On the 6 April, the government launched the new Employment Allowance, which means that eligible businesses no longer have to pay employer National Insurance Contributions (NICs) if they usually pay less than £2,000 a year.
The theory behind this new tax cut is that reducing NICs will encourage employers to grow their businesses by recruiting more staff. Most (90%) of the businesses that will benefit from this change will be businesses with fewer than 50 employees (ie small businesses).
In his March Budget, Chancellor George Osborne said: “To help create jobs and back small businesses I’m today creating the Employment Allowance. The Employment Allowance will work by taking the first two thousand pounds off the employer National Insurance bill of every company. For the person who has set up their own business and is thinking about taking on their first employee – a huge barrier will be removed.”
Now you have more money in your pocket – what are your options for making the most of it?
In practise, the new Employment Allowance means a small business could employ five adults full-time on National Minimum Wage and get an employment tax cut of more than 80% (from £2,430 to £430). The incentive is expected to be a real boost for small businesses as research by the Federation of Small Businesses (FSB) shows 28% of its members plan to use the money saved by the Allowance to employ more staff.
For some companies, the cash freed up by the Employment Allowance will be an opportunity to invest and the FSB survey revealed that 24% of businesses questioned would invest in resources. Another option could be to invest in other businesses or to use the money as leverage for gaining investment. The rise in business investment has been on the up for a number of months now and businesses with more cash available to them could increase investments.
Investing the money in savings, either for future investment or for retirement planning, is another option. Be aware, though, that savings can be subject to tax, which could undo the tax cut gained from the Employment Allowance. For example, savings accounts that state the interest on savings is ‘equivalent to 5%’ will mean you’re paying tax on your savings. If you’re paying the basic tax rate of 20% on your interest, that 5% interest will actually only be 4%. If, for example, you had £10,000 in an account like this, then over five years you’d miss out on £500 interest. Investing your savings correctly and paying less or no tax on your business savings will mean that you won’t waste the money you’ve saved on paying NICs.
This blog was written by Richard Collis of Sheffield-based Independent Financial Advisers Campbell Harrison.
From Autumn 2012, by law large businesses in the UK were required to have automatically enrolled their staff into a contributory workplace pension scheme. Since then, businesses with fewer employees have had to comply with legislation, with staggered deadlines based on number of employees.
But with the latest deadlines fast approaching, new findings from an online survey by AutoEnrolSME suggest that many businesses have yet to auto-enrol their employees in a scheme, despite being required to by law.
The survey found that almost two-thirds of employer respondents did not know when their “staging date” was (ie the date by which they needed to auto-enrol their employees into a contributory workplace pension scheme), and nearly as many had not sorted out an auto-enrolment pension scheme for their employees.
The poll asked 200 business owners with between 62 and 249 employees whether they knew when their staging date was and whether they had an auto-enrolment pension scheme set up for their employees. The results were worrying.
The employers we talked to have their staging dates in the coming months (1 April, 1 May and 1 July). This means some will have already passed their staging date, but aren’t set up for auto-enrolment or don’t even know they needed to be. Although they can postpone their obligations for up to three months, they still need to have a pension scheme available during that period. If they don’t have a scheme available and aren’t enroling their employees, they could face steep fines from the Pensions Regulator.
There are a few things that all employers should do, whether you have 60 employees or six:
Some advisers will tell you that the process can take up to a year, and many say it takes a minimum of six months. Although this might be true if you have a specific scheme in mind, as long as you start the process a few months in advance and get the right help you should be ready on time.
This month saw the Chancellor, George Osborne, deliver his Budget speech, designed to appeal to anyone who is ‘a maker, a doer or a saver’. Both individuals and companies were targeted in a bid to encourage more investment. In terms of companies, this came in the form of increased allowances which would hopefully lead to more investment: doubling the Annual Investment Allowance, AIA, to £500,000.
For individuals, not only was the personal allowance increased to £10,000 (as of 6 April 2014) but there were also some significant changes to longstanding tax-free investments of Individual Savings Accounts (ISAs).
ISAs are personal tax-free investments - any interest or dividends earned are free of income tax. Under previous rules, there were two types of ISAs; a stock ISA and a cash ISA. For the 2013/14 tax year those aged over 18 were able to invest a total of £11,520, which could be made up of up to half in a cash ISA and the remainder in a stock ISA.
However, from 1st July 2014, there will no longer be the distinction between a cash and stock ISA. Instead, there will be a new ISA which would mean that there are no limits on the proportions of stock to cash that you could invest in an ISA.
The other change to ISAs from the same date is the increase in the maximum total annual investment from £11,520 to £15,000. Together with the fact that the whole ISA can be made up of a cash investment, it is hoped that this will encourage UK savers to take advantage of tax-free ISAs.
So will this change really increase the level of investments and encourage savers to save more? In theory, it should. An increase in the limits to how much an individual can save and a reduction to the restrictions should all point towards increased levels of saving. In reality, though, many people would have struggled to use the whole £5,760 cash ISA allowance this year meaning that they will inevitably find it difficult to spare £15,000 to invest in the new type of ISA. Only time will really tell if there is a significant increase in levels of saving.
Blog provided by Wisteria, Chartered Accountants, Tax and Business Advisers.
Payroll tasks involve far more than paying employees. Tasks commence at the start of each tax year, when a company must ensure that all records are accurate and up-to-date. Since the introduction of Real Time Information (RTI), this is more important than ever, because all employee payments and deductions must be reported to HMRC when they are made.
Prior to the start of the tax year, you must make sure that your payroll software has been updated with the appropriate rate changes for income tax and National Insurance contributions (NIC) for the new tax year. HMRC will send you a P9X form to tell you what the new personal allowances are, the thresholds and rates of tax and NIC. If an employee’s tax code has changed for the new tax year, HMRC will issue a P9 form.
Accurate payroll records must be kept so that HMRC can check that each employee pays the correct amount of tax and National Insurance. HMRC can also check that a workforce is paid the correct statutory amount and that legislation is complied with, including National Minimum Wage. The information is also required to submit the details to HMRC as part of RTI.
A company must retain all PAYE records for three years plus the current year. An employer must record details of all employee information, along with all payments and deductions. Failure to maintain accurate payroll records could result in a penalty charge of up to £3,000. Making late payments to HMRC or making inaccurate payments of income tax or NIC could also result in a penalty.
On each payday an employer is required to keep accurate records of each employee’s pay and deductions, even if they earn below the taxable amount. Every time someone is paid, details must be submitted to HMRC as part of RTI. Any changes, including an employee starting or leaving a company, must be reported to HMRC using the appropriate software.
Any annuity payments or pension payments must be reported to HMRC using RTI in the same way as other income. Special procedures apply to making trivial commutation payments and advice may be required if you have these payments.
Payroll is a complex issue, although the introduction of RTI has simplified procedures. Professional guidance may be required to ensure that legislation is complied with.
Blog supplied by The Accountancy Partnership.
Perhaps, with the benefit of hindsight, unsurprisingly with the next election not far off (May 2015) the chancellor was in a positive mood in terms of economy and reported that the Office for Budget Responsibility (OBR) had revised its growth forecast for this year, from 2.4% to 2.7%. He also informed those listening that the employment rate is now higher in the UK than in the US for the first time in 35 years, and that inflation would remain around 2% per annum into the near future.
Whilst all of the above is good news, we really need to look at some of the measures announced in what Mr Osborne named as being the budget for the “do-ers, the savers and the makers”.
As I predicted, the 2014/15 tax-free personal allowance has increased to £10,000. Mr Osborne also announced it would be further increased to £10,500 in 2015/16. What I did not foresee was a rise in the 40% tax threshold from £41,450 to £41,865 from next month. It will increase again next year, but only by 1%. Whilst definitely a step in the right direction, it will still mean that more people will be paying tax at 40% at the end of the Government’s term than when it started.
It was encouraging to hear that the number of registered tax avoidance schemes has fallen by half in recent years. Mr Osborne displayed a resolute commitment to continue the war on evasion by announcing that scheme users would have to pay tax upfront whilst their appeals are progressed.
The Chancellor emphasised his commitment to helping businesses grow, especially SMEs, as they are the biggest contributors to the UK economy.
Without doubt the announcement that the annual investment allowance for businesses is to be doubled to £500,000 and extended until the end of 2015 will be hailed as good news. This move will help SMEs to plan their investment strategy with confidence in the next 20 months.
I was pleased to hear that the Office for Tax Simplification recommendation to merge Class 2 National Insurance collection with the collection of income tax and Class 4 National Insurance under self-assessment, for the self-employed, is to be adopted. I’m sure that most of the self-employed will also be happy with this announcement.
In an attempt to make the British Energy Intensive Industry sector more competitive, the Chancellor announced that the carbon price floor is to be capped as part of a £7bn package to reduce energy costs to business.
In a proactive move to help Britain’s export industry George Osborne announced a doubling of export finance and the cutting of interest rates on related lending schemes by a third, as well as lowering the rate of air passenger duty for long haul flights, all of which he hoped would bring investment to the UK.
The construction industry should be pleased with Mr Osborne’s announcement of a package of measures including an extension of the Help-to-Buy scheme to 2020, a New Garden City at Ebbsfleet and £140m of funds for flood defences.
There was good news for savers arising from Mr Osborne’s intention to merge cash and stock ISA allowances, and the introduction of a more generous annual limit of £15,000 taxfree savings.
The Chancellor bucked my gloomy pension predictions by announcing the most major change to pensions schemes since 1921. Pension savers will no longer need to invest the pension funds in annuities, and the onerous 55% tax rate on certain withdraws has also been scrapped.
Some other measures that will grab the public’s attention are:
The news you’ve been waiting for - a £200m fund is to be made available to councils to enable them fill the ubiquitous potholes.
Blog supplied by Brian Palmer, Tax Policy Adviser at AAT, the professional body for accounting technicians.