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IR35 / OFF-PAYROLL WORKING – WHAT IS IT AND DOES IT APPLY TO ME?

Although IR35 is the hot topic – IR35 itself is not new – it has been around since 2000.  It is a piece of legislation that allows HMRC to collect additional payment from a contractor, where in reality the contractor is effectively an employee of their client – but is just choosing to operate through a limited company.

So why is everyone talking about it now?

New rules are coming in from April 2020, which are shifting the emphasis of deciding whether your working relationship is caught by IR35, from the worker to the end user in some circumstances.  If that end user determines that you are caught by the rules, they either need to take you onto the payroll or deduct PAYE and NI from your invoice.

This blog aims to demystify the new rules so you can determine if it will affect you.

Off-Payroll Working – What is it?

Off-payroll working is a term used by HMRC to describe the situation where:

A worker/freelancer provides a service (eg themselves) to an end client, and invoices that client via their own limited company and CRUCIALLY – if that worker was providing that service directly to the end client (eg NOT via ABC Limited) then that worker would meet the employment test status (see below) to make them an actual employee of the client.

If off-payroll working applies:

  • The end client is required to deduct PAYE and NI from your invoice, BUT
  • You do not acquire any employment rights under the rules – so you have no right to SSP, SMP, holiday pay,pension etc

so not a great position to be in!

The Changes from April 2020

From April 2020 if your end user is a large or medium sized company, then it becomes their responsibility to assess whether you have the employment status of a “worker”.  If they determine that you do, then the off-payroll working rules kick in.

Prior to April 2020 it was your responsibility to determine your status, and to deal with the IR35 legislation yourself.

(A medium company is one that meets 2 out of 3 of these criteria:

  • turnover over £10.2m,
  • over 50 employees
  • balance sheet total of over £5.1m)

It is important to note that if your end user is a small company, the changes do not apply to them at all.

If it is a medium/large company then the following will happen:

  • The end client must tell you that they are a large or medium size company
  • The end client must assess your employment status and tell you what they have decided
  • The end client will then deduct PAYE and NI from your invoice if they have concluded the off-payroll working rules apply

How will they assess my employment status?

The end client should start by using HMRC’s Check Employment Status Tool “CEST” which will give an assessment at the end of the questions.

It asks a number of questions about your working arrangements, such as “could you send a substitute to perform the task” and “does the end client have the right to determine your working hours”

If the questions are answered accurately and honestly, HMRC will accept the results of this test.

Once they have determined your status, they need to inform you of their decision by providing you with a Status Determination Statement.  If you disagree, you can challenge the result, and they will need to come back to you within 45 days.

What is likely to happen?

These rules came into force for the public sector last year, and the outcome was for many organisations, they just decided to take everyone onto the payroll and to no longer engage freelancers, as the risk of getting it wrong was just too high.  We are seeing the same already from some of the banks in advance of these changes.

Obviously, having PAYE and NI deducted from your invoice is going to affect your take-home pay, and if you are affected then there should be some negotiation about your future invoices!

It is important to note that the changes do not affect everyone, but there is, as is to be expected, currently widespread panic in the freelance world!

If your end client is a small company, there is no change.

However you are still responsible for determining your employment status, and I would highly recommend running through the CEST questionnaire to see how HMRC would assess your status, and if you should be applying the IR35 rules yourself.

If you have any questions, then as usual – get in touch!

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Are you missing out on tax-free childcare?

Recent statistics show that the take-up of the new scheme has been low, not helped by widely-reported technical issues soon after the scheme was launched.

So what does the scheme offer – and can you take advantage of it?

Under the Tax-Free Childcare scheme, for every 80p you put into your online account, the government will add 20p.

In total you can use the scheme to help pay for up to £10,000 of childcare per child each year – giving you an extra £2,000 per child (up to £4,000 if your child has disabilities).

Tax-Free Childcare is open to all qualifying parents, unlike the old Childcare Vouchers scheme offered by some companies.  It is open to all working parents, including those who are self-employed, with children up to the age of 11 (or 17 if your children have disabilities)

You can get Tax-Free Childcare at the same time as 30 hours free childcare if you are eligible for both.  However, you won’t be able to get the tax-free childcare if you already get Universal Credits.

To qualify, you and your partner, need to be working and earning a minimum of £131 a week, and a maximum of £100,000 a year.  If one of you does not work, then you are not able to claim.

Tax-Free Childcare can be used to pay for activities by any regulated childcare provider who has registered with the Scheme, and this may include holiday and after-school clubs as well as the more obvious nurseries etc, so it is worth checking who is covered in your local area.

If you are eligible for the scheme, then you need to create an online childcare account via the Government Tax-Free Childcare site. You then pay the money into this account, and transfer funds from there to pay your childcare provider.

So even if you do not regularly use childcare, it is worth checking if any provider that you do use is signed up to the scheme, and if you could be saving money by setting up an account.

For more information, please contact Rosie Forsyth at Wilkins & Co.

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It’s time to party (tax-efficiently of course!!)

As we approach the Christmas period, the question is always – what can we claim for a staff Christmas party?

Christmas Party

If you have a limited company, you can claim your festive or annual party as a deductible expense, subject to the limits below. As long as all of your employees are invited to attend, the whole event will not be taxable, even if you are the sole director/staff member. You cannot claim annual event expenses if you also entertain clients and associates.

You have £150 (including VAT) to spend per head, and you can also spend this on your “plus ones”. The £150 is an all-inclusive figure, so you need to add up the total costs of the evening (incl transport, accommodation, drinks) and divide it by the number of attendees. The total cost has to be under £150, – if it comes out to be £151 per head, the whole lot is taxable, so be careful!

An exemption, not an allowance

The £150 spend is an exemption, not an allowance. You will have to actually spend the money in order to claim the deduction.
If it is not used, the exemption will be lost.

Gifting employees/directors

Small gifts given to employees (and directors) can be exempt from tax as trivial benefits providing the following conditions are met:

  • The cost of providing the benefit does not exceed £50 (including VAT).
  • The benefit is not cash or a voucher that can be exchanged for cash
  • The employee is not entitled to the benefit as part of any contractual obligation.
  • The benefit is not provided in recognition of a particular service.

However, if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.

Gifts to Clients?

Your gifts will only get tax relief, and you can only reclaim the VAT if they are:

  • NOT food, drink, tobacco or a voucher AND
  • Carry a conspicuous advert for your business AND
  • The cost of that gift, and any other to that person in the year is under £50

So no excuses not to have that Christmas party!

Please note that these rules are for limited companies – unfortunately sole traders do not benefit from the same exemptions!

For more information please contact Rosie Forsyth at Wilkins & Co.

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Claiming the costs of your mobile phone

We can’t run our businesses without our mobile phones, but are you claiming the right amount from your business?

The rules for claiming the cost of your mobile phone from your business are different depending on whether you are a sole trader or a limited company.

For a sole trader – it’s relatively straight forward.

You can claim a percentage of your phone bill, or new phone, depending on the percentage that you use it for your business.  You don’t need to analyse all your calls, but it is a good idea to keep track of your business usage for 2-3 months, and then apply that percentage to the full year.  HMRC may ask you one day how you came to the percentage that you did, and you may find it hard to justify that you use your phone 90% for business, when you actually only work one day a week -so just be sensible!

For a limited company, as with most things, it’s more complicated.

If your phone contract is in your personal name, and the company pays the bill, or reimburses you for it, you have a benefit-in-kind – and this should be disclosed on a form called a P11D at the end of each tax year.  Both you and the company will have tax to pay on this amount.

The logic behind this, is that with contracts nowadays, we all get so many free minutes and texts etc, that there is actually no additional cost to you for using your phone for business.  You would be paying your phone bill anyway, and so getting the company to pay it, is really the same as paying yourself additional money from the company.  If you can separate additional business calls, eg they are overseas calls, then you can claim these from the business as a legitimate expense.

If you can put your phone contract in the company name, then HMRC will accept that private use of your “company” phone is minor, and the company can pay the whole bill, without any personal tax problems.

The same rules will apply for broadband costs in your home.

So if you have a limited company, you basically have a choice:

  • If your phone contract is in your personal name,  don’t put any of the cost through the business (unless you have costs over and above your standard package cost that you can identify as relating to the business – such as overseas calls.)
  • Put your contract into the limited company name – and then you can claim the full cost of your monthly bill ( but no prizes for guessing that a business contract is usually more expensive than a private one)

It’s a really common mistake to think that the company can just pay your personal mobile phone bill, as you use it for business, but get it wrong and you could land yourself and the company further unexpected tax bills!

For any further information, please contact Rosie Forsyth at Wilkins & Co.

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Tax efficient pay for directors 2019-20

The personal allowance for 2019/20 has increased to £12,500 and the basic rate threshold to £50,000.  This means you start paying higher rate tax only on income up over £50,000.

The dividend allowance remains at £2,000.

So for a limited company director, what is the most tax efficient pay strategy this year and why?

Most owner managed businesses take a low salary and a higher dividend to be tax efficient.  Why is this the case?  (Prepare for some number crunching!)

  • You take a salary from the company because this triggers a national insurance record for your state pension. To trigger this for the year, you need to pay yourself a minimum of £6,136 in salary.  You can pay up to £8,632 and still pay no NI for the year
  • Your company can claim the cost of your salary when it calculates its corporation tax.  As a result it will save corporation tax at 19% on any salary taken.
  • You take any further money from the company as dividends.  Dividends are paid out of post tax profits from the company so you don’t save corporation tax on this payment. But NI is not paid on dividends and the rate of personal tax you pay on dividends is only 7.5% up to the £50k basic rate threshold.

So what amounts should you pay yourself to minimise your tax liabilities?

There are 2 options:

1. Paying a basic salary at the NI threshold.

This option is simplest and means you pay no NI for the year (but it does still count as a qualifying year for your state pension)

  • Basic pay of £8,632 per year – or £719.33 per month.
  • You then utilise the rest of your personal allowance and pay this in dividends ( £12500-£8632) = £3868
  • You then utilise all your basic rate band and pay this in dividends – £37500
  • Total dividends for the year are therefore £41,368.
  • At this level, you will not pay any higher rate tax on your dividends. You will pay personal tax of £2,663 on these dividends which you will pay via self assessment.  (7.5% x (41,368-3,868-2,000) for those who like the maths!!)
  • The company will save corporation tax on the salary paid of £1,640.

Note that you will need to set up a payroll for the company and file RTI returns paying this salary, and you will need to file a personal tax return.

2. Paying salary up the personal allowance threshold

This is more tax effective if you have more than one person on the payroll and can claim the NIC Employment Allowance. If you are a sole director, you cannot claim this and should stick to option 1.

  • Basic pay of £12,500 per year – or £1041.66 per month.
  • You then utilise all your basic rate band and pay this in dividends – £37500
  • Total dividends for the year are therefore £37,500.
  • At this level, as before you will pay personal tax of £2663 on these dividends
  • However, you also pay employees NIC of £464 on your salary. This is deducted at source when you run the payroll and the company will pay it over to HMRC for you.  Your net pay in the months when NIC is due will therefore be lower.
  • The company will save corporation tax on the higher salary paid of £2,375.

So which option?

Keeping it simple or for sole directors with no-one else on the payroll – option 1.  There is no NI to pay and you have a fixed salary each month of the year.

If you have more than one person on the payroll, can benefit from the Employers Allowance, and will remember to pay over the NIC when it is due, then option 2 will save you £271 overall in tax for the year and is therefore more tax-efficient.

Do remember that to pay these salaries from your limited company, you need to have an official payroll set up with HMRC and to file RTI returns.  The above illustrations are also for general guidance only, and are based on a UK taxpayer with no other income for the year. For help with this, or further advice on tax efficient pay, please contact Rosie Forsyth of Wilkins & Co

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5 things to check before the tax year end

The tax year end is rapidly approaching so it’s a good time to check your finances and make sure you have minimised any tax liabilities.  What should you be looking at?

Here are 5 things that may apply to you to help you save some tax before 5 April.

Dividend Allowance

If you run your business through a limited company, then you can extract funds via dividends, as long as the business has the reserves to be able to do so.  The dividend allowance for 18/19 is £2,000, so you will be able to extract this amount tax-free per shareholder.

Timing of Expenses

If your company or business year end is 31 March 19, then think about expenditure around the year end.  Money spent before 31 March 19 will be included in this year’s accounts, and reduce your profit this year, whereas delaying until April 19 will move those costs into next year (generally).  If your business is on the cusp of paying higher rate tax, then bringing forward planned expenditure could be tax efficient.

Pension Contributions

Pensions remain one of the most tax efficient ways to save. You receive a 20% top-up from the government on any contributions you make personally and you also extend your basic rate band for income tax purposes. Depending on your income, this can reduce the amount of tax you pay at higher rates.

Paying a pension contribution from your limited company is also tax efficient and is an allowable deduction for corporation tax.  Speak to an IFA if you are interested in contributing to your later years!

Child Benefit

If you or your partner’s adjusted taxable income is above £50,000 then you start to lose your child benefit for the year.  This is reduced on a sliding scale up to £60,000 when it is lost in full, and if you have received it in the year it will need to be repaid.  Consider making pension contributions, or gift aid donations to reduce your adjusted taxable income, and to keep your child benefit.

Marriage Allowance

So many people who are entitled to this are still not claiming it!

The Marriage allowance lets you transfer 10% of your personal allowance to your spouse/civil partner if you have not used it.  This can save you £237 as a couple.  To qualify your spouse must be a basic rate taxpayer, and your income under £11,850.

For any more information, please contact Rosie Forsyth atWilkins & Co

 

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“Funding your own business – give it a go!” Guest Blog by Helen Steel of Streamlion Consulting Ltd

This week I have a Guest Blog by Helen Steel of Streamlion Consulting Ltd, giving great advice on obtaining funding for your business.  Contact Helen for more advice or assistance.  (https://www.streamlionconsulting.com)

“I heard on the radio this morning that this is the time in January when most employees sit back and reevaluate their jobs. The excesses of Christmas and New Year are behind them. Any New Year’s resolutions are in full force or have already been binned! Thoughts they had over Xmas of “my job’s not that bad” or “I can stick this out for another year” have proved to be just as undoable as the New Years resolutions! Why not make a change! If you’ve always dreamed of running your own business and have a good idea, why not go for it? What is holding your back?

Well, if it’s money, there are some excellent start-up loan schemes that offer unsecured funding to entrepreneurs who meet certain qualifying criteria. These loans are just what you need to get up and running and the scheme has been created to give you the cash needed to sort out the first few months of your business trading. I am a business advisor for Transmit Start-Ups (https://transmitstartups.co.uk), now the number one provider of start-up loans in the country and I can honestly say that they have your back. This is a government scheme so there are certain processes to follow but I have had loans approved amazingly quickly for entrepreneurs eager to get out there to start making money! With interest rates of 6% and max lending of £25,000 per eligible director, it’s a great place to start.

 

There are other lending routes available if your business has been trading for more than 2 years or you just need a larger loan. Some of the banks offer unsecured lending themselves or through the EFG scheme. Knowyourmoney (https://www.knowyourmoney.co.uk/business-loans) has a great list of approachable lenders, some of whom will lend up to £1.2 million per year. I’ve recently been working with NatWest who have been very supportive of local entrepreneurs.

 

Another lending route is via “Angel” investment. Over the last few years, I have put together a portfolio of go-to private investors who will invest for an equity stake in a fast growing new venture. This is a bit like “Dragons Den” and I love working with the entrepreneurs to develop slick and professional business plans and investors deck to attract the best investor for their business. Investors can bring money and mentoring advice if wanted. Again, loan amounts vary but seed capital can be raised from either one investor or a number of smaller contributors.

 

Lastly there are traditional lending routes via your bank. These loans tend to be secured and you will need at least one year of company financial statements, possibly two. Interest rates tend to be slightly higher (around 9.3%) but there are always many options to chose from.

 

So, if you are having those “it’s now or never” or “I’ve got to give it a go” thoughts, act on your impulses and start your own business. I have yet to come across an entrepreneur who regrets making the break, but I have chatted to many who wished they had done it sooner!”

 

Helen Steel, MD for Streamlion Consulting Ltd (https://www.streamlionconsulting.com)

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Making Tax Digital – less than 6 months to go – are you ready?

MTD goes live in less than 6 months, but research shows that 40% of small businesses that will be affected by MTD, are not yet aware of it, and have certainly not begun to prepare for its impact.

So are you affected and what do you need to do?

HMRC are about to launch their publicity campaign to increase awareness, but here are some frequently asked questions from small businesses:

Does MTD apply to me?

If you run a VAT-registered business (limited company OR sole trader) with a taxable turnover above the VAT registration threshold (currently £85,000) then YES it applies to you from April 19.

I have registered for VAT voluntarily, so I am VAT registered – but my turnover is less than £85K. Does MTD apply?

No it will not apply from April 19.  MTD is planned for all businesses over time, but you not caught in this first batch of people!

What does MTD mean anyway?

MTD means that you will have to keep digital VAT records and send VAT returns using “MTD-compatible” software from April 19.  The deadlines or frequency of returns are not changing, it is just how the information gets to HMRC.

If you are already using commercial accounting software, it is likely that the provider is working hard to make it MTD compatible, and you should be OK, though you will need to upgrade to the latest version that is compliant.

HMRC have provided a list of suppliers it is working with to provide MTD compliant software so you can check:

https://www.gov.uk/government/publications/software-suppliers-supporting-making-tax-digital-for-vat/software-suppliers-supporting-making-tax-digital-for-vat

I keep my accounts on a spreadsheet – is that still OK?

Technically yes, but I would be thinking about switching to a digital package!

If you use a spreadsheet, then that spreadsheet must be able to submit the required data to HMRC digitally and to do this you will need to add “bridging software”.  This is a piece of software that will extract the data from your spreadsheet and send it to HMRC in the correct format.

What you will no longer be able to do is physically retype in figures from one piece of software to another.

We have no examples yet of what this “bridging software” might look like – all we do know, is HMRC aren’t providing a free version for you to use!

My accountant does my VAT return from the info I send them so won’t they just deal with it?

Sadly no!

The portal that accountants use to submit vat returns will be closing, as this requires someone to type the information into it – and this will no longer be allowed.  Nor can your accountant take your spreadsheets, correct a few errors, and then retype the information into a vat return and submit it, as the information flow has not been digital.  HMRC have said that “cutting and pasting” information will be acceptable for the first year only, to give people time to update systems.

So what do I need to do if I am affected?

You need to look at how you keep your accounts, and if you have not yet moved onto a digital package, now really is the time to do it!  The start of your new financial year is the perfect time, so if that falls between now (or even a couple of months ago) and 31 March, then I would switch your accounts over now, so you are up and running smoothly when the changes come in.

Digital accounting packages are not expensive – prices can be as low as £9 per month, with add ons that allow you to submit receipts electronically.  Switching to digital will save your business time, and give you more accurate data about your business in real time, so be brave – bite the bullet and go digital!!

HMRC are still wanting to bring in MTD for everyone, so although the timetable has been pushed back to at least 2020, even if you don’t have to make the switch before April 2019, it is worth assessing how you keep your accounts and if it could be more efficient!

For more information please contact Rosie Forsyth at Wilkins Co.

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When do I register for VAT?

You can google the VAT registration threshold – its currently £85k  – but so many people look at their wrong sales figure to compare to this number – and registering for VAT late can be very expensive!

You have to register for VAT when your “VAT taxable turnover” in a 12 month period is over £85k.  If we take ” VAT taxable turnover” to be your sales (which simplifies it somewhat,) then you need to look at your sales figure for the last 12 months.

This is NOT THE SAME AS YOUR SALES SINCE THE START OF YOUR FINANCIAL YEAR.
There is no starting again when you get to your year end – you need to look at your sales figure for the last 12 months – ON A ROLLING BASIS.

So you need to look at Sept 17 – Aug 18, and then Oct 17 – Sept 18, then Nov 17 – Oct 18 etc etc.

If your turnover is around the £75-80k, you need to keep a close eye on it each month to see if you have gone over the registration threshold.  If you have exceeded £85k, then you have one month in which to register for VAT and then you need to start charging VAT in the following month.

For example if your sales for the year Sept 17 to 31 Aug 18 were over £85k for the first time, then you need to register by 30 Sept 18 and you will be registered from 1 October.

If you are late in registering, then you are deemed to be register from 1 October anyway, and you are liable for the vat that you should have been charging, plus potentially a penalty, so this can be very expensive for your business!

If your turnover has gone over the threshold temporarily, say you have sent out an unusually large invoice – you can apply for an exception to registration, but you need to write to HMRC with evidence that you sales for the next 12 months will be under the VAT deregistration threshold of £83k.

So do keep an eye on your turnover if you are close to the threshold.  I see late registration time and time again, as business owners only look at current year sales, not sales for the last 12 months.

For more information then please contact Rosie Forsyth at Wilkins & Co.

 

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Taxes Made Easy for 2018/19

Hot of the press is my new tax planning brochure for this tax year.

This easy to read guide provides you with simple tax planning points for the current year.

Covering personal tax, and matters affecting both you and your family, my guide suggest many ways in which you can save money on your tax bill by taking full advantage of the current tax system, as well as highlighting some of the pitfalls that you should avoid.

Please download a copy with my compliments – and let me know if I can help you with any issues raised.

Download Your Free Copy Now

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