The chancellor, Rishi Sunak announced the Autumn Budget on Wednesday. A ‘New economy’ as it was branded to help us get through the winter. We digest the budget and give the main highlights and what it means for you. If you did want to read the full budget, please click here 

National Living Wage

There is a lot to get through and one of the notable changes in the Chancellors budget was the increase in the National Living Wage. We will see an increase in pay to £9.50 per hour for anyone aged 23+ from April 2022. That’s an increase of 6% from the current £8.91 and the pay rise worth extra £1,000 for full time workers.

Social Care Levy

A new health and social care levy is to be introduced on all of us. It is a 1.25% charge on 

National Insurance from April 2022.  The rate also affects Employers National Insurance, and the dividend rates will also change in line with the new social care levy of 1.25%

• Employees National insurance will change from 12% to 13.25%

• Employers National Insurance will change from 13.8% to 15.05%

• Sole traders National Insurance will rise from 9% to 10.25%

Dividend rates as follows:

• Lowest rate 8.75% from April 2022

• Mid-rate 33.75%

• High rate 39.35%

From April 2023 the 1.25% social care levy will show as a separate section of the tax rate system. National Insurance will revert to where it was.

Why is this social care levy coming in?

The funds from the social care levy will be used for care homes and funding for pensioners. This includes several reforms to how people pay for adult social care in England, supported by £5.4 billion of investment over the next three years.

The reforms include:

• From October 2023 a cap on personal care costs of £86,000.

• The threshold above which somebody is not eligible for local authority support towards their social care costs (upper capital limit) is increasing from £23,250 to £100,000 from October 2023.

• The threshold below which somebody does not have to contribute towards their care costs from their capital (lower capital limit) is increasing from £14,250 to £20,000.

• If somebody has capital between £20,000 and £100,000 the local authority may fund some of their care, but they may have to contribute up to 20% of their chargeable assets per year (in addition to their income).

• Increasing the amount of income that care recipients can retain after contributing towards their care costs (the Minimum Income Guarantee and the Personal Expenses Allowance) in line with inflation from April 2022.

Corporation Tax

From April 2023 changes to corporation tax are coming in place. The reintroduction of the marginal rate system which has been done away with for several years. 

Corporation tax rates for business with:

• Profit £50,000 or below – 19% rate

• Profit between £50,000 to £250,000 - 25% rate (less marginal relief calculation)

• Profit above £250,000 - 25% rate

Super deduction for purchase of equipment and allowance capital allowances will bring tax relief of 130% applies to incorporated (Limited companies, PLC’s) business only and is in place for two years. 1 April 2021 to 31 March 2023

The £1 million annual investment allowance is still available to every company including sole traders.

Business Rates

A new one year 50% business rates discount for retail, hospitality, & leisure businesses for England. Wales already have a discount in place until April next year. We will have to see what the Welsh government say in December for the updates of business rates in Wales. 

Small business rates relief still apply.

Universal Credit

Universal Credit taper rate is cut by 8%, as of now for every £1 earned, 63p gets taken off. With the new rate cut, for every £1 earned, 55p will be deducted. Allowing lower paid people to keep hold of more benefit when they are working. The target date for this is 1st December.

Alcohol Duty

The tax on some alcoholic drinks such as beer, cider and wine will be slashed. The drinks with lower-level percentage of alcohol will mean a lower rate of tax. This means that next time you go to the pub and order a pint or on a night out, a glass of prosecco, will be a little bit cheaper.

It doesn’t matter if it is UK produced or imported. Tax relief for small brewers that produce under 8% alcohol. 

The budget brings about optimism boosted by prediction of higher growth for the UK after Covid. The Chancellor hit an upbeat tone as he talks up building a “stronger economy of the future”. Again, if you want the full version of the budget, please click here

We have all been paying closer attention to the news in recent times. It does look like better days are to come, with restaurants and bars been given the green light to open. While we all are excited and wanting to enjoy ourselves, please remember to social distance as this is still very vital to our fight against this virus.

The Chancellor, Rishi Sunak has pledged great support during these tough times and has again set the foundation for all of us to come out of this. It will be no easy job, but together we can do this. Supporting small businesses is vital.

The Chancellor mentioned a few things in his speech, while some of his policies apply to Wales, others do not as they are the responsibility of the Welsh Government. We digest the main points here.

Job Retention Bonus

The furlough scheme will be ending in Wales at the end of October. We are more reliant on the job retention scheme here in Wales than any other part of the UK. There are about 300,000 people on the furlough scheme. The Welsh Government has said that it does not have the "financial fire power" to be able to continue the scheme itself.

The Chancellor said he would be introducing a new scheme called the Jobs Retention Bonus. Under the new scheme, firms will be paid £1,000 for each employee they bring back from furlough and continuously employ through to January 2021 on an average of at least £520 a month.

            Eating Out Discount

The Chancellor has said there will be a 50% discount on food if people eat out in August on Mondays to Wednesdays. This is to try and get people using restaurants.

This will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub, or other eligible food venue. There is not a limit to the amount of times the discount can be used and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for all of August. Participating establishments will be fully reimbursed for the 50% discount.

Temporary VAT Cut

If you supply food and non-alcoholic beverages for consumption on your premises, for example, a restaurant, café or pub, you’re currently required to charge VAT at the standard rate of 20%. However, when you make these supplies between 15 July 2020 and 12 January 2021 you will only need to charge 5%

It will apply to supplies of accommodation and admission to attractions as well. This will include takeaways, restaurants, cinemas and theme parks.

These are all in the pilot stages, and more information is to be released in the days to come. As soon as we know, we will also share the information with you. If there is something you want to know more about, you can call us on 02920 653995 to discuss. The introduction of these will mean we have a better chance to finish 2020 on a high.

We are well in to 2018 and the financial year is coming close to its end. You should have an indication of how you want to take your business going forward. In our previous blog we talked about goals and achieving them with your strengths and opportunities. This time around we talk about the best ways to expanding your business.

We are finding this is the time of year a lot of our clients are needing budgets and cashflows. A detailed cashflow can inform you when cash is available to spend or if cash is running low ahead of time. Knowing this ahead of time can avert any crisis and indicate to you when action is needed so you are well prepared.

Knowing your cashflow needs at least a year in advance will give you a more accurate picture of your finances. Regular maintenance of this important as you don’t want to rely on old figures in this ever changing environment.

Budgets are equally as important as a cashflow. If you have expansion plans in mind, then you need to master your budget. Are you looking to get a second office? Or are you looking to get a bigger office?, do you need new equipment.   Having an up to date budget can give you clarification on which may be the best way to expand your business. Budgeting is also a great way to indicate where overheads may need to be cut down. You may be over spending on some things but then neglecting the investment in other departments of your business. This is where a budget will help balance your business.

With any expansion plans you may have, you’ll need the cash to back it up. There are many ways to obtain the finance, but the most conventional way is to get a bank loan. With your cashflow and budgets shiny and polished will keep the bank manager sweet. You can then enforce your plans to expand and grow!

Its a couple of weeks to get everything done and ready for the when the New Year starts up again

6 April 2017

The government have made a number of changes to taxation during the year so its good to have a plan to make sure you maximised your tax free allowances.

Check you have used up all of your tax code,   because once its gone its gone for good and starts  fresh again in April.   The tax code is currently £11,000 for the year for individuals.

Husband and wife you can transfer £1,000 from either partner to the higher earner, this is good for part time or if a partner doesn’t work.

Have you bought your equipment ready for the new year to start.  Think of new equipment as not a ill put that off until later but an opportunity be more efficient, speed up your work or even make it easier for you.

Capital Gains Tax allowances timing of when you sell an asset is key as theres £11,100 tax free allowance for each year this is additional to your normal income tax code.

Flat Rate Scheme is changing from April 2017 are you ready, it will be 16.5% payment over if you are a business that is mainly labour orientated.

Are you one of the many higher tax rate earners who is having to deal with the mortgage tax relief restriction.   Wear and tear allowance has now gone,  keep all of your receipts if you are replacing furniture or equipment in your rental house, you cannot claim without your documents.  It is replacement only, first year purchases are excluded now.

Again Child Benefit is restricted or even taken away if you are a higher earner over £50,000

Child Care Vouchers ceases at the end of April 2018, have you signed up to them its £55 per week tax free allowance which saves you tax and national insurance for income of less than £43,000 per annum.

Have you used your £15,240 ISA allowance it all starts again in April.

Don’t forget the dividend tax rules have changed dividends now attract 7.5% to basic rate if your dividends are over £5,000.   32.5% for anything over £43,000 make sure youre saving your tax money.

So get planning,  check these items if you missed any of these out of your routine this could be saving you money.

A couple of updates on the Budget released in July 2015

Please see a couple of articles with links to the website below.

Buy-to-let investments

The other major property-related changes in the Budget statement will affect “buy-to-let” investors in residential property (whether in the UK or overseas). Investors in commercial property are unaffected; as are investors in properties which meet the criteria to be treated as furnished holiday lettings. There are two separate changes.

Wear and Tear

The first change relates to the “Wear and Tear” allowance for furnished lettings. It applies to companies as well as to individual landlords (but not to furnished holiday lettings). At present, the costs of replacing furniture and fittings are not tax-deductible. Instead, a notional deduction is given for tax purposes equal to 10% of rents. HMRC seem to consider that in many cases this is over-generous and from April 2016, it is intended that the 10% deduction will be abolished and instead tax relief will be given for the actual costs of replacements. Note that this change does not affect tax relief for expenditure on routine repairs to the property, including furniture and fittings in it, which will continue, as now, to be tax-deductible in full.

Financing costs

The second change is in relation to “finance costs” such as mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. Starting from 6 April 2017 (and phased in over 4 years from then) tax relief for these costs will be restricted the basic rate of Income Tax. This restriction will apply to individuals (presumably including individual members of partnerships or LLPs) only. It will not affect companies, but the position of trusts is not yet clear. No Income Tax relief is of course in any event available for capital repayments of a mortgage or loan.

Instead of deducting finance costs from rents to arrive at taxable profits, landlords will instead receive relief in terms of tax by deducting an amount equal to tax at the basic rate on the finance costs from the tax otherwise chargeable on the profits. If the tax deduction for finance costs exceeds the tax otherwise payable on the profits the excess can be carried forward and used in subsequent years.

The change will be phased in so that for 2017/18 the new rule will apply to 25% of the finance costs (with the other 75% being deducted in computing taxable profits as now); for 2018/19 the restriction will apply to 50% of the finance costs; for 2019/20 to 75%; and from 6 April 2020, 100% of the finance costs will “disallowed” and dealt with under the new rule.

Although its impact is ameliorated by the delayed and phased introduction, this change will significantly change the economics of some buy-to-let portfolios. Since the change does not affect companies, one response may be to consider adopting a limited company structure. But there are many factors to consider in choosing the right structure, summarised in our recent briefing note and the position is further affected by the change from April 2016 of the way in which dividends are taxed, also announced in the Summer Budget. The tax credit attaching to a dividend will be abolished and dividends will be taxed as normal income albeit at special rates of tax (with exemption for the first £5,000 of dividends). Broadly, this will increase the effective rates of tax on

http://www.bkl.co.uk/resources-and-publications/budget-insights/summer-budget-2015/summer-2015-budget-effect-on-property-investors/

Small firms face another taxation shake-up

KEY POINTS

• The changes to dividend tax are the start of a process to reduce the tax advantages of incorporation.
• For existing companies dividends are still generally more tax efficient that salary, though the advantage are reducing.
IR 35 and personal service companies are back on the government’s agenda.
• The OTS has been asked to look again at the alignment of tax and NIC and at small company taxation generally.
• There will be much to talk about with clients – many of them could face significantly higher tax bills next year.

• Employed versus self-employed.
• Incorporated versus unincorporated.
• Dividend versus salary

Seeing the bigger picture

So what is happening? After a couple of days reflecting on the Budget announcements I am starting to see what I think are the overall themes, although many of the details need to be firmed up. I’m writing this in advance of the publication of the Finance Bill so what follows will need to be reviewed against the small print.

The most obvious change is in the taxation of dividends. From next year dividends will have no tax credit attached (thus removing the often confusing distinction between “gross” dividends and “net” dividends) and the amount received will be all that matters.

Dividends will be taxable at 7.5%, 32.5% and 38.1% respectively, depending on the marginal rate. As we will no longer have to take into account the grossed-up amount of the dividend in determining which rate band somebody falls into there are likely to be some odd results close to the rate band changes.

Those rates represent real increases in tax. The blow is, however, softened by the introduction of a £5,000 dividend allowance for all taxpayers. The assumption is that this will mean that an individual who receives total dividends in a year of £6,000 will be taxable on £1,000.

I did see some commentators suggest that it meant something different: that if the dividends were less than £5,000 no tax was paid, but once they got to £5,001 tax was paid on the whole amount.

I don’t think that that can be right but, until we see the legislation, we can’t be certain. I will assume in the rest of this article that the former reading is the right one.

What’s the objective?

Why has he done things this way? First, I believe that the £5,000 limit is all linked with digital tax accounts. Just as we saw earlier in the year with savings income, taking out small amounts from tax should reduce the compliance burden considerably.

A typical self-assessment taxpayer whose dividend and interest income are small should have little to enter onto his digital account (I say should because we don’t yet know the mechanics of all this).

Second, the changes will raise more tax from those few extremely wealthy people with massive dividend portfolios. But third, and this is the key change, it will directly affect small businesses.

The Budget Red Book is clear on this. It says at 1.189:

“These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500 million a year from 2019-20. The tax system will continue to encourage entrepreneurship and investment, including through lower rates of corporation tax.”

There are two limbs to this: incorporation and dividend versus salary. Let’s take them in reverse order. A low-salary, high-dividend route still looks to be more tax-efficient even after these changes. Everybody has a different way of doing the comparison.

I like to keep it simple and look at a basic rate taxpayer who has used up his personal allowance against salary and is looking to take another £10,000 out of his company.

This confirms that the dividend route is still more efficient. This is consistent with what is said in the Red Book with its reference to “start to reduce the incentive”. I can only read that as a very strong hint that dividend tax rates will eventually be ratcheted up to align salary and dividends.

The chancellor hasn’t done it by putting National Insurance on dividends – with all of the problems that would have caused elsewhere in the tax system – but the new dividend tax is in some ways a back door way of doing the same thing.

So, the message to clients is: expect to pay more tax next year. If, as a result, they question the chancellor’s triple-lock announcement about no increases in tax rates, this query might be passed to 11 Downing Street.

Tax-motivated incorporation

What about the other element – the tax-motivated incorporation? Many people incorporated their businesses at the time of the 0% corporation tax band and, to an extent, all actions taken since have been trying to close the stable door after the horse has bolted. But these new changes are intended to discourage individuals from incorporating purely to obtain a tax advantage.

The computations here are trickier because we do not yet know the National Insurance bands for next year and therefore complete precision is not yet possible.

But the tipping point at which incorporation starts to deliver significant tax systems has clearly gone up. It looks as if incorporation at earnings even as high as £30,000 will now deliver a very marginal benefit.

I think of it this in the following broad terms. The advantage of incorporation has been that much of the income could be received as a tax-free dividend. Of that £30,000, something like £20,000 could be taken as dividend (using the personal allowance to cover salary).

Next year that £20,000 will create additional tax of £1,125 (£15,000 x 7.5%). That is a significant increase whereas, broadly speaking, the self-employed will see little change. Additional tax at that level would make incorporation much less attractive.

In our heart of hearts we all know some taxpayers who could not cope with operating through a company. The additional hassle of dealing with benefits in kind, loans to participators and company returns is often a nightmare for them, and hence for advisers.

With the tax benefits of incorporating being reduced (and I expect them to be further reduced in the coming years) there is a lot to be said for them to remain as self-employed.

Other changes

The dividend tax was not the only small business measure. Personal service companies are back on the agenda.

There is not only the decision to withdraw the employment allowance for one-person companies, but yet another review of the IR35 provisions to “find a solution which protects the Exchequer and improves fairness in the system”.

So where does this leave us? As I have said many times over the years the system for taxing small businesses lacks any coherence.

What we have is the result of various strands of the tax system designed for different purposes all crashing together on the small businesses that are the lifeblood of the economy.

This creates complexity and administrative burdens. We need a system designed specifically for small businesses and which addresses the triangle of tensions outlined above.

http://www.taxation.co.uk/taxation/Articles/2015/07/13/333367/all-change