Today we have welcomed back one of our former colleagues, Sharon Jones. Not to be confused with the later employee of the same name, Sharon was last with us almost 20 years ago and has come back on a short term basis to provide some extra help with the annual Tax Return deadline rush and also to lend a hand with the new and increasingly important area of Auto Enrolment Pensions for employers.
For the significant number of clients who have remained loyal to us throughout the time Sharon has been elsewhere, be prepared if you visit or phone for a sense of deja vu.
The so called "Summer Budget" attracted much attention in respect of the welfare reforms but the impact on our clients derives from the less well debated aspects of the statement.
The biggest change for anyone operating through a limited company and utilising the typical salary/dividend approach to paying themselves, is that from next year dividends in excess of £5,000 will give rise to a tax liability regardless of the taxpayers marginal rate of tax. Therefore, a company owner who has traditionally drawn £7,500 in salary and £30,000 in dividends will move from having no personal tax liability to having to pay the taxman £1,875.
This will still work out more cost effective than drawing just a salary but does eliminate more than half of the typical savings previously enjoyed.
Another significant item which has had very little discussion even in the more serious press, is the proposal that travelling expenses will no longer be tax deductible for personal service companies where the end client effectively has control over how the work is performed. (the wording states - where a worker is supplying their personal service to an engager and is under the right of supervision, direction or control of any person, then tax relief to travelling (including subsistence) expenses will be denied.) This is also going to impact on some of the more "imaginative" umbrella company approaches adopted by agencies as well as tradional "one man band" companies contracting through intermediaries.
Whilst there were some apparent positive points, such as the forthcoming reduction in corporation tax rates and extra National Insurance Allowance for smaller employers, these are unlikely to offset the extra tax costs for most smaller businesses.
Many employers either will already have received or are about to receive an important letter from The Pensions Regulator advising them of their staging date as well as telling them to go online and set up contacts for the receipt of future communications.
For many employers the staging date is still some way off and there may be a feeling that there is no urgency to do anything but action is needed sooner rather than later.
The danger is that a number of relatively small employers have staging dates that are much sooner but have still done nothing to prepare. With a penalty of £400 to be levied for non-compliance in the first instance and daily penalties of £50 for continued failure this is potentially very damaging.
We make no apologies for repeating the following guidance that is well documented in many places, but is perhaps far less well read and understood.
What You Need To Do
In summary you now have legal obligations to take the following steps:-
Before staging date
• Assess how your workforce will be structured on the staging date to determine what duties
you will have for each type of worker
• Choose a pension scheme for workers who will be automatically enrolled and agree how this
will be set up
• Choose a pension scheme for workers who will be given the option to join and agree how
this will be set up
• Speak to your payroll provider to obtain your employee data in the correct format
• Decide on your chosen definition of pensionable salary
• Communicate the changes to your workforce
At Staging date
• Tell your workforce about how automatic enrolment affects them
• Automatically enrol certain workers into your pension scheme
• Invite other types of workers to join your pension scheme
After staging date
• Register the scheme with the Pensions Regulator(TPR) no later than five months after your
• Maintain records to prove compliance with the employer duties
• Continue to automatically enrol certain workers into your pension scheme
• Run opt in/joining process for other workers
• Ensure the correct contributions are deducted and paid into the pension scheme at the right
• Manage opt outs, process refunds and re-enrol workers who opt out of your scheme
approximately every three years
• Monitor age and earnings regularly as workers can move between different categories
Whilst much of the ongoing reporting and payroll calculations can be handled by your accountant on your behalf once a scheme is in place, prior to that there is also a great deal that employers will need to address themselves, or acquire the services of an Independent Financial Adviser (IFA) to deal with on their behalf.
If you are affected by the regulations, speak to us as soon as possible so that we can help you to assess what type and to what extent you need assistance in complying with your legal obligations.
HM Revenue & Customs have not been issuing the traditional "blank" payslip reminders in respect of 2014 Tax Returns. Only taxpayers whose returns were filed in the earlier part of last year have had proper payment reminders.
Anyone with a tax liability to pay and no payslip needs to head to www.hmrc.gov.uk and follow the link to "Paying HMRC" which sets out the options.
Paying by debit card online is particularly straightforward and is recommended where possible.
October 31 is the deadline for submitting paper Tax Returns to HM Revenue & Customs and for some people, the date has become a "trigger" to finally consider getting their documentation together for passing to their agent.
In keeping with the vast majority of agents, we actually use online submission to present Returns giving a latest filing date of 31 January.
Some clients still believe that they will be the only ones leaving it until the final week (or in some cases the final day!) so this is just a "heads up" to say that it is advisable to get information in well before Christmas, as work inevitably ends up backlogged heading in to January and is dealt with on a first in, first out basis.
If you are not a client of this practice but have got another agent, they will be equally grateful if you heed this advice. Indeed I am aware of more than one accountancy practice who actively enforce the rule that no records will be accepted in January for Returns that need to meet that deadline whilst other impose the penalty for late filing that HMRC would charge, to any such late comers by adding it to their fee.
Apart from the question "what expenses can I claim?" the next most common question raised by new starters to self employment is "how much should I put aside to meet my tax liabilities?"
With the complications that self assessment throws up, including the potential to have to not only settle a known tax liability but pay towards an as yet unknown one, under the "Payments on Account" scheme there is no definitive answer that can be given. It is quite common to suggest a percentage of the regular drawings taken by the proprietor but often start ups (and even more established businesses) do not allow the luxury of a regular figure to be taken.
However, it should be possible for a trader to have some idea of how well they are doing and so estimate the likely tax bill.
|The table below sets out how liabilities rise over a range of assessable|
|self employment profits, assuming normal personal allowances of £10,000|
|Assessable profit||Tax due||Class 4 NI due||Total payable||Effective rate|
|The exact timing of payment of liabilities will depend on whether or not payments|
|on account have been made or if any tax has been stopped at source such as under|
Just a word to the wise, the business directory entry scam is once again doing the rounds. Official looking letters are landing on doormats given the unwary the chance to sign up and land themselves with an unnecessary bill for £797 for advertsing.
HM Revenue & Customs have a new campaign getting underway, with painter/decorators being in the spotlight this time around. Unlike previous campaigns which targetted various sectors looking to "encourage" people who were not actually declaring income to come forward, this time the approach is directed at those already in the self assessment system.
From the wealth of data that HMRC receive annually they have determined that painter/decorators normally achieve a net profit equivalent to somewhere between 59 and 79% of their gross income. They now intend to use this to "benchmark" Returns submitted and obviously the implication is that any showing a variation (especially a lower than expected profit) are likely to be the subject of further examination.
Initially HMRC will be sending out standard letters to those in the trade detailing the results of their data collection and suggesting that anyone whose figures do not fall within the expected range might like to recheck their figures before submitting them, offering two common reasons why this happens.
1. Numbers - have the right numbers been put in the right boxes?
2. Expenses - have any expenses been claimed by mistake or not claimed for?
Whilst this first exercise is targetted at one trade we are aware that HMRC have long employed "benchmarking" in other areas without disclosing the parameters and so further formal exercises will be likely to follow in future for other trades and professions.
We are aware that they have clear views on the level of expenses that subcontractors ought to be claiming relative to their income and they have long established views on what gross profit margins to expect on various trades.
The key point is to always ensure that if there are reasons why a trader may not have achieved the "norm" for their sector to ensure that this is documented at the time and ideally communicated when a self assessment Return is submitted. Doing that may well prevent an unnecessary detailed enquiry in to the figures by HMRC.