1.25% increase to NIC and dividend tax rates 

1.25% increase to NIC and dividend tax rates 

In an unprecedented move the government has confirmed that the rates of National Insurance are to be increased to pay for the impact of the coronavirus pandemic on the NHS and to address the long-standing funding gap for health and social care. This breaks the Conservative’s manifesto pledge on raising taxes and illustrates the ongoing trend that the Conservatives are no longer the government of low taxes.

From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25% increase in class 1 secondary NIC paid by employers (so 2.5% in total).

The increase will apply to employed (include deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold / class 4 lower profits limit (currently £9,568 in 2021/22). Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22). Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans, and new employees in freeports.

From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels. The levy will be hypothecated in law, meaning that the revenues will be ringfenced for health and social care. From that date, the legislation will also extend the revenue raising measure to individuals over state pension age in employment, who are currently exempt from paying NIC. 

The levy, including the temporary NIC increase in 2022, will be legislated for shortly so this is happening! Not only is this a tax increase but also an increase in the administrative burdens and costs for businesses with the need to amend payrolls from April 2022 and then again with the brand-new levy with effect from April 2023.

Dividend tax increase

Alongside the levy, which will be paid by employees, the self-employed and businesses, the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

The increase in dividend tax rates will be legislated for in the next Finance Bill and the government estimates that 70% of the revenue raised will be paid for by additional and higher rate taxpayers in 2022/23.

How the health and social care levy will apply from 2022

 Employee Class 1 NICs
Main rate (i) / Higher
rate (ii)Employer
Employer Class 1 NICsSelf-Employed Class 4
NICs
Main rate (i) / Higher
rate (ii)
NICs rates for 2021/2212%12% / 2%13.80%9% / 2%
NICs rates for 2022/2313.25% / 3.25%15.05%10.25% / 3.25%
NIC rates from
2023/24
12% / 2% 13.80%9% / 2%
Health and social care
levy from 2023/24
1.25%1.25%1.25%
Threshold at which
NICs become payable
in 2021/22
£9,568£8,840£9,568

Dividend tax rates and changes from 2022

 Basic rate taxpayersHigher rate taxpayersAdditional rate tax
payers
 
Dividend tax rates for 2021/227.50%32.50%38.10%
Dividend tax rates from 2022/238.75%33.75%39.35%

Budget 2021

It is hard to believe that one year ago the Chancellor, Rishi Sunak, was giving his first budget and there was no mention of the word ‘furlough’. A matter of hours later the country was officially in the midst of a pandemic which rendered his budget obsolete (almost). The Chancellor delivered his second budget to the House today and below we have outlined the salient points as they affect our clients. 

Coronavirus Support 

  • Furlough – It was leaked beforehand that the furlough scheme will be extended to 30 September 2021 and this was confirmed. Some notable changes though with Employers asked to contribute 10% in July and 20% in August and September.
  • SEISS (Self-employed Income Support Scheme) – this is also extended and grants 4 and 5 grants will be made available to those who filed their tax returns by midnight on 2 March. Remember this is for those that do not operate via a limited company. 
  • VAT – the VAT cut for hospitality firms to be maintained at 5% until September 2021. There will be an interim rate of 12.5% for the six months after before returning to the standard rate of VAT on 31 March 2022. The VAT threshold remains at £85,000 until 2024. 
  • Business rates – the business rates holiday is extended to 30 June 2021 at the rate of 100% discount. The nine months thereafter the rate goes to 66%. 
  • The loan support schemes offered by the government such as Bounce Back Loan and Coronavirus Business Interruption Loan Scheme are all closing on 31 March 2021. 
  • £20 weekly uplift in Universal Credit worth £1,000 a year to be extended for another six months.
  • Minimum wage to increase to £8.91 an hour from April 21

Housing

  • Stamp duty holiday – this has been extended to 30 June 2021 with the first £500k of property value subject to 0% stamp duty (3% if buying property through a limited company or your second property). The threshold will then fall to £250k until 30 September 2021 and then returning to its usual level of £125k in October. 
  • New homebuyers – the government will provide mortgage guarantees for new homebuyers who cannot afford large deposits with mortgages of up to 95% for home purchases up to £600k 

Income tax 

On income tax, the threshold for paying the basic rate will rise to £12,570 next year. For higher-rate payers, the threshold will be £50,270. Both rates will stay the same until 2026. This is effectively a ‘stealth’ tax meaning that it is not a tax rise but in effect is one because it will net an expected additional £6bn for the Treasury. 

Please note that the threshold for High Income Child Benefit charge remains at £50,000. 

Inheritance tax thresholds, pensions life time allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26.

Corporation tax

The rate of corporation tax is to rise from 19% to 25% from April 2023. Companies with profits of £50,000 or less will be taxed at 19%. The rate will be tapered for profits above £50,000 until they hit £250,000. 

Other business points

  • Tax breaks for firms to “unlock” £20bn worth of business investment
  • Firms will be able “deduct” investment costs from tax bills, reducing taxable profits by 130%
  • Incentives for firms to take on apprentices to rise to £3,000 and £126m for traineeships
  • £5bn in Restart grants for shops and other businesses in England forced to close
  • £6,000 per premises for non-essential outlets due to re-open in April and £18,000 for gyms, personal care providers and other hospitality and leisure businesses
  • New visa scheme to help start-ups and rapidly growing tech firms source talent from overseas
  • Contactless payment limit will rise to £100 later this year

Other points made in the budget include the following;

  • Wine and beer duties frozen 
  • Petrol duties remain frozen
  • A ‘green bond’ will be issued by the government to raise money for environmental projects. 
  • New UK Infrastructure Bank to be set up in Leeds with £12bn in capital, with aim of funding £40bn worth of public and private projects
  • £1bn fund to promote regeneration in a further 45 English towns, including Middlesbrough, Preston, Swindon, Bournemouth, Newark, West Bromwich and Ipswich

COVID-19 Update 3

The Chancellor announced on 24 September a whole new raft of measures and support schemes for businesses and individuals during the COVID-19 crisis. Some of this is very welcomed news but some not so much. As with so many things in life we all wish that more could be done by the government (removing the IR35 changes in the private sector expected from April 2021 for a start!) but alas we can only deal with what is in front of us. I have gone through the new measures below. For any questions please get in touch with us via [email protected].

VAT Payment Deferral extended

One of the measures introduced earlier was the deferral of VAT accumulated between 20th March 2020 until 30th June 2020 till 31 March 2021. However, now businesses who deferred their VAT will no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest-free payments over the course of 11 months.

VAT rate for hospitality and tourism sector

For those companies operating in the hospitality and tourism sector, only the VAT rate was reduced to 5%. This was originally due to end in January but this is now being extended to 31 March 2021.

Business Loans

The term of the Bounce Back Loan and Coronavirus Business Interruption Loan Scheme has been extended from six years to 10 years. This would mean monthly repayments are almost halved. Please note that if you intend to close your company all loans must be repaid first.

The deadline for applying for all government coronavirus loan schemes has been extended to the end of 2020.

There will be no adverse effect on credit ratings because of taking the loans.

Self-assessment

Those with self-assessment tax bills who need more time to pay will be given it as per the Chancellor.

Job Support Scheme (JSS)

The main announcement was the Job Support Scheme, the successor to the Job Retention Scheme (commonly known as the furlough scheme). Under this scheme, the government will cover up to 22% of pay for workers in “viable” jobs for the next six months. The government will subsidise the pay of employees who are working fewer hours than normal due to the COVID-19 crisis.

Simply, employees must work at least a third of their normal hours and their employer will pay two-thirds of their salary and the government will pay one third. The grant is capped at £697.92 with all small and medium-sized businesses eligible for the scheme. The scheme is expected to run from 1 November for six months.

In terms of eligibility and detail on the scheme, the government has produced a factsheet. It appears that this is geared towards small, medium-sized enterprises. Some of the main points to note are the following;

  • Employees must be on an employer’s PAYE payroll on or before 23 September 2020.
  • For the first three months of the scheme, the employee must work at least 33% of their usual hours
  • For every hour not worked by the employee, both the Government and employer will pay a third each of the usual hourly wage for that employee.
  • The Government contribution will be capped at £697.92 a month.
  • Grant payments will be made in arrears, reimbursing the employer for the Government’s contribution.
  • The grant will not cover Class 1 employer NICs or pension contributions, although these contributions will remain payable by the employer.
  • Employers must agree the new short-time working arrangements with their staff, make any changes to the employment contract by agreement, and notify the employee in writing. This agreement must be made available to HMRC on request.
  • “Usual wages” calculations will follow a similar methodology as for the Coronavirus Job Retention Scheme. Full details will be set out in guidance from the government shortly.

Job Retention Bonus

Rishi Sunak also clarified that employers retaining furloughed staff on shorter hours can claim both the Job Support Scheme and the Job Retention Bonus, which will be available in February next year. The bonus will be a one-off payment of £1,000 to UK employers, for every furloughed employee who remains continuously employed through to 31 January 2021. Employees must earn above the National Insurance lower earnings limit (£520 per month) on average between 31 October 2020 when the CJRS ends and the end of January 2021.

The bonus payments will be made from February 2021. Please get in touch with us in February about applying for this.

Update on Government schemes in response to COVID-19

Update on Government schemes in response to COVID-19

We are now well into the lockdown and we hope that you are keeping safe and well. Here, at Banner & Associates we are adjusting to working from home and although there are some differences to the way we service our clients. Remember if you want a phone call then please email the relevant person to arrange a time for a call.

I have outlined below some updates to the schemes that the Government has announced in relation to COVID-19.

Stay safe and best wishes to all.

Companies House 3-month extension to filing of accounts

You can get a 3-month extension to the filing date for your accounts from Companies House. The application for this extension must be done prior to the due date for the accounts.

This application can be done online using this link, https://www.gov.uk/guidance/apply-for-more-time-to-file-your-companys-accounts

If you do request an extension to the filing date for your accounts, please let us know. Remember this is just an extension and the accounts will still be due at some point.

Time to pay arrangement for COVID-19

The HMRC phone number for arranging a time to pay arrangement has now changed to 0800 024 1222. This should be phoned if you want an extension to corporation tax or PAYE/NI.

Please note that VAT payments are automatically deferred to 31 March 2021.

Self-assessment due on 31 July 2020 has also been automatically been moved to 31 January 2021. This would mean that on 31 January 2021 you will be paying not only the second payment on account that would have been paid on 31 July 2020 but also the tax due for the tax year ended 5 April 2020 and the first payment on account for the 2020/21 tax year. Although the payments on account can be reduced to £nil there are potential consequences of doing this being interest and a requirement to pay the 2020/21 tax bill early.

Self-employed scheme

If you are a Director of a limited company then you do not qualify for the Coronavirus Self-employed Support Scheme you in fact qualify for the Job Retention Scheme.

Also, there are some scammers out there pretending to be HMRC and contacting individuals saying that they qualify for the Coronavirus Self-employed Support Scheme. If you receive a call from HMRC asking for personal information, then hang up immediately!

Job Retention Scheme

There is a lot more information now on the Job Retention Scheme and I am going to go through it all below. Please note that the HMRC portal through which this can be claimed is still under development and is expected to be completed by 20 April 2020. Thereafter the grants will be paid and the timing of when the grants will be paid is still unclear at this time.

  • Employees and Directors can be put on furlough rather than being made redundant. This is available to Directors of Personal Service Companies too, but it is only for your salary NOT dividend.
  • While on furlough the employees must do no work at all! Furlough in this instance is an alternative to redundancy and means a leave of absence from work.
  • Directors are permitted to carry out statutory duties only but not allowed to work or even look for work. Training is permitted though.
  • There is a minimum furlough period of three weeks and currently a maximum of three months, though this could change. Employers can apply furlough for any period within these parameters.
  • Furlough pay granted by Government is 80% of the normal pay as at 28 February 2020.
  • Employees must be on the payroll at 28 February for furlough pay to be available.
  • The maximum amount of furlough pay is £2,500. Employer NIC and mandatory Auto enrolment contributions will be paid in addition. Please note that for most of our clients no Employer NIC or Auto-enrolment apply. This is because if you have more than one employee then we will be claiming the Employment allowance. Auto-enrolment is not mandatory for Directors.
  • Claims will be made through a special portal, which is expected to be available by 20 April 2020.
  • If we are your agent with HMRC for PAYE then we will be able to do this on your behalf. In some instances, we may not be your agent and in which case you as the Employer will have to make the application yourself as this would be quicker than us becoming your agent and then doing the application. 
  • The payments will be taxable on the Employer.
  • Being furlough does not exclude you from continuing to take dividend and you are not excluded from it if you are in receipt of rental income.
  • This is a government grant and not a loan so will not need to re-paid. However, HMRC retains the right to retrospectively audit all claims.

Another point to note that as for most of our clients the monthly salary is equal to the personal allowance, it would make sense that we would continue processing the monthly salary at this amount and then if you are ‘furlough’ we can claim a grant for 80% of this and your company pays you the remaining 20%.

If you are going to be ‘furlough’ it is necessary, that you can demonstrate this and that there is a letter in place confirming your status as being furlough and the same for any other employees. I did a search on google and there are many free furlough templates available. This is essential as per my last point HMRC retains the right to audit claims retrospectively.

Please email Ron at [email protected] if you are going to furlough and from when you wish to claim the Job Retention Scheme grant (1 March 2020 or later) and if for all employees or just you as the Director. Also please ensure you have the evidence of the furlough letter and something to confirm that you are not working. You do not need to send this to us but you must have it in place.

As always, we will help you with the applications and make them on behalf of clients where we are your agent. Please note this is additional work to our usual workload and we will get it done for you but we ask for your patience and understanding. These are unprecedented times that are unimaginable. We are all working hard from home and some of our staff have been sick with suspected COVID-19 including myself. Please be patient we are all in this together!

COVID-19 Government schemes to help

COVID-19 Government schemes to help

I have compiled this document to help people understand what schemes are available to you from the government.  

These are desperate, strange times that we live in. It goes without saying that your priority is for your health and the health of your family and others. Therefore, stay at home and work from home where possible. We at Banner & Associates are doing this and our staff are working from home. We will still be servicing you our clients as best we can, and any necessary phone calls can be arranged via email to the relevant team member. 

Stay safe. 

 

Job Retention Schemes

If you cannot cover staff costs due to COVID-19 then the government will help via the Coronavirus Job Retention Scheme. This is available to a furloughed employee (someone who would have been laid off as a result of COVID-19). This would mean that the employee is kept on the payroll and will allow the employer to claim 80% of their wage up to £2,500 from the government. Your employer could choose to fund the difference but there is no legal obligation to do so. 

Example

You have one employee earning £2,000 a month, so you will be able to claim 80% of this which is £1,600.  If you have a second employee earning £3,500 per month then 80% would be £2,800 however this would be capped at £2,500.

Points to note;

  • The scheme is expected to start from the 1st April 2020 and last for 3 months. You can backdate claims from the 1st March 2020.
  • All UK businesses regardless of size will be eligible for this scheme.
  • You will need to designate any of your affected employees as furloughed workers and then you will need to notify your employee of this.  Then, you will need to make the claim through HMRC’s portal. We expect the reimbursement portal to be available from 1st April 2020.  

Statutory Sick Pay (SSP)

Statutory sick pay is currently £94.25 per week. If you have had employees on sick due to COVID-19 then you will be refunded the first 2 weeks of statutory sick pay paid to your employee.

The relief will be available to UK businesses with fewer than 250 employees as at 28th Feb 2020. As an employer, you should maintain records of staff absences and payments of SSP made.  

This rebate of SSP is still being developed and as more information is given by the government, I will share this with you. 

Deferring VAT

Any VAT liabilities accumulated between 20th March 2020 until 30th June 2020 will not need to be paid over to HMRC until the 5th April 2021.  

Please note that this is a deferral and not a relief. So eventually, this VAT liability will need to be paid to HMRC.  

No penalties or interest for late payment will be charged in the deferral period.

This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period.

 

Deferrals of other taxes

For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021. No penalties or interest for late payment will be charged in the deferral period. This is an automatic offer with no applications required.

If you already have an outstanding tax liability with HMRC and you have or may miss your next tax payment due to COVID-19, then please call HMRC on 0800 0159 559.  These arrangements are agreed on a case by case basis and are tailored to individual circumstances and liabilities.  

 

Business rates

There will be a business rates holiday of 12 months for all retail, hospitality, leisure and nursery businesses in England.

There is no action for you. This will apply to your next council tax bill in April 2020. However, local authorities may have to reissue your bill automatically to exclude the business rate charge. They will do this as soon as possible.

 

Mortgage Payment Holiday

Your mortgage payment may be one of your highest expenses. On the 17th March 2020 it was announced that homeowners including landlords of buy to let mortgages affected by COVID-19 can apply for a mortgage payment holiday of up to 3 months. 

Many banks will have different approaches, speak to your bank to discuss your concerns.  

On the 18th March 2020, the government confirmed it would offer interest free payment holidays to borrowers struggling to pay back their help to buy loans.  

Please get in touch with your bank for more details, alternatively you may be able to apply online to speed up the process. Please note that some lenders may recalculate your monthly mortgage payments after 3 months and this may result in higher capital & interest payments.  

 

The Coronavirus Business Interruption Loan Scheme (CBILS)

A temporary loan scheme should be available from 23rd March 2020 to support small and medium sized businesses.

CBILS: KEY FEATURES

Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.

80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.

No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.

Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.

Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.

Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

The borrower always remains 100% liable for the debt.

Stay safe.

Dividend 2017/18 and 2018/19

A reminder to you all that there is now tax on dividend! This has been the case since 6 April 2016. The tax-free dividend allowance is £5,000 currently in the 2017/18 tax year (up to 5 April 2018). This is reducing to £2,000 for 2018/19 (from 6 April 2018). What I have done is gone through some examples below of how much dividend you can take while remaining in the basic rate threshold of 7.5% on the dividend. The below assumes no other income besides salary and dividend. Remember dividend is the last income item to be taxed, therefore, if you have property rental income the below would not apply to you.

You can take more than the basic rate threshold in dividend and the below is just given as guidance. I have listed out below some useful hints and tips.

1) As a basic rule move 20% of your revenue into a separate business savings account and use this to pay your corporation tax. The remaining 80% is available for you to take out in a combination of reimbursed petty cash expenses, salary and dividend.

2) You must maintain enough money in the company account to pay your corporation tax. Cash and accounts work on two separate principles. Cash works on an actuals basis. Accounts work on an accruals basis meaning that at your year-end there will be liabilities which are outstanding (the biggest of which is corporation tax) and the Company must hold enough money to pay these liabilities. If it doesn’t then effectively you have taken the ‘would be corporation tax’ money out as a Directors Loan.

Autumn Budget 2017

On Wednesday 22 November 2017, Chancellor Phillip Hammond delivered his second budget to the House. He had to put on a good performance to keep his job after criticism following the Spring Budget and with rumours that Michael Gove (Secretary of State for Environment) is circling for the job of Chancellor. Although this was a better performance by the Chancellor, there was very little good news on the tax front and some worrying economic figures, particularly the growth forecasts. Below we have highlighted the main announcements.

PERSONAL ALLOWANCE AND HIGHER RATE LIMIT INCREASED

The Chancellor reminded us that the government are committed to increasing the personal allowance to £12,500 in 2020 and the higher rate tax threshold to £50,000. However, the personal allowance for 2018/19 was only increased in line with inflation to £11,850 and the higher rate threshold to £46,350. See my separate blog item on this entitled ‘Dividend 18/19’.

Note that up to 10% of the personal allowance (£1,185) may be transferred from one spouse or civil partner to the other if unused and the transferee is a basic rate taxpayer. This transfer will now be available on behalf of deceased spouses and civil partners, and the claim may now be backdated for up to four years where the entitlement conditions were met.

IR35 “OFF-PAYROLL” RULES MAY BE EXTENDED TO PRIVATE SECTOR

Although not mentioned in the Budget speech the other documents released on Budget day mention the possible extension of the rules for personal service companies in the public sector to workers in the private sector.

The government will consult in 2018 on how to tackle non-compliance with the intermediaries legislation (commonly known as IR35) in the private sector. The legislation which currently only applies in the public sector seeks to ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.

Personally given the fact that this was not mentioned in the Budget speech and that there would be a huge backlash from large corporations against such a change makes me believe that this consultation will probably result in things staying the way they are with respect to IR35 in the private sector.

VAT REGISTRATION LIMIT FROZEN

The VAT registration limit normally increases in line with inflation each year, however the limit has been frozen at £85,000 until 1 April 2020. At the same time the deregistration limit remains at £83,000.

Note that the introduction of Making Tax Digital (MTD) for VAT in April 2019 will apply to those businesses above the registration limit. Freezing or reducing the threshold will bring more businesses within the scope of MTD.

MILEAGE ALLOWANCE FOR BUY TO LET LANDLORDS

Another measure hidden away was the proposal that buy-to-let landlords will be able to claim 45p a mile for necessary visits to their rental properties.

SDLT RELIEF FOR FIRST-TIME BUYERS

In an attempt to help first-time buyers get on the property ladder and stimulate the housing market the chancellor announced that for property purchases completed on or after 22 November 2017 there would be no SDLT payable if the purchase price is below £300,000.

This will be a permanent measure rather than a temporary holiday. Those claiming the relief will pay no SDLT on the first £300,000 of the consideration and 5% on any remainder. No relief will be available where the total consideration is more than £500,000. It should be noted that were a property is bought in joint names it must be the first property owned by all purchasers.

CHANGES TO DIESEL COMPANY CARS

Company car benefits are based on CO2 emissions data which has encouraged employees to choose diesel cars due to lower CO2 emissions. The government is trying to reduce the number of diesel cars and will increase the current 3% diesel supplement to 4% from 6 April 2018.

As previously announced radical changes to the company car benefit rules are being introduced in 2020. The benefit in kind for electric cars and hybrid cars with a range of 130 miles or more on the electric motor is being reduced to just 2%. That means that the taxable benefit for such a car with a list price of £30,000 would be just £600 a year. Where the employer allows staff to charge their own electric car at work there will be no taxable benefit.

EIS TAX RELIEF INCREASED FOR INVESTMENT IN TECH BUSINESSES

The Government will double the amount that an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies.

R&D TAX RELIEF INCREASED

The rate of the R&D expenditure credit is being increased from 11% to 12%, in order to support business investment in R&D. This is the relief available to those companies that do not qualify for the more generous relief available to SMEs.

BUSINESS RATES RELIEF FOR SMALL BUSINESSES

There has been much lobbying from the small business sector to reduce business rates. The Chancellor stated that 600,000 small business currently benefit from small business rates relief.

Changes to flat-rate VAT in more detail with examples

The Chancellor announced in the Autumn Statement the introduction of a new 16.5% flat rate of VAT for ‘businesses with limited costs’. This will be effective from 1 April 2017. It will be the responsibility of the business/limited company to determine whether they meet the definition of a limited cost trader.

This also applies to existing users of the VAT flat rate scheme. A limited cost trader will be one whose VAT inclusive expenditure on goods is either:

  • less than 2% of their VAT inclusive turnover in a prescribed accounting period
  • greater than 2% of their VAT inclusive turnover but less than £1,000 per annum, providing the accounting period is 1 year.

Anti-forestalling legislation was published on 23 November 2016 to prevent any business/limited company from continuing to use a lower flat rate by issuing an invoice or receiving a payment before 1 April 2017 for services supplied after that date.

What does this mean?

If you are engaged in IT consultancy, management consultancy or any other form of consulting then your limited company will be a business with limited cost and therefore you would be paying VAT at 16.5% instead of whichever rate you are on now. This is regardless of your category of trade which are irrelevant now for any business where you are selling a skillset.

Examples

I have outlined below an example for an IT contractor making £60,000 per annum in revenue and £120,000 per annum in revenue. Practically, you are saving less money now than before when you were on your original flat rate.

Flat rate % 14.5% 16.5%
Revenue/turnover      60,000.00      60,000.00
(including VAT)
VAT @20%      10,000.00      10,000.00
VAT paid at flat rate        8,700.00        9,900.00
VAT saving        1,300.00            100.00
Flat rate % 14.5% 16.5%
Revenue/turnover    120,000.00    120,000.00
(including VAT)
VAT @20%      20,000.00      20,000.00
VAT paid at flat rate      17,400.00      19,800.00
VAT saving        2,600.00            200.00

 

Next steps

If your revenue/turnover is under £83,000 we would recommend that you de-register from VAT completely. Please get in touch with us if you are in this category (mostly those of you on day rates of £350 and below). Please get in touch with Jojo.

If your revenue/turnover is above £83,000 then you must mandatorily be registered for VAT but you might want to consider being on the standard rate of VAT. I have outlined below the advantages and disadvantages of being on the flat rate and moving to the standard rate of VAT.

Staying on the flat rate

Advantages

  • Hassle free. Status quo remains. Basically you do not have to do any more than what you are doing at the moment.
  • You can still reclaim VAT back on capital expenditure (for example purchasing equipment) if the cost of this is over £2000 (including VAT) and you have a receipt.
  • Less likelihood of being investigated by HMRC for VAT.
  • You are still saving some money albeit less than before.

Disadvantages

  • You are not saving as much money as before.

Moving to the standard rate of VAT

Disadvantages

  • Increase in our fees to £125 per month plus VAT. There is more of an administrative burden with being on the standard rate of VAT. It takes more time to prepare the VAT return than if you were on the flat rate of VAT.
  • Must provide receipts every month to us for VAT claim e.g. all stationary purchases, mobile bill etc. Therefore, there is more work for you to do. However, technology can help you manage this in a time effective way.
  • You may not actually save much more than being on the flat rate of VAT. This is because naturally as someone who is selling a skillset your expenses are not large. Also, remember you cannot claim back VAT on petrol and there is no VAT on train/tube travel.

Advantages

  • You could save more money than on the flat rate of VAT if (and it is a big IF) you have a large amount of VAT inclusive expenses.

Autumn Statement 2016

We have a new Prime Minister and a new cabinet and on Wednesday 23 November the new Chancellor gave his first Autumn Statement. Below we have highlighted some of the salient points as it would affect you.

IR35 and government contractors

It was announced that the government will reform the off-payroll working rules in the public sector from April 2017. Furthermore, the Treasury confirms that it will shift the responsibility and liability for IR35 in the public sector from PSCs to the ‘paying agents’, from April 2017.

This basically means that any contractor working for a public sector client will, if not already received, an email from their agency (‘paying agent’) to confirm that they are operating outside the scope of IR35. Also, the 5% expense allowance under the deemed calculation rules is to be removed. This is under the guise that the entire 5% allowance would be spent on determining whether the contactor is outside the scope of IR35. The subtext here is that any one contracting for a government end client would be within scope of IR35 and will automatically take up a PAYE permanent position somewhere.

Presently, the focus will be on contractors with a government body as the end client. However, this may well get extended to other contractors. Qdos Contractor have a product available to help on this matter and we advise that if your end client is a government body that you speak with Qdos Contractor about the product.

Flat rate VAT

The government will be introducing a new 16.5% flat rate VAT category which will affect many contractors. This is to be introduced from 1 April 2017 and is for businesses with limited costs, such as many labour-only businesses. This will affect most contractors and will virtually remove the benefit of the Flat Rate VAT scheme. To put some numbers to the impact, an IT contractor earning £100,000 would have seen a flat rate saving of £3,800, under the new rules this will reduce to amount £200.

The introduction of this reform may lead to many contractor reverting to the standard rate of VAT despite the extra administrative burden and cost involved.

Benefits in Kind – salary sacrifice clampdown

Another announcement with the potential to leave contractors worse-off is the introduction of the salary sacrifice clampdown. This means that all benefits in kind (for example private medical insurance but excluding child care vouchers and pension) will have to go through payroll and will be subject to Employees NI as well as Employers NI.

If you take any benefits from the company such as private medical please get in touch with us and we will advise you accordingly.

Alignment of NI thresholds

Both employees and employers will start paying national insurance (NI) on weekly earnings of more than £157 from April 2017. The current thresholds for 2016-17 stand at £155 per week for employees and £156 for employers. This change aims to simplify the NI payments for employers, but will lead to a marginal increase in employer costs – the Treasury said this will amount to no more than £7.18 per employee per year.

Disguised remuneration

Nothing that new here except an announcement renewing the focus of this government to tackle aggressive tax avoidance.

As a reminder to those clients who may have previously been engaged in tax avoidance schemes, Budget 2016 has introduced several measures in respect of these rules. Two key measures are as follows:

  • Some promoters have implemented certain arrangements post 2011 that they suggested were not caught by the disguised remuneration legislation. The government will introduce legislation to make it clear that the disguised remuneration legislation does apply to such schemes (as an example, a member of an unapproved pension scheme might engage in ‘pension liberation’ by selling his annuity rights for a lump sum and claiming that he had given fair value so should not be taxed on it – a targeted anti-avoidance rule will counter this);
  • Where a loan was made to an employee by a third party before the disguised remuneration legislation came into effect, a disguised remuneration charge (through PAYE and NIC) will arise at 5 April 2019 if the loan is not repaid on or before that date and no settlement has been agreed with HMRC.

Other points to note from the Autumn Statement

Personal tax

There were no changes to the previously announced tax bands; the personal allowance in 2017/18 will, as previously announced, be £11,500 (up from £11,000), and the higher rate threshold will be £45,000 (currently £43,000).

 

Tax Fee Protection insurance

You would have been sent a letter from us regarding Tax Fee Protection insurance. I have gone through some FAQs you might have on this below. You should also look at the policy wording and summary of cover pdfs available on https://bannerqdosdirect.qdosconsulting.com/home/tfp-insurance

What is it?

Every individual and limited company is at risk of an enquiry or investigation by HM Revenue & Customs (HMRC). Although we are doing everything correctly and in good order the risk of an investigation will always be there regardless. No one can or should tell you otherwise. If it happens to you, the questions will be detailed and time consuming to answer. Even if HMRC does not find any extra tax to pay, there is still the hassle factor plus the costs to defend you could be substantial and can easily amount to hundreds or thousands of £s. You can obtain protection against the potentially high costs of such fees by taking out Tax Fee Protection (TFP) insurance cover if you so desire.

But is this not covered in your fees?

No. Our fees do not cover the cost of investigation.

What is the difference between an enquiry and an investigation?

An enquiry is simply a letter in most instances from HMRC asking for information.  An investigation is when an Inspector of Taxes turns up at your Company’s registered address to go through the books and to question you thoroughly on your tax affairs.

What is covered?

Tax Fee Protection insurance (TFP) covers professional fees incurred defending clients when HM Revenue & Customs (HMRC) checks whether you have paid the correct amount of tax.

The costs of defence in most reviews carried out by HMRC under the tax legislation are covered, including full and aspect tax enquiries, VAT and PAYE/NIC compliance checks, Business Records Reviews, and more. You should read the pdf at the bottom of this link, https://bannerqdosdirect.qdosconsulting.com/home/tfp-insurance .

Why have you suddenly sent this?

There has been a lot of change in tax legislation of late and the present Government has a strong manifesto promise to increase tax revenues. In light of this the probability of an investigation by HMRC is greater now than before. We feel obliged to let our clients know of this and for them to make an informed decision as to whether they would like to take on any insurance against this or not. As you like.

Is this mandatory?

No this is not mandatory. It is your decision to make based on the information given and available. Many of our clients have this insurance in place already through IPSE (The Association of Independent Professionals and the Self-Employed), others have decided not to take it at all, whilst others have opted based on this letter. It is your choice based on your interpretation of the information and risk profile.