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From 1 April 2017 a new 16.5% VAT rate will be introduced for businesses with limited costs using the VAT Flat Rate Scheme. This will affect many businesses such as labour only companies

ARE YOU EMPLOYED OR SELF-EMPLOYED?

The new intermediary legislation introduced on 6 April 2016 makes important changes in order to determine whether someone is employed or self-employed. For example the right to send a substitute is no longer a pointer to self-employment. Now the level of supervision, direction and control the end user is able to exercise over the worker determines the employment status.

According to HMRC supervision is someone overseeing a person doing work, direction is someone making a person do his/her work in a certain way by providing them with instructions, guidance or advice as to how the work must be done. Control is someone dictating what work a person does and how they go about doing that work.

Clearly the above definitions make it very likely that someone who is self-employed will in fact be subject to some form of supervision, direction or control. Where the definition applies in some way HMRC will classify that person as employed.

How can a worker argue otherwise? In our view if the terms of the service to be provided to the end user are agreed each time between the intermediary and the worker or between the end user and the worker BEFORE the service is started then it can be argued that, once this is done, the worker has total freedom as to how he will deliver the service and hence he can be paid as self-employed.

One final point: To ensure that no one escapes the net intermediaries must return details of all workers they place with clients where the intermediary doesn’t operate Pay As You Earn (PAYE) on the workers’ payments. The return is a report (or reports) that must be sent to HMRC at least once every 3 months.

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At Best Choice Accountancy we can help small business owners gain better financial control of their businesses, develop a better working relationship with us and also growth and success.

This is why we have partnered with KashFlow, a cloud based accounting and bookkeeping application that offers a range of simple and effective features designed to help small business owners like you take control of your finances. 

HOW WILL DIVIDENDS BE TAXED FROM 2016? WILL INCORPORATION TO REDUCE TAX STILL BE A VALID OPTION?

The new tax rate of £7.5% on dividends to be introduced in 2016 is potentially designed to discourage forming a company for tax purposes.

Under the current system 2 shareholders in a company (typically husband and wife) can receive dividends up to the basic rate tax threshold without having to pay any income tax. 

FROM APRIL 2016 THIS WILL NO LONGER APPLY

From April 2016 shareholders can receive £5,000 dividends tax free. However, after that they will pay tax at 7.5% up to the basic rate tax threshold. In practice this represents an increase in tax of £2,400 payable by each shareholder. 

We believe this completely change the way contractors make decisions as to whether to incorporate or not. Incorporation solely for tax purposes will no longer be seen as carrying the advantages shareholders have today.   

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Here is a summary of the Summer Budget.  

What is a Service Company?

This is a question which is often asked by HMRC on many of their forms. It is a tricky question because a positive answer implies that the limited company is an intermediary, the sole purpose of which is to provide services to a client by the director of the company who, without the intermediary, would be an employee of that client.

There is no definition given by HMRC of what a service company actually is. However, every time HMRC refers to an intermediary they are likely to define the limited company as a service company.

The legislation covering intermediaries is known as IR35. Where IR35 applies most of the earnings the limited company receives, also known as the ‘Worker’s Attributable Earnings’, are subject to PAYE and NI.

Clearly then answering “Yes” to the question “Is your company a service company?” is likely to mean that some contracts at least may be subject to the IR35 legislation. We can provide a spreadsheet which is designed to work out the cost in terms of PAYE and National Insurance. 

If you believe that the contractual relationship your limited company has with a client is that of an employer-employee relationship you should consider very carefully how you answer the question “Is your company a service company?”  The answer is always yes.

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Salary, dividends or pension contribution? As a director of a limited company you must draw a salary if you do not want to lose your annual personal allowance. The question is, "how much?"

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Here is the budget in a nutshell.
Will we really see the end of the Tax Return?

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Are you running a payroll? Are you confused about RTI (Real Time Information)?

Basically there are 2 reports which you need to be aware of. The first one is the FPS (Full payment submission) report which must be sent every month every time you pay your employees or before that date.

The other one is the EPS (Employer Payment Summary) report. This is to be submitted only if no payments are made to employees or if the company wishes to claim a repayment of tax for example the £2,000 Employment Allowance. The EPS report must be submitted by the 19th of the following month.

More details about potential penalties in the enclosed article.

Have you been affected by the cap on income tax reliefs? 

You may recall that legislation was introduced in Finance Bill 2013 to set a limit on specific income tax reliefs claimed by individuals from 6 April 2013. The cap was set at £50,000 or 25 per cent of income, whichever is greater. 

In practice, individuals who now make a loss in one trade are no longer able to offset unlimited losses against the profits made in another trade. Any claim is restricted to £50,000 or 25% of income, whichever is the grater.

The primary reliefs affected are trade and property loss reliefs that can be relieved against general income and qualifying loan interest relief. A small number of other reliefs is also affected. 

Not many people will be caught by the legislation, but some will. For example a sole trader may run a successful business and may decide to invest some of his profits into a new trade. Up to last year it was possible to use any initial losses against profits made in other trade without limits. This had the effect of reducing the overall income and hence the tax liability, but now this provision has been restricted. 

Of course losses can be carried forward or back and utilized against profits made in the same trade. However, if you find yourself in this situation you may want check your income tax computation for previous years and if possible make a full claim, without restrictions, against other income.
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