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21-12-2015

The taxation rules for contractors will change. Currently, end users (a simple definition is businesses who engage the service of a subcontractor via a service company) can rely on IR35 to avoid employment and tax implications arising on payments made to contractors trading via a personal service company.

The change:

The government intends to reduce the benefits of operating personal service companies in addition to proposing changes to IR35 regime that will shift the tax and national insurance compliance burden of IR35 from the personal service company to the businesses who engage them – the end user. 

Businesses who formally did not need to concern themselves with the tax position of contractors providing services via limited companies will now have to be very concerned.

IR35 reform 

The government closed a consultation into IR35 in September and is now reviewing consultation responses. The planned implementation date is unknown as of yet but it could be in 2016.

HMRC does not wish to abolish IR35. Instead it wishes to introduce changes which will bolster its powers.  HMRC wants contractors to be taxed as if they were employees and for PAYE to be operated. HMRC no doubt see the end user as a more expedient tax collection mechanism than the contractors. 

Key proposed changes:

The end user will have the obligation to operate IR35 on behalf of individual contractors operating via personal service companies. This means that it will be the end users who will carry the administrative burden of complying with IR35 and who will be exposed to investigations by HMRC seeking to collect income tax and national insurance under PAYE. This is unlike the current position where HMRC investigates the personal service company but not the end user in most cases.

Simplifying the tests for IR35 by focusing on the level of end user supervision, direction and control over the contractor. This means that potentially more people will fall under IR35.

Introducing a minimum working time requirement. The new legislation would require that the contractor works a certain minimum amount of time to be considered an employee. The government has not yet specified what the minimum would be.

Extending IR35 to other types of intermediaries, not just personal service companies. Even though the scope of this change is unclear as the government did not elaborate on what other intermediaries are intended to be affected by this change it is evident that the IR35 net is cast wider and wider and the changes can affect for example, umbrella companies.

Impact

The use of contractors is wide spread.  Even though the consultation document does not specify whether the law will be retrospective I is accepted that the new rules will be of wide application.  There will be change and the inevitable increase in costs due to the PAYE compliance.  Many businesses will decide the risks are too great and move to fixed term employment contracts in place of contractors.  However, with fixed term employment contracts comes the cost of complying with employment law legislation such as holiday pay, maternity/paternity, work place pensions, etc.  Employers will  require professional advice in drafting fixed term contracts to ensure the employer is suitably protected.

Reducing the benefits of using a personal service company 

The July 2015 Budget contained several announcements that will have implications for contractors. These include:

  •  Removing the NIC employment allowance for companies whose sole employee is a shareholder and a director;
  • Taxation of travel expenses to and from any assignment where an individual is working under control and supervision; and
  • Abolishing tax credits on dividends and substituting it with the new dividend allowance.  This change applies not just to contractors.  The change increases the tax payable by everyone receiving dividends.

The government has indicated that additional funds will be made available to HMRC to tackling IR35-related tax avoidance in order to collect tax which would have been paid had the individuals been properly classified as employees.


14-12-2015

Automatic enrolment duties include increasing the amounts Employers and their
staff pay into the pension over a number of years.
This is known as 'phasing'. The date the minimum contributions were due to be increased has changed in order to 
align with the tax year. So now, instead of contributions increasing from 2% to 5% in October 2017, and from 5% to 8% in October 2018, they will now rise in April 2018 and 2019.

Despite what some press articles may have implied, this is not a delay to automatic enrolment, and employers' staging dates will remain the same.

Aligning the contribution increases with the tax year will reduce the amount of admin required. It should also help individuals who are used to seeing changes in their take home pay when the tax year changes. Find out more about what you will need to pay and when.
  • The July 2015 Budget introduced restrictions on landlords ability to deduct all mortgage interest costs before calculating their taxable profits  From April 2017 this deduction will be reduced over four years, the relief then being restricted to the basic rate of income tax. For example, .a 40% taxpayer who receives rental income of £10,000 and who incurs mortgage interest costs of £6,000 would currently pay £1,600 tax. Under the new rules, when fully implemented, the tax charge would increase to £2,800 – in effect, landlords whose interest costs are 75% or more of rental income will see their profits wiped out..

  • Landlords can currently ;:reduce their taxable proflts by claming a wear-and--tear allowance equal to 10% of rental income. From April 2016, the Chancëllor plans to restrict this relief to expenditure  actually incurred. (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447461/150715_Wear_and_tear_condoc.pdf)

  •  Stamp duty is set to rise by 3% for buy to let landlords and second home buyers buying after 5 April 2016.  Purchasing a £250,000 home could cost £7,500 more as a result.

  •  Capital Gains Tax - levied on profits from property other than the main residence – will have to be paid within 30 days of completion from 2019.

16-10-2015

People who reach state pension age before 6 April 2016 can now top up their state pension by paying a new class of voluntary National Insurance contributions (NICs) – Class 3A.

First announced in the 2013 Autumn Statement, the new Class 3A NICs went live on 12 October 2015. The opportunity to pay the top-up runs until 5 April 2017. Paying it can provide between £1 and £25 extra per week.  

Who can pay Class 3A NIC?

Those eligible to use the top-up opportunity are: ​​

  • existing state pensioners, and
  • people entitled to a UK state pension who have not reached state pension age but will do so before 6 April 2016. This means men born before 6 April 1951 and women born before 6 April 1953.

The Class 3A opportunity is aimed at women and other groups who have done less favourably under the existing state pension rules and have not previously been able to top up their pension. It will also provide an opportunity for pensioners to improve their retirement income by obtaining inflation-proofed extra additional state pension.

How to pay
The government has published a table showing amounts of the Class 3A voluntary contributions that contributors must pay to obtain an additional £1 per week of state pension. The amount of a Class 3A contribution reduces with age. Thus someone aged 70 can increase their state pension by £1 per week by paying £779.

The government has said that Class 3A NIC rates have been set to ensure an equitable deal for both individual contributors and taxpayers. 

The Class 3A NICs are paid as a lump sum. There is a cooling off period of 90 days from payment during which a refund can be obtained; this applies also to the estate of a person who dies during that period.

The government’s State pension top up web page has details of how to apply and a link to a calculator.

Class 3A options
The additional pension purchased with Class 3A NIC: 

  • will increase in line with the Consumer Price Index (if living in a country where UK state pensions are inflation linked),
  • will be inheritable on death, ie a surviving spouse will be entitled to at least 50% of the additional pension,
  • will be taxable, and
  • will be taken into account in any assessment of income-related means-tested benefits, including pension credit, housing benefit and help with council tax.

As this is a potentially complicated area, those considering Class 3A top-up should do the sums and it may be best to take advice. Wolfson Associates cannot give advice but here are some things to think about. 

For people who have gaps in their contributions record (ie not enough years), it may be better voluntarily to pay Classes 2 or 3 NIC. See the government’s guidance on voluntary payment of NIC. Note that the ability to pay Class 2 NIC voluntarily rather than the more expensive Class 3 is restricted to the self-employed with small profits or losses and to certain people living and working overseas.

Class 3A top-up is probably best for people reaching state pension age before April 2016 who have a shortfall in their state pension and some spare money that they might consider using for extra retirement income; for those (mainly women) who did not manage to accrue rights to the additional state pension while they were working; for the self-employed who were excluded from the additional state pension system altogether; and for lower earners who lost out because the additional state pension was earnings-related. 

It might not be so good for people in ill health and therefore with a short life expectancy because they will not receive the additional income for as long as a more healthy individual. Similarly, someone who is single and does not need provision for a surviving partner might not find this such an attractive deal.

An alternative for those who are not yet receiving their state pension is to defer receiving it. According to the government’s guidance on deferment, those who delay claiming state will receive an extra 1% for every 5 weeks that the claim is delayed. This is the same as 10.4% for every full year that claiming is delayed.


06-08-2015

Companies House (CH) has launched a FREE service to search company information and document images (Accounts and CH documents).  The service allows the public to access 170 million digital records without the need to register or pay. To access the service click here.

12-06-2015

The R40 is the form which taxpayers can use to claim a repayment of tax deducted from savings income.

HMRC has updated the web page Income Tax: claim for repayment of tax deducted from savings and investments (R40) with new details of where to send the R40:

People who have employment income, occupational pension income, incapacity benefit, employment support allowance or jobseekers’ allowance should send the completed R40 form to:

HM Revenue and Customs
PAYE and Self Assessment
BX9 1AS
United Kingdom

All other R40 repayment claims should be sent to:

HM Revenue and Customs
Leicester and Northants (Claims)
Saxon House
1 Causeway Lane
Leicester
LE1 4AA

Neither the R40 itself, nor the notes which accompany it, provide these address details. The form cannot be submitted online.

Those not resident in the UK should use from R43. Those in self assessment can claim a repayment using their SA tax return

12-06-2015

The rates which employers can use to reimburse employees who pay to put petrol in their company cars when they are using them for business have been updated. These rates apply to all journeys undertaken on or after 1 June 2015 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose.


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