Last weeks ONS figures show more people are becoming self employed than ever before.
Budding female entrepreneurs are set to benefit from superfast broadband with a new £1m challenge fund, enabling them to work effectively, access new markets and grow their business online.
The fund will be part of the Government’s Superfast Broadband rollout and will help women take full advantage of all the opportunities superfast broadband can bring to business. There are 40 local broadband projects in England, already delivering the programme and they will be invited to submit bids to the £1m challenge fund in May 2014.
This forms part of help the Government is already providing to female entrepreneurs, which includes:
£1.6 million to support women’s enterprise in rural areas;
access to over 15,000 free business mentors; and
from next year, the introduction of Tax Free Childcare will mean that, for the first time, many self-employed parents will have access to support with childcare costs.
If you are self employed, you probably use your car for your business and that means you will incurr costs to keep the car running.
So what is a car….
A car for tax purposes is any motor vehicle of a kind normally used on public roads which has three or more wheels and either:
is constructed or adapted mainly for carrying passengers or
has to the rear of driver’s seat roofed accommodation which is fitted with side windows or which is constructed or adapted for the fitting of side windows
If you had a commercial vehicle instead of a car its likely that all the costs would be business costs because there would only be minimal incidental private use.
HMRC have just released a video to explain how you can claim motor expenses….
Bascially you can claim either a % of the total running costs (Actual Cost Method) or a mileage allowance payment.
The mileage allowance is 45p for the first 10,000 miles and then 25p per mile after that.
Using the Actual Cost Method you can claim a % (relating to business use) of :
Capital Allowances (these help you recover tax on the purchase price of the vehicle)
Fuel
Road Tax
Maintenance
Insurance
MOT
Repairs
You may have other costs which are ‘wholly and exclusively’ for business such as:
A Sat Nav to find customers and make deliveries
Signage on the vehicle
Modifications
Basically if a cost is ‘wholly and exclusively’ for business then you can claim 100% against tax.
Following 18 months of extensive engagement with representatives from all fields of the entertainment industry, HMRC published on 15 May 2013 a public consultation document: ‘National Insurance and Self-Employed Entertainers’, which discussed the precise difficulties being caused by the current application of the Regulations. The consultation presented four possible options for simplifying the NICs treatment of entertainers going forwards.
The consultation ran for 12 weeks receiving 11,814 individual responses of which 99.1% supported the option of repealing the Social Security (Categorisation of Earners) Regulations in relation to the entertainers. On 23 October 2013 HMRC published a summary of the consultation responses which included the announcement of the Government’s decision to repeal these Regulations insofar as they relate to entertainers from 6 April 2014 and a first draft of the legislation implementing this.
From 6 April 2014, producers engaging entertainment performance services will not be required to deduct Class 1 NICs contributions from any payments they make to you. This includes additional use payments such as royalties. The engager will make payments to the entertainer gross of tax and NICs and the entertainer must declare these earnings as part of their normal self-employed Self-Assessment return.
Please note that this guidance does not apply if you are an entertainer on an employment contract, and receive a regular salary from your engager with tax and NICs deducted at source under the Pay As You Earn (PAYE) system.
If you engage the services of entertainers
From 6 April 2014, you will not be required to operate Class 1 NICs for the entertainers you engage. If you are currently deducting employees’ Class 1 NICs from the payments you make to your entertainers (including additional use payments such as royalties), and paying the respective employers’ Class 1 NICs on these payments, you should continue to do so up until 5 April 2014. From 6 April 2014 however you should cease to do this.
The changes will be of interest to all national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers, companies engaging entertainers, and any other interested parties.
Demand from UK businesses for contract workers is continuing to rise in 2013, which could be good news for freelancers looking to get their foot in the door on a lucrative new project.
Why is it attractive to use Freelancers?
Skill is more important than location in many business sectors – we live in world where internet can allow you to work with anyone at anytime, you can now track down the best person to work with even if they live thousands of miles away
Lower fixed costs – Using Freelancers will lower your fixed costs (in similar way to Zero Hours Contracts), you employ them for a specific project and only pay for what you need so there isn’t any surplus capacity
Tax advantages – Freelancers run their own business and that means they pay less tax than employees. Employers save tax too, such as Employers NI.
Competitive Advantage – You can put together a team for a contract rather than finding contracts that fit your workforce, this means you can hire the best.
110% Commitment – A Freelancers success and future work depends on them performing to the highest level on every contract, failure is not an option for a successful contractor.
So is it a mission impossible for salaried employees to make the transition to Freelancers
Discorporation Relief is new, it came in to effect from 1st April 2013 and is currently available until 31st March 2018.
HMRC estimate that 610,000 businesses are eligible to use the Disincorporation Relief.
Here is the HMRC example from the Consultation document:
Window Cleaners Ltd a one man company that incorporated on 1 April 2004 and the shareholder, Mr Smith, had previously carried on the business as a self employed individual before 1 April 2002. Turnover is below the VAT threshold. The business has an established repeat customer base. The only significant business assets are a van, equipment and goodwill. The van and equipment are worth around £3,000 and the goodwill is valued at £15,000, together worth £18,000. The goodwill was acquired from Mr Smith for £5,000 on 1 April 2004. The Capital Gains rules apply and Corporation Tax is payable @ 20 per cent.
Tax chargeable on goodwill:
If the assets are distributed back to the shareholder (Mr Smith) on 1 February 2012 the following charge would arise on the goodwill:
· Corporation Tax on goodwill gain £8,540 (£15,000 – £5,000 less indexation £1,460 (£5,000 x 0.292)) @ 20 per cent = £1,708
There is no Corporation Tax to pay on any gains made on the transfer of the van and equipment because these are chattels worth no more than £6,000.
Shareholder charges:
Mr Smith will also have to consider what tax he will have to pay on the value of the distributed assets of £18,000. The amount of charge will depend on whether the assets are treated as income or capital.
If distributed as capital, the actual amount of Capital Gains Tax that Mr Smith will have to pay will depend on a number of factors, including how much was paid for the shares, whether incorporation relief was claimed, whether Entrepreneurs’ Relief conditions are satisfied and availability of capital loss relief.
Assuming £100 was paid for the shares, that Mr Smith has no other gains in the tax year (and so the annual exempt amount of £10,600 can be used against the gain) and that he is entitled to Entrepreneurs’ Relief, then the amount of Capital Gains Tax to pay would be:
· (£18,000 – £100 – £10,600) x 10 per cent = £730
If the assets are distributed as income (i.e. a dividend) Mr Smith will only have to pay Income Tax if any part of the dividend is liable to Higher Rate Tax.
Criteria to qualify for disincorporation relief
Below is a basic summary of the main qualifying criteria:
The company must have been operational for 12 months and the shareholders must have held their shares for 12 months
The business must be transferred as a going concern to the existing company shareholders
The transfer must become effective before 31st March 2018
All assets, including goodwill, capital assets, trading stock and cash, must be included in the transfer. The value of those assets must be no greater than £100,000
Recipients of the new “disincorporated” entity must either be individuals or partnership members (not members of an LLP)
On the 15th May HMRC issued a consultation document ‘National Insurance and Self-employed Entertainers‘ comments are invited until 6th August 2013. The object of the consultation is to simplify National Insurance for Entertainers and for the recommendations to be rolled out from 6th April 2014.
The consultation is relevant to:
Actors
Singers
Musicians
Performers
Its not relevant to individual employed under a ‘contract of service’ as they are employed.
Since 1998 self employed entertainers have been deemed to be employed earners for National Insurance purposes in order that they could access earnings related contributory benefits. This requires contributions from the entertainer and secondary contributions from the producer of the entertainment.
But its complicated because entertainers often receive ‘additional use payments’ such as royalties, the payments can be complex and paid years after the original engagement.
In addition there is evidence that the 13.8% employers NI has made some producers look outside of the UK for entertainers.
Some amendments to the rules were made in 2003 replacing the ‘wholly or mainly by way of salary’ with a revised definition of ‘salary’
“Salary“means payments:
(a) made for services rendered;
(b) paid under a contract for services;
(c) where there is more than one payment, payable at a specific period or interval;
and
(d) computed by reference to the amount of time for which work has been performed.
But this hasn’t help, computed by reference to time is too broad and entertainers don’t work on this basis.
So far HMRC have sought the views of groups representing 80,000 entertainers and 23,000 engagers.
Currently there are two options within the Class 1 regime for amending legislation which HMRC believe would simplify the NICs treatment of entertainers’ earnings:
Option 1: Provide for separate secondary contributors for NICs due on Initial Performance Payments (IPPs) and NICs due on Additional Use Payments (AUPs);
or
Option 2: Provide that IPPs are subject to Class 1 NICs, but AUPs are subject to Class 4 NICs
Alternatively all of the entertainers earnings could be moved into class 2 and class 4 NI.
You’re not alone its estimated that 1.3 million business owner have no private pension that’s approx one in two UK Business Owners (according to Prudential).
Nearly one in three business owners (or 792,000 people) say they will be entirely reliant on the State Pension when they come to retire, compared with twice as many people across all employment types retiring this year in the UK.
Other self-employed workers will supplement their retirement incomes with money from a mix of alternative sources:
half will draw on other savings and investments
one in four will use equity from their properties or plan to use their partners’ pensions, and
one in five plan to use funds from the eventual sale of their businesses.
Most of us know we should be saving more for retirement and the government knows that we need to save more too. That’s why they give pensions tax breaks and employers are being forced to auto enrole staff into pension schemes and make payments.
But how many of us stand a chance of saving £400k into our pensions? it’s a huge amount of money and yet it only buys a modest pension. Work out your strategy now before its too late.
HMRC issued a consultation paper on the 27th March inviting comments until 22nd June 2012.
From April 2013, the Government proposes to introduce a voluntary cash basis for small businesses to calculate their income tax along with simplified arrangements for some business expenses.
The proposals are, that those who choose to use the new regime will be taxed on the basis of their receipts less allowable payments for expenses, rather than needing to spend their time doing accounting designed more for big business.
The Government is exploring proposals that small businesses with receipts of less than £77,000 would be eligible to use the cash basis, and that they could continue to use it until their receipts rise to more than £150,000 in any year.
Some accountants are concerned that this will mean they lose business as their services won’t be needed but others are concerned that the self employed could end up paying the wrong tax because of issues such as pre-trading expenses.
I was reading Tips & Advice Tax – Issue 17 and they highlight an unusual piece of new case law T Coffey/Dr Selvarajan and HMRC.
TC was a retired builder who was asked by S to manage and supervise the refurbishment of his medical clinic, the project lasted over 2 years. No substitutes were allowed, S guaranteed payment, there was no contract, TC worked regular hours and he was paid a rate of £500 per week. Sounds a lot like employment doesn’t it?
But HMRC decided to argue that he was self employed and undermined the importance of the factors that would make him employed.
As everyone probably already knows there are tax and national insurance advantages to being self employed and to employing casual workers on a self employed basis.
As an employee, on most of your income (assuming you aren’t a higher rate tax payer) you will pay 20% tax, 12% employees NI and your employer will pay 13.8% employers NI, so thats 45.8% in tax and NI.
If you are self employed the equivalents are 20% tax, 9% Class 4 NI and £2.50 per week Class 2 NI, plus you can claim business related expenses that you probably wouldn’t get as an employee.
Whether employed or self employed you will get a tax free allowance of £7475.
You can take the test as many times as you wish and record the answers but if the result says you are really an employee then you need to speak to your employer and discuss the risks and liabilities that they will potentially face.
The most recent HMRC case on Employment Status relates to Weight Watchers and because HMRC successfully argued that their leaders were employees and not self employed it will cost Weight Watchers an estimated £23.5m in back taxes. When employment status goes wrong its the employer that gets the bill and often can’t recover the back taxes from the ’employees’.
One possible solution is to use Limited Companies, because a Limited Company can never be treated as an employee. Plus there are tax advantages in Dividends. But be careful of the IR35 Rules, follow my blog links to find out more.
IR35 came into existance in 1999, it was created to prevent workers previously employed from creating a limited company and then benefiting from lower taxes and national insurance through the use of dividends and expenses.
Follow my blog for more useful facts, tips, suggestions and ideas.
