Your tax obligations when hiring UK employees

The UK tax system works very differently from some other countries. Most UK workers have very little direct interaction with the tax system, instead their employer deducts their taxes from their wages before they even arrive in their bank account. This shifts a great amount of responsibility onto the employer and if you’re not familiar with the regulations it can be easy to slip up. Here are a few of the major things that you should keep in mind when you’re hiring UK employees on pay as you earn (PAYE) tax arrangements.

Income tax and National Insurance

Despite the different names, National Insurance broadly functions as a second form of income tax. It is deducted from all employees who earn over £113 a week (known as the lower earnings limit). These limits are generally raised slightly every year to keep up with growing wages.

Income tax works in a similar way, although there are multiple bands of tax. Very high earners will end up paying 45% tax on all of their income over £150,000. They will also lose the personal allowance that reduces the amount of tax paid by low and medium earners. The system is generally complex and it’s important to get advice from a qualified professional before you start up. HMRC (HM Revenue & Customs) is not known for being forgiving in situations where people have made mistakes.

Other deductions

The other main deduction that you will have to take into account is student loans. If your employees have taken on student finance, then you’re obliged to pay 9% of their salary over a certain threshold to the Student Loans Company. Again, this is a legal obligation and a mistake could cause serious problems for you and your employee.

You’re also required to pay a certain amount of your employee’s wages into a pension scheme and also make your own employer’s contribution. The amount that both you and your employee have to contribute is scheduled to go up over the coming years.

It’s well worth making sure that you’re across your obligations before starting up in the UK. A little time taken can save enormous problems at a later date. Goodwille are experts on the legal and financial obligations when setting up in the UK, and we are here to help your through the maze. Contact one of our team members for advice.

Why London is the city to establish your Fintech company

The UK has seen its influence within the Fintech community grow and grow in the last decade. It was bolstered in 2015 when David Cameron laid out a manifesto to increase the number of UK workers in Fintech to 235,000 people, marking a 100,000 increase in 5 years. Naturally, London would represent the beating heart of this industry and it has garnered the attention of some of the world’s hottest Fintechs around, including Atom Bank, TransferWise, Revolut and Clear Bank to name but a few. In February 2017 alone, Atom Bank raised a venture capital round that reportedly closed at close to £100m. But what is it that means the UK is attracting so many of these highly valued enterprises?

All in one place
London is without a doubt where the vast amount of major policy decisions and technological innovations in the UK are made. That means that Fintechs have access to a wealth of the UK’s hottest talent as well as industry leaders and policy setters who are there to guide and advise. In the US, for example, you can’t find all of these in one place and would have to seek out Washington, Silicon Valley and New York to bring all of this expertise together.

Government support and tax breaks
In 2015, George Osborne announced the construction of three multidisciplinary research centres which would make vast improvements to the UK Digital Economy’s knowledge and skills. At the same time, it has been agreed that by 2020, UK corporation tax will drop from 20% to 17%, making profitability easier to achieve.

A strong desire to invest
Following the natural uncertainty that has arisen regarding Brexit, investment in 2016 fell by a third but still amounted to a whopping £630m worth of funding into Fintech firms.

FCA support
In February 2016, the FCA Director of Strategy and Competition, Christopher Woolard, made clear the layout of what is deemed “the sandbox”. This gives Fintech companies the ability to test out and develop their ideas without the fear of the normal reprisals that can incur for established firms. This reduces the fear of starting out in the UK financial sector and encourages innovation.

In the coming years, any uncertainty over Brexit should settle and the UK can see where it stands globally in the service sector. With such strong measures in place to promote UK Fintech, it is hoped that we are in as strong a position as previous and it is expected we may have grown even further.

There are naturally many fears when starting up a financial organisation in any country and amongst them are fears of legal issues, dealing with UK market entryHRfinancial administration and payroll. That is why Goodwille exists. With a strong proven track record, we hope to help support and develop UK innovation through working with technology start-ups. So if you are a company looking to possibly open a office in the UKand need advice and support on any of the aforementioned points, then please do get in touch.

How FinTech start-ups are shaking up the financial industry and what the rest of the world can learn

The UK has long been a suitable place to incorporate a technology start-up. Given that it’s also one of the financial capitals of the world, it was only a matter of time before tech merged with the banking world, and the rapid expansion of numerous FinTech companies is positive proof that Britain’s financial district is slowly but surely being changed by keen young upstarts with their eyes firmly on the prize.

How the United Kingdom helps companies to flourish
The British Government has long had a commitment to helping new tech businesses flourish – help is always forthcoming, regardless of whether the company in question is a start-up or an established international player looking to open a UK office to gain a foothold in emerging industries.

The Financial Conduct Authority is a governing body which works closely with new businesses to help them to understand regulation, and it’s recent scheme – dubbed “Project Innovate” – allows firms to test new models and products in a protected environment.

User friendly financial services
While the governments of other countries could follow the UK’s lead to provide the help needed to get start-ups off the ground, so too could budding entrepreneurs take note of the innovative ways UK FinTech start-ups work with their customers.

Perhaps the largest reason why UK FinTech brands have been so successful is because they’ve understood that their customers require flexibility and mobility. Ultimately, it’s the understanding that a completely digital bank needs to provide a truly flawless user experience in order to succeed.

Instilling consumer confidence
The UK – and London in particular – has long held a reputation for financial services. However, the brand reputation built up by financial institutions over hundreds of years can be yours without having to have a “brick and mortar” base in the country. It’s possible to set up a UK company with a virtual office in the UK and enjoy all the benefits and rewards associated with the capital.

For further information on how opening your business within the UK could transform the fortunes of your start-up, simply contact the friendly, experienced and professional team at Goodwille.

Budget 2017

Budget 2017

The Chancellor Philip Hammond presented the last Spring Budget on Wednesday 8 March 2017

In his speech the Chancellor was keen to point out that he wanted the tax system to be fair, particularly in relation to the distinction between employed and self-employed individuals.

‘But a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax.’

In the Budget speech the Chancellor announced that he has requested a report to be delivered in the summer on the wider implications of different employment practices. Also the Budget included changes to NICs and the Dividend Allowance.

In December and January the government issued a number of the clauses, in draft, of Finance Bill 2017 together with updates on consultations.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply from April 2017 and some take effect at a later date.

Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please do not hesitate to contact us for advice.

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the Class 4 National Insurance rates
  • a reduction in the Dividend Allowance
  • changes to the timing of Making Tax Digital for smaller businesses.

Previously announced measures include:

  • increases to the personal allowance and basic rate band (a decreased band for Scottish residents)
  • the introduction of the Apprenticeship Levy
  • changes to corporation tax loss relief
  • the introduction of an additional inheritance tax residence nil rate band
  • changes for non-UK domiciled individuals.

The Budget proposals may be subject to amendment in a Finance Act. You should contact us before taking any action as a result of the contents of this summary.

Personal Tax

The personal allowance

The personal allowance is currently £11,000. Legislation has already been enacted to increase the allowance to £11,500 for 2017/18.

Comment

A reminder that not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000, which is £1 for every £2 of income above £100,000. So for 2016/17 there is no personal allowance where adjusted net income exceeds £122,000. For 2017/18 there will be no personal allowance available where adjusted net income exceeds £123,000.

Tax bands and rates

The basic rate of tax is currently 20%. The band of income taxable at this rate is £32,000 so that the threshold at which the 40% band applies is £43,000 for those who are entitled to the full personal allowance.

In 2017/18 the band of income taxable at the basic rate will be different for taxpayers who are resident in Scotland to residents elsewhere in the UK. The Scottish government has decided to reduce the band of income taxable at the basic rate to £31,500 so that the threshold at which the 40% band applies remains at £43,000.

In the rest of the UK, legislation has already been enacted to increase the basic rate band to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 in 2017/18.

The additional rate of tax of 45% remains payable on taxable income above £150,000 for all UK residents.

Tax bands and rates – dividends

Dividends received by an individual are subject to special tax rates. The first £5,000 of dividends are charged to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:

  • 5% for basic rate taxpayers
  • 5% for higher rate taxpayers
  • 1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the £5,000 allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Reduction in the Dividend Allowance

The Dividend Allowance will be reduced from £5,000 to £2,000 from April 2018.

Comment

The government expect that even with the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance will affect family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance (SA) was first introduced for the 2016/17 tax year and applies to savings income. The available SA in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an SA of £1,000. For higher rate taxpayers, the SA is £500 whilst no SA is due to additional rate taxpayers.

Individual Savings Accounts (ISAs)

The overall ISA savings limit is £15,240 for 2016/17 but will jump to £20,000 in 2017/18.

Lifetime ISA

A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year, between ages 18 and 50, and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax free.

Comment

The increase in the overall ISA limit to £20,000 for 2017/18 is partly due to the introduction of the Lifetime ISA. There will therefore be four types of ISAs for many adults from April 2017 – cash ISAs, stocks and shares ISAs, Innovative Finance ISAs (allowing investment into peer to peer loans) and the Lifetime ISA. Money can be placed into one of each kind of ISA each tax year.There is a fifth type of ISA – a Help to Buy ISA. Help to Buy ISAs are a type of cash ISA and potentially provide a bonus to savers if the funds are used to help to buy a first home.

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) will be reduced from £10,000 to £4,000 from 6 April 2017.

The MPAA counters an individual using the flexibilities around accessing a money purchase pension arrangement as a means to avoid tax on their current earnings, by diverting their salary into their pension scheme, gaining tax relief, and then effectively withdrawing 25% tax free. It also restricts the extent to which individuals can gain a second round of tax relief by withdrawing savings and reinvesting them into their pension. The MPAA is currently £10,000 and applies to individuals who have flexibly accessed their money purchase pension savings.

Comment

The ‘annual allowance’ sets the maximum amount of tax efficient pension contributions. The normal annual allowance is £40,000. The Money Purchase Annual Allowance was introduced in 2015, to restrict the annual allowance to £10,000 when an individual has taken income from a pension scheme.

Phased roll out of Tax-Free Childcare

The Chancellor has confirmed that Tax-Free Childcare will be rolled out from April 2017. Tax-Free Childcare will be gradually rolled out for children under 12.

Under the scheme the relief will be 20% of the costs of childcare up to a total of £10,000 per child per year. The scheme will therefore be worth a maximum of £2,000 per child (£4,000 for a disabled child). It is expected that all parents in the household will have to meet the following conditions:

  • meet a minimum income level based on the equivalent of working 16 hours a week at National Minimum Wage or National Living Wage rates
  • each earn less than £100,000 a year and
  • not already be receiving support through tax credits or Universal Credit.

The existing scheme, Employer-Supported Childcare, will remain open to new entrants until April 2018 to support the transition between the schemes.

Comment

The government has also confirmed that from September 2017, the free childcare offer will double from 15 to 30 hours a week for working families with three and four year olds in England. In total this is worth up to £5,000 for each child.

Universal Credit

Universal Credit is a state benefit designed to support those on low income or out of work.

An individual’s entitlement to the benefit is made up of a number of elements to reflect their personal circumstances. Their entitlement is tapered at a rate of 65% where claimants earn above the work allowances. The current taper rate for those who claim Universal Credit means their credit will be withdrawn at a rate of 65 pence for every extra £1 earned.

From April 2017, the taper rate that applies to Universal Credit will be reduced from 65% to 63%.

Property and trading income allowances

From April 2017, the government will introduce new £1,000 allowances for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. The trading allowance will also apply to certain miscellaneous income from providing assets or services. Any income which attracts rent-a-room relief will not be eligible for either of the allowances.

Business Tax

Making Tax Digital for Business (MTDfB)

Extensive changes to how taxpayers record and report income to HMRC are being introduced under a project entitled Making Tax Digital for Business.

The government has decided how the general principles of MTDfB will operate. Draft legislation has been issued on some aspects and more will be published in Finance Bill 2017.

Under MTDfB, businesses, self-employed people and landlords will be required to:

  • maintain their records digitally, through software or apps
  • report summary information to HMRC quarterly through their ‘digital tax accounts’ (DTAs)
  • make an ‘End of Year’ declaration through their DTAs.

DTAs are like online bank accounts – secure areas where a business can see all of its tax details in one place and interact with HMRC digitally.

Comment

The End of Year declaration will be similar to the online submission of a self assessment tax return but may be required to be submitted earlier than a tax return. Businesses will have 10 months from the end of their period of account (or 31 January following the tax year – the due date for a self assessment tax return – if sooner).

Exemptions

Businesses, self-employed people and landlords with turnovers under £10,000 are exempt from these requirements.

Changes announced in the Budget

The government has now announced a one year deferral from the mandating of MTDfB for unincorporated businesses and unincorporated landlords with turnovers below the VAT threshold. For those that have turnovers in excess of the VAT threshold the commencement date will be from the start of accounting periods which begin after 5 April 2018.

Cash basis for unincorporated landlords

As part of the wider proposals for Making Tax Digital, the government has decided that, from April 2017, many unincorporated property businesses will compute taxable profits for the purposes of income tax on a cash basis rather than the usual accruals basis.

The cash basis means a business will account for income and expenses when the income is received and expenses are paid. The accruals basis means accounting for income over the period to which it relates and accounting for expenses in the period for which the liability is incurred.

For affected property businesses, the cash basis will first apply for the 2017/18 tax year which means that a tax return for 2017/18, which has to be submitted by 31 January 2019, will be the first one submitted on the new basis.

Not all property businesses will move to the cash basis:

  • property businesses will remain on the accruals basis if their cash basis receipts are more than £150,000
  • there is an option to elect out of cash basis accounting and to use accruals basis instead
  • the cash basis does not apply to property businesses carried out by a company, an LLP, a corporate firm (ie a partner in the firm is not an individual), the trustees of a trust or the personal representatives of a person.

Cash basis for unincorporated businesses

The government is also extending the cash basis option for the self-employed and trading partnerships. The cash receipts threshold for being able to move to the cash basis will increase from the current £83,000 to £150,000 and the threshold for having to move back to the accruals basis will increase to £300,000 from April 2017.

Currently, the rules for the calculation of profits under cash basis accounting do not allow a deduction for expenditure of a capital nature, unless that expenditure qualifies for plant and machinery capital allowances under ordinary tax rules. This results in taxpayers needing to consider whether items are capital in nature, and whether they qualify for capital allowances. New rules will be introduced that list types of expenditure which will or will not be allowed as a tax deduction.

It is proposed these changes will come into effect from the 2017/18 tax year.

Comment

There is no requirement for traders to switch to the cash basis. There are potential problems in adopting the cash basis including restrictions on interest relief on business finance and special calculations which need to be performed on moving to the cash basis. We can, of course, advise you of the issues involved.

Corporation tax rates

Corporation tax rates have already been enacted for periods up to 31 March 2021.

The main rate of corporation tax is currently 20%. The rate will then be reduced as follows:

  • 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
  • 17% for the Financial Year beginning on 1 April 2020.

Corporate tax loss relief

Currently, a company is restricted in the type of profit which can be relieved by a loss if the loss is brought forward from an earlier accounting period. For example, a trading loss carried forward can only relieve future profits from the same trade. Changes are proposed which will mean that losses arising on or after 1 April 2017, when carried forward, will be useable against profits from other income streams or other companies within a group. This will apply to most types of losses but not to capital losses.

However, from 1 April 2017, large companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.

Class 4 National Insurance contributions (NICs)

It had already been announced in the 2016 Budget that Class 2 NICs will be abolished from April 2018. The government will now also legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.

Comment

Both employed and self-employed earners who reached state pension age from 6 April 2016 have access to the same flat rate state pension. This means that the self-employed have gained £1,800 a year more than under the previous system. The government therefore think it is fair that the NIC differential between them is reduced as employees are paying 12%.

Research and development (R&D)

There are two types of tax reliefs for eligible R&D expenditure. Under one of these, qualifying companies can claim a taxable credit of 11% in relation to eligible R&D expenditure. This is known as the Research and Development Expenditure Credit (RDEC). To further support investment, the government will make administrative changes to the RDEC to increase the certainty and simplicity around claims and will take action to improve awareness of R&D tax credits among small and medium-sized enterprises.

Appropriations to trading stock

From 8 March 2017, the government will remove the ability for businesses to convert capital losses into trading losses when appropriating a capital asset to trading stock.

Disposals of land in the UK

The government will amend legislation to ensure that all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to tax, with effect from 8 March 2017. This extends legislation introduced in Finance Act 2016.

Substantial shareholding exemption (SSE) reform

Changes are proposed to some of the qualifying conditions for the SSE. The good news is that the changes remove some of the obstacles of qualifying for SSE.

  • The condition that the investing company is required to be a trading company or part of a trading group is being removed.
  • The condition that the investment must have been held for a continuous period, at a minimum of 12 months in the two years preceding the sale is being extended to a continuous period of 12 months in the six years preceding the sale.
  • The condition that the company in which the shares are sold continues to be a qualifying company immediately after the sale, is withdrawn, unless the sale is to a connected party.
  • For a class of investors defined as Qualifying Institutional Investors, the condition that the company in which the shares were sold is a trading company has also been removed. The draft legislation contains a list of Qualifying Institutional Investors.

The changes have effect for disposals on or after 1 April 2017.

Restrictions on residential property interest

Legislation has already been enacted to restrict interest relief for landlords.

From 6 April 2017, landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for these finance costs. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying loans or mortgages.

The restriction will be phased in with 75% of finance costs being allowed in 2017/18, 50% in 2018/19, 25% in 2019/20 and be fully in place for 2020/21. The remaining finance costs for each year will be given as a basic rate tax reduction but cannot create a tax refund.

These restrictions apply to:

  • UK resident individuals that let residential properties in the UK or overseas
  • non-UK resident individuals that let residential properties in the UK
  • individuals who let such properties in partnership
  • trustees or beneficiaries of trusts liable for income tax on the property profits.

UK and non-UK resident companies are not affected nor landlords of ‘Furnished Holiday Lettings’.

Enlarging Social Investment Tax Relief

Significant amendments to the Social Investment Tax Relief (SITR) will be legislated for in Finance Bill 2017 to:

  • increase the amount of investment a social enterprise may receive over its lifetime to £1.5 million, for social enterprises that receive their initial risk finance investment no later than seven years after their first commercial sale. The current limit will continue to apply to older social enterprises
  • reduce the limit on full-time equivalent employees to below 250 employees
  • exclude certain activities, including asset leasing and on-lending. Investment in nursing homes and residential care homes will be excluded initially. However the government intends to introduce an accreditation system to allow such investment to qualify for SITR in future
  • exclude the use of money raised under the SITR to pay off existing loans
  • clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise
  • introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.

The changes will take effect for investments made on or after 6 April 2017.

Employment Taxes

Off-payroll working in the public sector

As previously announced, from 6 April 2017, new tax rules potentially affect individuals who provide their personal services via their own companies (PSCs) to an organisation which has been classified as a ‘public authority’.

The effect of these rules, if they apply, will mean:

  • the public authority (or an agency paying the PSC) will calculate a ‘deemed payment’ based on the fees the PSC has charged for the services of the individual
  • the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary payment to an employee
  • the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
  • the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs.

Public sector organisations include government departments and their executive agencies, many companies owned or controlled by the public sector, universities, local authorities, parish councils and the National Health Service.

The new rules operate in respect of payments made on or after 6 April 2017. This means that they are relevant to contracts entered into before 6 April 2017 but where the payment for the work is made after 6 April 2017.

Comment

Where individuals are working through their PSC for private sector clients, the new rules will not apply to income from such work.It is for the public authority to decide if the deemed payment rules apply. To help all parties determine whether these rules apply, HMRC have provided an online employment status tool. There is no formal right of appeal to HMRC or the Tax Tribunals by the individual or the PSC. If a new contract is entered into after 6 April 2017, the expectation would be that the PSC would agree the treatment within the initial contract. If it is an existing contract a discussion will need to take place with the public authority as to the reasons for its decision.

Apprenticeship levy and apprenticeship funding

Larger employers (or connected employers treated as large) will be liable to pay the apprenticeship levy from April 2017. The levy is set at a rate of 0.5% of an employer’s pay bill, which is broadly total employee earnings excluding benefits in kind, and will be paid along with other PAYE deductions. Each employer receives an annual allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any pay bill in excess of £3 million in a year.

Employers only need to report on the levy where they have a pay bill of £3 million in the current tax year or consider that the pay bill will be over £3 million during the 2017/18 tax year.

The levy will be used to provide funding for apprenticeships and there will be changes to the funding for apprenticeship training for all employers as a consequence. Each country in the UK has its own apprenticeship authority and each is making changes to its scheme.

Different forms of remuneration

The government is consulting on the following:

Taxation of benefits in kind

The government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.

Accommodation benefits

The government will publish a consultation with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.

Employee expenses

The government will publish a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.

Comment

Employers can choose to remunerate their employees in a range of different ways but, in the view of the government, the tax system may treat these forms of remuneration inconsistently. The government is therefore considering how the tax system ‘could be made fairer and more coherent’.

Salary sacrifice

Legislation will limit the income tax and employer NICs advantages where:

  • benefits in kind are offered through salary sacrifice or
  • the employee can choose between cash allowances and benefits in kind.

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or Cycle to Work. Following consultation, the government has also decided to exempt Ultra-Low Emission Vehicles, with emissions under 75 grams of CO2 per kilometre.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:

  • an end, change, modification or renewal of the contract
  • 6 April 2018, except for cars, accommodation and school fees, when the last date is 6 April 2021.

Comment

Employers and employees may wish to review their flexible remuneration packages prior to 6 April 2017.

Changes to termination payments

Changes from 6 April 2018 will align the rules for tax and employer NICs by making an employer liable to pay NICs on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.

In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NICs. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.

Finally, the exemption known as foreign service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.

National Minimum Wage and National Living Wage increases

The Chancellor confirmed that the National Living Wage (NLW) rate will be increased from 1 April 2017. Increases are also being made to the National Minimum Wage (NMW) rates. The NLW applies to workers aged 25 and over. The NMW applies to other workers provided they are at least school leaving age.

Rate from: 1 October 2016 1 April 2017
NLW for workers aged 25 and over £7.20* £7.50
NMW main rate for workers aged 21-24 £6.95 £7.05
NMW 18-20 rate £5.55 £5.60
NMW 16-17 rate £4.00 £4.05
NMW apprentice rate** £3.40 £3.50

* introduced and applies from 1 April 2016
**the apprentice rate applies to apprentices under 19 or 19 and over and in the first year of their apprenticeship.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties that do not qualify for private residence relief.

The rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual. Entrepreneurs’ Relief is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses. In 2016/17 a new relief, Investors’ Relief, was introduced which also provides a 10% rate with a lifetime limit of £10 million for each individual. The main beneficiaries of this relief are external investors in unquoted trading companies.

CGT annual exemption

The CGT annual exemption is £11,100 for 2016/17 and will be increased to £11,300 for 2017/18.

Inheritance tax (IHT) nil rate band

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

Legislation has already been enacted to introduce an additional nil rate band for deaths on or after 6 April 2017, where an interest in a main residence passes to direct descendants. The amount of relief is being phased in over four years; starting at £100,000 in the first year and rising to £175,000 for 2020/21. For many married couples and civil partners the relief is effectively doubled as each individual has a main nil rate band and each will potentially benefit from the residence nil rate band.

The additional band can only be used in respect of one residential property, which does not have to be the main family home, but must at some point have been a residence of the deceased. Restrictions apply where estates are in excess of £2 million.

Where a person dies before 6 April 2017, their estate will not qualify for the relief. A surviving spouse may be entitled to an increase in the residence nil rate band if the spouse who died earlier has not used, or was not entitled to use, their full residence nil rate band. The calculations involved are potentially complex but the increase will often result in a doubling of the residence nil rate band for the surviving spouse.

Downsizing

The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.

Comment

From April 2017 we have three nil rate bands to consider. The standard nil rate band has been a part of the legislation from the start of IHT in 1986. In 2007 the ability to utilise the unused nil rate band of a deceased spouse was introduced enabling many surviving spouses to have a nil rate band of up to £650,000. By 6 April 2020 some surviving spouses will be able to add £350,000 in respect of the residence nil rate band to arrive at a total nil rate band of £1 million.Individuals will need to revisit their wills to ensure that the relief will be available and efficiently utilised.

Non-UK domiciles

A number of changes are to be made from 6 April 2017:

  • for individuals who are non-UK domiciled but who have been resident for 15 of the previous 20 tax years or
  • where an individual was born in the UK with a UK domicile of origin and resumes UK residence having obtained a domicile of choice elsewhere.

Such individuals will be classed as ‘deemed’ UK domiciles for income tax, CGT and IHT purposes. For income tax and CGT, a deemed UK domicile will be assessable on worldwide arising income and gains. They will not be able to access the remittance basis. For IHT, a deemed UK domicile is chargeable on worldwide assets rather than only on UK assets.

Legislation will allow a non-UK domiciled individual who has been taxed on the remittance basis to transfer amounts between overseas mixed fund bank accounts without being subject to the offshore transfer rules. This will allow the different elements within the accounts to be separated, thereby allowing clean capital to be remitted to the UK in priority to income and gains.

The draft legislation also provides that the market value of an asset at 5 April 2017 will be able to be used as the acquisition cost for CGT purposes when computing the gain or loss on its disposal where the asset was situated outside the UK between 16 March 2016 and 5 April 2017. This will apply to any individual who becomes a deemed UK domicile in April 2017, other than one who is born in the UK with a UK domicile of origin.

Non-UK domiciles who set up an overseas resident trust before becoming a deemed UK domicile will generally not be taxed on any income and gains retained in that trust and the trust remains non chargeable property for IHT purposes. However, there are a number of changes which modify the tax treatment on the occurrence of certain events for settlor interested overseas asset trusts.

UK residential property

Changes are also proposed for UK residential property. Currently all residential property in the UK is within the charge to IHT if owned by a UK or non-UK domiciled individual. It is proposed that all residential properties in the UK will be within the charge to IHT where they are held within an overseas structure. This charge will apply whether the overseas structure is held by an individual or trust.

Business Investment Relief

The government will change the rules for the Business Investment Relief scheme from April 2017 to make it easier for non-UK domiciled individuals, who are taxed on the remittance basis, to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in UK businesses by non-UK domiciled individuals.

Other Matters

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The business rates revaluation takes effect in England from April 2017 and will result in significant changes to the amount of rates that businesses will pay. The government announced £3.6 billion of transitional relief in November 2016. The Chancellor has now announced £435 million of further support for businesses. This includes:

  • support for small businesses losing Small Business Rate Relief to limit increases in their bills to the greater of £600 or the real terms transitional relief cap for small businesses each year
  • providing English local authorities with funding to support £300 million of discretionary relief, to allow them to provide support to individual cases in their local area.

The government will also introduce a £1,000 business rate discount for public houses with a rateable value of up to £100,000, for one year from 1 April 2017. This is subject to state aid limits for businesses with multiple properties.

Tax avoidance and evasion measures

In addition to measures specifically referred to earlier in this summary, other measures announced include:

Qualifying recognised overseas pension schemes (QROPS)

The government will introduce a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.

VAT: fraud in the provision of labour in the construction sector

The government will consult on options to combat missing trader VAT fraud in the provision of labour in the construction sector, in particular, applying the reverse charge mechanism so the recipient accounts for VAT.

Employment Allowance

HMRC are actively monitoring National Insurance Employment Allowance compliance following reports of some businesses using avoidance schemes to avoid paying the correct amount of NICs. The government will consider taking further action in the event that this avoidance continues.

Why setting up a UK company requires accountancy “guardians”

Why setting up a UK company requires accountancy “guardians”

There is a tendency to think that technology has rendered many financial services obsolete. After all, you can now carry out many compliance and financial management obligations using cloud computing or appropriate software.

If you are at the helm of a new UK startup, particularly one that is the culmination of a long-held ambition, handing over a key element of control in the early days can be particularly tough. The idea of outsourcing the daily management of your financial affairs may seem to fly in the face of your concept of being an ambitious entrepreneur.

However, if you don’t find an accountant based in London or elsewhere in the UK, you may be missing out on two major bonuses for establishing and growing businesses. The services of a trusted adviser and a financial guardian.

Why you need a trusted adviser

To underpin any form of expansion, or simply when you are establishing a new UK office, you need to have your finger on the financial pulse of your venture at all times. Outsourcing accountancy support means you have the services of a neutral third party, who can keep their focus firmly on the financial health of your business, without any of the distractions that your executive team face.

Technology has both freed accountants from the constraints of compliance and provided them with far more agile data analysis tools. This means they can now go much deeper into both forensically examining your financial affairs, and creating reliable predictive modelling.

With this sort of detail, they can influence your business strategy from a position of insight and evidence. They can also make sure you don’t waste time or money on business strategies which have the potential to fall short of an acceptable rate of return.

Accountancy services offer emotional intelligence

Outsourcing accountancy services to a trusted adviser is not just about setting up your UK company with facts to fall back on. Creating any new venture can be an emotionally charged period, with stress levels high despite even the most thorough planning and foresight.

If you have established a relationship of trust and understanding with a commercial financial advisor, you have created a voice of reason.

Any accountancy firm worth their fees will be ready to speak up when your ambition is outstripping your financial stability, for example. They will have the confidence and acumen to reign back decision makers when a financial health problem is imminent.

5 Great Book-Keeping Tips for Entrepeneurs

Keeping your books in order is one of the most vital elements of running your own business. As an entrepreneur, you know you need to have a clear view of your accounts at all times, and come tax season everything needs to be in line for your tax returns. It can be tricky knowing exactly what you should be doing, however, and how to streamline your bookkeeping so that it’s as efficient and effective as possible. Here are six great tips for effortless bookkeeping as an entrepreneur.

1. Go paperless
Cloud-based accounting is a great way to access all the basic bookkeeping functions you require for your business. By going paperless with your bookkeeping you will keep all the clutter and stress off your desk and ensure it’s securely saved in a dedicated system that’s specifically designed to handle it.

2. Keep business and personal finances separate
The easiest way to streamline your bookkeeping is to have a dedicated account for personal money and a dedicated business account. Never mix them. This is the fastest and easiest method of ensuring that all your expenses are in one place. No need to go through endless bank statements identifying individual transactions. If it’s on your business account, it’s a business expense.

3. Find a great adviser
While it’s possible to do a lot of your bookkeeping yourself, there will always be areas you have questions about and need some advice. It’s also highly advisable to get a professional in to handle your tax returns, and payroll is another area where you will greatly benefit from using a pro. Ensure you have, at the very least, an expert you can consult and ask questions whenever necessary. If your budget allows it, hand over all your bookkeeping and accounting needs to an expert – you will rest easier knowing everything is perfectly in order and you’ll have more time to focus on your business.

4. Save money for taxes
It’s easy to forget you have to pay taxes each year, especially when you’re starting out in business, and you may not meet the threshold for the first year or more. As soon as you’re earning enough that you have to pay taxes, make sure you’re setting that money aside so it’s ready and waiting when the bill is due.

5. Stay on top of your invoices
Any unpaid or late bills will affect your business credit and tax payments. Keep everything organised and make sure you pay it all on time.

Are you looking for financial services for your business? Look no further. Get in touch with us at Goodwille today, we’re happy to help.

Who need to submit self-assessment tax returns in the UK?

We’re fast approaching the deadline for UK taxpayers to submit their tax returns to HM Revenue and Customs (HMRC) for the 2015/16 financial year. Failure to do so by 31st January will result in an immediate £100 late filing penalty from the tax authority.

For some people doing business in the UK, self-assessment tax returns may be a completely new concept; particularly those new to commerce on these shores. But HMRC is clamping down hard on tax evaders i.e. those who fail to pay the tax they owe to the UK’s Treasury for generating significant revenue in the UK.

Aside from the instant £100 late filing penalty, tax returns filed more than three months late will incur additional fines, leaving many disorganised entrepreneurs significantly out of pocket. In terms of business accountancy, a self-assessment tax return needn’t cause such problems. Providing you can list every single penny of income earnt in the UK during the 2015/16 financial year, it should only take a matter of minutes to file with the guidance of a qualified accountant.

So who is eligible to submit a self-assessment tax return?
You’ll be legally required to file a tax return with HMRC for the 2015/16 financial year if any of the following is applicable to you:

– You regarded yourself as self-employed at any point
– You earned £2,500+ in untaxed income (such as property rental income)
– Your revenue (or your partner’s) exceeded £50,000 and one of you claimed child benefit
– Your investment or savings income amounted to £10,000+ before tax
– You made money from selling shares or a second property and subsequently need to pay Capital Gains Tax
– You benefitted from shares dividends and you’re a higher or additional rate taxpayer
– Your income totalled more than £100,000
– You were a trustee of a trust or registered pension scheme.

If you ticked one or more of the above scenarios, you’ll need to submit a self-assessment tax return for the first time. Those submitting for the first time must enrol for HMRC’s Self Assessment Online Services as soon as possible to give yourself the chance to submit your return ahead of the deadline.

Be aware that it can take up to 10 working days for HMRC to process and activate your account – providing you with a 10-digit Unique Taxpayer Reference (UTR).

If you’ve only been working in the UK a short time and you’re concerned you may not be paying the tax you owe, at Goodwille we can work with you all the way to ensure you’re up-to-date with your tax liabilities every financial year. We understand the UK business climate better than most and you can put your trust in us to tailor our services to meet your business’ accountancy and financial needs.

3 essential business elements you should consider outsourcing

When you’re running your own business the learning curve is astonishingly steep, the outlays immense, and your To-Do list endless. It can be overwhelming, intimidating, and incredibly stressful. It can also be extremely rewarding, fulfilling, and lucrative. The trick to getting it right is knowing how best to spend your time and resources. You must balance the requirements of your budget against the practical and logistical needs of your business. It’s tough making those calls, and a rookie mistake that almost all business owners make is believing they can save money by doing as much as possible themselves.

The reality, however, is that there is a finite amount of time you can spend working. Even if you work every waking hour of the day, you will hit a point where you just can’t do any more. Outsourcing is the solution to this, but it’s often a tough bullet to bite.

Many entrepreneurs cringe at the idea of paying someone to do things they could do themselves, but here’s the truth: a professional can do it far better than you can, in far less time, and the amount you will pay them to do a brilliant job is less than the amount you will earn by dedicating that time to what you really do best.

Here are three essential business elements that you should consider outsourcing.

#1 Bookkeeping

Getting your accounts and bookkeeping right is absolutely vital. It’s also very tricky, time-consuming, and stressful. Why not hand it all over to an expert who will ensure your books are in perfect order, and you always know exactly where you stand financially?

#2 Virtual Office

When there are so many things on your To-Do list and you are juggling a multitude of tasks and responsibilities, the telephone can easily become the bane of your existence. It’s constantly ringing, interrupting your train of thought, distracting you from vital tasks, and tying you up in lengthy conversations that you really needed to put off for a few days. You dream of a receptionist, but it’s not in your budget, and you don’t have space for another desk, anyway.

A virtual office is a solution. Not only will all your phone calls be taken care of by a professional, freeing you up to do more important things than answering the phone, but you will be armed with the knowledge of exactly who called, when, and why. This eliminates the possibility of missing phone calls and forgetting to call people back. It also enables you to dodge calls you’re not ready for, and deal with all those conversations in your own time. A virtual office also has the major benefit of providing you with a trading address, which is particularly handy if you work from home and don’t want to give your home address out to everyone and his wife!

#3 Tax Returns

Self-assessment is one of the most stressful elements of running any business. It’s a migraine-inducing nightmare, and if you get it wrong, or don’t get it done on time, it can also be very costly financially. Outsourcing your VAT work guarantees everything is handled in a professional, timely fashion, and there are no expensive mistakes!

If you’re considering outsourcing for your business, contact Goodwille today. We can provide more information about our services and discuss how outsourcing will benefit you directly.

A Guide to Setting Up An LTD company

If you’re looking to set up a UK company, a limited liability company is a very attractive option, so much so it’s the most popular formal business structure in the UK.

Its popularity is largely due to the inherently circumscribed nature of such a company – liability is literally ‘limited’ for company directors, as the company’s finances remain separate from their personal finances. This isn’t true for sole traders (self-employed) and as such, the limited company is a very attractive prospect.

But how exactly do you go about setting one up? Here’s our quick and easy guide to setting up a UK limited company…

1. Registration

The regulatory body for registering all UK limited companies is Companies House. Before you can set up your business as a limited liability company, you must first register it with Companies House. This is relatively simple: either do it yourself or have your accountant complete the application for you.

2. Documentation

You will need:
• Memorandum of Association – this document includes personal details (name and address) of subscribers forming the limited company.
• Articles of Association – this outlines the directors’ powers and the rights of any shareholders.
• Form IN01 – this contains information about director(s), shareholders, company secretary (optional), and the share capital (if the company is limited by shares).

Companies House has detailed guidance on their website as well as FAQs describing every aspect of registration. This includes limitations concerning company names and payment requirements.

3. Limited company types

The most popular form is a Private Limited Company, which can’t offer public shares and can have as many shareholders as desired. Every limited company is required to have a minimum of one director. A company secretary is no longer legally required for private limited companies following the Companies Act 2006, however you might still want one.

Public limited companies (PLCs) differ in that they can offer public shares to raise funds and they’re legally required to have a minimum of two directors and a company secretary.

4. Requirements

All limited companies must fulfill the following requirements:
• Registration at Companies House
• Annual account filing with Companies House
• Annual submission of a Confirmation Statement
• Annual income reports to HMRC
• Annual Corporation Tax return, with liabilities paid within nine months of the company’s year end
• All company employees pay income tax and National Insurance Contributions (NICs) on all income they receive.

Goodwille Finance Team

Goodwille are excited to welcome three new experienced recruits to the finance team including a Senior Financial Controller, Financial Controller & Finance Assistant.

Rachel De Bose – Senior Financial Controller
Working from our London office, Rachel joins Goodwille on the 3rd January 2017 as a Senior Financial Controller. A client focused, fully qualified accountant (ACCA) with five years’ experience in financial reporting and accounting, working with clients in the sports, fashion, hospitality, media & construction sector. Rachel has a broad skillset covering strategic planning and analysis, budgeting, forecasting and management accounts along with experience working within the outsourcing department of a firm of accountants.

Mark Lewis – Financial Controller
Mark previously worked as a key member of the Business Advisory team for a well-established Midlands accountancy firm before joining Goodwille on the 7th December 2016. Here he worked across clients from a diverse portfolio including both entertainment & engineering companies. A graduate from Oxford Brookes University he is a part qualified ACA finalist.

Irina Nikolajeva – Finance Assistant
Latvian born Irina joins the Warwick Finance Department as a Finance Assistant. Currently working through her AAT qualification (starting Level 4) she has completed OCR Certificate in Book keeping & Accounting Level 1 & 2, along with computerized Accounts and Sage 50 training. Irina is a strong addition to the growing assistant’s team and will be responsible for general administration, payments and processing client expense claims.