The Chancellor, George Osborne, warned that 2014 would be “a year of hard truths”. So, while his budget speech on 19 March will have moments of optimism, Mr Osborne needs to make further savings of £25bn to address the deficit and it’s expected that this will come from the welfare budget.
It’s hard to say whether we are in for any major surprises. If we look back to the 2012 Budget, the Chancellor delivered a bombshell in the form of the pasty tax! So, you never know…
I can confidently predict that the tax-free personal allowance will, at least, increase from £9,440 to £10,000. Furthermore, in line with recent years, the higher rate threshold will be reduced from £34,370 to £31,865. The latter is not good news for households with only one breadwinner.
The Chancellor is likely to announce that employers can spend up to £500 per employee on recommended medical treatment to help them return to work after a period of ill health or injury. This is an initiative to which I give a cautious thumbs-up, but it’s not one that will get employers wildly excited.
The Government will be seeking to encourage further employee share ownership by increasing the maximum value of shares that an employee can hold in their Share Investment Plans.
Another likely piece of good news is that disposals of shares to a new kind of trust for the benefit of all employees of a company may be wholly relieved from Capital Gains Tax (CGT).
In response to an Office of Tax Simplification recommendation, the rules around employee share schemes are to be simplified and their processing modernised.
This is another positive step in the right direction, but don’t expect there to be legions of new employee shareowners.
Pensions will be under attack, again, with the lifetime allowance for gross contributions being further reduced from £1.5m to £1.25m. While, for many, this is not going to be an issue, increasing numbers of higher-paid executives could find funding to be an issue in the future.
The pre-announced halving of the time for individuals to sell a former residence after moving, from 36 to 18 months, without incurring an exposure to CGT, is to stop abuse. This proposed change made me smile, because, it’s often been politicians who have been guilty of ‘flipping’ their principal private residence relief.
It’s already been announced that the current £325,000 inheritance tax (IHT) nil rate will remain frozen until 2017-18. I’m concerned that fiscal drag coupled with a recovery in the housing market could lead, on death, to many ordinary UK homeowners once again facing a charge to IHT in coming years.
One piece of good news arising out of the planned convergence of the two corporation tax rates from April 2015 is the likely introduction of a measure to remove the onerous existing associated companies rules for most companies on tax in 2015. This is, indeed, a welcome simplification.
Expect a whole raft of anti-avoidance measures. In particular, there is likely to be further challenges to marketed avoidance schemes, mixed partnerships (ie involving individuals and limited companies) and employment intermediaries. While wholly supportive of any appropriate initiative to reduce evasion and abusive avoidance, many are concerned that HMRC fails to make sufficient use of the existing legislation.
From January 2015, the place of supply rules affecting intra-EU supplies of Broadcasting, Telecommunications and E-services (BTE) to consumers will change. In essence, the place of supply will become where the consumer of BTE services belongs, regardless of where the supplier belongs.
Blog supplied by Brian Palmer, Tax Policy Adviser at AAT, the professional body for accounting technicians. He will be providing live commentary via the AAT Twitter feed throughout the Chancellor’s speech on 19 March.
As part of his speech at the Federation of Small Businesses policy conference, George Osborne highlighted some measures being introduced for small businesses that will help them to save money. In particular he highlighted the Employer’s National Insurance Tax Break, which he claims will lift 400,000 businesses out of the requirement to pay any Employer’s National Insurance.
So can we really believe that the next Budget, on March 19th, will have real tax breaks which truly benefit small businesses?
When I refer to a small business I mean “the self-employed”; whether operating through a sole trader or limited company business structure, according to a recent news report from the BBC, there are some 4.3 million of us who earn a crust through self-employment.
Having been involved in the small business space for a number of years now I can say, hand on heart, that the tax landscape has become progressively more complicated in recent years. The Government seems to be adding to and not easing the red tape administrative burden placed on those businesses who often struggle to afford administrative help with the business owner taking care of the various forms and returns during their “spare time”, what little they have of it.
Whilst the cash accounting rules for small businesses were an attempt to simplify the annual accounts preparation process they introduced a number of pitfalls such as a business not be able to claim more than £500 in bank or loan interest if they used this method of accounting.
The £2,000 Employer’s National Insurance Tax Break is not all it seems with some employers being excluded from claiming the benefit for no obvious reason whatsoever.
And then of course there is Real Time Information (RTI), which has brought about more U-turns than I ever did when I was learning to drive. Fines for non-filing have been delayed because of system troubles and the date for RTI compliance has been extended to April 2016 for employers with fewer than 10 employees. However, telling businesses this in December 2013 was ludicrous given that the system was supposed to be implemented by the previous April, so most had already complied!
Let’s put this in context of what is happening with big businesses; they have seem a corporation tax cut over the past few years; from 26% in 2011 to just 21% in 2014 with a promise of this being 20% (the same rate as for small businesses) from 2015.
A 5% tax cut in four years – that’s a saving of £50,000 on a profit of a million pounds.
Should small and big businesses pay the same rate of tax? Many argue that people and businesses should pay a “fair rate” of tax often with a push for those higher earners to pay a higher rate of tax. So why is the same argument not applied to big businesses? Not only can they afford teams of tax advisors to help them work out the best “tax minimisation strategy” but the government is helping them with that tax minimisation strategy by reducing the rate of corporation tax.
What I don’t understand is why the anti-tax avoider and evasion campaigners aren’t in uproar about this!
By now I think I have become rather cynical about the promises thrown around about helping small businesses and reducing the red tape burden. For me that record is well and truly stuck in the groove.
But why should small businesses get a break? Well, the small business owner may not set the world on fire or aspire to be the next Richard Branson but generally they do endeavour to do a hard day’s work for a hard day’s pay. They should be admired, encouraged, helped and supported as the backbone of the UK economy.
Forget the promises — actions speak louder than works. Give the self-employed a real tax break!
Award-winning chartered accountant Elaine Clark is an expert contributor to Start Up Donut and the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions.
Picture credit: Altogetherfool on Flickr
As a nation we are getting older. Approximately 10 million people in the UK are over 65 years old. The latest projections are for 5½ million more elderly people in 20 years’ time and the number will reach 19 million by 2050 (according to government figures).
With a greater number of people drawing their pensions and for longer, the economy will struggle to keep topping up the pension pot.
Currently all employers will have to enrol their employees in a pension scheme if they are between 22 years old and the state pension age and they earn £9,440 or more. Most large businesses have rolled out the auto enrolment scheme already, whilst small businesses are introducing the scheme in stages.
Employees have the option to opt out of the scheme at present. But this is a notion that think tank, The Policy Exchange, wants to change. Rather than the optional opt-out clause, The Policy Exchange is asking the government to introduce a Help to Save scheme which removes this option. This effectively makes paying into a pension compulsory like tax. Exceptions can be made if you can prove you have saved your own sufficient funds.
The Help to Save scheme would also work on a sliding scale, increasing your contributions as your income increases. The Policy Exchange warns that people who are not saving enough for their pensions are putting an “intolerable burden on the state”.
All working people pay National Insurance contributions. This money is pumped back into services such as healthcare, welfare and our state pensions. Opponents of the scheme argue that we are already hounded by taxes and can’t afford to pay out anymore.
Sceptics argue that the compulsory payments may fall into the hands of politicians and bankers to “invest” which could result in the rapid deterioration of our funds. This forms the argument that individuals should be in control of their own pension pot, rather than the state.
Conversely, relying on NI contributions alone is insufficient. The full basic state pension is currently £110.15 a week and you will receive that only if you are of pension age and have contributed NI payments for 30 qualifying years. You may have to pay tax on your pension if your total income from work, private and state pension exceeds your tax-free allowance.
There is help for pensioners who survive on the state pension alone in the form of pension credit. If you are entitled, this could top up your weekly income if it’s below £145.40 (for a single person) or £222.05 (for couples).
If a compulsory pension tax was brought in, many people would struggle to live, even more than they do now, on low wages. This doesn’t take away the fact that action needs to be taken to address the perennial problem of our pensions. Can you see yourself as a pensioner managing on £110.15 a week?
A report from Prudential shows that one in five people who retired in Britain in 2013 will fall below the income poverty line. The report also found that 14% of people will rely solely on the state pension. Women seem to be more at risk of poverty — one quarter of women will enter retirement solely on state pensions.
These worrying statistics highlight the need not just for action but for a change in our perspective on our lives. We don’t like to think of ourselves in old age, but a pension is an important subject that should not be cast aside until we get close to retirement age in a panic.
Whether you agree with the so-called pension tax or not, thinking about our future and most importantly safeguarding it should be a compulsory topic to address for all.
What do you think of the Help to Save scheme? Is it taxing us when we’re already down or a great way to boost the pension pot?
James Cartwright is an online company formation agent at Wisteria, a firm of chartered accountants, tax and business advisers in London.
The Seed Enterprise Investment Scheme (SEIS) has so far helped more than 1,000 businesses to raise finance. According to government figures published in 2013, private investors have so far invested more than £82m through the scheme.
The SEIS offers tax benefits and encourages investment in small and early-stage companies by reducing the risk of investing in these types of businesses. But, in my experience, not many companies know about the scheme or the tax benefits it offers.
The purpose of the scheme is to offer tax reliefs to investors in higher-risk companies that are less than two years old, have fewer than 25 employees, gross assets of no more than £200,000 and a permanent UK establishment.
One of the key benefits of the SEIS is that it reduces the risk of investing in small, early-stage companies. Investors can invest up to £100,000 into a company in a single tax year, rising to a maximum of £150,000 over two or more years. The investments will benefit from 50% income tax relief, and disposal of shares will be Capital Gains Tax exempt provided the relevant conditions have been met.
A potential disadvantage of using SEIS is that the tax laws are fairly complex – but this is in the process of being simplified. Before looking to raise money this way, it is important to consider the following:
To take advantage of the scheme I’d advise taking the following steps:
If you’ve started or are about to start a new business and you need external funding, it’s worth considering SEIS. However, it’s always advisable to get professional advice – not only to ensure that you meet all the required criteria, but also to ensure that SEIS is the best way forward for your business.
Blog supplied by Carol Cheesman, Principal of London-based Cheesmans Accountants.
Following the success of Small Business Saturday in December, HM Revenue & Customs (HMRC) is running another day of free live tax webinars on Saturday 15 February aimed at new and prospective businesses.
Start-ups can take part in the four free live webinars by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. The Start-up Saturday webinar programme is happening between 10am and 5pm and each webinar lasts an hour.
The HMRC webinars are:
10am to 11am Saturday 15 February
This session concentrates on the information sole traders or partnerships need when they start. It covers registration, National Insurance, Self Assessment and record keeping.
12pm to 1pm Saturday 15 February
This webinar is aimed at businesses considering setting up as limited companies. It provides the basics on incorporation and registration with Companies House and HMRC. It also looks at when companies become an employer, and the timetable for paying Corporation Tax online.
2pm to 3pm Saturday 15 February
Sole traders or partnerships need to know which day-to-day expenses they are able to claim for tax relief. They also need to start keeping records of these as soon as the business starts. This webinar provides an overview of the most common expenses, including motoring costs.
4pm to 5pm Saturday 15 February
New businesses are often worried about VAT, what it is and when they need to register. This webinar answers these questions and explains in simple terms how VAT works.
With the one-year anniversary of the automatic enrolment pension scheme imminent, NEST (the National Employment Savings Trust) has published its top five dos and don’ts for employers, based on its insight into the challenges faced by employers who have already implemented automatic enrolment.
Tim Jones, CEO of NEST, says: “Automatic enrolment has brought a radical change to workplace pensions, but it will rapidly become the new normal. While the early stages have primarily affected large employers, the numbers of employers coming under the duties will increase dramatically in the next few months. All employers need to be prepared to meet the challenges brought by implementing automatic enrolment. NEST is already working with [more than] 1,000 employers. Our insights into their experiences have enabled us to develop some really useful dos and don’ts for employers that still need go through the automatic enrolment experience.”
Employers aren’t always leaving themselves enough time to implement automatic enrolment and may be placing unnecessary pressure on their business to meet their duties in time. Employers can register with NEST to receive countdown emails and these email reminders can help employers stay ahead of the game. Employers often assume a provider will be able to meet their automatic enrolment requirements, but this is not always the case. By starting conversations early, employers can ascertain whether they can use their existing provider or whether they need to start looking elsewhere.
There are three types of workers – eligible, entitled and non-eligible. By carrying out a worker assessment you can identify which category each of your workers belong to and your responsibility to them. This will make your job much easier when you need to automatically enrol your workforce.
Communicate with staff clearly and early, have a communication plan and involve all relevant people within your business. By using effective communication at the start, you can save time-consuming questions later. Charles Cotton, Rewards Adviser at the Chartered Institute of Personnel and Development comments: “Our members have found that good communication has greatly reduced the number of questions they receive from workers.”
Assess your systems – particularly payroll – to ensure they are ready and capable for your automatic enrolment needs. Karen Thomson of the Chartered Institute of Payroll Professionals says: “Automatic enrolment has required investment in payroll processes and systems, whether in-house or outsourced. The payroll function is best placed to examine the age and earnings of a workforce and determine the number of workers to be automatically enrolled. In addition, payroll can establish the date that workers become 'eligible' for contributions, calculating those contributions and managing refunds to workers who've opted out.”
You may need guidance from experts and external advisors. NEST has numerous tools for employers and advisers to use. Laurence Baxter, Head of Policy & Research at the Chartered Insurance Institute, comments: “Employers are not pension experts. Chartered financial planners are ideally placed to help employers to choose the right scheme. They may also provide ongoing services to help with the admin of automatic enrolment.”
Don’t fall for the following misconceptions…
The main challenges employers face are understanding how the regulations apply to them, assessing which workers are eligible and communicating changes to their workers. Not all providers can help you with these.
Once you’re up and running you’ll still have to calculate and pay regular contributions and keep assessing your workforce for anyone that needs to be automatically enrolled every pay period.
Automatic enrolment doesn’t apply to everyone. Employers need to automatically enrol all workers who:
These people are known as ‘eligible jobholders’ and their employers will also have to make a minimum contribution into the pension scheme on their behalf.
At the beginning of automatic enrolment, the industry anticipated an opt-out rate of about 35%, but experience so far is typically lower than 10%. This is a great success story for workers, with more workers saving for their retirement than anticipated.
Karen Thomson of the CIPP adds: “Your payroll software might not do everything for you. It might assess the eligibility of workers, but it won’t tell you what your pension rules are – in fact – you must tell it what the rules are. The only way you will know what your payroll service provider will do is by asking them – don’t just assume. They might run the payroll processes, but they might not carry out all the work necessary for you to meet your automatic enrolment obligations.”