It had already been announced that there would be a half percent increase in National Insurance Contributions (NIC) from next April. Today’s Pre-Budget Report has announced that there will be a further half percent increase from April 2011. This means that from April 2011 the main rate for employees will be 12% and for the self-employed will be 9%. The rate of employer contributions will be 13.8%.

To compensate lower earners the starting threshold will be raised by £570.

Costs are going up more steeply than otherwise expected from April 2011.  The rates for the self-employed, employees and employers will all rise by 1% (previously expected to be at 0.5%).  This will mean an effective highest rate of tax of 52%.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. If you would like to discuss the contents of this post with Cathy you can call her on 01908 605552. 
 

• Email This
• Print
• Comments
• Trackbacks

All NI rates to rise by an additional 0.5% from April 2011.

• Email This
• Print
• Comments
• Trackbacks

Unfortunately pay in lieu of notice is frequently a problem area for tax. HMRC often claims it as taxable while businesses and employees believe it to be tax free.

There are two areas to consider in this:

• contractual pay in lieu of notice is treated as normal earnings and subject to PAYE and NI. Make sure, therefore, that employment contracts do not state you can pay an employee instead of giving them notice
• custom – in HMRC’s view even if pay in lieu of notice is not formally contracted for, if you habitually pay it then it is taxable. Make sure you do not fall into the trap of always giving pay in lieu as an 'easy' option.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this blog with Cathy you can call her on 01908 605552.

• Email This
• Print
• Comments
• Trackbacks

Where you personally own the premises your business trades from, it has historically always been considered sensible to charge rent to avoid national insurance. However, on ultimate exit from the business there may be a tax issue on entrepreneurs’ relief. This is only a problem if the sale of the business itself does not generate a gain of at least £1 million.

You can claim relief on the sale of the business premises if this is linked to a sale of the business, but if full rent has been charged on the property, no relief is due.

The good news is that rents received prior to April 2008 can be ignored.

Furthermore, if full market rent has not been charged, relief is still allowed but in proportion to the discount from market rent. If this is likely to be an issue, this may be a good time to review the position.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this blog with Cathy you can call her on 01908 605552.

• Email This
• Print
• Comments
• Trackbacks

The total tax take in 2008/09 was £439,093 million, down from £451,053 million in 2007/08. The tax take for the first seven months of the current year is £349,208 million. For 2008/09 the main contributory tax was again income tax at £147,856 million, followed by national insurance at £96,882 million.

Looking at the detail it seems odd that taxes such as inheritance tax, that make up such a small amount of the overall tax take (0.65% in 2008/09), should generate so much political interest as compared to national insurance.

Incidentally capital gains tax, which also seems to get a fair bit of coverage, accounted for only 1.8% of total taxes. It actually raised less than stamp duties.

Full details can be found at http://www.hmrc.gov.uk/stats/tax_receipts/menu.htm.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author.

• Email This
• Print
• Comments
• Trackbacks

HMRC have recently issued a factsheet to help you decide whether you are employed or self-employed for tax and National Insurance purposes. The leaflet covers issues such as:

• Is your employment status right?
• The special rules that apply to certain occupations and jobs 
• Working through a Company or partnership 
• Checking your employment status 
• Employment Status Indicator (ESI) tool 
• Your position if you have more than one job
• Why employment status is important 
• Your entitlement to benefits and employment rights
  

It gives links to other relevant information and provides helpline numbers.

The sheet can be found at http://www.hmrc.gov.uk/leaflets/es-fs1.pdf.  

• Email This
• Print
• Comments
• Trackbacks

HMRC has published new guidance on the new penalty provisions that will apply from April 2008.

HMRC states that it has designed the new penalties so that:

• If people take reasonable care when completing their returns they will not be penalised.
• If they do not take reasonable care errors will be penalised, and the penalties will be higher if the error is deliberate.
• Disclosing errors before HMRC find them will substantially reduce any penalty due.

The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.

Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm  

• Email This
• Print
• Comments
• Trackbacks (1)

Historically, the government’s response to an avoidance “scheme” has been to block it (and then block scheme mark 2, et seq). Look at national insurance (NIC). I am (sadly) old enough to remember when employees were paid bonuses in gold coins to save NIC. Gold coins were of course blocked, so the market moved on to platinum sponge, fine wine and, as I recall, carpets. It took a long time to introduce legislation to stop all similar schemes.

From the Treasury’s perspective principles-based avoidance legislation makes perfect sense.

There has been a lot of sophisticated planning around interest income and HMRC and the Treasury are seeking to change the rules of the tax planning “game” with the introduction of a principle. The consultative document states: ‘A return designed to be economically equivalent to interest is to be taxed in the same way as interest.’ (Regrettably the ensuing draft legislation is nowhere near as succinct).

If this principle based approach is successful in this area, we have to ask – what will be the next step?

• Email This
• Print
• Comments
• Trackbacks

Some years ago I was involved, in a minor way, in the writing of a Government report on the merging of PAYE and National Insurance. If my memory serves, the report highlighted 5 major (i.e. politically sensitive) hurdles to the merger of these two “taxes”.

Subsequent Governments have tackled some of these, including aligning the lower thresholds for income tax and NI, and charging Class 1A NIC on benefits in kind. However, perhaps the most politically sensitive point still remains - if income tax and NI are actually merged that would give a headline percentage for basic rate tax of 33%. This would fall to 31% from next April, but it doesn’t sound as good as 20% does it?

Although a true merger may still not be on the cards, the alignment of the two taxes continues. The change for 2008 onwards is a substantial increase in the upper earnings limit for NI. This is the maximum level of income on which you pay the full rate of employee NI – any earnings above that limit attract only a 1% charge.

The upper earnings limit will rise from £34,840 to £40,040 from April 2008. This means that you will pay 11% on an extra £5,200 rather than the 1% payable this year – an increase of £520.
The level at which the 40% higher rate of income tax will apply for 2008/09 has not yet been announced, but is expected also to be £40,040, thus aligning both the lower and upper limits for tax and NI. This extension of the basic rate band, together with the proposed reductions in the basic rate from 22% to 20%, should more than compensate for the extra NI. However, for those people who have the choice, the message is still clear - take income in the form of dividends rather than salary whenever possible and avoid the additional NI.

• Email This
• Print
• Comments
• Trackbacks