Budget 2015 – Small Firms Facing Tax Shake-Up

On 8 July 2015, The Chancellor delivered his budget to Parliament. Like all budgets there are ‘Winners & Losers’ but this Budget in particular has provided plenty ‘food for thought’ amongst accountants as we look at ways of minimising the impact to our clients.

Our main focus in this blog is regarding the impact the Budget will have on small firms & the shake-up within the taxation rules associated with it.

As such, one of the main advantages of incorporation was to reduce tax but the tipping point at which incorporation starts to deliver significant tax savings has clearly gone up. It looks as if incorporation at earnings even as high as £30,000 will now deliver a very marginal benefit.

Thinking of this in broad terms, the advantage of incorporation has been that much of the income could be received as a tax-free dividend. Of that £30,000, something like £20,000 could be taken as dividend (using the personal allowance to cover salary).

From the 6 April 2016 that £20,000 will create additional income tax of £1,125 (£15,000 x 7.5%) - Each taxpayer will receive a £5,000 tax free Dividend Allowance, hence the reduction to £15,000. That is a significant increase whereas, broadly speaking, the self-employed will see little change. Additional tax at that level would make incorporation much less attractive.

With the tax benefits of incorporating being reduced (& I expect them to be further reduced in the coming years) there is a lot to be said for them to remain as self-employed. Also it’s worth mentioning here that for self-employed people the view to incorporate generally reduced the need for payments on account upon cessation of their trade for the following tax year & as such provided those with a tax break period upon incorporation. With Dividend income to be taxed from 6 April 2016 this could potentially throw another spanner in the works for those considering incorporation at this time!

For those who are already incorporated, there will be different considerations. Some will be happy to operate in corporate form but others may start to wonder whether it is time to disincorporate.

So what do we say to clients about these changes & the further ones that are almost certain to come?

The first thing is to remind clients that the dividend tax does not come into effect until next year, so there is nothing to do immediately. For clients who are considering incorporation, it might be best to put any plans on hold until the position is clearer.

This is certainly the case if the benefits are only marginal or if there are concerns about the additional complexity. Clients will be forewarned that next year’s tax is likely to be higher than this year’s, despite all the talk of tax cuts in the Budget.

For those with significant income, where the dividend tax will make a big difference, we will start thinking about timing of dividend payments next spring to ascertain if more tax-efficient.

HMRC can be expected to look closely at the timing of dividends paid in March and April next year, so getting the paperwork right will be essential.

Our client’s will be receiving detailed information on how the Budget changes will affect them & advice also on how to tackle them as each case will differ dependant on their circumstance.

For more information on the Taxation services we provide, please visit our Tax Compliance services page.

If you require more detailed information on the Budget & the potential impact it could have on both you & your business then please contact us & we’ll be happy to help… Our client’s vouch for our service & we invite you to look at reviews from some of our customers here.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

National Insurance – Employment Allowance 2015/16

For those businesses who operate a PAYE scheme & met certain criteria for the 2014/15 tax year would have meant they qualified for a National Insurance ‘Employment Allowance’ of £2,000.

The good news is that the £2,000 ‘Employment Allowance’ remains available for the forthcoming 2015/16 tax year.

If businesses want to continue to claim it, there will be no need to apply the ‘Yes’ marker on their EPS ‘Employment Payment Summary’ as this will automatically roll forward.

However, if the business forgot to make a claim for the 2014/15 ‘Employment Allowance’ & they still meet the relevant criteria, then they have four years after the end of the tax year in which the allowance applies to make a claim. For example, if a business wants to make an ‘Employment Allowance’ claim for the 2014/15 tax year, then they will have until 5 April 2019 to do so. The claim is essentially a correction to the previous ‘Employment Payment Summary’ submission for that year, so a business can send in a revised EPS return with the correct ‘Yes’ marker applied for the tax year they wish to claim for.

Another aspect of the ‘Employment Allowance’ scheme would be that if a business had more than one PAYE scheme & was unable to utilise all of the £2,000 allowance available against their nominated PAYE scheme, then they can apply to HMRC for a repayment of any unutilised balances. The unutilised balance will be the lesser of £2,000 or the total Employers’ National Insurance for all their associated PAYE schemes, less the allowance already given against their chosen scheme.

For more information on the above &/or our Payroll services we provide, please visit our Payroll Bureau services page.

If you require assistance with obtaining a refund from HMRC regarding the ‘National Insurance Employment Allowance’ &/or to check eligibility if you can make the claim for the allowance in the first instance then please contact us & we’ll be happy to help…

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Well Done Leanne Kenny..

Emerald Accountants Autism Anglia Fundraising

Emerald Accountants would like to say a massive Well Done to one of its Directors ‘Leanne Kenny’ for her fantastic achievement in raising money for such a deserving charity ‘Autism Anglia’.

Leanne raised a total of £263.75 for the charity by inviting clients, together with friends & family to attend a Sponsored Walk around Thetford.

Leanne would like to thank everybody who contributed to the Sponsored Walk & she has plans for more events like this in the near future.

For more information on ‘Autism Anglia’ & also to learn exactly what Autism is, please visit their website at www.autism-anglia.org.uk

It’s important that as much awareness as possible is made about Autism, so your support really does make a difference.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Claiming a Tax Refund on Pension Withdrawals

If an individual withdraws a lump sum from a defined pension contribution pot using the new pension rules (effective from 6 April 2015), they could find that they don’t end up with as much cash in their pockets as they expect.

This happens when the pension provider doesn’t hold a P45 or current tax code for that person. HMRC guidance advises that the pension provider will have to deduct income tax from the pension payment at the emergency tax rate (i.e. Month 1). This means that any income received from the individuals pension pot will be taxed by reference to 1/12 of the personal allowance, 1/12 of the basic rate band & so on…

However if the scenario above applies to you, there are ways of obtaining an early income tax refund. How the tax is reclaimed really depends on your personal circumstances. There are a number of new forms to claim an income tax refund where you may have been taxed at the emergency rate:

  • Form P50Z – If an individual has chosen to empty all their pension pot in one go & they have no other PAYE or pension income (other than state pension).
  • Form P53Z – If an individual has chosen to empty all their pension pot in one go & they do have other PAYE or pension income other than state pension.
  • Form P55 – Where an individual has taken a lump sum payment which doesn’t use up all of their pension pot, they have only taken a single payment & don’t intend to take further payments in that tax year.

For more information on the above &/or if you require assistance with obtaining an income tax refund for income tax you’ve overpaid on your pension withdrawal, please contact us & we’ll be happy to help…

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

Class 2 NI Changed From April 2015

In prior years, once the tax return season is over, your accountant may have turned their attention to completing a deferment application for next year’s Class 2 NI if your earnings were likely to be below the small earning threshold or with both self-employed & employed income.

However, in the case of our client’s we won’t need to complete these for 2015/16 as there has been a change in the way Class 2 NI is paid.

From 6 April 2015 Class 2 NI, like Class 4, will be payable with income tax through your self-assessment tax return. Therefore, any Class 2 NI calculated for the 2015/16 tax year will be due by 31 January 2017. For client’s with small earnings, Class 2 NI will only be due on that date if their profits are above the small profits threshold (previously small earnings limit). This has been set at £5,965 for the tax year 2015/16.

As Class 2 NI counts towards the state pension (& some other state benefits such as maternity allowance), it would still be advisable for people with profits below the small profits threshold, & not having any employment income, to take up the option of making voluntary Class 2 NI payments. This point assumes that those reaching state pension age on or after 6 April 2016 haven’t already reached the 35 years’ contributions needed to earn the maximum new flat-rate state pension.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…

“Together Everyone Achieves More”

Following on from the announcement of our new website, we had a referral from our client MTTS Design regarding a local business looking at the possibility of changing Accountants.

This is a business that has seen incredible growth over the last few years.

The question had to be asked why they were looking to change accountants in the first place & it was evident early on into the meeting that their present accountants simply weren't doing enough for them. After ascertaining exactly how the business is operated, there were a number of small & relatively simple steps which would transform the day to day running of the business as a whole. The client quoted on numerous occasion "I never thought of it like that!"...

We really look at the whole picture of your business & strive to help you. Your best interests are the core of everything we do & that's the key to building a successful relationship not only now but in the future also.

We're pleased to say that the initial meeting was enough to see the benefits Emerald could offer them & they are to join as a client.

This is a perfect example of our T.E.A.M. policy we promote, in that an existing client recognised that someone he was working on needed a bit more & made the introduction to us. This works both ways & is the way we like doing business.

Please look out for more information in the future on how "Together Everyone Achieves More"...

Welcome to Emerald Accountants

Emerald Accountants is pleased to announce the launch of its brand new website.

We want to say a massive thank you to our client & friend ‘Stuart at MTTS Design’ for his creative skills on this & I think you’ll all agree he’s done a fantastic job. We hope you enjoy the site as much as we do…