Why has my tax code changed?

“How do I know if my tax code is correct?”

Your tax code is used by your employer to calculate how much tax needs to be deducted from your pay. HMRC tells your employer which code to use to collect the right amount of tax from you. You can check your income tax online to see what your tax code is, how your tax code has been worked out and how much tax you have paid and are likely to pay in the coming months.

“What does my tax code actually mean?”

Your tax code represents how much tax free income you have for that tax year, for example the standard tax code for the 2018/19 tax year is 1185L and this means you have a tax free income of £11,850.

“What does the letter in my tax code mean?”

The letter in your tax code represents your situation and how that affects your tax free income, for example:

  • L = You’re entitled to the standard tax free allowance.
  • M & N = Marriage Allowance, this means you have either transferred or received personal allowance to or from your partner.
  • 0T = Your personal allowance has been used up or you’ve started a new job and your employer doesn’t have all of your starter details.

To see the full list on the HMRC website please click here.

“Why is there a W1/M1 at the end of my tax code?”

The W1/M1 means that the tax code is non-cumulative; in these cases tax will be calculated purely based on the taxable pay for that pay period. Each pay day is treated as if it is the first week or month of the tax year. All previous pay and tax are ignored.

There are a few reasons you may have been put on this type of code, for example:

  • Started a new job
  • Getting Company benefits or state pension
  • Becoming employed after being self employed

These tax codes are generally temporary and you or your employer can update this.

“How do I change my tax code?”

 You can use the HMRC online services to tell HMRC about any missing or incorrect information. They will then update this by sending you and your employer a P6 tax coding notice. If you can’t use the online services you can call HMRC on 0300 200 3300 and they will help guide you through and get your tax code updated.

If you would like to discuss this further then please get in touch on 0116 242 3400.

Polly Dennis, Payroll Assistant 

Are You Washing Away Your Potential Tax Refund?

If you wear a uniform or protective clothing at work and you have to wash it yourself you may be due a tax refund from HMRC, and if you don’t claim it, you’ll lose it after 4 years.

This typically applies to:

Retail staff

Hospitality & catering

Nurses, doctors, dentists and other healthcare workers

Police officers

Airline staff / cabin crew / pilots

Public transport (London Underground staff, train conductors, bus drivers)

Engineers & mechanics

Builders / plumbers / carpenters

PE teachers

However any item of clothing with a company logo on it can be claimed for!

How much can I claim?

The amount you can claim depends on your job. If claiming for the full 4 years, the standard rebate for most employees is £48. However for certain professions HMRC has agreed higher allowances. There are numerous calculators online that will inform you how much you are entitled to based on your circumstances.

How do I claim?

There are currently three ways to claim your refund:

  • By entering it as a deduction on your Self-Assessment tax return if you already fill one in.

 

 

  • By phone if you’ve had a successful claim in a previous year and your expenses are less than £1,000.

 

If you require any more information please contact the office on 0116 242 3400.

Tom Luckett, Accounts & Tax 

The Apprenticeship Levy

The Apprenticeship Levy is charged on employers’ “paybills” at a rate of 0.5%. The levy is payable through Pay as You Earn (PAYE) and is payable alongside income tax and National Insurance. To keep the process as simple as possible “paybill” will be based on total employee earnings subject to Class 1 secondary NICs.

Each employer receives one annual allowance of £15,000 to offset against their levy payment. There is a connected persons rule, similar to the Employment Allowance connected persons rule, so employers who operate multiple payrolls are only be able to claim one allowance.

1.) If you’re an employer with a pay bill over £3 million each year, you must pay the apprenticeship levy from 6 April 2017. You can find out how to do this here.

You will report and pay your levy to HMRC through the PAYE process.

The levy will not affect the way you fund training for apprentices who started an apprenticeship programme before 1 May 2017. You’ll need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.

Detail on how to setup and use your online account can be found here.

2.) If you do not have to pay the levy then you can still receive support to pay your apprentices.

From May 2017, you will pay 10% towards to the cost of apprenticeship training and government will pay the rest (90%), up to the funding band maximum.

If you do not pay the levy, you won’t be able to use the apprenticeship service to pay for apprenticeship training and assessment until at least 2018.

Instead, you’ll need to agree a payment schedule with the provider and pay them directly for the training. The provider must prove that you have paid your contributions as a condition of government paying its contribution.

There are 2 different types of apprenticeships to choose from:

  • apprenticeship standards– each standard covers a specific occupation and sets out the core skills, knowledge and behaviours an apprentice will need; they are developed by employer groups known as ‘trailblazers’
  • apprenticeship frameworks– a series of work-related vocational and professional qualifications, with workplace- and classroom-based training

To choose training:

If you would like to discuss any of this further then please contact us on 0116 2423400

Becky Edwards, Payroll Manager 

Construction Industry – Subcontractor verification changes from 6 April 2017

Construction Industry – subcontractor verification’s

HMRC have confirmed in the latest Employer Bulletin that changes will be made to the verification of subcontractors in the construction Industry Scheme (CIS) from 6 April 2017.

From 6 April 2017, contractors must use an approved method of electronic communication to verify their subcontractors. So from 6 April 2017 HMRC will no longer accept any telephone calls to verify subcontractors and from then contractors must verify subcontractors using:

  • the free HMRC CIS online service, or
  • commercial CIS software.

This change is one of a series made to CIS to increase HMRC efficiency and accuracy, and to reduce administration. HMRC are also reminding contractors that they have also introduced additional features of the online system including the ability to amend returns online, and the addition of an online message/alert service.

Please contact us for help with CIS issues. 0116 2423400

Spring Budget 2017

I am sure that you have seen the headlines in the papers this morning about the Budget and for a detailed analysis please see the report on our website:

www.torrwaterfield.co.uk/news/budget-report.

The items that have caught my attention and I think are relevant to most people are as follows:

National Insurance for the self-employed

At present, if self-employed, you pay class 2 National Insurance of £145.60 for a complete year, and class 4 at 9% based on your level of profits.  The Government do not think that this is fair as employees pay National Insurance at 12%.  To level this position, class 2 National Insurance will be abolished from 06/04/2018 and the class 4 element will increase to 10% from that date, and to 11% from 06/04/2019, thus bringing the self-employed more in line with the employed.

Dividend changes again …

From 06/04/2016 broadly the first £5,000 of dividend income is taxed at 0 % (Dividend Allowance).  This will continue until 05/04/2018.  However, from 06/04/2018 the Dividend Allowance will reduce to £2,000.  This will mainly affect the family company shareholder and increase their tax liability as follows:

Basic rate taxpayer – additional tax of £225

Higher rate taxpayer – additional tax of £975

Additional rate taxpayer – additional tax of £1,143

Individual Savings Accounts (ISAs)

 The overall limit is increasing from £15,240 to £20,000 on 06/04/2017.

Property and trading income allowances

Although this was mentioned last year it comes into play on 06/04/2017. It is as it says, so if you have property or trading income of £1,000 or less you will no longer need to declare this or pay tax on it.  This could cover small amounts of rent from Air ‘bnb’ activities or trading on ebay. 

New Childcare provisions

 If you are taking out new childcare provisions from 06/04/2017 then, instead of opting for a salary sacrifice scheme and receiving vouchers, for every 80 pence that you contribute the Government will contribute 20 pence. The maximum the Government will contribute will generally be £2,000.

Making Tax Digital

This will be introduced on 06/04/2018 for businesses, the self-employed and landlords who have profits chargeable to Income Tax and pay Class 4 National insurance Contributions where their turnover is in excess of the VAT Threshold, which will be £85,000 from 01/04/2017.

As this is a very new area please contact us for further information.

Salary Sacrifice

 From 06/04/2017 this is changing, but it is still beneficial for both the employer and employee to sacrifice salary in respect of employer provided pensions, childcare vouchers, workplace nurseries and cycle to work schemes. 

Construction Industry

The government are launching a consultation on 20 March 2017 to look at various areas, including the qualifying criteria for Gross Payment Status and options to combat VAT supply chain fraud in supplies of labour.

In addition to the above, certain other changes come into force on 06/04/2017 that have been mentioned in earlier Budgets namely:

Restrictions on residential property interest

Landlords will no longer be able to deduct all of their finance costs from their property income.

Inheritance Tax residence nil rate band

There will be an additional nil rate band for deaths on or after 06/04/2017 where an interest in a main residence passes to direct descendants.

As mentioned above I have only mentioned the areas that I believe will be most relevant to the majority of our clients but other areas can be found on our website.

Please contact us if you have a specific query. 0116 24243400

Julia Harrison, Tax ManagerJulia Harrison April 2012

Autumn Statement 2016

On Wednesday 23 November 2016 our new Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Autumn Statement. 4221396001_5220447677001_5220145961001-vs

“No other major economy makes hundreds of tax changes twice a year, and neither should we” – this is perhaps the most welcome measure announced in the Autumn Statement.  In recent years the Autumn Statement has been a mini-Budget, meaning that many, sometimes significant, tax changes were being announced twice a year.  This has been problematic in terms of giving taxpayers a reduced degree of certainty regarding planning their tax affairs (plus it means I have to write an extra blog each year) so for this announcement alone, Philip Hammond gets a ‘thumbs up’ from me!

Following the spring 2017 Budget, the Budget will be delivered each autumn – spring will be reserved for a statement from the Office of Budget Responsibility to respond to their previous forecast.  The odd tweak of fiscal policy may be made each spring, if economic circumstances require it – personally I think this option has been retained so the Government are able to be more flexible in response to the future impact of Brexit (you can infer from that what you will…I’m taking it as that they have no idea what the impact will be).  I’m also hoping that an autumn Budget will give more time for us all to absorb the changes before they come into force the following April.

Our full Autumn Statement roundup can be found on our website here, but below are the main points that I think are relevant to our clients and their businesses.  A lot of the announcements aren’t new, but are instead Philip Hammond confirming that he plans to keep some of his predecessor’s policies.

Personal Tax Rates and Allowances

The personal allowance is currently £11,000 and will increase to £11,500 from April 2017.  The reduction in personal allowance for those with higher income (‘adjusted net income’ over £100,000) remains so that, from April 2017, there will be no personal allowance available where ‘adjusted net income’ is over £123,000. 

The higher rate threshold will increase from £43,000 currently to £45,000 from April 2017, for those who are entitled to the full personal allowance.

Philip Hammond confirmed his intention to keep George Osborne’s policy to increase the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament.

Corporation Tax Rates and Allowances

The new corporation tax rates from April 2017 to March 2021 were announced at the Budget and have now been enacted – the rate will be reduced from 20% to 19% from April 2017 and a further 2% to 17% from April 2020, which will be welcomed by small and large businesses alike.

Again, this was announced in the Budget but has been kept by the new Chancellor – corporate losses (excluding capital losses) arising after 1 April 2017, when carried forward, will be able to be used against future profits from other streams.  Currently there are restrictions on how the losses can be relieved, which is restrictive for certain types of business.

National Insurance Contributions (NIC)

Previously payable by the self-employed, Class 2 NIC is being abolished from April 2018 – we knew this was coming, however what we didn’t know was how self-employed taxpayers would get entitlement to basic state pension and other contributory benefits and allowances, as payment of Class 4 NIC (also paid by the self-employed) has not in the past been ‘contributory’.  From April 2018, Class 4 NIC will become ‘contributory’ and those paying it will be entitled to state pension etc.  Those with income below the Small Profits Limit (£5,965 in 2016/17) will be able to pay Class 3 NIC, currently £14.10 per week to ‘top-up’ their entitlement.  There will no longer be the option for these individuals of voluntarily paying Class 2 NIC, for which the current rate is a mere £2.80 per week!

The Office for Tax Simplification are tasked with – you guessed it – making tax simpler.  One of their recommendations that is being implemented is the alignment of the thresholds at which employees and employers pay Class 1 NIC.

Other Payroll Matters

Having only been increased in October 2016, The National Living Wage is increasing from £7.20 to £7.50 from April 2017 and smaller increases to the National Minimum Wage are also coming in – full details on our website here

I mentioned in a blog post on 11 October 2016 that the Government have been consulting on the use of salary sacrifice schemes and on Wednesday, the Chancellor outlined the changes to be introduced from April 2017.  Salary sacrifice arrangements (other than relating to pensions, childcare, cycle to work and ultra-low emission cars) entered into after this date will no longer enjoy tax and national insurance savings – however agreements entered into before this date will remain tax and NI-free until April 2018, so subject to the administrative hurdles that have to be jumped for an effective salary sacrifice, there’s still some mileage left in them yet!

Philip Hammond continues George Osborne’s assault on company car drivers with a further 2% increase in the percentage applied to each band of company car from April 2018, and a further 3% from April 2019.  From April 2017, pure electric cars will be charged at 9%, rising to 13% in April 2018 and 16% in April 2019 – a huge increase from the 7% benefit in kind in the current year.  I can only assume this is a reaction to the amount of employers who have provided these cars to employees, and benefited from the low rate.  I do find it a little disappointing that tax incentives are introduced to encourage certain behaviours (such as the provision of electric cars) and then as soon as people actually take the Government up on their offer, it effectively gets withdrawn – this is especially harsh when it relates to company cars as many of these will be leased over a number of years and therefore the business and employees are stuck with the cars that no longer afford them the low tax charges that were in place when the vehicles were first provided.

VAT Flat Rate Scheme Anti-Avoidance

 Businesses registered for VAT under the flat rate scheme pay over VAT at a specific rate (currently between 4% and 14.5%) as determined by their type of business – it simplifies the accounting for VAT as these businesses pay VAT over to HMRC at a lower rate than the 20% they charge to customers, but do not reclaim VAT on most expenses.  For many small businesses, this can be both time-saving and money-saving.  From April 2017 a new 16.5% rate will apply to businesses with limited costs (i.e. labor-only businesses) using the flat rate scheme.  The details on which businesses will be affected by this are on our full Autumn Statement update here

Making Tax Digital

HM Revenue & Customs are consulting on various measures intended to bring the UK tax system into the digital age.  A major change is that from April 2018, most self-employed taxpayers and landlords will be required to keep their records digitally, update HMRC at least quarterly, plus submit a year end declaration.  While HMRC are keen to emphasis that this does not mean five tax returns per year, we eagerly await the details on how the proposals will work in practice when HMRC issue their response to the consultations in January 2017.

If you want to discuss any of this further then please get in touch here.

Katie Kettle, Chartered Certified Accountant

Technical Manager

 Katie Kettle Colour

Could you and your employees save money through salary sacrifice?

Salary sacrifice is an agreement between an employer and employee to reduce the employee’s cash salary entitlement, usually in exchange for a non-cash benefit – think of it as swapping salary for something else.  This happens as part of a change to the employee’s contract.

How does this save money?

Shifting remuneration from cash to non-cash benefits can remove the PAYE and National Insurance (NI) liability on the amount shifted.  The employee saves tax and NI, and the employer saves NI – there are savings for both parties, which can be substantial and are certainly not to be too eagerly dismissed.

What types of benefits can currently be effectively provided through salary sacrifice?

Common types are:

  • Employer supported childcare (see our recent blog on this specific subject here)
  • Pensions
  • Cycle to work scheme
  • Mobile phones
  • Car parking

Is this too good to be true?

My Dad always used to say to me “if it sounds too good to be true, it probably is” – in this case it’s “yes” and “no”.  The Government are aware that salary sacrifice schemes have been used in the past for all sorts of things that aren’t really the intended use.  They are currently consulting on removing the tax and NI advantage for certain salary sacrifice arrangements.  They want to encourage employers to provide certain benefits, therefore the proposed changes are not set to affect employer provided pensions, employer supported childcare, or cycles/cyclist safety equipment – these are set to stay for the foreseeable future.

Things to consider

  • A salary sacrifice arrangement can’t reduce an employee’s cash earnings to below the National Minimum Wage
  • Earnings related payments, such as overtime rates and payrises etc can be based on the notional salary or the new reduced cash salary – this must be made clear to the employee
  • Salary sacrifice reduces the amount of pay that is subject to NI and could affect an employee’s entitlement to contribution-based benefits such as Incapacity Benefit and State Pension, statutory pay such as Statutory Sick Pay and Statutory Maternity/Paternity/Adoption Pay and tax credits
  • Check with your pension provider or financial advisor that your workplace pension scheme allows salary sacrifice

For more information on salary sacrifice, just click here https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye or contact us on 0116 242 3400.

Katie Kettle,  Technical Manager Katie Kettle Colour

Tax Reminder

The following Tax Events are due on 19th October 2016:

Business Tax Events

PAYE quarterly payments are due for small employers for the pay periods 6th July 2016 to 5th October 2016

This deadline is relevant to small employers only. As a small employer with income tax, national insurance and student loan deductions of less than £1,500 a month you are required to make payment to HMRC of the income tax, national insurance and student loan deductions on a quarterly basis.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd October. In year interest will be charged if payment is made late. Penalties also apply.

PAYE, Student loan and CIS deductions are due for the month to 5th October 2016

This deadline is relevant to employers who have made PAYE deductions from their employees’ salaries and to contractors who have paid subcontractors under the CIS.

Employers are required to make payment to HMRC of the income tax, national insurance and student loan deductions. Contractors are required to make payment to HMRC of the tax deductions made from subcontractors under the CIS.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by 22nd October 2016. In year interest will be charged if payment is made late. Penalties also apply.

Tax and NI due under a 2015/16 PAYE Settlement Agreement

This deadline is relevant for employers who have entered into a PAYE settlement agreement to pay tax and national insurance in respect of benefits in kind for their employees for the year ended 5th April 2016.

Where the payment is made electronically the deadline for cleared receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd October 2016.

If you would like to discuss this in more detail then please get in touch here.  

 

Extending your PAYE payment deadline the easy way

We all know it is very important to pay your taxes to HMRC by their deadlines to avoid any late payment interest and penalties.

The statutory deadline for paying Employers PAYE liability is the 22nd of the month – or the 19th if paying by cheque through the post.

Different ways to pay your PAYE include:

  • By Debit or credit card online
  • BACS
  • At your bank or building society (cash or cheque)
  • At the post office (debit card, cash or cheque)
  • Direct Debit
  • By Cheque through the post

HMRC’s preferred option is that you make your payments online as this saves them money and hence saves you, as the tax-payer, money as well.

For employers, the advantage of paying with online banking is that the deadline extends by 3 days to the 22nd. If your bank offers faster payments this means you can pay on a Saturday/Sunday if the 22nd falls on the weekend.

Whereas, if you pay by BACS you would have to put the payment through 3 working days before the deadline for it to clear and paying by direct debit would mean having to pay it 5 working days before the deadline.

If you pay by posted cheque, the recommended time of posting is around the 12th of the month – 10 working days before the payment is due!

You can see the different payment deadlines in the diagram below: 

ZB Blog Image PM

PAYE Timeline 

To increase your payment deadline, paying by faster payments, CHAPS or personal banking will be the best option. Paying by cheque gives you the shortest deadline as you have to give it time to arrive with HMRC and for the payment to clear.

If you have a debit or credit card you can give us a call and we can pay your liability over the phone for you.

Alternatively, if we provide you with our payroll services, we can set up the direct debit PAYE payment for you when the payroll is processed so you have no worries about paying it yourself or making sure it is paid on time. For more information on any of the above or to pay your liabilities by card or direct debit please contact us on 0116 2423400.

Zahra Bates, Payroll Assistant 

Automatic Enrolment – What should I do if I’m not an employer?

Following on from Becky’s blog back In November: ‘Help – I’ve received a letter from the Pension Regulator’ I’m sure there are some of you wondering what you should do if you do not employ anybody, and consequently don’t have anybody on your payroll, or are a director only company.

Automatic enrolment duties do not apply when a company or individual is not considered an employer.  For example:

  • You may no longer employ any staff
  • You have ceased trading
  • You’re the director of a company with no other employees.

If you reach your staging date, and consider yourself not to be an employer as above, a ‘No duties’ declaration form needs to be submitted to The Pensions Regulator (TPR) to inform them of this.

Submitting this form tells TPR that you or your company have no automatic enrolment duties at that time.

You can begin your no duties declaration here.

Once you have completed this, there is nothing else you need to do unless any of the above circumstances change (e.g. you employ any staff).

If this does happen you will need to contact The Pensions Regulator to reactivate your scheme. They will then give you a new staging date and you can begin planning for this as necessary.

If you require any more information or advice on any aspects of the above please contact us. 

Zahra Bates, Payroll Assistant Pension Monster