I hope you've enjoyed the hot summer months, as the nights get darker and the temperature drops - it's time to start focusing on submitting your tax returns before the January deadline.
This months newsletter highlights the big stories around tax codes, national insurance, auto enrolment and contractors / IR35.
In the next Taxing Times we'll be looking at big Budget news.
Ian Vogan FCA CTA Director
Taxing Times - October
Checking tax codes is essential!
We are coming across more examples where HMRC have issued incorrect tax codes to individuals. In one instance the code had been changed to transfer a proportion of the personal allowance from the taxpayer when it should have been transferred to the taxpayer. Where an individual submits a tax return the situation is corrected and the only impact is that tax is over or under paid during the year, but the right amount of tax is paid. If the individual does not submit a tax return the error may go uncorrected. In the example we found regarding transfer of personal allowance we act for taxpayer transferring the allowance and had no suggestion that the allowance had not been correctly treated in his wife’s tax position. She only queried it when she changed jobs and looked at her P45. The situation had been wrong for three years.
If you want us to check your tax code or the codes for your employees or family please send us details and will carry out a free check to ensure that the code being operated is correct.
Class 2 National Insurance ….. is not going to be abolished
The Treasury has announced that the original plans to abolish Class 2 National Insurance for self-employed individuals have been scrapped. It was originally to be abolished from April 2018 and this was then put back to April 2019. The abolition was introduced together with other measures at pension reform and increases to Class 4 National Insurance. I have seen this described as “scrapping a tax cut” but this is not correct because for low earners who wanted to make contributions so that they counted towards state pension and other benefits this is a tax saving. If Class 2 national insurance had been scrapped they would have had to make Class 3 voluntary contributions and these cost £600 a year more than the Class 2 contributions.
Auto-Enrolment, here's your April 2019 warning!
In April 2019 the rates of pension contributions under auto-enrolment are set to rise again. The minimum contribution will be 8%, of which the employer must contribute 3%. For most employees this will mean that their contribution will rise to 5% of their wage against 3% that it is currently. For some employees this will be a “deduction too far” and they may decide to opt out of the pension scheme.
If an employee comes to you and says they are going to leave the pension scheme because of the increase in the contribution you could offer that they withdraw from the auto-enrolment obligation but then make voluntary contributions at the same level that they are currently paying. You as the employer would not have to make any contribution but could agree to continue to contribute at the current level.
It is illegal for employers to suggest this, but if an employee does approach you it is a solution that is available and helps the employee to continue to contribute to their pension.
Another option is that you agree to the employee contribution not changing and you as the employer make up the difference to ensure that the overall contribution of 8% of earnings is paid into the pension scheme.
Contractors / IR35
This is an area where we are expecting changes to be announced in the Autumn Statement, to be delivered on 29 October. There have been a number of recent cases involving celebrities where HMRC have challenged the treatment of money drawn from personal service companies. HMRC are seeking to have this money treated as salary and therefore subject to PAYE and National Insurance where the individual has treated it as a dividend.
In a separate issue one contractor working for HMRC took them to an employment tribunal. They claimed that if they were being paid as if they were employees and subject to PAYE and National Insurance then they were entitled to the same level of holiday entitlement as HMRC’s employees. The case was settled before it was heard by the tribunal.
On a lighter note one construction industry client has been ordered by Health and Safety inspector to ensure all staff in a particular role are clean shaven to make dust masks more effective. They asked if these staff can claim cost of shaving as a tax deductible expense. My usual advice is – is it wholly, necessarily and exclusively for business purposes? Probably not in this instance but perhaps there may be leeway?
October 31st - Last date to file your self assessment return in paper format
November 30th - Filing company accounts with 28th February year-end
December 20th - Final day for getting information to Vogan Accountancy for December payroll
January 2nd - First day of business for 2019!