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Tag: Employee

Employee

  • Budget 2024 – Your Country Needs You

    1. Employee & Self Employed NI Reductions – 6 April 2024. VAT Threshold Increase – 1 April 2024

    In time to see several payslip improvements before the election, but not necessarily the self employed unless they prepare an early tax return, this should be encouraging. It could be possibly one reason for someone who hasn’t yet gone back to work since Covid, to think again…. 

    The maximum saving for an employee is 4% of £37,700 = £1,508, and on average pay of about £35k it’s £900, which does start to get more interesting.

    The total self employed Class 4 reduction of 3% is very welcome. Along with the abolition of Class 2 this saves the average self employed person £650. The Press Release refers to an average sole trader profit of £28k which sounds about right. After deducting the Class 4 tax free threshold of £12,570, 3% is worth £463 and add on the Class 2 saving gets to you to about £650.

    Despite the many complaints about thresholds of £50k and £100k, there are lots of people in work and self employment earning less than this who are being targetted.

    Family companies will need to revisit the dividend-salary debate and calculations, lower NI clearly tipping in favour of more salary than you may have taken before.

    A small mention for the VAT threshold increase from £85k to £90k which will prevent some businesses from working less to avoid getting into the VAT system. However, it’s only a 5.8% increase which doesn’t offset inflation. Businesses who don’t want to be VAT registered, are likely to suffer from a lack of real growth. 

    2. Higher Income Child Benefit Charge Improvements – 6 April 2024

    Again, this is in time to be appreciated before an election. The starting threshold increase from £50k to £60k and the reduction in child benefit from that now to £80k rather than £60k means that child benefit is taken away from you more gradually and will feel a lot fairer. 

    After this, from April 2026 – following consultation – it is planned that child benefit will be based on household income, which many commentators wanted from the beginning when it was first brought in. Perhaps IT systems can now cope with this? Or it’s become obvious that it discourages either parent near the threshold to work any harder.

    3. Furnished Holiday Lettings (FHL) – Abolished – 6 April 2025

    Most employees won’t be affected by this apart from potentially benefitting from more properties being sold or moved into the normal rental property pool.

    The tax benefits for FHLs include full tax relief for loans against the property so they may become unaffordable for some landlords to continue. If so, there’s a small encouragement one year earlier to sell up…..

    4. Residential Properties Capital Gains Tax – Small Reduction – 28% to 24% – Exchanges From 6 April 2024

    The normal capital gains tax rate for higher rate taxpayers on other assets, apart from residential property, is 20%, so this 24% is a half-way house. If FHL landlords need to sell they at least save a bit of capital gains tax.

    On the other hand, it might encourage some professional landlords already providing ‘normal’ AST rentals, to stick around to provide rental properties for hard-working people.  

    Remember the tax free Annual Exemption is halving from April from £6k to £3k, so the net saving is reduced slightly. 

    Interestingly, the 24% rate makes owning rental properties in a limited company paying 26.5%/25% corporation tax look less favourable than before. 

    5. Creative Industries 

    Playing to one of the UK’s strengths and therefore likely adding to growth, there was good news for films, orchestras, theatres, museum and galleries. We can at least be entertained after our hard work.

    6. Other Simplifications To Make You Feel Good

    Workers feel aggrieved that others seem to get a better deal, so these may help:

    Abolition of Stamp Duty Mulitple Dwellings Relief – 1 June 2024 – No longer rewarding owners of multiple properties and saves court time arguing about what multiple properties actually mean!

    Abolition of Non-Dom status – April 2025 – This will go, but there’ll be something available for a limited period, looking a lot simpler, short term and fairer.

    Public Sector Productivity Improvements – Lots going on here, which should make our experiences feel more streamlined and efficient – eventually! No-one minds paying tax, if it’s spent wisely.

    It might also have been an election Budget – we shall we see….

  • Tax Free Christmas Parties

    What are the tax free limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. 

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs such as travel and hotels. Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! 

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to a total annual cost of £300 including VAT so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas party !

  • Let The Taxman Contribute To Your Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised Christmas party !

  • Health & Social Care Reform or Sticking Plaster?

    To set the scene,

    From April 2022, the following NICs will increase by 1.25% for one year only:

    • Employee NIC (over £9,568)
    • Employer NIC (over £8,840)
    • Benefit in Kind Class 1A (all levels)
    • Payroll Settlement Agreements Class 1B (all levels)
    • Class 4 NIC for sole trader and partners (over £9,568)
    • Employees of umbrellas companies (over £8,840, 2.5% over £9,568)
    • Limited companies within IR35 (over £8,840, 2.5% over £9,568)

    And the following income tax will increase by 1.25%:

    • Dividend tax (over £2,000)

    From April 2023, the NIC % will revert to current levels and the amounts above will be renamed a ‘Health and Social Care Levy’ showing up as such on payslips and start to apply to employed pensioners.

    It’s a common trick to call a new tax, a ‘levy’, but it’s a tax.

    What will you get for it? From October 2023, lifetime care home fees will be capped at £86k presumably hoping that the family home doesn’t need to be sold to pay for this level of fees.

    Employers may not pay the new tax:

    • If employers NIC is less than £4k
    • An employee is an apprentice
    • An employee is a veteran
    • The employer is in a freeport

    Apart from looking at these exceptions, how might you respond?

    Shareholder-directors – use your normal dividend tax threshold in full before April 2022

    If you tend to keep your dividends in the basic rate band paying 7.5% dividend tax on total income up to £50,270, ensure you use this band in full before 5 April 2022, before the increase to 8.75% from 6 April 2022. 

    Ditto for higher rate band dividends from £50,270 up to,say, £100k to pay as many dividends at the current 32.5% rather than the increased 33.75%. 

    You’ll need enough after-tax profits to pay the dividends, as usual, and check the effect of your other taxable income such as property rents.

    Sole traders and partners –  ensure you use accruals accounting, rather than cash accounting

    Unrepresented taxpayers tend to report cash income (and costs), not allowing for unpaid invoices or work-in-progress.

    You may wish to revisit this, to ensure as much net profit as possible is taxed at 9% NIC rather than the increased 10.25% on profits between £9,568 and £50,270 or 3.25% in the higher rate band on profits above £50,270.

    All businesses – revisit other ways to take money out of your company/business from April 2022

    The new tax increases the value of tax efficient alternatives, such as replacing existing dividends with a new electric car or employer pension contributions. Sole traders and partners will benefit from investing in plant and equipment including a new electric car or van for use by the business.

    Increase prices?

    Prepare or update your business plan, checking your margins, to see how you might recoup this additional cost to you and your business.

    Sell up or retire? 

    This may be another reason, after the pressures of the pandemic, to sell up or retire from your business, possibly paying 10% capital gains tax on its value.

    Interesting that this announcment, well before the budget on 27 October, leaves the Chancellor clear space to focus on his other tax and spending plans. What will we see then? 

    Further details as always can be obtained from your On The Spot Accountant. 

  • Let The Taxman Contribute To Your Virtual Christmas Party

    What are the limits?

    You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.

    In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.

    What is the tax treatment and accounting required?

    The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.

    The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.

    Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.

    The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff’s guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.

    Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!

    NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.

    I’m a director and don’t have any staff. Can I benefit from this favourable tax treatment?

    As you are the only director/employee you might think you can’t have a Christmas party – wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.

    You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can’t be reclaimed.

    Now you can have a fabulous tax subsidised virtual Christmas party !

  • Uber reaction – How should businesses react to recent employment law cases?

    Why does it matter?

    As a business owner, HMRC may decide that your longstanding sub-contractors are actually your workers or employees for tax purposes and should be subject to higher rates of national insurance. This is in addition to providing workers’ rights under employment law.

    How can you be self-employed, a worker or an employee?

    It used to be simpler to know whether you’re taking on an employee or a self-employed sub-contractor or supplier. The EU introduced a new definition of worker, a sort of hybrid between the two, which has caused some confusion. 

    What’s the point of being a worker?

    A worker enjoys many rights, just not quite as many as an employee. For example: 

    • Statutory maternity pay but NOT statutory maternity leave
    • Statutory paid holiday but NOT the right to time off for emergencies
    • Protection against unlawful discrimination but NOT protection against unfair dismissal

    So my self employed sub-contractors could win an employment law case, be classed as a worker, enjoy all the benefits but not necessarily pay any additional national insurance?

    Yes. In addition, you’d be required to include workers in pensions auto-enrolment paying up to 3% employer pensions contributions.

    HMRC might also require me to pay employer’s national insurance (13.8%) and deduct employee national insurance (12%) and income tax from the payments I make? 

    Yes.

    Does this additional national insurance buy the worker any more benefits?

    Not much. Assuming the worker already paid self employed Class 2 national insurance, the additional benefit is an enhanced job seeker’s allowance, if he needs it.

    That doesn’t make much sense.  I thought national insurance was a system you paid into to buy extra benefits.

    The state pension will usually be the most valuable benefit, but this is currently available anyway by paying £153.40 per year self employed Class 2 national insurance. 

    What should I do?

    1. Review all your contracts and practices with your self employed sub-contractors and suppliers to establish whether in the light of these recent tax cases they may be seen as workers or employees. 
    2. Use HMRC’s new Employment Status Tool to see whether HMRC agrees that your sub-contractors are self employed or not.
    3. If not, don’t necessarily rely on HMRC’s conclusion which ignores a vital Mutuality of Obligations (MOO) test. 
    4. Decide whether your contracts need to be amended to reflect your business arrangements more accurately or if you need to set up new employment contracts. 

    How does this apply to my limited company which provides services to my clients?

    If, through similar tests, you were found to be an employee of your client and caught within the ‘IR35’ rules, your company is obliged to pay PAYE and Class 1 employee and employer national insurance. As this wouldn’t have been factored into your pricing, this will make a big dent in your profits. 

    What should limited company contractors do?

    You can follow similar advice to above checking the details of your contracts and practices with your clients, as the points at issue are the essentially the same.

    This is a developing area of tax and employment law, so please check with your advisers before making any decisions. 

     

  • Budget 2017 – So will the Chancellor be sacked?

    The thing about national insurance

    It’s complicated.

    The Chancellor referred to the lack of payment for public services but the national insurance of £6,170 due on a salary of £32,000 includes £3,297 paid by the employer, not the individual. Plus the employer receives corporation tax relief reducing the net amount paid to the Treasury by £659 to £2,638 from the employer.

    If you look at what the individual pays, the correct comparison is £2,873 from the employee versus £2,300 from the self-employed, a reduced differential of £573. On a salary or profit of £32,000, this gap will drop to about £240 from April 2019. 

    This £240 is effectively the price of no holiday pay, sick pay, maternity pay, having to pay all your own pension contributions etc. 

    Hopefully, the announced review of benefits available to all will improve these comparisons. 

    15 MARCH 2017 UPDATE – THIS CLASS 4 NATIONAL INSURANCE INCREASE HAS BEEN SCRAPPED. 

    Making tax digital

    On top of this a 1 year delay to ‘making tax digital’ quarterly reporting where your turnover is less than £83k won’t reduce this new self-employed burden by much and the self-employed may start to feel a bit hard done by today.

    Dividend tax 

    The 0% tax rate on £5,000 of dividends will from April 2018 be available on only £2,000 of dividends. This will adversely affect small owner-managed businesses but it’s still likely to be beneficial to run many businesses through a limited company, if only to be able to control the timing of your personal taxable income.

    Perhaps when HMRC was told that its example of the interaction of the £5,000 and the tax free personal allowance was wrong, the Treasury had to re-run its numbers and discovered that £5,000 would cost more than they realised!

    Research & Development 

    As part of the Chancellor’s determination to tackle our poor productivity, he seems willing to be more lenient about the details required when making an R&D claim. This needs to be an instruction to HMRC, as the most lengthy information requests are made by inspectors after submission, sometimes for relatively small claims. 

    Conclusion

    The Chancellor’s error in the national insurance comparison and HMRC’s error in calculating the effect of the £5,000 tax free dividend, show how complicated the tax system has become. Even those legislating and running it don’t always understand the interactions across different parts of the system. There has to be more inroads into simplifying the tax system so taxpayers have more certainty over the tax they’ll have to pay.

    On the basis the Chancellor is waiting for the Autumn to deliver a more comprehensive budget, and will check with practitioners before making comparisons, perhaps he won’t be sacked this time. And perhaps we’d like to hear a few more jokes yet.