Solicitors could face hefty VAT bill for electronic property search fees

Solicitors are being warned they could face hefty VAT bills for electronic property searches after a landmark ruling deemed they should not be treated as a disbursement.

The caution comes following the case of Brabners LLP Vs HM Revenues & Customs (HMRC) which cast doubts over solicitors’ treatment of disbursements.

Brabners conducted searches and used the results as part of its advice to clients. The law firm treated the cost as a disbursement and invoiced the client for this cost, excluding VAT. HMRC assessed the law firm as liable for VAT, a decision that the law firm appealed.

It is standard practice in the sector to treat such costs as disbursements where no VAT has been incurred, this has now changed for electronic search fees.

Guidance from the relevant regulatory bodies, which sets out how legal disbursements should be treated for VAT purposes, is now under review following the tribunal decision.

HMRC which applies strict criteria to such situations, argued that Brabners’ costs were not VAT disbursements as the recharge of the cost formed part of the onward supply to the client and was therefore subject to VAT.

The First Tier Tribunal was in agreement with the HMRC, meaning Brabners was ordered to pay a £68,000 VAT bill as the results were used as part of their advice to clients, and they were not acting as a middle man to collect the search fee from the client.

At Pierce, we would advise law firms to review their disbursement treatment in light of the outcome of this tribunal, for both previous and future policies.

If your firm is using the same process as Brabners, then contact the Law Society to seek clarification before amending your practices as Brabners may consider taking this appeal further.

For more information regarding VAT for solicitors, please contact Gary Speak on 01254 688 100 or email g.speak@pierce.co.uk

Making Tax Digital for business

HMRC’s new Making Tax Digital reporting system is being introduced for businesses, sole traders and landlords from April 2018. The aim is to join up HMRC’s internal systems by creating one account for each taxpayer so businesses can provide its information more accurately and closer to real time. 

In his budget speech on March 8, Philip Hammond confirmed the timescale for the compulsory entry into the Making Tax Digital scheme as follows:

  • April 2018 businesses/landlords with turnover above the VAT threshold
  • April 2019 businesses/landlords with turnover below the VAT threshold
  • April 2019 VAT registered businesses/landlords
  • April 2020 businesses liable to corporation tax
  • April 2020 partnerships with turnover above £10m

Businesses and landlords with a turnover below £10,000 will be exempt from the scheme.

So what does Making Tax Digital involve?

  • Accounting records must be kept digitally ideally using a suitable accounting package although HMRC have conceded that they will accept information kept on spreadsheets.
  • Accounting information must be reported to HMRC quarterly.
  • An annual summary must be reported including tax adjustments to accounting records.
  • A new penalty regime has been introduced for Making Tax Digital submissions although this will not be introduced straight away.

HMRC has not yet released any detailed information on Making Tax Digital but as more information is released, Pierce will provide an update.  We are currently reviewing our clients to identify who the new rules will apply to in April 2018 and will shortly be contacting those affected with advice on what they are required to do to comply.

The government will not be providing software for businesses, we can offer advice on accounting software packages for those who currently keep manual accounting records. We have a range partners with various cloud accounting software providers covering a wide cross section of the market and we can help you choose, setup and configure the best choice of software for your business.

For more information visit http://www.pierce.co.uk/cloud-accounting-software/ or contact Ben Davies on 01254 688100 or b.davies@pierce.co.uk.

Fair shares for all

Anne Wilson, senior tax manager at Pierce Chartered Accountants looks at the wisdom of giving away company shares in order to reduce your tax liability and the potential savings.

A quick recap before elaborating: in April 2016, changes to the taxation of dividends came into effect, resulting in an increase in tax liabilities going forward. Previously, if you took a salary up to the personal allowance and a gross dividend up to the basic rate band then you would have no tax liability. Since these changes came into play, under the same scenario you would have a tax liability of just over £2,000.

The first thing that I want to do is to bust the myth of giving shares to your minor children. If a parent makes a gift of an asset, including shares, to their minor child then any income in excess of £100 is taxable on the parent whilst the child is under 18, making the tax saving void.

What about other gifts of shares to spouses, partners or adult children?

In order for a gift to be effective for tax purposes it must be an outright gift, with no strings attached and be more than a gift of income. For example, you cannot create a special class of shares with no rights other than the payment of a dividend as that would be a settlement for tax purposes and the dividend would continue to be taxed on the donor.

The problem with many contractor companies is whether the shares in question actually have any underlying capital value in any event. However, comfort can be taken from the decision in Arctic Systems where a spouse was permitted to subscribe for a share in a company, the income of which derived from the husband’s skills. HMRC argued that the dividends should be taxed on the husband because the wife’s shares were no more than a right to income (the company had no apparent underlying capital value).

However, the House of Lords found that the wife’s share was more than just a right to income, it was an ordinary share conferring the right to vote and to participate in the distribution of assets on a winding-up and to block a special resolution. Following the decision, despite HMRC’s initial intention to change the legislation, this has not happened and at the present time it is still possible for contractors to transfer shares carrying full rights to their spouse (or partner or adult child) and not fall foul of the settlement regime.

Transfers between spouses are exempt from capital gains tax. Where the shares are gifted to partners or adult children the same issues apply regarding the settlement rules, although a capital gains tax hold-over relief claim would be needed to hold-over the gain on the gift of shares. However, a note of caution about gifts of shares to parties other than spouses, once the shares have been transferred they are very difficult to get back in the event of a breakdown in the relationship. I always recommend that a shareholders agreement should be signed in conjunction with the gift. The desire to save tax should never override sound commercial decision making.

I also recommend that dividend waivers are avoided and if it is intended to pay different levels of dividend, alternative classes of share should be created.

What are the tax savings of a gift?

That depends very much on the levels of income received by each party. For example if the spouse has no other income they would be able to receive a dividend of up to £16,000 free of tax. If the spouse making the gift would have been taxable at the higher rates on the same dividend then the tax saving would be £5,525! If the donee spouse had other income but would be within the basic rate band then the saving would only be £4,700, in each case it would be important to do the sums as the savings may not always be so generous.

Giving some shares to adult children who are at university could be a good way of funding their education as they can receive £5,000 of dividend tax free.

In conclusion, there is still scope to make a transfer of shares to spouse or partner to save tax but the gift must be an outright gift and professional advice should always be taken.

Class 2 National Insurance Contributions

National Insurance shutterstock_15678070

Background

Traditionally self-employed individuals paid their Class 2 National Insurance contributions via six monthly bills or regular direct debits. If an individual’s profits were, or were expected to be below the small earnings threshold they could apply for the small earnings exception.

The Office of Tax Simplification recommended that the Government review the way National insurance is collected for the self-employed, in order to make it simpler, more straight forward and to reduce the administration burden.

Following the review, it was decided that Class 2 National Insurance will be collected under the self assessment system in the same way that Class 4 National Insurance is currently collected.

What does this mean for me?

If you were paying your contributions by direct debit you may have noticed that your last payment was taken on 10 July 2015.

Your liability to Class 2 will be calculated at the end of the tax year alongside the preparation of your self assessment tax return and any amounts due will become payable the 31 January following.

For example, your liability for the 2015/16 tax year will be calculated when your tax return is prepared and will be payable alongside your Income Tax and Class 4 National Insurance on or before 31 January 2017.

The amount of Class 2 National Insurance due will still be calculated at a flat rate (2016/17 – £2.80 per week) with reference to how many weeks of self employment the individual has undertaken during the year.

Those with no profits chargeable to tax or profits below the new ‘Small Profits Threshold’ – £5965 2016/17 (which replaces the Small Earnings Exception) will no longer have to apply in advance for an exception from paying Class 2 National Insurance, as liability will not automatically arise.

However, in some cases you may still want to make payments voluntarily to retain your rights to certain benefits such as Employment and Support Allowance, Maternity Allowance, Jobseekers Allowance and your State Pension.

The contribution criteria for claiming each of these benefits is different therefore if it may be likely that you will need to claim any of these benefits in the near future and you are not automatically liable to make class 2 contributions please contact a member of the Tax Department to discuss voluntary contributions.

If you have gaps in your National Insurance record you may not be able to claim your full state pension when it comes to retirement.

If you would like to check for any gaps in your national insurance record you can do that here: https://online.hmrc.gov.uk/shortforms/form/NIStatement

Spreading the cost

For those that would like to continue to spread the cost of their Class 2 National Insurance over the year HM Revenue and Customs have proposed that they set up a ‘Budget Payment Plan’, to make regular payments in advance, when doing this it is important to specify that the payment is for Class 2 National Insurance otherwise HM Revenue and Customs will set it against your self assessment record. Information how to set up a budget payment plan can be found here: https://www.gov.uk/pay-self-assessment-tax-bill/budget-payment-plan

Chancellors Spending Review

Chancellors Spending Review and Autumn Statement 2015: key announcements

 2014 Chancellors Budget images

The Spending Review and Autumn Statement has been set out to Parliament – here’s a summary of what was announced.

1. £4 trillion of spending has been allocated by the government over the next five years

The Spending Review sets out how £4 trillion of government money will be allocated over the next five years, so the government can invest in priorities like the NHS, defence and housing.

On average, departmental spending will fall at less than half the rate of the previous five years.

A full list of departmental spending settlements can be accessed at the bottom of this page.

2. A £10 billion surplus by 2019-20

Last year, the deficit was halved compared to its 2009 to 2010 level. Next year, it will be down by three quarters.

Over the next four years, the deficit will have been eliminated and the government will be running a surplus – raising more than is spent.

3.Tax credits

The government will borrow £8 billion less than forecast – making faster progress towards eliminating the deficit and paying down debt.

The improved public finances allow the government to reach the same goal of a surplus while cutting less in the early years, to smooth the path to the same destination. That means it can help on tax credits.

The government has had representations that these changes to tax credits should be phased in, and listened to the concerns, heard them and understood them.

And because the government has announced today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether. Tax credits are being phased out anyway as the government introduces universal credit.

What that means is that the tax credit taper rate and thresholds remain unchanged. The income rise disregard will be £2,500.

The government will propose no further changes to the universal credit taper, or to the work allowances beyond those that passed through Parliament.

On the figures published today (Wednesday 25 November), the government will still achieve the £12 billion per year of welfare savings promised.

4. Introducing London Help to Buy and Help to Buy: Shared Ownership

A new Help to Buy equity loan scheme for London will give buyers 40% of the home value from early 2016, as opposed to 20%, as the current scheme offers.

The government is also announcing a series of other schemes, including Help to Buy: Shared Ownership to help people get on the housing ladder.

From 1 April 2016 people purchasing additional properties such as buy to let properties and second homes will pay an extra 3% in stamp duty. Money raised from tax on people buying their second home will be used to help those struggling to buy their first home.

Read more about the Help to Buy announcements made at the Spending Review and Autumn Statement.

5. Protecting the police budget

The government will protect overall police spending in line with inflation – an increase of £900 million by 2019-20.

Additional funding will be provided for forces who have strong proposals to support efficiency and reform. The National Crime Agency’s budget will also be protected in cash terms to help cut organised crime.

This funding will also allow forces to adapt to changing crime threats and train more firearms officers to make sure the country can be protected from terrorist threats.

£1 billion will also be spent on 4G communications for police forces and other emergency services, allowing officers to take mobile fingerprints and electronic witness statements. This will free up officers’ time, saving around £1 million a day when fully operational.

6. Local councils will get control over local taxes and provide extra support for social care

Councils will be given even more powers over decision making in their local areas. They will be able to add 2% on council tax to pay towards social care in their areas, if they wish.

From 2020 they will be able to keep money from business rates collected from shops and businesses, to spend on local services like street repairs, libraries and transport.

Local police and crime commissioners will also have the ability to raise local council taxes. Council tax is currently made up from money that goes to local services like police and fire services as well as local councils. From next April, police forces will be able to increase the amount they require from council tax collections by 2%.

7. Half a trillion pounds for the NHS

NHS England will receive £10 billion more a year in real terms by 2020 than in 2014-15. This will fund:

  • 800,000 more operations and treatments
  • 5.5 million more outpatient appointments
  • 2 million more diagnostic tests • access to GP services in the evenings and at the weekend, and 7-day access to hospital services by 2020

By 2020, health and social care will be integrated across England, joining up services between social care providers and hospitals. This will mean that health and care will feel like a single service for patients.

Grants for health students will also be replaced by loans, and the cap on the number of nurses and midwives that can go into training each year will be removed, providing up to 10,000 more nurses and other healthcare professionals for the NHS. These students will be able to receive 25% more financial support during their studies as a result.

From 2020, people with suspected cancer will be diagnosed or given the all clear within 28 days of being referred by a GP, helping to save up to 11,000 lives a year.

Over £500 million will also be spent on new hospitals including in Cambridge, Brighton, and Sandwell.

8. The basic state pension will rise to £119.30 a week

From April 2016, the basic state pension will rise to £119.30 per week, an increase of £3.35. This will be the highest real terms increase to the state pension for 15 years.

9. Schools funding will be protected

Schools funding will be protected in line with inflation. £23 billion will be invested in school buildings, creating 600,000 extra school places and 500 free schools.

Maintenance loans will also be available to higher education students who study part time from 2018.

10. The UK will meet its NATO target of spending 2% of national income on defence

The Ministry of Defence’s budget will be increased by more than £5 billion by 2020-2021.

£1.9 billion will also be spent on cyber security over the next five years, including on a new centre to protect the UK against attacks. Counter terrorism spending will increase by 30%, including providing 1,900 new intelligence staff.

11. The UK will continue to spend 0.7% of national income on aid

Aid funding will continue to be protected, including a new £1 billion global vaccine fund speed up the development of drugs to eliminate the world’s deadliest infectious diseases.

A new £500 million crisis reserve will also be set up so the UK can respond quickly and effectively to crises as they happen.

12. Part time season tickets and money back if your train is late

New flexible season tickets will soon be available on certain lines across the country, including C2C between London and Essex, and the Great Northern Route on Thameslink. This means that commuters will be able to buy part time season tickets, if they wish.

Better mobile connectivity will also be provided through a pilot scheme on commuter lines in London, the Midlands and the North.

Commuters will also soon be able to claim compensation from their rail tickets if their train is more than 15 minutes late.

13. More money for Scotland, Wales and Northern Ireland

Scotland, Wales and Northern Ireland will all receive more money to be spent on infrastructure projects, with each government deciding where this will be spent.

This will be an increase of around 14% for Scotland, 16% for Wales and 12% for Northern Ireland.

14. Tampon tax: VAT from the sale of tampons will go towards women’s charities

Around £15 million in VAT is collected each year on sanitary products. While EU rules mean that the government cannot remove all VAT on sanitary products, an annual fund will instead be set up equivalent to the yearly value of this tax.

The fund will be donated to women’s charities over this parliament, or until the UK can remove the tax from sanitary products.

15. Making the cost of going greener cheaper for households

The current Energy Companies Obligation runs until March 2017. This will be replaced from April 2017 with a new cheaper energy supplier obligation to reduce carbon emissions which will run for five years. The changes will mean that on average 24 million households will save £30 a year on their energy bills from 2017.

The Warm Home Discount scheme will also be extended to 2020-2021. This currently gives certain low-income households a one-off reduction of £140 on their electricity bill. People can apply for the scheme online through their supplier.

16. Further detail set out on the Apprenticeship Levy

At Summer Budget it was announced that three million new apprenticeships will be created by 2020, funded by a levy on large employers.

The apprenticeship levy will come into effect in April 2017, at a rate of 0.5% of an employer’s pay bill. A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3 million.

Less than 2% of UK employers will pay the levy.

17. 300,000 homes better protected from floods

300,000 homes will be better protected from flooding by 2021, with £2.3 billion for over 1,500 flood defence schemes across the country.

This includes improvements to sea defences at Rossall in Lancashire which will reduce the risk of flooding for 7,500 homes, and money to protect 3,000 residential properties and 500 businesses in Leeds city centre.

18. Millions of pounds of investment in transport, arts and science in the North

A £400 million Northern Powerhouse investment fund will be created to help small businesses to grow. £5 million will also go to Manchester museum to create a new South Asia gallery in partnership with the British Museum, and £150 million to help make oyster style ticketing a reality across the whole of the North.

The government will also support the Rugby League World Cup bid for the UK in 2021 so matches can be held across the North. £1 million will go towards the Hull City of Culture programme for 2017.

19. Museums and galleries will remain free

Funding for museums and galleries will be maintained so they remain free to the public. To build on the success of the London Olympics and Paralympics in 2012, funding to the UK’s top athletes will be increased by 29% to support Team GB at Rio 2016 and Tokyo 2020.

20. People will no longer be able to get cash compensation for minor whiplash claims

To make it harder for people to claim compensation for exaggerated or fraudulent whiplash claims, the government is ending the right to cash compensation.

More injuries will also be able to go to the small claims court as the upper limit for these claims will be increased from £1,000 to £5,000.

This means that annual insurance costs for drivers could fall by between £40 to £50 a year.

Departmental settlements (£ billion)

Resource Departmental Expenditure Limits (DEL) excluding depreciation

Department 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Defence 27.2 27.8 28.5 29.2 30.0 31.0
Single Intelligence Account 1.8 1.8 2.0 2.1 2.2 2.3
Home Office 10.3 10.7 10.6 10.6 10.6 *
Foreign and Commonwealth Office 1.0 1.0 1.0 1.0 1.0 *
International Development 8.5 9.1 9.3 10.7 11.0 *
Health (inc. NHS) 111.6 115.6 118.7 121.3 124.1 128.2
Work and Pensions 5.8 6.1 6.3 5.9 5.4 *
Education 53.6 54.4 55.5 56.4 57.1 *
Business, Innovation and Skills 12.9 13.4 12.3 11.7 11.5 *
Transport 2.6 2.0 2.1 2.2 1.8 *
Energy and Climate Change 0.9 0.9 1.0 1.0 0.9 *
Culture, Media and Sport 1.1 1.2 1.2 1.2 1.1 *
DCLG Communities 1.5 1.4 1.4 1.3 1.2 *
Scotland 25.9 26.1 26.3 26.3 26.5 *
Wales 12.9 13.0 13.1 13.2 13.3 *
Northern Ireland 9.7 9.8 9.9 9.9 9.9 *
Justice) 6.2 6.5 6.3 5.8 5.6 *
Law Officers’ Departments 0.5 0.5 0.5 0.5 0.5 *
Environment, Food and Rural Affairs 1.5 1.7 1.6 1.5 1.4 *
HM Revenue and Customs 3.3 3.5 3.4 3.1 2.9 *
HM Treasury 0.2 0.2 0.2 0.1 0.1 *
Cabinet Office 0.2 0.3 0.3 0.3 0.2 *
National Citizen Service 0.1 0.2 0.2 0.3 0.4 *
Small and Independent Bodies 1.5 1.5 1.5 1.5 1.5 *
Resource DEL excluding depreciation is the Treasury’s primary control total within resource budgets and the basis on which Spending Review settlements were made.
As at all Spending Reviews baselines exclude one-off and time-limited expenditure. Cumulative real growth is calculated to 2019-20 from the 2015-16 baseline.
2020-21 departmental budgets have only been set for some departments. For the rest these budgets will be set in full at the next Spending Review.

Tax-Free Child Care Update

Tax-Free Childcare Launch Date now 2017

HM Treasury

Government confirms Tax-Free Childcare launch date as it welcomes judgment from Supreme Court

From:

HM Treasury and HM Revenue & Customs

Tax-Free Childcare is part of the government’s long-term plan to support working families.

The government today (Wednesday 1 July) welcomed a judgment from the Supreme Court that found the government’s proposals for delivering Tax-Free Childcare to be clearly lawful.

It also confirmed that, as a direct result of the legal challenge, the scheme is now expected to launch from early 2017. The existing Employer‑Supported Childcare scheme will remain open to new entrants until Tax-Free Childcare is launched.

As a result of the legal action, the court placed a suspension on the development of the scheme which prevented key delivery steps from taking place. This legal action was brought by a small group of childcare voucher providers involved in the delivery of the scheme that Tax-Free Childcare will eventually replace.

Exchequer Secretary to the Treasury, Damian Hinds said:

We are pleased that the government’s proposals for delivering Tax-Free Childcare have been found to be clearly lawful. This government is absolutely clear on the importance of supporting families with their childcare costs.

It is disappointing that some organisations involved in the existing scheme felt the need to take and persist in this costly and wasteful course of action, which has led to a delay in the launch of Tax-Free Childcare.

We are now pressing ahead with the scheme as part of our ongoing commitment to support working families.

Tax-Free Childcare is part of the government’s long-term plan to support working families and will provide up to 1.8 million families across the UK with up to £2,000 of childcare support per year, per child, via a new simple online system.

The government is clear on the importance of supporting families with their childcare costs. Spending on childcare was increased by £1 billion in the last Parliament and the government has also committed to doubling free childcare for working parents of three and four year olds to 30 hours a week.

Further information

  • a legal challenge was brought against the government’s decision to deliver the Tax-Free Childcare accounts through HMRC working in partnership with NS&I
  • some organisations involved in the existing Employer-Supported Childcare scheme decided to pursue challenges against the government’s decision to deliver Tax-Free Childcare childcare accounts by HMRC and NS&I working in partnership, and NS&I’s use of an existing outsourcing contract to deliver childcare accounts
  • the Supreme Court “unanimously dismisses their appeal
  • formal arrangements have now been made between HMRC and NS&I and they are pressing ahead to deliver Tax-Free Childcare as soon as possible
  • exact rollout details for Tax-Free Childcare will be confirmed in due course
  • Employer‑Supported Childcare, often referred to as childcare vouchers, will remain open to new entrants until Tax-Free Childcare launches. Parents who wish to remain in Employer-Supported Childcare once Tax-Free Childcare is launched will be able to, while their current employer continues to offer the voucher scheme
  • workplace nurseries will be unaffected by the introduction of Tax-Free Childcare

Increase in Insurance Premium Tax

Insurance Tax  shutterstock_238624636

Association of British Insurers (ABI) response on the increase in Insurance Premium Tax and cuts to corporation tax

 

 Huw Evans

Huw Evans, Director General of the Association of British Insurers (ABI), responds to the increase in Insurance Premium Tax and cuts to corporation tax announced in the 2015 Summer Budget.

On the increase in Insurance Premium Tax, Huw Evans said:

“Insurance Premium Tax is a tax on people and businesses at the point at which they buy a general insurance product. So it’s very disappointing to see a more than 50% tax increase being imposed on consumers, especially when the insurance industry and Government has worked so hard in recent years to bring down the cost of essential insurance.”

The ABI calculates that the new rate of IPT will add £9.48 to the average annual household insurance policy (buildings and contents combined) and £12.25 to the average annual comprehensive motor policy.

On Corporation Tax, Huw Evans said:

“Further cuts to corporation tax are good news. They will continue to make the UK a highly competitive destination for insurers and savings providers and enhance London’s position as the insurance capital of the world.”

 

Derek Rigby

Derek Rigby of Sagar Insurances said:

Sagar Insurances logo

The increase in IPT has been roundly criticised by Business and the General public alike. Our initial thought was in a similar vein. However if the increase means that Insurance buyers review more closely their Insurance spend and work with a Professional Insurance Broker who will not only provide superior service but competitive pricing then all is not lost.
For instance at Sagar Insurances despite a huge increase in  on line competition the retention rate for our Personal Lines team is constantly around the 95% mark. This would tend to support our view that for many consumers price is not the overall factor when looking at their Insurance renewal. Excellent service and advice, superior Claims Handling must also be a consideration.

 

 

Changes to National Insurance

Changes to National Insurance

 

Fact Sheet

 

from:    Lisa Kennery

The Government has recently introduced a number of changes to national insurance and further measures affecting both employers and individuals are in the pipeline.

 

This factsheet provides an overview of some key changes, as well as offering advice on a range of strategies to help minimise your national insurance bill.

National Insurance shutterstock_15678070

EMPLOYMENT ALLOWANCE

 

The Employment Allowance was introduced in April 2014, with the aim of reducing the employer national insurance liability for businesses and charities, and encouraging businesses to expand and take on new staff.

 

While a small number of exclusions apply, most businesses, charities and Community Amateur Sports Clubs are entitled to claim an annual reduction of up to £2,000 in their employer national insurance contributions (NICs) bill.

 

There are rules to limit the Employment Allowance to a total of £2,000 where there are ‘connected’ employers. For example, two companies are connected with each other if one company controls the other company.

 

The employer’s payment of PAYE and NICs is reduced each month to the extent it includes an employer Class 1 NIC liability until the £2,000 limit has been reached.

 

The allowance can be claimed via payroll software or HM Revenue & Customs (HMRC) Basic PAYE Tools.

 

Do contact us if you believe you are entitled to the allowance as it is possible to claim up to four years after the end of the tax year in which the allowance applies.

 

There are some exceptions for employer Class 1 liabilities which can be covered by the Employment Allowance including liabilities arising from:

 

  • a person who is employed (wholly or partly) for purposes connected with the employer’s personal, family or household affairs
  • the carrying out of functions either wholly or mainly of a public nature (unless charitable status applies), for example NHS services and General Practitioner services
  • employer contributions deemed to arise under IR35 for personal service companies.

With effect from 6 April 2015 Employment Allowance has been extended to those employing care and support workers.

 

If you need guidance on this area please do get in touch so that we can offer specific advice.

 

From April 2016 the Employment Allowance will increase to £3,000.

 

However, companies where the director is the sole employee will no longer be able to claim this allowance.

 

Who will benefit

 

The Government announced the increase in the Employment Allowance in recognition of the fact that the new National Living Wage (NLW) may increase costs for some businesses.

 

Up to 90,000 employers are expected to see their employer NICs liability reduced to zero, allowing businesses to employ up to four full time workers on the new NLW from next year, without paying any NICs.

 

SCRAPPING NICs FOR UNDER-21s

 

Apprentices shutterstock_152179931

From 6 April 2015 employer NICs for those under the age of 21 are reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply the employee will need to be under 21 when the earnings are paid.

 

This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period.

 

The UST is a new term for this new NIC exemption. It is set at the same amount as the Upper Earnings Limit (UEL), which is the amount at which employee NICs fall from 12% to 2%.

 

The weekly UST is £815 for 2015/16 which is equivalent to £42,385 per annum.

Employers will be liable to 13.8% NICs beyond this limit.

 

In the Second Budget it was confirmed that the UEL will increase in line with the income tax higher rate threshold. This will increase to £43,000 in 2016/17 and to £43,600 in 2017/18.

 

The new rules apply to both existing employees and employers taking on new staff.

 

They do not affect an individual’s entitlement to the State Pension or contributions based benefits such as Statutory Sick Pay or Statutory Maternity Pay. The employee NICs due are unaffected and remain payable by the employee.

 

ABOLISHING NICs FOR APPRENTICES UNDER-25s

 

The Government will abolish employer NICs up to the UST for apprentices aged under 25 with the stated aim of encouraging the employment of younger workers and boosting the economy by bridging the skills gap.

 

From April 2016, employers who engage apprentices under the age of 25 will be able to claim exemption from employers’ NICs on the cost of the apprentice’s salary up to the UST.

 

Detailed regulations will be issued on the NICs for apprentices including the definition of an apprentice.

 

Who will benefit

 

The new measure is expected to save employers an estimated £105 million in employers’ NICs during its first year of operation.

 

NEW CLASS 3A NICs

 

With effect from 6 April 2016, a new single-tier State Pension will replace the existing two-part system plus various means-tested benefits, for those reaching State Pension Age on or after 6 April 2016.

 

The Government is providing a one-off opportunity to allow existing pensioners and those reaching State Pension Age before 6 April 2016 to top up their additional State Pension, by up to £25 per week by paying Class 3A voluntary NICs.

 

How it works

Each unit of Class 3A contributions will result in £1 per week of additional State Pension. The price of Class 3A is based on an actuarially fair rate with prices varying between £127 and £934 per unit depending on the purchaser’s age.

 

Those wishing to take advantage of the Class 3A contribution must meet the following conditions:

 

  • They must be entitled to a UK State Pension
  • They must reach State Pension Age before 6 April 2016.

The facility will apply from 12 October 2015 to 5 April 2017, for eligible individuals.

 

The new Class 3A contribution will not replace the existing Class 3, and those taking up the new Class 3A will be advised to consider making Class 3 contributions where appropriate.

 

Applications and payments relating to Class 3A contributions will be dealt with by HMRC.

 

Who will benefit

 

The transitional measures are likely to be of particular benefit to those with low earnings, particularly women and carers, who tend to have low Additional State Pension entitlement, and also the self-employed who are excluded from the State Earnings Related Pension Scheme (SERPS) and the State Second Pension.

 

Please note that receiving extra Additional State Pension could impact on certain state benefits. It is important to consider a number of areas when deciding whether to make Class 3A contributions. Please contact us for further advice.

 

ADDITIONAL FUTURE MEASURES

 

Abolishing Class 2 and reforming Class 4 NICs

 

The Coalition Government previously introduced significant changes to Class 2 NICs, resulting in the introduction in April 2015 of new provisions for the collection and payment of Class 2 NICs via self-assessment, rather than direct debit generally on a monthly or six monthly basis.

 

From 6 April 2015 liability to pay Class 2 NIC will arise at the end of each year. The amount of Class 2 NICs due will still be calculated based on the number of weeks of self-employment in the year, but will be determined when the individual completes their self-assessment return.

 

It will therefore be paid alongside their income tax and Class 4 NICs. For those who wish to spread the cost of their Class 2 NICs, HMRC will retain a facility for them to make regular payments throughout the year.

 

Those with profits below the stated threshold no longer have to apply in advance for an exception from paying Class 2 NICs. Instead they will have the option to pay Class 2 NICs voluntarily at the end of the year so that they may protect their benefit rights.

 

The Government has announced that Class 2 NICs will be abolished in this Parliament and it will reform Class 4 NICs to include a contributory benefit test.

 

MINIMISING THE NIC BILL

 

We can work with you on a range of ideas for saving employer and/or employee NICs.

 

Dividends instead of salary/bonus

 

For limited companies you should consider paying dividends rather than a salary/bonus.

 

Where directors are in receipt of a salary/bonus from a company, the NIC cost may be such that part of the payment could be more cost effectively made as a dividend. There are special rules for some companies providing personal services.

 

The decision on whether to pay a dividend is complex because doing so may influence the value of the company’s shares and therefore increase the liability to capital gains tax and inheritance tax. There is also a maximum amount that may be paid, based on the company’s results.

 

Further strategies you may also want to consider:

 

  • Increasing the amount the employer contracts to contribute to company pension schemes.
  • Share incentive plans (shares bought out of pre-tax and pre-NIC income – this is a specialist area. Please get in touch for advice).
  • Salary sacrifice arrangements in respect of tax-free benefits in kind, such as the provision of childcare.

 

For further advice on national insurance contributions, please contact us. We have expertise in all areas of running a business and would be delighted to assist you