NATIONAL INSURANCE AND THE SELF EMPLOYED
The planned abolition of Class 2 National Insurance contributions and the associated reform of Class 4 contributions, due to take effect from 6 April 2019, will not now go ahead during the current Parliament. This means that if you are a self-employed earner, you will continue to pay Class 2 contributions in 2019/20 on profits in excess of the small profits threshold (currently £6,205) and Class 4 contributions on profits in excess of the lower profits limit.
If you are a self-employed earner with profits below the small profits threshold, you will still be able to pay Class 2 contributions voluntarily. This is cheap option to maintain your contributions record if you do not have the 35 qualifying years needed to qualify for the full single-tier state pension. At 2018/19 rates, voluntary Class 2 contributions cost £2.95 per week, whereas voluntary Class 3 contributions are £14.65 per week.
MAKING TAX DIGITAL FOR VAT
The start date for Making Tax Digital (MTD) for VAT is fast approaching. If you are a VAT-registered business with turnover in excess of the VAT registration threshold of £85,000, you will need to comply with the requirements of MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2019. If you are VAT registered but your VATable turnover is below £85,000, you can choose whether to join in, but if you do there is no going back and once in MTD for VAT you will need to stay within MTD for VAT as long as you remain VAT registered.
Under MTD for VAT you must keep certain VAT records digitally and send your VAT returns to HMRC using software that is MTD-compatible. You will no longer be able to use HMRC’s VAT Online service to file your VAT return. Your adviser can still file your VAT returns on your behalf, although the requirement to keep VAT records digitally, etc. still applies.
We have written to clients we think are affected by this new regime and if you have any queries please contact us.
CHECK YOUR END OF YEAR TAX RECONCILIATION
If you have received a PAYE end of year reconciliation (P800) or simple assessment (PA302) you may wish to check that it is correct. If HMRC have sent us a copy for clients we will do this and advise you.
At the end of the tax year, HMRC reconcile PAYE tax records and will send you a tax calculation if there is an overpayment or an underpayment. This can either a P800 tax calculation or a PA302 simple assessment. It is important to check that the calculation is correct, rather than just assume that it is – HMRC do make errors. Problems may arise where estimated figures have been used or where data from your employer’s submissions have not fed through to your records correctly.
ADVISORY FUEL RATE FOR ELECTRIC VEHICLES
From 1 September 2018 a new advisory fuel rate of 4 pence per mile applies to electric vehicles. This means that if your employees have electric company cars and they meet the cost of electricity for business journeys, you will be able to reimburse them at a rate of 4 pence per mile without triggering a tax liability or having to report the payment to HMRC. If, however, the payment exceeds 4 pence per mile, any excess over that amount is taxable and you must report the profit element to HMRC on the employee’s P11D or deal with it through the payroll.
ELECTRIC CHARGING POINTS
No fuel benefit charge arises if you provide electric charging points for your employees to use to charge an electric company car. HMRC do not regard the provision of electricity to power a company car as a ‘fuel’ and consequently there is no fuel benefit charge if you meet the cost of electricity for employees’ private journeys in an electric company car.
With backdated effect from 6 April 2018, a new exemption is being introduced which prevents an income tax charge from arising if an employee uses an employer provided charging point to charge their own electric or hybrid car, or one in which they are a passenger. However, the exemption only applies to electric charging points provided at or near the workplace, and is dependent on charging facilities being available to all employees who wish to make use of them. However, if you have more than one site, you do not need to provide a charging point at each of them for the exemption to apply.
From 2020/21 new company car bands are being introduced which will significantly lower the benefit in kind tax charge for electric company cars. The benefit in kind tax charge for electric cars and those with emissions of between 0 and 50g/km is currently 13% of its list price; this is to increase to 16% for 2019/20. However, from 2020/21, the charge for zero emission cars will drop to 2%, whereas that for cars in the 1 to 50g/km band will depend on the electric range of the car, as set out in the table below:
|CO2 emissions||Electric range||Appropriate percentage|
|1–50g/km||130 miles or more||
|70 to 129 miles||
|40 to 69 miles||
|30 to 39 miles||
|Less than 30 miles||
Looking ahead, the potential tax savings to the employee from choosing an electric car are significant. The reduction in the charge will also reduce the amount of Class 1A National Insurance that you, as an employer, will pay.
NEW EMPLOYER NIC CHARGE ON TERMINATION PAYMENTS
The tax rules for taxing termination payments made to employees were reformed from 6 April 2018. From that date, only termination payments in excess of those that the employee would have received had they worked their notice period benefit from the £30,000 tax-free threshold – it no longer matters whether a payment in lieu of notice (PILON) is contractual or not. Redundancy payments remain tax-free but count towards the threshold. Termination payments in excess of the £30,000 threshold are taxable.
From 6 April 2019, while termination payments will remain NIC-free for employees, a new Class 1A (employer-only charge) will apply to the extent that the threshold is exceeded. The charge will be 13.8% of the excess over £30,000.
REQUIREMENT TO CHECK SCALE RATE PAYMENTS TO BE ABOLISHED
Where benchmark scale rates are used to pay or reimburse qualifying subsistence payments to employees, you currently need to obtain evidence from the employee, for example a receipt, of the amount that has been spent. However, this burden is to be removed from 6 April 2019, and from that date you will no longer need to check employee’s receipts when paying or reimbursing amounts using the benchmark scale rates.
REDUCED DIVIDEND ALLOWANCE FOR 2018-19
For 2018/19 the dividend allowance is set at £2,000 – a reduction from £5,000 for 2017/18. The reduction in the allowance will affect your profit extraction strategy if you have a personal or family company. Where the company has retained (post-tax) profits, these can be extracted in the form of dividends.
All taxpayers regardless of the rate at which they pay tax are entitled to the dividend allowance. This is beneficial in extracting profits from a family company as it provides a route for extracting dividends without triggering a further tax liability in the hands of the recipient. Dividends covered by the allowance are taxed at a zero rate.
The reduction in the dividend allowance has reduced the profits that can be extracted tax-free via this route. For example, in a family company with four shareholders, in 2017/18 it was possible to pay £20,000 out in dividends before any dividend tax was payable; for 2018/19 it is only possible to extract £8,000 tax-free in this way.
Speak to us to discuss what the reduction in the dividend allowance means for you and the impact this has on the optimal profit extraction strategy for your personal or family company.
PAYING DIVIDENDS THE BASICS
A dividend can only be paid if the company has sufficient retained (post-corporation tax) profits from which to pay it; and it must be properly declared. Further, dividends can only be paid in accordance with shareholdings unless there is a valid deed of waiver drawn up in advance of the dividend being declared.
To pay an interim dividend, the procedure is as follows:
- Establish that there are profits available for distribution;
- Calculate the total dividend payment available;
- Calculate the dividend payable per share (note there are complications with dividend waivers);
- Hold a directors meeting approving the payment;
- Pay shareholders and issue dividend vouchers.
RENT A ROOM RELIEF – NEW QUALIFYING CONDITION
Rent-a-room relief allows you to let out one or more furnished rooms in your own home and enjoy rental income of up to £7,500 tax-free per year. However, the ability to use the relief to shelter income from short terms lets (for example via Airbnb or similar) is to be curtailed from 6 April 2019.
From that date, a new condition is to be introduced which will mean that rent-a-room relief will only be available if there is at least one night of overlap during the let where you or a member of your household also sleep in the property. This will affect you if you let out your property while you are away.
PENSION ANNUAL ALLOWANCE
You can make tax-relieved contributions to a registered pension scheme up to the higher of £3,600 and 100% of earnings as long as the contributions that you make do not exceed your available annual allowance. For 2018/19, the annual allowance is set at £40,000; however, if you are a high earner, your allowance may be reduced. If you do not use all your available annual allowance in a tax year, you can carry forward unused allowances for up to three years.
If you have income of more than £150,000, your annual allowance may be abated. Where this is the case, the allowance is reduced by £1 for every £2 by which income exceeds £150,000, subject to retaining a minimum allowance of £10,000.
EXTENSION TO LANDFILL TAX
The scope of landfill tax was extended from 1 April 2018 and now applies to disposals at sites without a disposal permit. The changes may mean that you are potentially liable for landfill tax, even if you do not personally dispose of the waste. Where waste is disposed of at an unauthorised site, the charge may fall on the person who made the disposal or on another person in the waste supply chain if they knowingly cause or facilitate the disposal.
To safeguard against an unintended and unwanted landfill tax bill it is important that you take all reasonable steps to ensure that a disposal at an unauthorised landfill tax site does not happen.
Where an employer provides a company car, but the employee pays for the fuel, the employer may pay a mileage allowance for business journeys. HMRC accepts that payments not exceeding the ‘advisory fuel rates’ are reimbursements of expenses, not subject to income tax or Class 1 national insurance contributions.
These rates may be used to reclaim input VAT in respect of fuel used for business journeys (remembering that VAT receipts to cover the amount claimed are required). These rates are scheduled to change quarterly and the current rates can be found at: https://www.gov.uk/government/publications/advisory-fuel-rates