As the new tax year looms upon us , its important that sole traders and the self employed empower themselves by starting the new tax year in an organised way. We can help at Cloud Bookkeeper to take away the stress, worry , errors and time of doing your tax return and organise your financials from the very begining of the Tax year.
Following consultation in 2014, the latest set of changes decided upon by HMRC are about to take effect, writes Howard Royse.
By far the most significant of these is the move to mandatory online filing of monthly CIS 300 returns. There has been a steady move away from the submission of paper returns by contractors and now HMRC has decided that the minority must comply with the norm. To be fair though, disputes over late-submitted returns have tended to involve paper versions. Therefore around 20,000 contractors (or potentially, their agents) ought to have made preparations for this new method, or need to act very quickly.
The chancellor has presented his budget to parliament, we’ve outlined some of the highlights below.
Lifetime ISA: a new £4,000 ISA that you can use to save for retirement or to buy your first home
From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on this money.
Money put into this account can be saved until you are over 60 and used as retirement income, or you can withdraw it to help buy your first home.
The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017.
Personal Allowance will increase to £11,500, and the higher rate threshold will rise to £45,000 in April 2017
The Personal Allowance is the amount of income you can earn before you start paying Income Tax. This is currently £10,600 – it will already rise to £11,000 in 2016, and will now increase further to £11,500 in April 2017.
The point at which you pay the higher rate of Income Tax will increase from £42,385 to £43,000 in 2016 and to £45,000 in April 2017
tax allowances for money earned from the sharing economy
From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one income from property you own.
People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income.
In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.
Making sure large companies can’t artificially shift profits out of the UK
Some large companies use excessive interest payments to reduce the tax they pay on their profits in the UK. Relief on interest payments will now be capped at 30% of UK earnings, with exceptions for groups with legitimately high interest payments.
Over the next 5 years, the government will raise nearly £8 billion from large companies and multinationals through changes to the rules on interest and other measures, including:
- introducing rules to prevent multinational companies avoid paying tax in any of the countries they do business in, a technique called hybrid mismatches
- taxing outbound royalty payments better – these are fees for using intellectual property like patents and copyrights – meaning multinationals pay more tax in the UK
- making sure offshore property developers are taxed on their UK profits
Tax support worth £1 billion for the oil and gas industry
This includes effectively abolishing Petroleum Revenue Tax (a tax on profits from oil fields approved before 1993) and dramatically reducing the supplementary charge on oil and gas extraction.
Cutting business rates for all rate payers
From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates.
Currently, this 100% relief is available if you’re a business that occupies a property (e.g. a shop or office) with a value of £6,000 or less.
There will be a tapered rate of relief on properties worth up to £15,000. This means that 600,000 businesses will pay no rates.
Capital Gains Tax rates will be cut from 6 April 2016, but residential property will still be taxed at current rates
Capital Gains Tax is a tax on the gain you make when you sell something (an ‘asset’) that has gone up in value. It is paid at a basic or higher rate depending on the rate of Income Tax you pay.
From April 2016, the higher rate of Capital Gains Tax will be cut from 28% to 20% and the basic rate from 18% to 10%.
There will be an additional 8 percentage point surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers).
Capital Gains Tax on residential property does not apply to your main home, only to additional properties (for example a flat that you let out).
Employers will pay National Insurance on pay-offs above £30,000 from April 2018
From April 2018 employers will now need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due.
For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.
Corporation Tax will be cut again to 17% in 2020
The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, the lowest in the G20. It will now be cut again to 17% in 2020, benefitting over 1 million businesses.
Class 2 National Insurance contributions (NICs) for self-employed people will be scrapped from April 2018
Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.
From April 2018, they will only need to pay one type of National Insurance on their profits, Class 4 NICs.
Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits.
After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.
The government expects every business to keep its accounting records in a digital form.
This key requirement will under-pin Making Tax Digital (MTD), as was made clear in the MTD for business event held on 3 March. What’s more “digital form” doesn’t mean an Excel spreadsheet. Each business and landlord will have to use some form of accounting software which has a capability to communicate with HMRC’s systems. We expect further details on this software requirement to be included in one of the five consultation documents on MTD to be released shortly after the Budget.
However, moving to a commercial software package will mean extra costs and data transfer problems for many businesses who have created their own bespoke accounting software, or who rely on Excel spreadsheets. Della Hudson of Hudson Accountants agreed that new businesses can keep adequate records on a simple spreadsheet. She said: “We run basic bookkeeping workshops based on Excel for about 40 businesses per year.”
From 1 April 2016 workers aged 25 and over will be entitled to a new minimum pay rate of £7.20 per hour, called the National Living Wage (NLW).
If you’re working and aged 25 or over and not in the first year of an apprenticeship, you’ll be legally entitled to at least £7.20 per hour. That’s an extra fifty pence per hour in your pocket. The Government is committed to increasing this every year.
If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage.
for more information visit the Living wage website
There will be new changes implemented to taxation laws from April 2016. Pension and ISA dividends will not be affected by the new regime and will remain free of tax, but the new dividend rules are likely to have an adverse effect on company directors and share holders of small incorporated companies.
The new proposals will reportedly bring in an extra £2.54 billion in revenue for the year 2016/2017 tax year, with smaller amounts continuing to bolster the public purse in future years. The changes are an effort by the government to equalise tax laws for those who run unincorporated business.
Changes which will be introduced
- A maximum annual dividend allowance of £5,000 is too come into force after taking the personal allowance.
- The existing 10% national dividend tax credit will be scrapped.
- 7.5% on dividend income in the basic rate band
- 32.5% (for higher rate band)
- 38.1% (Additional rate band)
People with a low dividend income will see a reduction in there tax bill, but the new measures are likely to hit small business the hardest.
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The amount of Income Tax you deduct from your employees depends on their tax code and how much of their taxable income is above their Personal Allowance.
For the tax year 2016 to 2017, the Income Tax information below applies to both Scotland and the rest of the UK (England, Wales and Northern Ireland).
The figures quoted below apply between 6 April 2016 and 5 April 2017.
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