – from 2017 the date for all minimum wage increase will be changed from October to April each year. This is to bring National Minimum Wage increases in line with National Living Wage increases.

 

Trivial Benefits

There will be a new exemption from income tax and national insurance for trivial benefits up to £50, with an annual cap of £300 for office holders of close companies and their families or households.   The exemption is an ‘all or nothing’ exemption: if the value of the benefit is £60 then the full amount of £60 is taxable, not just the £10 excess.   Examples of trivial benefits include things like birthday/wedding/Christmas gifts and workplace refreshments (coffee, tea, biscuits).

 

Workplace Pensions

Auto-enrolment continues to be rolled out. This is a compulsory change for everyone paying workers, and there are strict deadlines and procedures to meet.  I have arranged for a cost-effective solution for my payroll clients, and will be speaking to everyone in due course. If you process your own payroll, make sure you check your staging date on the Pensions Regulator website, and start preparing in plenty of time.

RTI (real time information)

The temporary relaxation in RTI reporting for micro employers will end as planned on 5 April 2016. The concession allowing employers to submit returns up to three days late without being subject to late filing penalties is withdrawn.

National Insurance

From 6th April there will be no Employers’ NIC on wages paid to apprentices aged under 25 or employees under 21 earning up to the Upper Earnings Limit of £43,000.

The Employers’ NICs allowance increases to £3,000 but is no longer available for companies where the sole director is the only employee.

 

 

For more information on any of the above please get in touch.

 

 

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.

 

The new tax year 2015-16

The new tax year 2015-16 is almost with us. There are a few changes for individuals and employers to be aware of.

Income tax

From 6th April 2015 the personal tax allowance will increase to £10,600 for the 2015/16 tax year. Taxpayers will pay 20% on the next £31,785 of their income, so higher rates of tax will be applied to income above £42,385.

A new married couples’ allowance is being introduced from April 2015. This means that if eligible you could transfer up to £1,060 of your allowance to your spouse or civil partner. Your partner would then save up to £212 tax during the tax year. To qualify, one spouse must have a total income no higher than £10,600, and the other must be earning between £10,601 and £42,385. One person per couple can register here https://www.gov.uk/marriage-allowance

Employer’s National Insurance

There is some good news for certain employers for the 2015/16 tax year. The NIC allowance is continuing, so employers will not need to pay the first £2,000 of the 13.8% employer’s national insurance liability. It’s a good idea to check your payroll software is set up to enable this deduction.

Also, from April 2015 employers’ NICs on payments to employees aged under 21, and apprentices under 25 will be nil, on salaries/wages up to £42,385. The normal 13.8% rate will apply to amounts in excess of that threshold.

The NIC deducted from employees is not affected by the above.

Pensions

There have been wide-ranging changes to the way people can pay into pension schemes and withdraw cash. The tax savings or consequences of your decisions could be significant, and you are strongly advised to seek advice from a regulated financial advisor before making any changes, or simply to review your pension status.

Payroll reporting

Penalties for late submissions of PAYE reports (RTI / FPS / EPS reports submitted online on or before the wages/salaries payment date) are due to begin in March 2015.  3 days’ grace will be allowed for employers with fewer than 50 employees.

Penalties start at £100 per late return, further details are here https://www.gov.uk/what-happens-if-you-dont-report-payroll-information-on-time

Auto-enrolment pension schemes

Between now and 2017 employers with small numbers of employees will be contacted by the Pensions Regulator, and will need to have a compliant pension scheme for all eligible workers. Employers should ensure they understand their obligations and act in plenty of time to set up a scheme before their compulsory staging date.  The staging date is the date on which employees must be enrolled and the scheme begins. Information can be found on the Pensions Regulator website, and/or from your financial advisor.  http://www.thepensionsregulator.gov.uk/employers.aspx

If you would like any help with any of the above please contact us.

Autumn Statement 2014

The government expects future growth to come from smaller businesses and targeted a significant proportion of the autumn statement towards them.

Small business measures included reducing employment taxes and encouraging apprenticeship schemes for the under 25s, as well as a review of business rates. Pennies

PERSONAL

INCOME TAX

The personal tax allowance will increase to  £10,600 a year from April 2015. The higher rate threshold will rise from £41,865 this year  to £42,385 next year.

ISAs

The annual ISA allowance will increase to £15,240 a year from April 2015. ISA savings that are inherited by a surviving spouse from a deceased partner will retain their tax-free status.

PENSIONS

The 55% tax on unused inherited pension pots will be scrapped. People who die before they are 75 will be able to pass on joint life or guaranteed term annuities tax free.

RESIDENTIAL PROPERTY STAMP DUTY

The way stamp duty is applied to residential properties will change to a marginal rate system. From midnight on 3 December 2014, rates will only apply to the proportion of the property price that falls within each band. The rate will be 0% on the irst £125,000, rising to 12% on prices above £1.5 million.

BUSINESS

BUSINESS RATES

Small business rate relief will be doubled for another year. The inlation-linked increases to business rates will be capped at 2%. There will be a review of the structure of business rates. The business rates discount for certain high street shops will increase by 50% to £1,500.

RESEARCH AND DEVELOPMENT

Research and development tax credit will increase to 230% for small and medium sized businesses and 11% for large firms.

NATIONAL INSURANCE

Businesses will not have to pay national insurance contributions when they hire apprentices who are under 25, up to the upper earnings limit. National insurance contributions for employing anyone under 21 will be abolished from April 2015.

OTHER ANNOUNCEMENTS

TAX AVOIDANCE

A continued crackdown on tax avoidance and evasion will raise at least £5 billion in the next parliament.

VAT REFUNDS

Hospice charities, search and rescue services, and air ambulances will benefit from VAT refunds.

CARERS

Carers will be included in the employment allowance which reduces employer national insurance contributions by up to £2,000.

FUEL DUTY

The freeze on fuel duty will continue.

The government has published the autumn statement documents here, for anyone who would like more information.   The effect of changes on your own tax situation will depend upon your own circumstances. If you would like to discuss how any changes may affect you or your business please get in touch.

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.