The new Dividend Tax

April 8th, 2016  |  Published in Uncategorized

Clients who are currently being paid through a Limited Company now have to consider the Dividend Tax introduced on 5th April 2016.

The dividend tax comes into effect on 6 April 2016, and applies to all dividends the individual receives in excess of £5,000 per tax year. The average company director who takes a modest salary within his personal allowance, and the rest of his income from the company as dividends, will pay more tax in 2016/17 than he did in 2015/16.

Although the basic rate, 7.5% sounds low, this is tax on money withdrawn from your Limited company, which has already paid 20% Corporation Tax on its profits. Once you have used your £5,000 allowance then, in effect you are paying 27.5%. There is no longer the clear advantage of not having to pay National Insurance on much of the income taken via a company, which I’m sure is the point, although our PR minded Chancellor sold it on the ‘tax free allowance’ angle, fooling probably noone.

Under Self Assessment this additional tax would be payable by 31 January 2018, as the balancing payment for that tax year. However, HMRC doesn’t want to wait that long for the extra tax, so it has amended the tax codes of many owner/directors to “code out” an estimated amount, which is approximate to the dividend tax due for the year.

The deduction in the PAYE code is labelled ‘dividend tax’, and the notes on the PAYE coding notice say: “this is to collect the basic rate of tax due on your dividend income.” The notes for a higher rate taxpayer refer to higher rate tax.

However, dividends won’t be taxed at the basic rate of tax (20%) in 2016/17. The dividend tax is charged at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and at 38.1% for an additional rate taxpayer. You can see how the taxpayer will be confused.

 

 

National Living Wage

March 4th, 2016  |  Published in Uncategorized

In April the Government’s new National Living Wage will become law. Its just a rebranding of the minimum wage for political purposes but if you are an employer you do need to take notice.

If you’re working and aged 25 or over and not in the first year of an apprenticeship, you’ll be legally entitled to at least £7.20 per hour.

If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage.

Employers

From April 2016, all workers aged 25 and over are legally entitled to at least £7.20 per hour.

Take these four steps to be ready for the change:
Check you know who is eligible in your organisation. Find out on GOV. UK’s employment status page.
Take the appropriate payroll action.
Let your staff know about their new pay rate.
Check your staff under 25 are earning at least the right rate of National Minimum Wage.

Any queries or problems, give me a ring.

 

 

Should you rush to take dividends ahead of 2016 tax hike?

March 4th, 2016  |  Published in Uncategorized

This applies to clients with small Limited Companies – if you are self employed it might as well be in Spanish – Hola!

Over a quarter of SME owners plan to take special dividend pay-outs ahead of forthcoming tax rises in April 2016.

A survey by accountancy firm Moore Stephens has found that 28% of small business owners are planning to pay themselves a special dividend before April when new tax rates come in for dividends.

There will be a £5,000 tax-free allowance under the new rules but above this basic rate taxpayers will pay 7.5% on their dividend income. Higher-rate taxpayers will pay 32.5% and top-rate taxpayers will pay 38.1%.

The survey also found that 21% of small business owners plan to reduce their dividend pay-outs once the changes come into force, while 6% expect to increase dividends to maintain their net income.

Mike Cooper, partner at Moore Stephens, said: “Small business owners are moving quickly to take out money from their businesses at a lower tax rate. Providing the accumulated profits are there, it is a perfectly sensible move and undertaken in the right way is something that HMRC has absolutely no issue with. However, SME owners who do not pay a special dividend before April 6 will have missed out.”

Cooper warns that the changes to dividend tax “will hit small business owners very hard” and says SME owners “should be thinking seriously now about how much of the value they have built up in their businesses that could sensibly be extracted before the April 6 deadline.”

Despite the changes, Moore Stephens says that dividends remain the most tax-efficient form of remuneration for many business owners. “While the increased tax on dividends is unwelcome, it is still marginally less than the tax on earnings, even though the difference between the two has been narrowed,” Cooper said.

 

 

 

National minimum wage increase

October 12th, 2015  |  Published in Uncategorized

The hourly rate increased from £6.50 to £6.70 for adults from 1 October 2015. The rate also increased for young workers and apprentices as follows:
Aged 18-20 – £5.30
Aged under 18 – £3.87
Apprentice – £3.30*

*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the national minimum wage for their age.

Act now on broadband grants

September 15th, 2015  |  Published in Uncategorized

Time is now running out for firms that want to take advantage of the Government’s Broadband Connection voucher scheme as it is being offered on a first come first served basis. There has been “a huge surge in demand” for the scheme in recent months. Connection Vouchers will be made available on a first come, first served basis until 31 March 2016.

More than 40,000 UK SMEs in 50 cities across the UK have had grants approved and are now benefitting from superfast broadband.

  • Broadband Connection Vouchers are available to Small or Medium Enterprises (SMEs) if:
    Your business is within an eligible area one of the 50 cities taking part in the scheme. Check your postcode to find out if you’re eligible
    You are a SME, registered charity, social enterprise or sole trader
    Installation of your new broadband connection will cost over £100
    The connection is for your business premises. You can apply for a connection at home if this is your main work base, but this does not apply if you work from home occasionally
    You are willing to sign up to a minimum 6 month contract with your broadband supplier
    The broadband service you select delivers a speed or performance improvement on your current connection. There are some detailed requirements on speed that you should check before applying
    You have not received more than €200,000 in grants in the last 3 years

https://www.connectionvouchers.co.uk

https://www.connectionvouchers.co.uk/whos-eligible/

The end of the tax return?

March 19th, 2015  |  Published in Uncategorized

The end of the tax return?

Yeah right, another misleading headline, like the sun shining down on the economy and 1p off a pint of beer making us all suddenly better off (Buy 300 pints get one free!).

In the words of David Gauke MP Financial Secretary to the Treasury from the HMRC guide issued today “Millions of people will no longer have to complete a tax return at all – whilst those with more complex tax affairs will be able to use their account to declare income and pay tax in year”

Complex = more than just PAYE and interest income. Those figures should now be pre filled in for you on the online return – if the IT works, that is.

The rest of us will be able to (later to be replaced by ‘required to’, no doubt) pay tax ‘as we go’ rather than after the tax year has ended. There is some wishfull thinking about your accounting software reporting online as you go through the year to HMRC, who will take tax of you as you go along, and never get it wrong, no doubt. What could possibly go wrong? Many, or most, still keep manual records and they, or their accountants, will have to enter the information into the monthly accounts information with HMRC. That’s getting rid of the yearly tax return and replacing it with a monthly return!

The self-employed will still need to convey their tax adjusted income details to HMRC, check that it is correct and then make a declaration and approve the submission. Presumably there will be filing dates by which time this information needs to be provided. Is that not a tax return?

As always the devil is in the detail, and this is only a long term aspiration by HMRC – don’t throw away those business records just yet!

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413975/making-tax-easier.pdf

 

 

 

 

 

 

 

Tax-free savings boost

March 6th, 2015  |  Published in Uncategorized

The Government announced at Budget 2014 that it would abolish the 10% starting rate of tax for savings, replacing it with a new 0% rate. It is also increasing the amount of savings this starting rate applies to, from £2,880 to £5,000.

From 6 April, one million savers with an annual income under £15,600 will be able to get their savings interest paid completely tax-free.

Savers can check if they can benefit by using the new online calculator http://www.hmrc.gov.uk/tools/r85/r85-2015.htm

There’s more information on tax-free savings on the government website https://www.gov.uk/taxfreesavings

If eligible for tax-free savings, savers will need to register their account with their bank or building society. If eligible to reclaim tax they have paid on interest, savers should complete form R40 or include the figure on their tax return.

From April, savers will also benefit from an increase in the ISA limit to £15,240

 

SCAM – refund email from hmrc.com

December 23rd, 2014  |  Published in Uncategorized

I found this in my spam filter today, the HMRC mailing address is faked, and looking at the IP adress, it came from that well known HMRC office in, er, Brazil!!

Dear Applicant, Tax-Rebate/00172847TAXHMRC After the last annual calculations of your fiscal activity. You are eligible to receive a tax refund of: Ј379.56-GBP To complete your tax refund, please follow the steps bellow: Download and submit the tax refund request form attached to this letter and allow us 10-14 days in order to process your request. NOTE: A refund can be delayed for a variety of reasons,for example submitting invalid information. Revenue and Tax Administrator HM Revenue & Customs Tax Credit Office PO Box 1970 Liverpool L75 1WX ——————————————————————— Copyright © 2014, HM Revenue & Customs. All rights reserved.

Yeah, right…. If you get one of these, it is a scam, there will be some admin fee to pay via Western Union, or similar. Do NOT click on any attachments, or follow any links in the email, they may be after login or personal details (for ID theft), or want to infect your PC with something nasty.

If you are already a victim of an email like this, visit scamwarners.com for advice or to check if an email is really a scam. I have enough trouble getting HMRC to email me, if you are a client and they email you direct, always check with me first.

Edited to add:

I have since received fake submission receipts from gov.uk adresses, Companies House emails, and no end of statements and demands from companies and banks that I have never done business with. Many had attachments which will have contained viruses – IF IN DOUBT, DON’T OPEN IT 

Tax debt recovery powers watered down

November 25th, 2014  |  Published in Uncategorized

Source: AccountingWEB

Tax professionals have welcomed the government’s decision to modify proposals for the direct recovery of tax debts from bank accounts. Chas Roy-Chowdhury, head of taxation at ACCA, said the revised proposals were “light years better than what was originally proposed”.

The government will not try to push through the necessary legislation before the general election. It intends to “legislate in a Finance Bill in 2015, during the next Parliament”, financial secretary David Gauke said. Draft legislation will be published for consultation.

HMRC estimates that direct recovery of debts (DRD) will apply to around 17,000 cases a year. Around half will involve debtors with more than £20,000 in their bank and building society accounts, and the average debt of those affected will be £5,800.

“This is about levelling the playing field,” Gauke said. “The vast majority of people pay the tax that is due, on time, but there is still a very small minority who try to gain an unfair advantage by persistently refusing to pay what they owe, despite being able to.

“We already set out robust safeguards to protect vulnerable debtors in our original proposals, but feedback from the consultation process told us we could do more to make sure this only catches those who are playing the system.”

HMRC said the new safeguards, set out in detail in a response document published this morning, would include:

  • Guaranteed visits to debtors from an HMRC officer to meet them face-to-face, allowing HMRC to identify vulnerable members of society to provide them with appropriate support;
  • Establishing a new, specialist unit to deal with cases involving vulnerable members of society, as well as providing a dedicated DRD team and helpline;
  • Ensuring that judicial oversight of the process is enshrined in legislation, by allowing for appeal to the County Court;
  • Putting a hold on debtors’ accounts and giving them 30 days – more than twice as long as previously planned – to contact HMRC and arrange payment of the debt or object to the use of DRD, before any money is taken;
  • Further new safeguards relating to transparency, governance and a phased implementation of the DRD powers.

HMRC will apply DRD to “a smaller number” of cases in 2015/16, the first year of operation, allowing the department to “gain experience and feedback”. A proposed requirement for banks to provide 12 months of data on a debtor’s account history will not be implemented, in response to concerns about debtors’ privacy.

Chas Roy-Chowdhury said: “There will now be a totally different ethos behind the way the power will be designed and implemented. It will no longer be played out as a remote controlled video game where HMRC remotely takes money out of the taxpayers account. There will now need to be face to face engagement between HMRC and the taxpayer before anything can happen. Vulnerable taxpayers will be identified and taken out of the process entirely and put in touch with a dedicated helpline.”

 

Do you need to set up a Limited Company for contracting?

July 29th, 2014  |  Published in Uncategorized

You’re probably fed up with paying too much tax through an Umbrella, or just starting out as a contractor and want to be as tax-efficient as possible. Whatever the reason, you need to know how to setup a Limited Company and what’s involved in contracting through one. If you want to get the best out of contracting through your own Limited Company, and avoid the pitfalls that ensnare the ill-advised contractor, then you need to be well informed with expert advice.

New Limited Companies can be set up the same day with Companies House, subject to their workload, we will also register you with HMRC for VAT, PAYE and Corporation tax, and provide you with all the statutory paperwork. If you provide the name you would like, I can do an online check to see if it has already been taken. Call for details.

Dividends

To see the advantages of dividends it’s important to understand how different forms of income incur tax:
A Company employee is required to pay income tax and national insurance. For a basic rate tax payer this involves paying 20% income tax + 12% Class 1 National Insurance. Tax of 32% is therefore paid on earnings. Your employer must also pay 13.8% employers national insurance.
A self-employed person must pay income tax on their profits and national insurance, for a basic rate tax payer this is 20% income tax + 9% Class 4 National Insurance + £2.50 a week Class 2 National Insurance. Tax of 29% (plus a bit) is therefore paid on earnings.
A limited company owner paying themselves entirely in dividends pays income tax and corporation tax, for a basic rate tax payer this is 0% income tax (due to the dividend tax credit) and 20% corporation tax on company profits. Tax of 20% is paid on earnings.

As you can see the limited company owner is the clear winner when it comes to protecting earnings from the taxman. The level of saving varies a for higher rate taxpayers but the advantage is still very much with being a dividend receiving limited company owner.

IMPORTANT – IR35

IR35 is a piece of tax legislation that is aimed at preventing what HRMC consider to be an employee from working via a limited company and receiving the tax benefits of paying themselves in dividends.

If you are caught by IR35 then you are required to take 95% of your companies income in the form of salary, which will incur income tax, employers national insurance and employees national insurance. This all adds up to a great deal of tax.

Who is caught by IR35?

Unfortunately there is no simple answer to this question. One of the reasons why IR35 is so unpopular is because it is so vague. Here are some warning signs though:
Your company has a single client and you are the only employee of your company
Your contract stipulates that you cannot send anyone else to do your work
You work from client offices 9 to 5 every day
Your work has to be completed at client offices and you get paid regardless of whether they have work for you to do or not

If any of these apply to you do not rush into setting up a limited company and paying yourself dividends. Get advice over your IR35 status first. It might save you a lot of tax later down the line.