July Newsletter

TAX EFFICIENT EXTRACTION OF PROFITS

In his Summer 2015 Budget, the Chancellor announced far-reaching reforms to the way in which dividends are taxed. If you are the director of a personal or family company and extract profits in the form of dividends, this will affect you.

Under the rules as they currently stand, it is preferable from a tax and National Insurance perspective to operate as a limited company and to take a small salary to preserve entitlement to the state pension and certain contributory benefits and to withdraw additional profits in the form of dividends. Although dividends must be paid out of after-tax profits (once corporation tax has been paid), withdrawing profits as dividends has a number of advantages:

• no National Insurance contributions are payable on dividends; and

• the availability of the 10 per cent tax credit attaching to dividends means that there is no further tax to pay until taxable income reaches the threshold at which higher rate tax becomes payable (£42,385 for 2015/16). Thereafter, the effective rate of tax on the net dividend is 25% for a higher rate taxpayer and 30.6% for an additional rate taxpayer.

What is changing? From 6 April 2016 the 10% tax credit on dividends in being abolished. This means that it will no longer be necessary to gross up the amount of dividend actually paid to take account of this tax credit or to deduct the tax credit from the tax that you owe – the amount paid by your company will from 6 April 2016 be the gross amount of the dividend.

To compensate for this loss of tax credit, a new tax-free allowance of £5,000 will be available for dividends. Once this allowance has been used up, dividend income will be taxed at the appropriate dividend tax rate, which will be 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% for and additional rate taxpayer.

This means that anyone who currently has dividend income of more than £5,000 a year will pay more tax on their dividends from April 2016. It will no longer be possible to pay a small salary (covered by the personal allowance) and to then pay dividends until the higher rate threshold is reached without having to pay any further tax on those dividends. It will also be necessary to ensure funds are available to pay the additional tax that will be due on the dividends.

It is advisable to speak to your tax adviser as to how these changes will affect you and to discuss your optimal profit extraction strategy going forward. Although the new dividend rules do not come into force until 2016/17, it is also advisable to review your dividend extraction strategy for 2015/16 as it may be beneficial to accelerate dividend payments to before 6 April 2016 to take advantage of the more favourable dividend tax rates applying before that date. 

One-man companies to lose employment allowance It should also be noted that the National Insurance employment allowance will not be available to companies where the director is the sole employee from 6 April 2016 onwards. For personal companies this will affect the optimal salary level and impact on the profit extraction strategy. Speak to your tax adviser well in advance of 6 April 2016 to find out how these changes will affect you to allow time to plan ahead.

Is a limited company still the best option? You may also wish to consider whether operating through a limited company remains the best option for you. However, before making a decision you may wish to see what the Chancellor does to Class 4 National Insurance contributions, which are payable by the self-employed on their profits. At the time of the March 2015 Budget the Chancellor announced his intention to consult on the abolition of Class 2 National Insurance contributions and the reform of Class 4 contributions to provide benefit entitlement. The consultation is expected later in the year. However, it should be noted that as things currently stand, disincorporation relief, which allows a company to transfer assets to its shareholders without triggering a tax charge, is only available where the transfer of assets occurs before 31 March 2018. If you are thinking of disincorporating, you may wish to do so before that date. Speak to your advisor to see if this is for you.

RETIREMENT PROVISION

As people live longer it becomes increasingly important to ensure that you have made adequate financial provision for your retirement. However, the rules are constantly changing and this makes planning ahead with any degree of certainty somewhat difficult. 

State pension changes The state pension currently comprises the basic state pension and the earnings-related second state pension (also known as S2P). This two-tier state pension is payable to anyone who reaches state pension age before 6 April 2016, provided that their contributions record is sufficient. A person who reaches state pension age before 6 April 2016 will need 30 qualifying years in order to qualify for the full basic state pension.

Your state pension age depends on your date of birth and your gender. 

The current two-tier state pension is being replaced with a single-tier state pension for people who reach state pension age on or after 6 April 2016. If you reach state pension age before this date you will continue to receive the current two-tier state pension. The introduction of the new single-tier state pension will not affect you. Under the new single-tier state pension, a person will need at least 35 qualifying years for the full single-tier state pension. Anyone with less than 35 qualifying years will receive a reduced pension depending on the number of qualifying years that they have built up. However, a single-tier state pension will only be payable if a person has a minimum of 10 qualifying years.

Topping up your pension If you are unlikely to have enough qualifying years to earn a full state pension by the time that you reach state pension age, you may wish to pay contributions voluntarily to top up your record. Class 3 contributions are designed for this purpose. However, at £14.10 per week (2015/16 rate) they are quite expensive. If you have small earnings from self-employment (less than £5,965 for 2015/16) you may wish to pay Class 2 contributions voluntarily instead. At £2.80 a week, this is a much cheaper option.

If you are due to reach state pension age before 6 April 2015, from 12 October 2015 you will also have the option to make a Class 3A contribution to boost your pension. The amount of the contribution depends on how old you are when you pay it. Speak to your adviser to discuss whether making such a contribution is likely to be cost effective.

End of contracting out The changes to the state pension mean that from 6 April 2016 it will no longer be possible to build up entitlement to the second state pension. The second state pension is only paid to those who reach state pension age before 6 April 2016 and who have earned entitlement to it. As a result, the ability to contract out will end on 5 April 2016. If you are currently in a contracted-out salary-related pension you will need to pay full rate National Insurance contributions from 6 April 2016. Your adviser will be able to explain how this will affect you.

Pensions tax-relief Individuals are able to make tax-relieved pension savings to registered pension schemes. However, contributions only attract tax relief to the extent that they do not exceed the annual allowance. The allowance can be carried forward for up to three years if it is not used up. The allowance was set at £40,000 for 2015/16 and at £50,000 for 2014/15 and 2015/16.

The Chancellor announced various changes which affect the annual allowance in his Summer 2015 Budget.

Pension contributions are measured against a pension input period to check that the annual allowance has not been exceeded. This does not currently have to correspond with the tax year. However, from April 2016 the pension input period will be the tax year. For 2015/16 only, the pension annual allowance is increased to £80,000, but this is subject to an allowance of £40,000 for the period from 9 July 2015 to 5 April 2015. The rules are quite complicated so speak to an advisor to find out how you can make the best use of your available allowance for 2015/16.

Reduced annual allowance for high earners From 2016/17, the annual allowance for those with incomes (including pension contributions) of over £150,000 is reduced by £1 for every £2 by which their income exceeds £150,000. The maximum reduction is £30,000 so that an individual with income of £210,000 or above will have an annual allowance of £10,000 for 2015/16.

Reduced lifetime allowance The maximum amount of tax-relieved pension savings that a person can build up over a lifetime is capped by the lifetime allowance. This is to be reduced from the current level of £1.25 million to £1 million from 6 April 2016. If your pension benefits are approaching this limit, speak to your adviser about protecting the benefits you have built up from future tax charges.

HELP WITH CHILDCARE COSTS

Childcare costs are expensive and any help towards those costs is welcomed. Under the current system, tax exemption provides a measure of relief for those who receive childcare vouchers or childcare support from their employers. In most instances, the relief is now worth £11 a week to those lucky enough to benefit.

This system is to be replaced with a new system under which the Government will top up contributions made into an online account at the rate of 20p for every 80p paid into the account, up to a maximum top-up of £2,000. This top-up is tax-free and as it is not provided by the employer it is available to working parents (including the self-employed) as long as they earn an average of £50 per week and not more than £150,000 a year.

The new system was originally intended to be introduced from Autumn 2015. However following a legal challenge, the start date has now been delayed until 2017.

STRUGGLING TO PAY YOUR TAX

Anyone struggling to pay their tax bill may be able to agree a time to pay agreement with HMRC. This should be agreed with HMRC before date on which the tax is due to be paid. 

Although HMRC have always preferred to set up a direct debit arrangement when agreeing a time to pay arrangement, this will be mandatory from 3 August 2015. However, HMRC will not revisit existing arrangements where a direct debit mandate is not in place.

If you are likely to struggle to pay a tax bill, speak to your tax advisor who can help you come to an agreement with HMRC.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

Pensions auto-enrolment: are you up-to-date?

With effect from 1 June 2015, small businesses employing fewer than 30 staff became bound by the requirements of the new pensions auto-enrolment regime, obliging them to automatically enrol all eligible employees into a qualifying pension scheme and to make a minimum contribution to that scheme.

The Pensions Regulator recently warned that even those who employ a single care worker, such as a carer or nanny, must comply with the auto-enrolment regulations, with very few exceptions.

Under auto-enrolment, employees over the age of 22 and earning more than £10,000 per annum now have the right to belong to a workplace pension scheme, unless they choose to opt out.

6 April 2015 saw an increase in some of the thresholds and limits for auto-enrolment. While the earnings trigger remains at £10,000 for 2015/16, the lower limit of the qualifying earnings band has risen to £5,824 and the upper limit of the qualifying earnings band is now £42,385.

Over five million workers in larger companies are already in the scheme, and an estimated 3.8 million workers are expected to be enrolled by smaller employers between now and 2018.

According to recent research, one in four small businesses is as yet unprepared for auto-enrolment. Business owners are being urged to ensure that they are prepared for the new regulations. Employers who fail to comply could be liable to enforcement action and/or a penalty.

We have produced a handy checklist to help employers with the auto-enrolment process.

Employer checklist

Nominate a point of contact

The Pensions Regulator will be writing to you with important updates as you prepare for automatic enrolment. It is therefore advisable to nominate a main contact within your firm who will take responsibility for managing all such correspondence.

Know your staging date and develop a plan

Your staging date is determined by the total number of people in your largest PAYE scheme, based on HMRC’s records as at 1 April 2012. You can find out your staging date by visiting www.thepensionsregulator.gov.uk/staging.

Assess your workforce

Under auto-enrolment, you will need to identify any eligible jobholders working for you. You will also need to consider whether you have an employer duty in relation to other types of workers including non-eligible jobholders and entitled workers.

Review your pension arrangements

Decide on the type of pension scheme you will offer. Do you have an existing scheme that meets (or can be changed to meet) the Government’s requirements, or will you need to set up a new one? You may also want to consider whether the new NEST scheme would suit your needs.

Communicate the changes

Employers are required by law to write to all workers (except those aged under 16, or 75 and over) explaining what automatic enrolment into a workplace pension means for them. It is worth noting that the communication requirements for the different categories of worker were recently simplified in a bid to ease the burden on employers.

Make sure you have a strategy in place for briefing employees and plan how you will manage any queries that arise. A range of letter templates are available on the Pensions Regulator website to help employers fulfil their legal obligations.

Automatically enrol eligible jobholders

Under the new regulations, employers are required to: provide information to the pension scheme about the eligible jobholder; give enrolment information to the eligible jobholder; and make arrangements to achieve active membership for the eligible jobholder. This should be carried out within the ‘joining window’ (the six week period from the eligible jobholder’s automatic enrolment date).

Register with the Pensions Regulator and keep records

All employers will need to register with the Pensions Regulator within five months of their staging date. Registration can be completed online. Employers must also keep specific records about their workers and their pension scheme(s).

Contribute to your workers’ pensions

From October 2018 all businesses will need to contribute at least 3% on the qualifying pensionable earnings for eligible jobholders. Employers are also required to make contributions for non-eligible jobholders who choose to opt in to the pension scheme.

And don’t forget to…

Budget for the cost increase

The changes will undoubtedly have financial implications for employers. Make sure you factor in the additional costs of contribution and administration into your budgets.

Review your systems

How will you adapt your existing administration and payroll systems to accommodate the changes? What are the time and cost implications?

Keep track of age and earnings

It is important for employers to keep track of their employees’ ages and earnings as some members of staff may move between the different categories of worker. This is especially important for workers who earn below the qualifying earnings threshold, or who are under 22 years of age.

For more information on pension auto-enrolment visit the Pension Regulator’s website at: www.thepensionsregulator.gov.uk. From reviewing your payroll needs to cash flow forecasting and budgeting, we can advise on a wide range of business and personal planning issues. Please contact us for further details.

June 2015 Newsletter

Welcome to the June 2015 Newsletter from Easterbrook Eaton Limited

In the wake of the General Election, businesses have been keen to outline what they see as the priorities facing David Cameron's new Conservative Government.

With many firms citing a sustained economic recovery as a primary concern, all eyes will once again be on Chancellor George Osborne, who has announced that he will deliver a second Budget on Wednesday 8 July. Please visit our website regularly for the latest Budget news and information.

Meanwhile, a survey of HR and finance professionals suggests that many would support a rise in pension auto-enrolment contributions. Compulsory employer contributions are currently being phased in, starting at 1% before rising to 3% from October 2018.

Businesses set out priorities for new Government

Small firms are looking for stability and certainty during the course of the new Parliament, a survey by the Federation of Small Businesses (FSB) suggests.

Of the 2,327 FSB members questioned, more than a third (35%) said they want a sustained economic recovery to be the top priority for David Cameron's new Government.

When asked what issues they would like the Government to focus on during the course of the next five years, 53% said they wanted ministers to reduce the regulatory burden on business.

Some 51% of those questioned called for simplification of the tax system, while 44% of respondents said reform of business rates should be a top priority.  

Commenting on the findings, Mike Cherry, National Policy Chairman at the FSB, said: 'Today's wide ranging research sends a very clear message on what small businesses want from the new Government - a supportive, light touch tax and regulatory environment in which to grow their business, creating prosperity and jobs.

'Over the five years of this Parliament, our members' top priorities are to lighten the burdens of regulation and tax, reform broken business rates, support the development and skills of young people, and improve broadband and mobile connectivity.'

Meanwhile, in an open letter to Prime Minister David Cameron, the British Chambers of Commerce (BCC) has called for 'bold action' on six issues that it says will determine the UK's economic future.

John Longworth, Director General of the BCC, wrote: 'In return for your continued commitment to an environment that encourages enterprise and aspiration, businesses in all parts of the UK stand ready to delivery prosperity, jobs, and sustained economic growth.

'Over the coming months, you must use your strengthened mandate to take bold action on six issues that will determine the UK's economic future.'

The letter calls for a focus on: public spending, trade, talent, investment, Europe and infrastructure. It ends with a request that the Prime Minister should 'make no apologies for seeking the highest growth and investment rates, and the lowest unemployment and taxation rates'.

The Confederation of British Industry (CBI) has also expressed its views in the aftermath of the election, calling for deficit reduction to be made a priority, along with finding 'more innovative ways to deliver public services and backing the final decision from the Airports Commission.'

Its thoughts were echoed by the Institute of Directors (IoD), which said that 'returning the budget to surplus must be the overriding goal in this Parliament'. A survey of its members also revealed that infrastructure and education are two other areas company owners want to see addressed in the coming years.

Auto-enrolment welcomed by employers, survey suggests

A recent survey of employers indicates that many would be keen to see a rise in auto- enrolment contribution levels.

The previous Minister for Pensions already noted that auto-enrolment would need to be assessed early in a new parliamentary term, and the survey of over 200 senior HR and finance professionals indicates that they agree with the proposal.

76% of those questioned by financial group Jelf Employee Benefits said they believed there should be an increase in pension contribution levels, while 15% disagreed. In addition, 85% of respondents thought that any increase should come from employer contributions - either wholly or in part - while just 14% thought that increased contributions should be made only by employees.

Auto-enrolment legislation requires employers to automatically enrol eligible employees into a qualifying workplace pension and pay a minimum contribution in the fund. The measures are being phased in between 2012 and 2018, depending on the size of the business.

Head of Benefits Strategy at Jelf Employee Benefits, Steve Herbert, said: 'Frankly, we were a little surprised at these results. Many employers are yet to reach their staging date for auto enrolment, and a significant proportion of those who have already staged are not yet at the full contribution rate.

'It is very encouraging that employers continue to see the benefits of offering a quality pension scheme. A good pension offering will obviously help employees, and will also provide an important recruitment, retention and planning tool for employers'.

Visit the Your Money section of our website to explore a wealth of information on personal tax and savings issues, including our guide to auto-enrolment.

Claiming tax relief on refurbishment

The oncoming summer can allow businesses the time and opportunity to renovate their premises, but consideration should be given to the financial implications – especially if you want to maximise the available tax reliefs. Here we outline some tax relief basics…and the potential pitfalls…

Claiming relief

You can claim a full tax deduction for all expenditure on repairs to your building that are incurred in an accounting period.

Alterations to a building will be treated as ‘capital expenditure’. This means that the expenditure does not qualify for a tax deduction against profits but may eventually get tax relief for capital gains tax as an ‘improvement’ to the property.

Some capital expenditure will qualify for relief. Expenditure on fixtures may qualify for relief under the capital allowances system. This may mean that your expenditure on fixtures gets immediate tax relief due to the Annual Investment Allowance (AIA) but this will depend on how much other expenditure qualifying for plant capital allowances you have incurred in the accounting period. The current limit for expenditure relieved by the AIA is £500,000 but this figure is currently up for review, and further information is expected at Autumn Statement 2015. Please contact us if you are planning significant expenditure on fixtures and other plant and machinery.

Not all fixtures qualify for capital allowances but many do. Expenditure on fixtures covers a wide variety of items, from lights and boilers, to toilets and other sanitary ware. Different types of business will require different fixtures and you should check whether your chosen items qualify for capital allowances. Contact us for more information and to find out how this can impact your business.

Potential pitfalls

It may seem that both repair expenditure and expenditure on fixtures are equally valid ways of receiving a 100% tax break on your investment.

However, note the tax treatment for fixtures if you should decide to sell your business premises. Someone acquiring a property may be able to claim capital allowances on the fixtures which were put in place by the previous owner. When the transaction takes place both parties should agree on a price for the fixtures. The price can be any amount between the original costs of the fixtures when they were installed in the building down to £1. If the price is the original cost of the fixtures the capital allowances claimed by the previous owner are effectively clawed back (but the purchaser can claim on this amount). If the price is £1 the capital allowances claimed by the previous owner are effectively retained (but the purchaser can only claim on £1).

The dividing line between what is a repair rather than an alteration, and what does or does not qualify for capital allowances, can be difficult to ascertain. Careful planning can help you maximise the relief available, and help your new-look business to succeed.

In addition the rules that apply on the sale of a building which has fixtures which have qualified for capital allowances can be complex. Please contact us for further advice for your business.

To view our full archive of articles, please click here.

May 2015 Newsletter

Welcome to the May 2015 Newsletter from Easterbrook Eaton Limited

Ahead of the looming General Election, the leaders of the UK's political parties have this month been keen to unveil a number of high profile crowd-pleasing policies - prompting the British Chambers of Commerce (BCC) to present an open appeal to party leaders to refocus on long-term economic strategies, rather than 'headline-chasing' measures.   

Meanwhile, the Small Business Act recently received Royal Assent, with the aim of boosting the creation of small businesses, improving access to finance and tackling the controversial area of zero hours contracts.

Parties to 'rein in' pledges as General Election approaches

The Director General of the British Chambers of Commerce, John Longworth, has appealed to the main political parties to rein in populist pledges and regain a focus on long-term economic strategies, rather than 'headline-chasing' measures, ahead of the forthcoming General Election.

In an open letter to the leaders of the main parties, Mr Longworth said: 'While there are some encouraging statements and positive ideas in manifestos, on the campaign trail it seems strategic vision and evidence-led policy announcements have been left on the bus. In their place we've had tactical headline-chasing and lazy assumptions; a reliance on populist statements, not economic common sense; and niche policy announcements, rather than a focus on the fundamentals. For example, issues like how the UK earns its way in the world go unaddressed'.

'Parties are competing to make ever more strident pledges to freeze taxes and ring-fence spending for the life of the next Parliament, without being able to see very far down the economic road ahead. No well-run business would tie its hands in this way,' he added.

Meanwhile, the Institute for Fiscal Studies (IFS) has warned that tax plans being put forward by both Labour and the Conservatives in the run-up to the General Election risk having a 'long-term malign influence' on the economy.

Specifically, the think-tank claims that proposals from both main parties to cut tax relief on pension savings have the 'potential to be complex, damaging and counter-productive.'

Earlier this month the Tories announced their intention to slash the pension annual allowance from £40,000 to £10,000 for additional rate taxpayers who earn over £150,000. The Conservatives said the measure would fund an inheritance tax (IHT) cut, which would exempt homes worth up to £1 million from IHT.

Meanwhile, the Labour party said it would remove the current system based on income tax bands and cut pension tax relief to 20%.

However, the IFS has warned that 'we risk rushing towards something like chaos in the taxation of pensions for those on high incomes.

'While only affecting a relatively small number of high-income individuals, both sets of proposals have the potential to be complex, damaging and counter-productive.'

It added: 'The undesirable distortions to savings behaviour and to work incentives have the potential to be significant… there is a danger that the tax proposals being put forward through this General Election campaign will have a long-term malign influence on our tax system and economic welfare'.

The Small Business Act: benefits to your business

The Small Business, Enterprise & Employment Act has received Royal Assent, and became law on 26 March this year.

The Act is designed to boost economic growth through the creation of small businesses, improving access to finance and putting an end to exclusivity clauses in zero hours contracts.

Business Secretary Vince Cable previously said: 'Small businesses provide jobs for millions of people across the country and are driving the economic recovery. The Small Business Act will create the right environment for small businesses to continue to thrive by giving them greater access to finance to help them innovate and grow, and make it easier for them to export goods and services made in Britain.

'The Bill's measures also mean there is nowhere to hide for firms who do not play by the rules, whether by abusing zero hours contracts or not paying the minimum wage.'

A key feature of the Act is providing alternatives for SMEs who have had loan applications rejected. Should you apply for a loan with one of the 10 largest banks which is then denied, they are now required to refer the details of your business to an online finance platform. The intention of the platform is to offer you access to alternative options through other lenders.

The 10 banks who have been instructed to refer any denied applications are: RBS, Barclays, Lloyds Banking Group, HSBC, Santander, Clydesdale Bank, Yorkshire Bank, Bank of Ireland, Allied Irish Bank and Danske Bank. The change has been implemented to ensure that data held by these banks is distributed to other willing finance providers.

The scheme is being run by the British Business Bank, which is actively seeking alternative finance providers that would like to take part.

Chief Executive of the British Business Bank, Keith Morgan, said: 'Small businesses will have a greater choice of provider and chance of securing finance, alternative finance providers will have access to a bigger market of potential clients, and the major banks will be able to offer an additional service to those they initially turn down.'

We can help to boost your business's profitability and maximise growth - please contact us for advice.

Employing Younger Workers

Much has been said about employing a spouse in a family business, but little information has been published about the potential benefits of employing younger workers in the same way.

Every individual of any age is entitled to a basic personal allowance of £10,600 (2015-16). For the under 16s there are no national insurance contributions (NICs) payable. An extra factor is that under 16s are not subject to the national minimum wage. This means that in the absence of any other taxable income, a 15 year old could legitimately receive a wage or salary between £1 and £155 per week entirely free of income tax and NICs. The business will receive full tax relief at its marginal rate of tax.

Another cost saving feature is that people under statutory school leaving age are not entitled to the statutory 5.6 weeks' paid holiday. However, they must have a two week break in each calendar year. They do not have to be auto-enrolled in a pension scheme.

Pitfalls

These highlights relate mostly to those under school leaving age but 17 year old workers are also treated differently from adult workers under the working time regulations so care is needed here too.

The definition of an employee is “a person who assists in a trade or occupation carried on for profit”; there does not necessarily have to be any payment involved.

Businesses are not allowed to employ under 13s unless permitted by local authority bye-law, or on an occasional basis as an employee of the child's parent or guardian working in light horticulture or agriculture. If you wish to employ a child, you must obtain a local authority permit which will specify the allowable hours of work – details must be sent to the local authority within one week of the child commencing employment.

Children can only work full time once they reach school leaving age (i.e. 18). In England, your leaving age depends on when you were born. You can leave school on the last Friday in June as long as you'll be 16 by the end of that year's summer holidays. You must stay in some form of education or training until your 18th birthday if you were born on or after 1 September 1997. From the summer of 2013, a young person must do some part-time education or training until they are 17.

There are strict rules governing hours, which stipulate that a child may work:

• no more than 2 hours on school days or Sundays
• no more than 12 hours in any week (i.e. 7 consecutive days) which contains a school day
• no more than 5 hours (under 15s) or 8 hours (15+) on any day from Monday to Saturday on non-school days
• no more than 25 hours (under 15s) or 35 hours (15+) in a week that does not contain a school day

There are also rules governing the time of day.

Children may not be employed for more than 4 hours without at least 1 hour's break, even if they have had short breaks during the 4 hours.

Some types of work are prohibited, largely on Health & Safety grounds. Local bye-laws need to be checked.

Absence from school due to employment, whether paid or not, is unauthorised absence and could lead to action against the parents.

The above restrictions do not apply to children on work experience, but there are different rules.

Please be aware that there are special safeguarding rules in place regarding people whose job involves carrying out a regulated activity. This includes employment where the duties include supervising or training children under 16 in the course of the children's employment. Employment includes unpaid work and therefore extends to children on work experience.

Please see our website for more useful information.

What's new for the new tax year?

If you are a director or employee, this will be a year to pay particular attention to your PAYE code. The standard tax code for 2015/16 will be 1060L. This gives £10,600 tax free pay, so if your tax code is different, make sure you know why. As your tax adviser is no longer sent a copy of the notice of coding, if you think it may be wrong, let us know.

Two of many reasons why a tax code could be different from the standard 1060L are:

The new Marriage Allowance 

If you have a spouse or civil partner who is not a taxpayer, or who has savings income, the new ‘Marriage Allowance’ means that you may be able to save tax by transferring 10% of his or her personal allowance (£1,060) to the partner with the higher income. 

There are two main conditions:

• Neither of you must be liable to pay tax at 40% or 45%
• You are both under the age of 80 on 5 April 2015

Some publicity has said that the lower income spouse must have income of under £10,600 a year for the Marriage Allowance to be ‘claimed’, but this is misleading. From 6 April 2015, the first £5,000 of savings income is taxed at 0%, so the lower income partner could have significant savings income and still not be a taxpayer. ‘Savings income’ includes bank and building society interest, but not dividends paid by PLCs or private companies.

The timescale for this allowance is not completely straightforward. Although there has been a lot of advance publicity about the allowance, the online system will probably launch about the time you receive this newsletter and it is unlikely to be fully functional before the summer.

Owing money to HMRC 

HMRC has long had a power to collect money owing to it by changing PAYE tax codes. This can be a useful way of paying smaller tax bills, but from 6 April 2015, the limits increase. HMRC will be able to recover much larger debts through PAYE: up to £17,000 a year for those on incomes of £90,000 or over. Make sure you know what you owe HMRC and how you are paying it.

LOOKING AFTER THE CHILDREN

Most of us have got used to the topsy-turvy rules for Child Benefit and higher earners, where one member of a couple receives Child Benefit in full, and the other may have to pay part of it back to the Government through self-assessment, if earnings are over £50,000 a year. This is called the ‘High Income Child Benefit Charge’. It works like this: 

Jean and Ken have one child. Jean is the main carer and gets child benefit of £20.50 a week (in 2014/15). Ken earns just over £52,000 a year and has to pay back £213 of the Child Benefit through self assessment. But it is still possible for the detailed rules to catch people out.

Are you missing out?

The basic principles are clear enough. Where a single parent, or a member of a couple, has income of over £50,000 a year, there will be a High Income Child Benefit Charge.

The charge is 1% of the Child Benefit due, for every £100 of income over £50,000. This means, mathematically, that all the Child Benefit will have been clawed back where income reaches £60,000. In consequence, where earnings are over £60,000 a year, it simplifies the administration if the person entitled to the Child Benefit (who may not be the higher earner of the couple), makes an election to forgo the Child Benefit.

But now for the surprises. Income here means ‘adjusted net income’. This is a technical term meaning that you deduct the gross equivalent of pension contributions which have received basic rate tax relief at source, and Gift Aid payments. So if the ‘high earner’ makes significant pension contributions or Gift Aid payments during the year, you may find that you have a net Child Benefit entitlement after all.

If this happens, you are allowed to restart your Child Benefit claim, but the high earner will now be liable to pay the Child Benefit charge through self assessment. You can ‘change your mind’ within two years of the end of the tax year in which you would have been entitled to Child Benefit. Unfortunately, if you delay, this could mean changes to your self assessment return and possible interest and late payment penalties.

Who pays the piper?

Another hazard for couples is where both members of the couple earn close to the £50,000 or £60,000 limits. It may seem like a technicality, but HMRC doesn’t just want the money, it wants the money from the right person.

For example Jack and Jill have two children. Their Child Benefit entitlement in 2014/15 is £20.50 a week for the elder child and £13.55 a week for the younger child (£1,770.60 a year in total). Jack paid the High Income Child Benefit Charge in 2013/14. In 2014/15, Jill earns £52,000 as an employee and is not registered for self assessment. Jack is self-employed. He usually earns about £55,000 a year, but in 2014/15 he invested in a new computer system for the business and his taxable profit falls to £51,000. As Jill is the higher earner for 2014/15, she will need to register for self assessment (before 5 October 2015) and pay the High Income Child Benefit Charge by 31 January 2016. The rules apply to all couples whether married, civil partners, or simply living together. Exceptionally, the High Income Child Benefit Charge can even apply where the child is living with someone else, but you are supporting them and claiming Child Benefit. All in all, whoever is looking after the children, if someone is claiming Child Benefit and you are connected with that person, it’s time to talk to your tax adviser.

BEATING THE SYSTEM

In a world where there are penalties for everything, people can be tempted to try and beat the system. Some employers have attempted to avoid late filing penalties for PAYE RTI returns by all sorts of ruses: asking for employee hours earlier in the month; carrying overtime forward to the next month; or otherwise using approximate figures. Figures tweaked like this can lead to inaccuracies in the payroll, increased National Insurance costs and lower benefit entitlement for some lower paid workers. Remember:

It is possible to send an Earlier Period Update without incurring a penalty. Paying a worker for fewer hours than they actually worked one month, and adding the hours onto the following month, could mean that the employee is paid below the Lower Earnings Limit one month and so misses out on National Insurance credits. It also means that the National Insurance cost in the following month will be higher than if earnings had been spread evenly. Tweaking the figures is inadvisable and can have a sting in the tail

HAVE YOU BEEN TURNED INTO AN INTERMEDIARY ?

How many UK businesses would think they were affected by new rules for ‘offshore employment intermediaries’? Or, for that matter, ‘onshore’ employment intermediaries?

After the dust has settled on the Government consultation, new rules are here for ‘employment intermediaries’, and you may unwittingly, be one. Owner-managed businesses which are run as limited companies or as partnerships can be affected. This is because the rules now treat anyone who is a link in the chain between an ‘end user client’ and a worker as an ‘intermediary’. If your business structure involves an ‘employment intermediary’, there are two sets of rules to watch out for:

• Agency rules which could make you an employee of your own business, or challenge your remuneration split
• Reporting rules which would require you to make quarterly reports to HMRC of people who work for you and who are not treated as employees

As we have come to expect, there are penalties for failure to make returns, or to apply PAYE as required.

This newsletter deals with a number of topics which, it is hoped, will be of general interest to clients. However, in the space available it is impossible to mention all the points which may be relevant in individual cases, so please contact us for personal advice on your own affairs.

The reporting rules apply from 6 April 2015. The rules are complex, so it is worth taking advice if you think the rules could apply to you. The reporting rules require you to make returns to HMRC if you are an ‘employment intermediary’ as described above and you supply more than one worker to an end client. How this works is best seen by looking at two examples:

How you could be taxed as an employee

William Wallace is a partner in a restaurant business, ‘Haggis and Neeps’. However, he also worked for two weeks in another restaurant business, ‘The Bruce and Spider’, to provide holiday cover. If William is under ‘supervision, direction or control’ when he provides holiday cover at ‘The Bruce and Spider’, he is caught by the revised Agency rules, and is taxed as an employee. His own partnership, ‘Haggis and Neeps’, would become his employer for the holiday cover work and it would be liable to deduct PAYE from his earnings from ‘The Bruce and Spider’. Such income would then become William’s personal income for tax purposes, and not that of the ‘Haggis and Neeps’ partnership.

On the other hand, if William provides holiday cover as head chef, he might not be subject to ‘supervision, direction or control’. In this case, earnings from ‘The Bruce and Spider’ would be partnership income of ‘Haggis and Neeps’. The dividing line can be very fine, and the consequences of getting it wrong could be substantial.

When you might need to make returns

Malcolm trades via his own limited company, Malcolm IV Ltd. He supplies his services to Daylight Holdings plc. He is not subject to ‘supervision, direction or control’.

In May 2015, David joins the team at Malcolm IV Ltd, and assists on the contract with Daylight Holdings plc. As Malcolm IV Ltd now supplies two workers, it needs to consider the new reporting requirements.

If you work through your own partnership, such as a farming partnership carrying out contract work for other farms, the reporting rules could also apply.

There are exceptions to these rules, but these are narrowly drawn. As the PAYE deductions and reporting requirements apply now, this cannot wait until your usual year end accounts.

As so much depends on the detail of the arrangement, we would recommend that anyone concerned about these issues gets in touch.