Leonherman Blog

Class 2 National Insurance for the Self Employed to remain

Self-employment on the rise

Back in 2016 the government consulted on a proposed abolition of Class 2 National Insurance contributions (NICs) for the self-employed. This flat rate contribution, currently £2.95 a week is payable by the self-employed in addition to Class 4 contributions based on the level of profits. The flat rate contributions were due to cease on 5 April 2019 but will now continue “for the life of this parliament”.

In order to maintain their NI Contribution record, many self-employed individuals voluntarily continue to pay Class 2 contributions despite their profits being below the £6,205 small earnings exemption. Having a full NI contribution history helps maximize an individual’s entitlement to State Benefits. For example full State Pension entitlement requires 35 years contributions.

With the abolition of Class 2 NICs, those with low profits or making losses would need to make voluntary Class 3 contributions (currently £14.65 a week, £761.80 a year) in order for that year to count as a contribution year.

Check you contribution history

In order to maximise entitlement to full State Benefits a full contribution record is required. It is possible to check your National Insurance record online to see:

  • What you’ve paid, up to the start of the current tax year (6 April 2018)
  • Any National Insurance credits you’ve received
  • If gaps in contributions or credits mean some years don’t count towards your State Pension
  • If you can pay voluntary contributions to fill any gaps and how much it will cost

 

We recommend that you seek the advice from a qualified accountant before making any tax planning decisions to ensure you have a tax plan that suits you get in touch or call 0161 249 5040

Posted in News

September Newsletter – Making Tax Digital is coming

News

Read all about our latest news at Leonherman, including business advice, information on the services we offer to make your life easier and any internal news here:

September 2018 Newsletter – Making Tax Digital is coming

If you would like to receive our newsletters directly to your inbox get in touch or call 0161 249 5040

Posted in News

Tax relief on pensions for Higher Rate tax payers set to be cut

Pensions

There has been a lot of speculation in the news over the weekend leading up to the Autumn Budget, that the Chancellor Philip Hammond is considering cutting higher-rate pension tax relief in a bid to find extra money for the NHS.

It is believed that the £38 billion paid out every year in the form of pension tax relief could fund the extra NHS spending.

With the focus being aimed at those who can afford to put tens of thousands of pounds into pension schemes each year. It is commonly agreed that around 40% of the £38 billion goes to the top 10% of earners, which includes all those who earn £46,351 a year or more.

The Chancellor has been tasked with finding £20 billion in his November Budget to fund the extra NHS spending pledges made by Prime Minister Theresa May earlier this year. 

If you believe that this change could affect you, it is worth getting in touch with your IFA before November or contact us on 0161 249 5040 if you don’t have one as we work with a number that we can recommend.

Posted in Ask the Expert, News

Join our team

We are hiring

There is a great opportunity that has arisen to join the Tax Team at Leonherman.  We are recruiting for an experienced tax consultant who will be able to deal with both corporation tax and personal tax compliance and also assist the Tax Manager and the partners with adhoc advisory work.

Ideally we would like someone who is ATT qualified or qualified by experience.  This role would suit someone who lives around the Chorlton, Didsbury or South Manchester area.

We would consider part time working depending on experience.

Please get in touch to find out more on 0161 249 5040 or email your CV to partners@leonherman.co.uk 

No agencies please

Posted in Office News

Making Tax Digital is coming – The end of the Tax return

 

MTD Head in the sand

What is “Making Tax Digital”? 

Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. With the aim being that all of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. Enabling you to upload and update your tax account in real time.

Will it affect me? 

If you own a business, are self-employed and pay income tax, national insurance, VAT or corporation tax then it is likely you will be affected. Meaning you will be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non-compliance.

What do I have to do? 

You will need to open and log into your digital account. Everyone will be allocated one through a Government Gateway. Then you will need to ensure your accounting software can update this account at least quarterly. For most businesses, this means a move away from desktop and onto Cloud based accounting software. You are required to choose digital software to maintain your business records and to provide updates of information to HMRC. You will be prompted to send summary updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within nine months of the end of the accounting year. As your accountant, we are here to advise you on the software you will need and how to comply with the new quarterly reporting requirements.

When is all this happening? 

MTD starts with businesses above the VAT threshold limits (currently £85,000) for accounting periods commencing on or after 6 April 2019. Those affected will be required to keep digital records for VAT purposes. By 2020 it is most likely all other businesses will have to comply. 

So, what’s the good news?

We work with a number Cloud software providers to find the best solution for you, ensuring you have a fully compliant accounts package, the benefits of using an online accounts package include:

  • It’s in the Cloud so you can get a clear view of your finances any time any place;
  • Run your business from work, home or on your mobile;
  • It automatically grabs bank receipts and payments in real time; and
  • You can use your mobile to photograph purchase invoices and expenses and upload these to the software;

What’s next? 

We will be contacting all of our clients throughout 2018 to prepare you and get you ready for Making Tax Digital. There are many software options available to you, please get in touch to allow us to find the best solution for you and to help you with this transition by calling us on 0161 249 5040.

 

Useful links from HMRC:

https://www.gov.uk/guidance/agents-use-software-to-send-income-tax-updates

https://www.gov.uk/guidance/help-and-support-for-making-tax-digital

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

Posted in Ask the Expert, News

IR35 rules being reviewed for the Private Sector

Business people walking in the city

As mentioned in the Autumn Budget, the Government has opened a consultation into a possible extension of the rules that currently apply to “off-payroll” workers in the public sector to the private sector. This consultation is being undertaken at the same time as the consultation into employment status.

The IR35 rules introduced in 2000 are intended to ensure that people working through a Personal Service Company (PSC) who would have been employees if they had been engaged directly, pay broadly the same Income Tax and National Insurance Contributions (NICs) as if they were employed. However, it is estimated by HMRC that only 10% of individuals working in this way apply the rules properly, costing the Exchequer hundreds of millions of pounds in lost tax revenues every year.

Is it working in the public sector?

In April 2017, the Government reformed the rules for engagements in the public sector, and early indications are that this has resulted in an increase in public sector compliance. The April 2017 change requires the public sector body or agency, not the worker, to decide whether or not the IR35 rules apply and then deduct income tax and national insurance from payments to the worker.

There are however concerns that many of such workers are being treated as quasi-employees incorrectly. The consultation document states that there is evidence that some public authorities did have difficulties implementing the reform, both understanding the new rules and resolving disputes with contractors. HMRC have introduced the Check Employment Status for Tax service (CEST) software on their website to assist employers in reviewing workers’ contracts.

Options being considered for the private sector

As well as the possible extension of the rules that currently apply to the public sector, the consultation is requesting views on other options.

One alternative would be to require engagers to carry out due diligence into labour providers in their supply chain to ensure that they are compliant with employment and tax laws. This is already a requirement for gangmasters and other labour providers.

One suggestion apparently rejected was to create a new corporate structure referred to as a “freelance limited company” that would offer a simplified tax treatment, limited liability, a restriction on the frequency of dividend payments, and a requirement for the worker to be paid a minimum salary.

Another proposal rejected was to introduce a flat-rate withholding tax, similar to the Construction Industry Scheme for off-payroll engagements.

The consultation period ends in August and it is anticipated that the Chancellor will make an announcement about future proposals in the Autumn Budget.

We recommend that you seek the advice from a qualified accountant before making any tax planning decisions to ensure you have a tax plan that suits you.

Please get in touch if you wish to discuss whether these changes will affect you and your workforce or call 0161 249 5040

Posted in News

June Newsletter – Time to look to the future….

News

Read all about our latest news at Leonherman, including business advice, information on the services we offer to make your life easier and any internal news here:

June 2018 Newsletter – Time to breathe again

If you would like to receive our newsletters directly to your inbox get in touch or call 0161 249 5040

Posted in News, Office News

Managing your strategic objectives

Information Overload

Now that we are already half way through 2018, perhaps it’s time to revisit your list of goals and objectives.

Before you think about adding any new objectives to your list, think about what you’re going to stop doing and what you may have already achieved. We all have limited bandwidth and increasing demands on our time. Consider whether your initial list of goals for 2018 was a little bit too ambitious. Perhaps you can cut your list down by delegating a few objectives to other team members within your business. Maybe there are a few objectives from last year that you have carried over to this year. Failing to take old activities off your to-do list can prevent you from having the time to focus on achieving your new objectives. 

Consider all of your work commitments
In most businesses, projects and tasks get added to your to-do list throughout the year. Now might be a good time to take a look at that list of commitments and re-evaluate what you’re doing and why you are doing it. Take a step back and look at the bigger picture. Does your current to-do list still fit within the context of the market in which your business is operating? Maybe an ongoing project from last year is no longer relevant. 

How much capacity do you have?
Time is a fixed asset. We cannot make more of it but we can spend it differently. Now that you have assessed your list of priorities, you should focus on how you are actually going to achieve your objectives within the time that you have available. A good way to do this is to reduce time spent in meetings. Question whether you need meetings for certain projects as well as their frequency. 

Create a business case for any new objectives
During the year things will change. Inevitably new objectives will be added to your to-do list. In order to avoid becoming overwhelmed, be strategic in terms of new projects that you accept.

Leonherman has many years of experience working with businesses of all shapes and sizes; we work with you to ensure you stay on track and stay one step ahead get in touch or call 0161 249 5040

Posted in Ask the Expert, News

HMRC lose IR35 case

Self-employed

In the March we reported that the House of Commons Work and Pensions Committee published a report calling on the Government to close the loopholes that allow “bogus” self-employment practice, following the Tax Tribunal decision involving Christa Ackroyd Media Ltd, a company set up by a TV presenter to supply her services to the BBC, where it was held that the IR35 personal service company rules applied to the arrangements.

In a recent case involving a night manager on a building site, another tribunal decided that the IR35 rules did not apply. The facts of the recent case involve a Mr Daniels supplying his services via his company MDCM Ltd. These are entirely different from those in the Christa Adcock case but it indicates that the current rules are very unclear and open to interpretation by the courts.

For the IR35 rules to apply it must be inferred that under the hypothetical contract between “worker” and client that worker would be regarded as an employee if directly engaged. There are numerous factors taken into account, but the most important factor considered by the courts is the extent to which the “worker” is under the control of the client.

Please get in touch if you wish to discuss whether these recent cases impact on your particular circumstances.

Posted in News

Salary v Dividend – What is the best profit extraction strategy?

Balance

How much salary should you pay?

From 6 April 2018 (and not before) you can pay a salary of £702 per month without paying any tax or national insurance contributions (“NIC”).

If you choose this option you:

  • Do get National Insurance Credits towards some benefits for example state pension.
  • Must be registered as an employer.
  • Have to file an RTI (real time information) return each pay period – RTI fines will apply for late filing.

No income tax or national insurance is due on a salary at this level.

This is a perfectly legal and an acceptable way of paying yourself from your company; in fact HM Revenue & Customs (“HMRC”) have been known to state that they do not have a problem with this approach.

 

Dividends – from April 2018

Any dividends paid over £2,000 will attract dividend tax.

The rates of tax will be:

  • First £2,000 of dividends – tax free
  • 7.5 % for dividends falling within basic rate tax (caution on how this is calculated)
  • 32.5% for dividends falling within higher rate tax (i.e. where total income exceeds £46,350)
  • 38.1% for dividends falling within the additional rate of tax with income over £150,000.

How to work out your dividend tax

The calculations assume that you have no other income.

You would pay a salary of £702 x 12 from the company = £8,424

You can then pay £2,000 plus the remainder of your personal allowance as dividends without any tax = £2,000 + (£11,850 personal allowance less the salary of £8,424) = £5,426.

So a total of £13,850 will be tax free (dividend allowance + personal allowance). 

Note – this is per person.

You will pay tax after £13,850! 

Tax at 7.5%

For the next £32,500 of income you will pay tax at 7.5%.

So you can take:

  • a salary of £8,424
  • dividends of £5,426 + £32,500 = £37,926 

Total income of £46,350 

Dividend tax due on this will be (£32,500 x 7.5%) £2,437.50 

Tax at 32.5%

Dividend income over £37,926 will attract tax at 32.5%.

If your income exceeds £100,000 your personal allowance is restricted by £1 for every £2 of income over £100,000 and so will reduced to nil at an income level of £123,700.  

 

Dividend tax rule of thumb

The dividend tax rule of thumb to use is:

  • take a salary of £8,424
  • tax free dividends of £5,426 to use up the remainder of your personal allowance
  • £75 of tax per £1,000 of dividends from £5,427 up to total dividends of £37,926
  • £325 of tax per £1,000 of dividends over £27,927

If your income exceeds £100,000 obtain a personalised quotation as it gets really complicated!

Payments on Account and the new Dividend Tax

The dividend tax puts most people into payments on accounts.

Notes/disclaimer
Dividends are paid out of post tax profits.

Failure to process your payroll and submit the correct RTI (Real Time Information) returns could result in fine or penalties.

Disguised employment issues aside, operating as a limited company is perfectly legitimate and is purely a business choice.

Salary is an allowable business cost and will reduce the profit subject to corporation tax.

Everyone has different tax affairs; this fact sheet is for illustration purposes only and should not be relied upon for your tax planning or tax affairs.

We recommend that you seek the advice from a qualified accountant before making any tax planning decisions to ensure you have a tax plan that suits you.

Posted in News