What Changes in April 2016? (Part 2 – Employment Tax)

Our first in this series of blogs focused on the personal tax changes coming in April 2016, now it’s the turn of employment tax.

The Government seem to have decided that the National Minimum Wage (NMW) isn’t quite high enough to live off, so from 1 April 2016 there will be a National Living Wage (NLW).  The NLW will work as a premium on top of the NMW and only be applicable to those over 25.  From 1 April 2016 the NLW will be a total of £7.20 per hour (50p more than the current NMW).

To sweeten the above announcement, there is a present from the Chancellor…. You’re probably aware of the Employer Allowance which can be used against Employer’s National Insurance contributions.  This has been set at £2,000 a year since April 2014, but from 6 April 2016 will be increased to £3,000 per year – your payroll software should increase the allowance automatically.  From 6 April 2016, companies where the Director is the sole employee will not be eligible for the allowance.

Tax planning tip: If you have not already claimed the £2,000 employment allowance for 2015/16, it’s not too late – do it on your next payroll run!

Additionally, there will be a break from Employer’s NIC for businesses employing apprentices under the age of 25, on earnings up to the NI upper secondary threshold (£43,000).  To qualify, an apprentice needs to be working towards a government recognised apprenticeship and have a written agreement with a start and expected completion date.

Tax planning tip: Get the details right when taking on a new apprentice – if it fits with your business, structure the apprenticeship in such a way that the business will be eligible for the NIC break.

Since the introduction of Real Time Information (RTI) in April 2016, HMRC have been fairly relaxed on the “on or before” reporting requirement, when it comes to micro-employers with weekly, or more frequent payments to employees.  Well, the honeymoon period is over (alas, it was too good to last) and from 6 April 2016, they will align the treatment of micro-employers with that of all other employers.  As you might expect, HMRC can charge penalties for late RTI submissions and interest on late payments.  If meeting your RTI obligations is a challenge, our payroll department may be the answer! Contact us with any queries.

Coming soon…. Property tax

Katie Kettle, Technical ManagerKatie Kettle Colour

What Changes in April 2016? (Part 1 – Personal Tax)

Now the Self Assessment season has passed, it seems a good time for a quick update on the changes coming up in April 2016.

None of this is new, but it comes from various Budgets and Autumn Statements (the Government like to keep us on our toes by announcing lots of changes at the same time that come into force at various points in the future!).

Along the way you will hopefully see a few areas where you can take action to reduce your tax bill, if you act quickly!

First up…. personal tax!

The Personal Allowance is going up to £11,000 on 6 April 2016 (i.e. for the 2016/17 tax year).  This means the first £11,000 of income is tax free, no matter what that income is made up of.  There remains, however, a claw-back of personal allowance for those with adjusted net income of over £100,000, with the personal allowance forfeit in full at income of over £122,000.  Broadly, “adjusted net income” is total income less gross personal pension and/or gift aid contributions.

The basic rate limit will be increasing from £31,785 to £32,000 from 6 April 2016, meaning that the higher rate threshold will be £43,000 for those entitled to the full personal allowance.

Tax planning tip: If your income is expected to be over £100,000, you can save a huge amount of tax (up to 60% depending on your income type) by making personal pension contributions or gift aid donations.  This applies in the current tax year too, so if you make your contributions by 5 April 2016 and your income is over £100,000 in the 2015/16 tax year, you will see the benefit a year sooner.  Always consult a financial advisor before making pension contributions, as there are further considerations to be made, including your annual allowance.

The current Pensions Annual Allowance, as alluded to above, is £40,000.  However from 6 April 2016 there will be a tapering of this Annual Allowance for those with income of over £150,000, down to a minimum of £10,000.  This applies to total pension contributions, both individual and employer.

Tax planning tip: consider making a pension contribution before 6 April 2016 to utilise a higher annual allowance than you may get in future – discuss this with your pension advisor.

The big change for small companies is the new Dividend Tax regime.  The Chancellor has done away with the status quo and introduced radical changes from 6 April 2016.  Historically, as long as income was kept below the higher rate threshold, there has been no tax to pay on dividends, and dividends over this up to £150k had an effective 25% tax rate (over £150k, the rate was 30.56%).  There used to be a strange “grossing up” and a “notional tax credit”, courtesy of Gordon Brown, both of which will disappear.  From 6 April 2016 there will be a £5,000 Dividend Tax Allowance – effectively this is a 0% tax rate band, so there is no tax to pay on the first £5,000 of dividend income.  After this, the rates are 7.5% in the basic rate band, 32.5% in the higher rate band, and 38.1% for additional rate taxpayers.  For individuals with small shareholdings that receive dividends of less than £5,000 there will be either no change or a tax saving (depending on their level of income) but for those with over £5,000 of dividends, it will cost more in tax.

Tax planning tip: It may be tax efficient for you, depending on your income level, to take additional dividends before 6 April 2016 rather than after this date.  While this will advance the date that the tax on the dividend will need to be paid, it may save tax overall.  If you think this affects you, please get in touch.

Did you know that when your bank pays you (that tiny amount of) bank interest, they are obliged by default to deduct 20% tax? From 6 April 2016, this will cease to happen, due to the new Personal Savings Allowance (PSA), whereby certain interest received will be TAX FREE (we like tax free!).  The PSA will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income – there is no allowance for additional rate taxpayers.  This represents a tax saving of up to £200 and will mean that most people will pay no tax at all on their interest income.  However those with interest received over the thresholds will have a tax bill, due in January 2018 via Self Assessment.  This doesn’t affect ISAs, where interest will remain tax free. If you wish to discuss any of this further please contact us. 

Coming soon…. Employment tax

Katie Kettle, Technical Manager 

Katie Kettle Colour

The importance of pre financial year end reviews

At Torr Waterfield we are always looking at ways to remain pro active with our clients ensuring they are ahead of the game in keeping their taxes to a minimum each year.

One such way is to contact us ahead of your financial year, especially if you know you are having successful one, this way we can identify opportunities for you to reduce your potential tax liabilities. This can be in various ways, such as investing in Plant and equipment that will not only reduce your tax but can also make you more efficient and profitable. Or if you run a limited company it may be a case of making a one off contribution towards a company pension scheme, that not only reduces your  corporation tax, it generates funds for you as an individual to benefit from in later life. If these discussions take place after your yearend we can’t back date these opportunities and tax savings are lost. With 31 March being by far the most popular year end, now should be the time to contact your client manager at Torr Waterfield and let us see how we can help. 

Mark Cunnold, Client Manager 

Mark Cunnold 2 April 2012

Benefits in Kind

Now that the 31st January self assessment filing deadline has passed, we are turning our attention to 5th April, and the tax year end…

Following 5th April, all businesses must submit forms P11d to HMRC (where applicable) reporting all benefits in kind given to employees for the last tax year.

What are benefits in kind?

 Any benefits that an employee or director receives which are not part of the salary that goes through the payroll.  These are some examples:

  • Health insurance – if the employer pays this on your behalf, you are in receipt of a benefit.
  • Cars and vans – if the employer allows you to use a vehicle privately, or pays for your private fuel, this is a benefit to the employee
  • Accommodation – if the employer pays towards accommodation that doesn’t meet strict HMRC criteria, this is also a benefit to an employee

Car & Van Benefits

This is one of the most common benefits arising, so it is quite useful to understand it more fully:

  • Car benefits are calculated by reference to the list price of the vehicle, and its CO2 Therefore, a cheaper and more environmentally friendly vehicle will be more tax efficient.  HMRC also penalise diesel drivers, by adding on a further 3% charge when calculating the car benefit.  It may be worth considering this, if you are thinking about buying a company car.  Car fuel benefits are also calculated in a similar way.
  • Van benefits are a little more straightforward in that there is a set value to use in calculating the benefit – £3,150 for private use of the van, and an additional £594 for private fuel, giving a total benefit of £3,744 (for 2015/16).

What tax will I pay?

 Companies pay Class 1A National Insurance at a rate of 13.8% on the value of the benefit in kind. For 2015/16, this will be due for payment by 19th July 2016.

  • If you are an employee or director in receipt of a benefit in kind, you will pay income tax on this (at 20%/40%/45% depending on your level of income). The tax will primarily be collected at source from your earnings via an adjustment to your PAYE coding notice.

What deadlines do I need to be aware of?

  • The filing deadline for 2015/16 P11ds is 6th July 2016, to avoid a £100 (minimum) penalty. However, if you are a client of ours and we are aware that you need to file P11ds, we will be contacting you shortly after 5th April to ensure that we can prepare and submit your forms, and also advise you of your resulting National Insurance liability, in a timely manner.

As you can appreciate, as with all aspects of tax, this is a complex area, so please contact us if you would like to discuss this further.

Abbie Henshaw ACCA CTA

Accounts, Audit & Tax

Tax Return Deadline

Every year we all have important dates to remember:  birthdays, anniversaries, valentines day etc.

In our work lives there are even more:  Payroll deadlines, VAT quarters, annual accounts and many others.

The one key date that seems to cause more headaches than any other is the deadline for filing personal tax returns – 31 January!

Here at Torr Waterfield, we are now getting back to the normal routine with a very successful outcome to January 2016 behind us; well over 500 returns filed in one month!

I know that we are now quite a way into 2016 but how about a late New Year’s Resolution?

For many of you, you will have recently had to find and collate various bits of information needed to complete your tax return; make a resolution now to crack on with this as soon as you can after 5 April and let’s get your next return filed nice and early.

Not only does this ease the pain later in the year but, if there is any tax due, you will have so much longer to plan to set the money aside.  It maybe that we can review any payments on account (if you have to make any that is!) that fall due on 31 July, to make sure that you are not paying too much now, only to have a repayment later.

A confession – Although my own, very simple, tax return gets filed very quickly every year, I always resolve to get my clients’ returns done earlier each year.  I seldom manage it, but that doesn’t mean that I shouldn’t resolve to try again next time round!

Neil Ford, Technical ManagerNeil Ford April 2012.JPG

Our Tax System. Is It Fair ?

I am sure you have seen in the press lately the articles regarding the tax that is paid by large international organisations such as Google, Facebook, Starbucks etc.

As you are probably aware UK Tax Law is extremely complicated and that is why global businesses as mentioned above use the likes of ‘Big 6’ firms of accountants to ensure that they pay the ‘right amount of tax’.  Is it fair that these big multi-nationals can arrange their tax affairs in such a way by using tax avoidance structures and long negotiations with the Inland Revenue ?

In contrast, none of the 870,000 ordinary UK tax payers who will be issued with a £100 late filing penalty, due to missing the 31 January 2016 self assessment filing deadline, will be able to negotiate with the Inland Revenue.  What is extremely harsh in this situation is that even if there is no tax to pay the £100 penalty will remain.  In addition to this, if the tax return is still not filed by 30 April 2016, penalties of £10 per day will be added up to a maximum of £900.  This is expected to raise £87 million for the Inland Revenue this year, not quite Google’s tax bill, and these penalties will not be waived except in exceptional circumstances.

Is this a fair taxation system??? 

Julia Harrison, Tax ManagerJulia Harrison April 2012.JPG

Management Accounts

What are they and why are they useful?

As an accountant I love preparing accounts, as clients you might see them as a necessary evil, documents to be filed at Companies House or the basis for your tax bill.  They are so much more than that, however their disadvantage is that they are historical, are only stated in monetary terms and are highly regulated.

The big advantage of management accounts is that they are current and contain the information that you need to run your business.  Most management accounts are produced monthly or quarterly, the same accounting policies are used as the year end accounts BUT they are not in any specific formats; one of my clients prefers their management accounts in a graphical format and that’s absolutely fine, a snapshot of the sales and profits at a glance with the detailed figures behind to back it up.  You can have as much detail as you need.

We can help you prepare these accounts, identify key performance indicators such as breakeven point (the level of sales in units or £’s you need to make in order to break even) or debtor days (if you can improve this figure your bank balance will be much more healthy and it is easier to spot if a customer is taking longer than usual to pay you, a marker to watch).  They can be used to forecast the rest of the year, giving a heads up on that dreaded tax bill.  Can you afford that new bit of equipment?  Is that department or branch pulling its weight?  You can even publish some of it internally to incentivise managers and employees and make that extra push to beat the sales targets.

If you have set budgets for the coming year, you will need to measure actual performance against these; management accounts will give you the information to do that.  If your budget is unrealistic isn’t it better to know sooner rather than later and be able to make those crucial decisions in a timely way?

Of course the management accounts are only as good as the information that’s input into your accounts software or spreadsheets, but imagine that after a whole year of highly useful management accounts you also have the basis for the year-end financial accounts with no surprises from us.

That’s what I call win win!

Denise Burley- Accounts & Tax 

Any questions contact us ! 

A day in the life, of an accountant.

“Woke up, fell out of bed, dragged a comb across my head” – a day in the life, of an accountant.

I’m sure you’ve all wondered (or perhaps not), but here’s a brief outline of what on earth it is we do all day.

It’s Tuesday, and at 8.30am our whole team gathers in reception for our weekly meeting.  The usual business is covered, a bit of background on the new clients that joined in the week, some news about a new server we’re getting and a reminder of deadlines approaching.

Back to the desk for quarter to and it’s onto a set of accounts, a limited company, a plumber.  It sounds strange, but I actually enjoy preparing accounts, for a few hours I can be completely engrossed in someone’s business, looking at how they’ve grown through the year and how there are so many facets to a plumbers business that I never realised as a child, subscriptions, advertising, telephone expenses.

At 11:00am it’s time for a catch-up with one of our directors; we’ll discuss my current workload, and set a plan for my work over the next few weeks.

Back to the accounts and before I know it it’s 1:00pm and lunchtime.

After lunch I’ll schedule our VAT and bookkeeping work for the next few days, there may still be weeks until the next  VAT deadline but we need to plan the flow of the work now to ensure nothing slips by us and jobs aren’t rushed or below our usual standards.

The accounts are now in draft, so I’ll write up a set of notes and queries about the key changes in the figures and then sit with the manager to discuss the accounts and hand-over ready for the client meeting.

It’s quarter past 5 and before I clock out I’ll make a to do list for tomorrow morning – I’ve read somewhere that we’re at our most productive in the morning so I’ll schedule the day accordingly then brave the traffic and head home.

Matt Smith ACCA, Accounts, Audit & Tax Matt Smith.JPG