Payroll Year End 2017 – What about P11D’s? Reply

By now you will have already processed your payroll year end and submitted the final RTI submissions.

You have to pay your PAYE by 19th April and issue P60’s by 31st May.

So the next main date is P11D Benefits in Kind! due by 6th July

Last year Dispensations ended and Payrolling Benefits became an option but you must be registered

If you choose to payroll you can tell HM Revenue and Customs (HMRC) online. You need to register online before the start of the tax year you want to payroll for.

You must add the cash equivalent of the employees’ benefits to their pay and then tax them through your payroll.

HMRC will make sure the value of the benefit is not included in your employees’ tax codes.

If you use the service you:

  • won’t need to use form P11D
  • still need to work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)

You can exclude employees from payrolling once you’re registered, but you’ll need to send a P11D to declare the non-payrolled benefits.

Once the tax year has started you’ll have to payroll the benefits for the whole of the tax year, or until you stop providing them.

https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll

Many businesses will continue to submit P11D’s

At the end of the tax year you’ll usually need to submit a P11D form to HM Revenue and Customs (HMRC) for each employee you’ve provided with expenses or benefits.

You’ll also need to submit a P11D(b) form if:

  • you’ve submitted any P11D forms
  • you’ve paid employees’ expenses or benefits through your payroll
  • HMRC have asked you to – either by sending you a form or an email

Your P11D(b) tells HMRC how much Class 1A National Insurance you need to pay on all the expenses and benefits you’ve provided.

If HMRC have asked you to submit a P11D(b), you can tell them you don’t owe Class 1A National Insurance by completing a declaration.

https://www.gov.uk/employer-reporting-expenses-benefits/reporting-and-paying

Expenses covered by an exemption

You don’t have to report certain business expenses and benefits like:

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

To qualify for an exemption, you must be either be:

  • paying a flat rate to your employee as part of their earnings – this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC
  • paying back the employee’s actual costs

steve@bicknells.net

Contractors in the Public Sector will have to pay more tax! Reply

Retro Drama Woman

In the Budget 2016 George Osborne announced that as from April 2017 it will be the duty of the Public Sector to make sure Personal Service Companies and Intermediaries pay the correct tax.

The government announced at Budget 2016 that it will reform the intermediaries legislation (known as IR35) for public sector engagements. It will do this by moving the liability to pay the correct employment taxes from the worker’s own company to the public sector body or agency / third party paying the company. In partnership with stakeholders, HM Revenue and Customs will develop a new tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty. A formal consultation will be published later. [Technical Note]
The organisations checking intermediaries will include:
  • Government departments, legislative bodies, armed forces
  • Local government
  • NHS
  • Schools and further and higher education institutions
  • Police
  • The British Museum, BBC, Channel 4
  • Transport for London
  • Publically owned bodies

It will be the engagers duty calculate the deemed employment income.

Here are 3 examples…

PSC 1

 

PSC 2

Will this lead to higher taxes for contractors? will they be converted to employees?

steve@bicknells.net

Are you ready for Auto Enrolment? 1

Staging Dates

The tidal wave of small businesses going through Auto Enrolment has now started with the peak being next year in 2016/17.

So what do you need to do before you stage?

  1. Find out your staging date, this the date when your obligation under Auto Enrolment will start, the Pension Regulator calculator is a good place to start
  2. Nominate a person to be the Pension Regulators key contact and register their name with the Regulator
  3. Draw up a Project Plan and consider whether you need help (60% of companies currently staging have decided they do need help! and most businesses will start by asking their accountant to help with project management)
  4. Choose a Pension Provider – Nest, Now Pensions and The Peoples Pension are the 3 largest
  5. Makesure your Payroll can provide the analysis needed – Brightpay works with the providers shown below, does your payroll?

BrightPay Pensions

In addition you will need to work on elements of the Project Plan such as Assessing the Workforce, Letters to Employees, Considering Postponement etc

steve@bicknells.net

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Good news for employers – £3k employers allowance Reply

Fotolia_45741373_XS cash

The NICs Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction.

This measure will increase the Employment Allowance by £1,000 to £3,000 from April 2016. This means eligible business and charities will be able to claim a greater reduction on their employer NICs liability.

This is fantastic news for employers, but there is a potential sting in the tail.

HMRC plan to exclude one person businesses!

But many believe that HMRC’s plan won’t work because all you need to do is employ a family member or friend and then the one person should qualify for the allowance.

John Cullinane, CIOT tax policy director, said: “The government may find its plan to be ineffective in reducing employment allowance claims because it is open to abuse. It will simply have the effect of penalising single director-employee limited companies that are unable to, or do not know that they could, appoint another person as director or employee to claim the allowance.”

http://www.taxation.co.uk/taxation/Articles/2016/01/19/334213/one-person-businesses-may-circumvent-curb-employment-allowance

steve@bicknells.net

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5 million paid the wrong tax last year – is your tax code right? Reply

Tax Refund Green Blue Horizontal

As reported last year by the Telegraph

Five million people may have been billed incorrectly by HMRC.

You’ll find your tax code on:

  • your pay slip
  • your PAYE Coding Notice – you usually get this a couple of months before the start of the tax year and you may also get one if something has changed but not everyone needs to get one
  • form P60 – you get this at the end of each tax year
  • form P45 – you get this when you leave a job

Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.

Taxpayers, who must complete their self-assessment tax returns before Jan 31, are being warned to check their paperwork again to make sure they are not affected.

Problems arise because various tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.

People with more than one income, whether from pensions, PAYE employment or a mixture of the two, are being allocated their personal tax-free allowance multiple times. It means the tax codes issued for their various income sources are incorrect, so not enough tax is taken. Often the mistakes are discovered by HMRC years later, leading to unexpected tax demands. Telegraph

If you think your Tax Code is wrong you should tell HMRC as soon as possible using online form P2

https://online.hmrc.gov.uk/shortforms/form/P2

You can check how your tax using this HMRC link

https://www.gov.uk/check-income-tax

The most common tax code for tax year 2015 to 2016 is 1060L (£10,600 being the annual income tax free allowance for 2015/16) – in 2014 to 2015 it was 1000L. It’s used for most people born after 5 April 1938 with one job and no untaxed income, unpaid tax or taxable benefits (eg company car).

steve@bicknells.net

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10 ways to pay less income tax Reply

Pay Packet And Banknotes

Income Tax is a tax you pay on your income. You don’t have to pay tax on all types of income.

You pay tax on things like:

  • money you earn from employment
  • profits you make if you’re self-employed – including from services you sell through websites or apps
  • some state benefits
  • most pensions, including state pensions, company and personal pensions and retirement annuities
  • interest on savings and pensioner bonds
  • rental income (unless you’re a live-in landlord and get £4,250 (£7,500 from April 2016) or less)
  • benefits you get from your job
  • income from a trust
  • dividends from company shares

So how can you pay less income tax?

Here are 10 suggestions…

  1. Pension

When you pay into a pension you get income tax relief on your contributions .

Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)

40% Tax Rate 20% Tax Rate
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

Even when you consider:

  • Your money is locked up till you are 55
  • You pay tax when you take money out of the pension
  • You can get 25% out of the pension tax free

The difference in growth is massive

If you do salary sacrifice you can increase the tax effect by saving national insurance too.

2. ISA

Individual Savings Accounts have been around for a few years and very soon the Help to Buy ISA will be launched

Help to Buy ISA

Top 10 facts and rules…

  1. Its only available to ‘First Time Buyers’
  2. ‘First Time Buyers’ can only have one Help to Buy ISA with one provider
  3. You can pay in £1,000 when you open the account and then save a maximum of £200 per month
  4. The maximum government bonus is £3,000 (but you can lower amounts of bonus if you have less than £12,000)
  5. The scheme will run for 4 years from the date it opens (Autumn 2015)
  6. Couples can have a Help to Buy ISA each which means if they don’t want to wait 4 years could save £12,000 in 25 months where as a single saver would need 55 months
  7. Unlike ISA’s where you open one per year, the Help to Buy ISA will continue for 4 years
  8. You can withdraw funds but if its not to buy a home then you won’t get the bonus
  9. More than 100,000 homes have now been bought with government backed schemes
  10. You will be able to get them at banks and building societies

3. Salary Sacrifice

Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI

HMRC decided on 9th April 2013 that it was time to “clarify”  in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….

You (HMRC) may get requests for advice:

  • on how to set up a salary sacrifice arrangement, or
  • on whether draft documentation will achieve a successful salary sacrifice.

You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.

The specific updates are:

EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes

EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions

4. Employment Expenses

As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

5. Dividends

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year, try the Dividend Calculator above to see how much difference it could make.

Dividend Calculator 2

6. Tax break for Couples

A new tax break as launched this week from 6 April 2015, which will be eligible to more than 4 million married couples and 15,000 civil partnerships.

The Allowance means a spouse or civil partner who doesn’t pay tax – therefore is not earning at all or is earning below the basic rate threshold (£10,600) – can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner – as long as the recipient of the transfer doesn’t pay more than the basic rate of income tax.

7. Tax Free Benefits

Getting tax free benefits will save you lots of tax, here some ideas…

  1. Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – these rules are changing soon.
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog

8. Earn less than £100k

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £121,200 or above.

9. Green Company Car

A calculator is available here: http://www.hmrc.gov.uk/calcs/cars.htm and rates are shown in the table below for zero emission vehicles and some of the lower CO2 vehicles.

BIK CO2

10. Check your P800

The P800’s are likely to contain errors because:

  1. Large amounts of data are manually input
  2. Estimates especially for Bank Interest and Investment Income

So check the following carefully:

  1. P60 – you get this at the end of each tax year
  2. P45 – you get this when you leave a job
  3. PAYE Coding Notice
  4. P11D Expenses and benefits
  5. P9D Expenses payments and income from which tax cannot be deducted
  6. Bank and Building society statements
  7. Pension Tax Deductions

Its expected that around 3 million people will be asked to pay more tax and around 2 million people will have overpaid.

 

steve@bicknells.net

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Will I get £30,000 tax free? Termination Payments Reply

Dejected just fired an office worker with personal belongings in a box

Basically the current situation is that the first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings. It sounds simple but can be complicated, here is a government example

 

Termination Example

The Office of Tax Simplication are currently consulting (until 16th October 2015) on changing the rules one solution is to make it more like redundancy payments, take a look at these examples

Termination 2

There will also be some anti avoidance rules that if you are re-engaged within 12 months in similar job with the same company the payments previously made would become subject to tax and NI.

It looks like we are in for some major changes, its not too late for you to have your say, click on this link

steve@bicknells.net

Is this the End of National Insurance? Reply

Pay Packet And Banknotes

You pay National Insurance contributions to qualify for certain benefits including the State Pension.

You pay National Insurance if you’re:

  • 16 or over
  • an employee earning above £155 a week
  • self-employed and making a profit of £5,965 or more a year

The Office of Tax Simplification is currently beginning a process of looking at merging National Insurance with Income Tax.

OTS NI TOR

ACCA’s head of tax Chas Roy-Chowdhury warned that an alignment of NI and income tax rates would be crucial prior to a merger taking place.

Whilst This is Money reported…

Middle and high earners could see their tax bills jump under radical plans to merge income tax and National Insurance, a tax expert has warned.

People taking home £50,000 a year could be £230 worse off, but low earners on £20,000 would save more than £530, and those on £30,000 would come out around £380 ahead, according to snap research by Tilney Bestinvest on the potential tax shake-up.

Chancellor George Osborne wants to reduce ‘complexity’ in the tax system to make it clearer exactly how much people have to cough up, and has ordered the Office of Tax Simplification to see if there is a case for change.

This change is also likely to lead to changes to Pension tax relief reform, Your Money reported…
The government has already announced a consultation on the pension tax relief system, and I believe that a merger of income tax and NI would likely result in the floated idea of a pension with ISA-like tax treatment. This is because at present, a basic rate taxpayer gets 20% tax relief on pension payments but surely this would increase to 32% under a combined system. It seems illogical to increase tax relief at a time when they are actually trying to reduce the cost to the Exchequer. An equal tax treatment of ISAs and pensions could be a prelude to merging the two, potentially drawing ISAs into some form of limetime allowance.
steve@bicknells.net

HMRC update the Employment Status Tool Reply

Determining whether a worker is Employed or Self Employed isn’t always easy.

HMRC updated and improved their tool in April 2015.

The Employment Status Indicator (ESI) tool enables you to check the employment status of an individual or group of workers – that is whether they are employed or self-employed for tax, National Insurance contributions (NICs) or VAT purposes.

The ESI tool is essential for anyone who takes on workers, such as employers and contractors. (The tool refers to anyone in this position as an engager.) Individual workers can also use the tool to check their own employment status.

The tool cannot, however, be used to check the employment status of certain workers:

  1. company directors or other individuals who hold office
  2. agency workers
  3. anyone providing services through an intermediary (sometimes referred to as IR35 arrangements)

The ESI tool is completely anonymous, so no personal details about the worker or engager are requested.

Click here to use the HMRC Tool

steve@bicknells.net

Trivial Benefits £50 exemption deferred Reply

Businessman looking at a small present with a magnifying glass

It had been proposed that there will be a new statutory exemption for trivial benefits up to a limit of £50 from from 6 April 2015, this measure is not included in the first Finance Bill of 2015, it has been deferred until after the election.

The £50 tax exemption would have been on items such as birthday and Christmas gifts. The legislation would have also introduced an annual cap of £300 in some circumstances.

So we are stuck with the old rules for now

An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts can be treated as trivial benefits. . For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned. If a benefit is trivial it should not be included in a PSA (EIM21861).

http://www.hmrc.gov.uk/manuals/eimanual/EIM21863.htm

There are some non taxable benefits you be interested in….

HMRC Helpsheet 207 – Non-taxable payments or benefits for employees

http://www.hmrc.gov.uk/helpsheets/hs207.pdf

steve@bicknells.net