At Budget 2016, the Government announced two new £1,000 allowances for property and trading income to take effect for income arising from 6 April 2017.
The Government also announced at Autumn Statement 2016 that the trading allowance may also apply to certain miscellaneous income to the extent that the £1,000 trading allowance is not otherwise used.
Further detail has now been released:
- Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 NIC;
- The new allowances will not apply to income on which rent a room relief is given; and
- The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.
From 6 April 2018 Class 2 NIC will be abolished and Class 4 NIC reformed to include a new threshold (to be called the Small Profits Limit).
Access to contributory benefits for the self-employed is currently gained through Class 2 NIC. After abolition, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 NIC but will be treated as if they had for the purposes of gaining access to contributory benefits. All those with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance and Bereavement Benefit.
Those with profits above the Lower Profit limit will continue to pay Class 4 NIC.
From 6 April 2018 Class 3 NIC, which can be paid voluntarily to protect entitlement to the State Pension and Bereavement Benefit, will be expanded to give access to the standard rate of Maternity Allowance and contributory Employment and Support Allowance for the self-employed.
Changes from 6 April 2018 will align the rules for tax and employer NIC by making an employer liable to pay NIC on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.
In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NIC. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.
Finally, the exemption known as Foreign Service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.
Legislation will limit the income tax and employer NIC advantages where:
- Benefits-in-kind are offered through salary sacrifice; or
- Where the employee can choose between cash allowances and benefits-in-kind
The taxable value of benefits in kind where cash has been forgone will be fixed at the higher rate of the current taxable value or the value of the cash forgone.
The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or cycle to work. Following consultation, the Government has also decided to exempt Ultra-Low Emission Vehicles which have emissions under 75 grams of CO2 per kilometre.
This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at the date will become subject to new rules in respect of those contracts at the earlier of:
- An end, change, modification or renewal of the contract; or
- 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021.
HMRC have issued their response to the consultations on MTD. The more cynical among us might take the view that HMRC have decided what they are going to do and any “consultations” are purely for cosmetic purposes! (more…)
Small business planning is very important as SMEs that fail to plan are certainly planning to fail. You’ve probably heard that phrase many times but don’t dismiss it as a cliché, learn to live by its rules. Small businesses are often so busy treading water, they spend all their energy and attention on staying afloat. Learning how to write or make a business plan is quite essential and it’s a key step for most SMEs. But if you want to do better than ‘just about managing’, you really need to plan for the future – after all, if you don’t know where you’re heading, how do you know which direction you need to go in?
There is a myth that a huge percentage of new start-ups don’t survive the first year, but this has recently been debunked – in fact, it appears that in the UK, more than 8 out of 10 companies succeed in the first 12 months, and between a third and a half are still trading after five years.
Plan to succeed
These success rates could be down to the support that’s now available for new entrepreneurs. There are a lot of organisations that help start-ups and small businesses succeed. In Hertfordshire, the organisation Wenta has been providing advice and support – a lot of which is free of charge – for entrepreneurs across the county for over 30 years.
Writing your business plan isn’t just a good idea when it comes to applying for loans and support, it will also help you focus your ideas about your company and clarify the direction you need to take it in. Online, the government has published advice about writing a good business plan, along with links to templates and examples to help you draw up your own plans.
It doesn’t matter how many members of staff you have working for you, getting the payroll right is crucial to your business.
The main reasons companies outsource payroll services are to save time and to make sure they’re fully compliant with legislation. If you’re not a payroll specialist, then you’ll have to spend time trying to get to grips with the process when you could be more productively working on your core business instead. Payroll can be straightforward to implement if your employee/s have no issues. But most of the time there are other things to be taken into account such as statutory sick pay, maternity pay, student loans, deductions earnings orders etc.
Keeping in line with legislation is hugely important, so if you’re not outsourcing, you will need to be pro-active to make sure you don’t risk having to pay fines for not getting it right. Legislation about tax, NI and pensions is changing all the time and you could be spending precious time away from your core business researching changes in the rules.
Budget Day will be 8 March 2017 and every year we expect the Chancellor to do something to restrict tax relief for pension contributions. (more…)
With effect from 1 April 2017: (more…)
Our previous update on this topic was on 30 August 2016 following the publication of consultation documents by HMRC. There was a very significant response to these, most of which was unfavourable. (more…)