Important Changes to Tax on Dividends – Tax Year 1617

LIMITED COMPANY DIRECTORS AND SHAREHOLDERS TAKE NOTE: IMPORTANT CHANGES TO TAX ON DIVIDENDS TAX YEAR 1617

Brace yourselves – not the most dynamic of subject matter. Indeed two subjects most people dread to think about Dividends and Tax. Never-the-less there is an important change for the current Tax Year 1617.

We’ll give you a quick overview with the main change you need to know about with some worked examples.

This will affect anyone who receives dividends, and in particular the SME Directors among you.

DIVIDENDS – A RECAP IN LAYMANS TERMS

Dividends are one of three ways to receive payments if you are a director/shareholder of a Limited Company (the other two being via a Salary or a Director’s Loan).

  • A dividend is a payment a company can make to shareholders if it has made enough profit.
  • You can’t count dividends as business costs when you work out your Corporation Tax.
  • Your company mustn’t pay out more in dividends than its available profits from current and previous financial years.
  • To pay a dividend, you must: hold a directors’ meeting to ‘declare’ the dividend, keep minutes of the meeting, even if you’re the only director.
  • Dividend paperwork: for each dividend payment the company makes, you must write up a dividend voucher showing the: date, company name, names of the shareholders being paid a dividend, amount of the dividend, you must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.
  • Tax on dividends: your Company doesn’t need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £5,000.

CHANGES TO THE TAX ON DIVIDENDS from April 2016

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

For the Tax Year starting from 6 April 2016, you won’t pay tax on the first £5,000 of dividends that you get in the tax year, no matter what non-dividend income you have. The Allowance is available to anyone who has dividend income.

Above this allowance the tax you pay depends on which Income Tax band you’re in. Add your income from dividends to your other taxable income when working this out. You may pay tax at more than one rate. Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends. The Dividend Allowance will not reduce your total income for tax purposes.

Dividends received by pension funds that are currently exempt from tax, and dividends received on shares held in an Individual Savings Account (ISA), will continue to be tax free.

The rates of Dividend Tax are also changing according to the Income Tax Band:

Basic rate: 7.5% | Higher rate : 32.5% | Additional rate:  38.1%

Dividends that fall within your Personal Allowance do not count towards the £5,000 dividend allowance.

Personal Allowance: £11,000 | Basic Rate Limit: £32,000 | Higher Rate Threshold: £43,000

How you pay tax on dividends – depends on the amount of dividend income you got in the tax year.

Less than £5,000: You don’t need to do anything or pay any tax.

Between £5,000 and £10,000:   You can either put it on your Self-Assessment tax return, if you already fill one in; Or if you are earning via PAYE scheme ask HMRC to change your tax code to have it deducted from your wages or pension.

Over £10,000: You’ll need to fill in a Self-Assessment tax return.

If you don’t usually send a Self-Assessment tax return, you need to register with HMRC by 5 October following the tax year you had the income.

WORKED EXAMPLES

The way the allowance will work in different situations is demonstrated in the examples below (as provided by HMRC website):

Example 1: “I receive less than £5,000 per year in dividends”

From April 2016 you won’t have to pay tax on your dividend income as it’s within the new Dividend Allowance.

Example 2: “I receive dividends of £600 from shares invested in an ISA”

As is the case now, no tax is due on dividend income within an ISA, whatever rate of tax you pay.

Example 3: “I have a non-dividend income of £6,500, and a dividend income of £12,000 from shares outside of an ISA”

With a Personal Allowance of £11,000, £4,500 of the dividends are under the threshold for tax. A further £5,000 comes within the Dividend Allowance, leaving tax to pay at Basic Rate (7.5%) on £2,500.

Example 4: “I have a non-dividend income of £20,000, and receive dividends of £6,000 outside of an ISA”

You won’t need to pay tax on the first £5,000 of dividends due to the Dividend Allowance, but will pay tax on £1,000 of dividends at 7.5%.

Example 5: “I have a non-dividend income of £18,000, and receive dividends of £22,000 outside of an ISA”

Of the £18,000 non-dividend income: £11,000 is covered by the Personal Allowance, the remaining £7,000 to be taxed at Basic Rate.

Of the £22,000 dividend income: The Dividend Allowance covers the first £5,000, the remaining £17,000 of dividends to be taxed at the Basic Rate (7.5%)

Example 6: “I have a non-dividend income of £40,000, and receive dividends of £9,000 outside of an ISA”

Of the £40,000 non-dividend income, £11,000 is covered by the Personal Allowance, leaving £29,000 to be taxed at basic rate.

This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this £3,000 first, leaving £2,000 of Allowance to use in the higher rate band. All of this £5,000 dividend income is therefore covered by the Allowance and is not subject to tax.

The remaining £4,000 of dividends are all taxed at higher rate (32.5%).

HELP REQUIRED?

Pinnacle are here to help, if you would like assistance with understanding the changes to the Dividend Tax or Self-Assessment in general.

We can also help collate and report your annual returns of information to HMRC and Companies House. Remember fines and penalties are imposed for late returns, late payments and mis-information provided.

You can contact us via the form below or our Contact Us webpage:

Creating a Limited Company

A Practical Guide to Setting Up a Limited Company

Starting your own company sounds fantastic. It’s a great way to take control of your workload, your timetable and your finances. However when it comes to the initial setting up of your business it can appear to be a complex task. We have set out below some of the main steps to creating a Limited Company to guide you in the initial stages.

Still unsure what type of company you should be creating? Then check out our previous post ’10 things to consider when working for yourself or setting up a company’. That article compares the key points of a Limited Company versus setting yourself up as Self-Employed.

A LIMITED COMPANY – WHAT IS ENTAILED?

As a quick reminder here are a few key aspects of a Limited Company:

  • Its finances are separate from your personal finances, your liabilities are limited to what you put into your company, but there are more reporting and management responsibilities;
  • You will be considered as an owner and employee of your company at the same time;
  • You need to register your business with Companies House and with HMRC for Corporation Tax, Self-Assessment, and make annual reports for each area;
  • All allowable business expenses are deducted before calculating Corporation Tax;
  • As an individual you will pay Income Tax and National Insurance Contributions on the personal ‘salary’ amount only. There may be employers NI to pay also;
  • 3 ways to draw money from the business 1) Salary 2) Dividend 3) Directors Loan. You can optimise this to make it the most tax efficient scenario for your circumstances.

 

SETTING UP A PRIVATE LIMITED COMPANY – IN 3 MAIN STEPS

There are three main steps that you need to complete when setting up a Limited Company, all of which can be completed online by yourself, or you can ask an Accountant, for example to organise it all for you:

1) REGISTER WITH COMPANIES HOUSE

To set up a Private Limited Company you first need to register with Companies House. This is known as ‘incorporation’. You need to do this before you start trading and you’ll need the following bits of information:

  • A company name – there are rules on what it can and can’t include;
  • An address for the company (where you will receive official documents);
  • At least one director and at least one shareholder (yourself);
  • The agreement of all initial shareholders to create the company – known as a ‘memorandum of association’;
  • Details of the company’s shares and the rights attached to them – known as a ‘statement of capital’. You can set a company up with just one £1 share;
  • Written rules about how the company is to be run – known as ‘articles of association’. You can adopt standard ones so you don’t need to create them from scratch.
  • Details of people with significant control over your company, for example anyone with more than 25% shares or voting rights;
  • Your standard industry classification – SIC code. This number that identifies what your company does.
  • Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation. The company number needs to be included on all your stationary and promotional material e.g. website, invoices etc. The date will determine when you need to submit your first set of accounts (a year later).
  • How to register: You can register online with Companies House if your company is limited by shares and if it uses standard articles of association (known as ‘model articles’) (this is most companies

2) REGISTER FOR CORPORATION TAX

You must pay Corporation Tax on profits from doing business as a limited company.

  • Your company will need to register for Corporation Tax within 3 months of starting to do business.
  • You need to keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.
  • You need to pay Corporation Tax and file a report even if you have nothing to pay, by your deadline. This is usually 9 months and 1 day after the end of your accounting period.
  • You need to file your Company Tax Return by your deadline. This is usually 12 months after the end of your accounting period.
  • Your accounting period is normally the same 12 months as the financial year covered by your annual accounts.
  • How to register: You register for Corporation Tax online on the HMRC website.

3) REGISTER FOR SELF-ASSESSMENT

Self-assessment is a system HMRC uses to collect Income Tax if the tax is not deducted automatically from wages, pensions and savings as it is when you are employed by a company. Note the following:

  • You will need to register for Self-Assessment with HMRC by 5th October, after the tax year in which you start trading;
  • If you are employed by another company as well as setting your own company up you need to include the information from all employment when completing the return;
  • How to register: You register for Self-Assessment online on the HMRC website.

RESPONSIBILITIES – AS A DIRECTOR OF A LIMITED COMPANY

As a director of a limited company, you have certain responsibilities. You must:

  • Try to make the company a success, using your skills, experience and judgement;
  • Follow the company’s rules, shown in its articles of association;
  • Make decisions for the benefit of the company, not yourself;
  • Keep company records (payments, costs, accounts) and report changes to Companies House and HMRC. You need to keep the records for at least 6 years;
  • Make sure the company’s accounts are a ‘true and fair view’ of the business’ finances;
  • Register with and file returns with Companies House and HMRC (for Corporation Tax, Self-Assessment and PAYE). Pay Corporation Tax on profits, Income Tax and National Insurance on salary. Pay Employers NI on salary. Ensure all information is reported and paid on time;
  • Register for PAYE if employing staff. Pay correct minimum wage, make deductions for tax & NI. If you provide expenses or benefits to employees or directors, you may need to tell HMRC and pay tax and NI on them;
  • You can hire other people to manage some of these things day-to-day (e.g. an Accountant) but you’re still legally responsible for your company’s records, accounts and performance;
  • You may be personally liable for your company’s business liabilities and be fined, prosecuted or disqualified as a company director if you don’t follow the rules;
  • Include your full company’s name (including Ltd) on all company documents, publicity and letters. You must also show: the company’s registered number & office address, where the company is registered (England and Wales, Scotland or Northern Ireland). If you want to include directors’ names, you must list all of them.
  • Display the word ‘invoice’ on the document and include: a unique identification number, your full company name, address and contact information, the company name and address of the customer you’re invoicing, a clear description of what you’re charging for, the date the goods or service were provided, the date of the invoice, the amount being charged, VAT amount if applicable, the total amount owed.
  • VAT invoices must be used if you and your customer are VAT registered. These include more information than non-VAT invoices.
  • As a director of a limited company, you can take money from the company in 3 ways:
    1. Salary, expenses and benefits
      • If you want the company to pay you a salary, expenses or benefits, you must register the company as an employer with HMRC.
      • The company must take Income Tax and National Insurance contributions from your salary payments and pay these to HMRC, along with employers’ National Insurance contributions.
      • If you or your employees make personal use of something that belongs to the business, you must report it as a benefit and pay any tax due.
    2. Dividends
      • A dividend is a payment a company can make to shareholders if it has made enough profit.
      • You can’t count dividends as business costs when you work out your Corporation Tax.
      • To pay a dividend, you must: hold a directors’ meeting to ‘declare’ the dividend, keep minutes of the meeting, even if you’re the only director
      • Dividend paperwork. For each dividend payment the company makes, you must write up a dividend voucher
      • Tax on dividends. Your company doesn’t need to pay tax on dividend payments. But shareholders may have to pay Income Tax if they’re over £5,000 – see future blog for more info
    3. Directors’ loans
      • If you take more money out of a company than you’ve put in – and it isn’t salary or dividend – it’s called a ‘directors’ loan.’
      • If your company makes directors’ loans, you must keep records of them. There are also some detailed tax rules about how directors’ loans are handled.

NEED ASSISTANCE?

Pinnacle are here to help! If you would like assistance in setting up a Company or you are not sure which structure will be best for you, we will take the time to understand your business before helping you to identify the best setup for you.

We can also help collate and report your annual returns of information to HMRC and Companies House. Remember fines and penalties are imposed for late returns, late payments and mis-information provided.

Remember you need to set up your structure before you start trading. Everyone who makes an income needs to make a return to HMRC even if you have no overall taxes to pay.

You can contact us via the following form or using the contact page

Starting to work for yourself? Thinking of setting up a company?

Ducks in a row

10 THINGS TO CONSIDER  WHEN STARTING TO WORK FOR YOURSELF OR THINKING OF SETTING UP A COMPANY.

For entrepreneurs, turning a passion into a business is the ultimate dream. However all too frequently people are so focused on their area of expertise they neglect the necessary setup stages, leaving the administration and the setting up their company as an after-thought.

WHAT STEPS SHOULD YOU BE THINKING ABOUT?

When you start working for yourself it can difficult to know which way to go first, you’re more keen on developing your skill or your product. It is however worth taking some time to sit down and get organised to ensure you are operating correctly from the start. There are a few things you need to think about, before you start to trade:

  1. Bank Account – simple – open a separate bank account to keep all work related expenses and income separate from personal income and expenses.
  2. Records – ensure you keep all receipts, statements, invoices etc. Basically keep any paperwork you can for all monies going out and all monies coming in. It is recommended that you keep records for 6 years – it can be electronic copies.
  3. Business Plan – what are you selling? What outlays will you have? Where will you find your customers? What price will you charge for your goods or service? Do you need financing (loan) to get yourself started? If you do a bank will require a detailed business plan.
  4. Budget for Taxes – as soon as you start making income it is likely that you will owe Income Tax and National Insurance (to HMRC) (and possibly Corporation Tax) so ensure you set some of your income aside to pay this. Estimate how much to put aside either monthly or from each payment you receive.
  5. Insurance – make sure you consider adequate liability insurance as well as usual property / content / intellectual property insurance.
  6. Licences / Permits – are you going to be working with music, or food or trading on the street? If so permits or licenses may well be required, along with many other sectors.
  7. Choose a company name – there are rules you need to follow regarding your company name such as not taking one which is too similar to an existing company name. Check out the Companies House Register.
  8. Employing other people – if you plan to hire other employees you need to register for employer’s payroll with HMRC. You must ensure you deduct correct taxes, pay at least the current minimum wages and declare the values to HMRC on a monthly basis.
  9. Accountant – a good accountant can assist you in the setting up of your new venture. They know their way around the HMRC system and Companies House. They keep up to date with latest legislation changes and provide reassurance that your venture is being correctly administered. If in doubt, ask your accountant for advice.
  10. Business Structure – you must choose a structure for your business, i.e. how you will operate. You can change your business structure at a later date, as your business develops. The most common format options are:
    • Sole-trader/self-employed;
    • Limited company;
    • Partnership & LLP.
  • This structure you choose will define your legal responsibilities, such as:
    • Registrations you must fill in to get started;
    • The taxes you’ll have to report and pay;
    • How you can personally take the profit your business makes;
    • Your personal responsibilities if your business makes a loss.

SELF-EMPLOYED V LIMITED COMPANY – WHICH TO CHOOSE?

How to decide which structure to opt for? Below are some definitions of each option and some extra information you may want to consider in each case.

LIMITED COMPANY

  • If you form a Limited Company, its finances are separate from your personal finances, but there are more reporting and management responsibilities.
  • Your liabilities are limited to what you put into your company.
  • You will be considered as an owner and employee of your company.
  • You need to register your business with Companies House and make an annual report.
  • You need to register with HMRC for Corporation Tax, Self-Assessment and make annual reports.
  • All allowable business expenses are deducted before calculating Corporation Tax.
  • As an individual you will pay Income Tax and National Insurance Contributions on the personal ‘salary’ amount only. There may be employers NI to pay also.
  • 3 ways to draw money from the business 1) Salary 2) Dividend 3) Directors Loan. You can optimise this to make it the most tax efficient scenario for your circumstances.
  • An Accountant is not necessarily required as you don’t need to be audited until you have a turnover of £6.5m. However there are advantages to having an Accountant, particularly as your business grows in complexity, in order to keep up to date with current legislation.
  • Agencies can require a Limited Company setup if you do agency contracting work.
  • A Limited Company provides a professional outlook when dealing with other companies.

More information on how to set up a Limited Company will be available in a future post.

SELF EMPLOYED / SOLE TRADER

  • It’s simpler to set up as a sole trader.
  • However you’re personally responsible for your business’s debts and your liability/risk is not limited.
  • You have some accounting responsibilities. You need to register with HMRC for Self-Assessment and make and annual return and tax payments.
  • You can deduct some of your business running costs to work out your taxable profit as long as they’re allowable expenses.
  • The remaining amount after deducting expenses and paying Income Tax, NI and other taxes is then yours.
  • Simplified expenses can be used. They are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs. See upcoming posts for more information relating to self-employed expenses.
  • You pay Income Tax and National Insurance Contributions at the same rates as if you were employed by another company.

More information on how to set up as a sole-trader will be available in a future post.

ADDITIONAL DEFINITION

If you opt to be a sole trader, are known as self-employed. You will have the following characteristics:

  • You run your business for yourself and take responsibility for its success or failure;
  • Have several customers at the same time;
  • Can decide how, where and when you do your work;
  • Can hire other people at your own expense to help you or to do the work for you;
  • Provide the main items of equipment to do your work;
  • Charge an agreed fixed price for your work;
  • Sell goods or services to make a profit (including through websites or apps);
  • Sell online, at car boot sales or through classified adverts on a regular basis;
  • Earn commission from selling goods for other people.

You’re probably not [classed as] trading if you sell some unwanted items occasionally or you don’t plan to make a profit. You can’t use any losses you make as part of a hobby to reduce your tax bill.

While many of the above characteristics also apply if you own a limited company you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company.

You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business in the evenings.

HELP REQUIRED?

Pinnacle are here to help! If you would like assistance in setting up a Company or if you are not sure which structure will be best for you, we will take the time to understand your business before helping you to identify the best setup for your current circumstances.

We can also help collate, calculate and report your annual returns of information to HMRC and Companies House. It’s worth noting that fines and penalties are imposed for late returns, late payments and any mis-information provided.

Remember you need to set up your structure before you start trading. Everyone who ‘trades’ needs to submit a report to HMRC even if you have no overall taxes to pay.

Contact us via email, LinkedIn, Facebook or even Twitter. And keep a look out for future related posts

From Turkey to Taxes: Self-Assessment Deadline Approaches

Turkey to Takes: Self-Assessment Deadline

TURKEY TO TAXES:

SELF-ASSESSMENT TAX DEADLINE – 31ST JANUARY

 

HAVE YOU FILED YOURS YET?

Calling all freelancers, self-employed or employed people with Self Assessments Returns still to file with HMRC. The deadline is fast approaching.

As the festive over indulgences start to wear off, why not use this break from your normal work load to get ahead with your finances?

You have until the end of January to get the information filed with HMRC and any tax payment over to them, so don’t delay any longer.

WHAT IS SELF-ASSESSMENT AND WHO NEEDS TO FILE?

  • Self-Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax.
  • Tax is usually deducted automatically from wages, pensions and savings.
  • However people and businesses with other income (in addition to, or instead of income which is taxed at source) must report it to HMRC in a tax return.
  • Income can be from additional wages or savings for example, where tax is not already deducted.
  • If you earned income which hasn’t yet been taxed, between 6th April 2015 and 5th April 2016, then you should have already registered for your self-assessment online account (by October 2016) and have your Unique Tax Reference (UTR) number.

DEADLINE – WHAT, WHEN, HOW?

  • Self-assessment reports need to be filed with HMRC by 31st January 2017. This needs to be online as the deadline for paper filings has passed (31st October 2016).
  • The tax amounts due to be paid to HMRC need to be in the HMRC bank account by 31st January 2017.
  • Allow up to 3 working days for Bacs transfers to reach HMRC and allow up to 5 days for new direct debits. Then check your HMRC account online to ensure it has been received and allocated to your account.
  • Pay by bank transfer. Tip: be careful to use the current year’s reference so that it is allocated against the correct account/tax year.
  • Pay on time or there is a penalty of £100, for late payments made during the first 3 months after the deadline. The penalty then increases.
  • Earned income after 6th April 2016? Then register now for self-assessment for next year.

NEED HELP TO FILE?

  • If you are already registered for self-assessment for the year 6th April 2015 – 5th April 2016, or if you need help registering for the tax year 6th April 2016 – 5th April 2017, then get in touch with us at Pinnacle.

TIP: NEED HELP BUDGETING FOR YOUR TAXES

  • You can elect to pay HMRC a monthly amount to help you budget your annual tax bill.
  • You select the amount and pay via direct debit. You then pay the difference when you have filed your tax return.
  • For more help there is more information on the HMRC website.

CONTACT PINNACLE

France: Collaborative Platform Declaration Changes (Airbnb)

French authorities have recently announced a change in law with regard to income declaration for collaborative platform users. This is of particular interested to our Anglo-French clients who rent property online.

The French National Assembly gave the go-ahead on the 5th December to an amendment of a bill, which will oblige online platforms to send automatic declarations of the income of their users to the fiscal authorities.

The amendment will be applicable to all platforms regardless of their ‘nationality’ or sector of activity. This obligation will however only enter into force in 2019.

The collaborative platforms are already, since 1st July 2016, obliged to inform their users of the annual revenue they have earned, in order to assist with calculations for declarations.

Users of sites such as Airbnb, Leboncoin, Drivy and other collaborative platforms will now no longer be able to escape the declaration of their income as goods or services sold on these platforms will be automatically declared by the platforms to the authorities.

This latest amendment comes shortly after other reforms whereby the online collaborative platforms have been required to start collecting and declaring Taxe de Séjour direct to the town authorities (in certain prefectures).

In addition to the above income declarations, individuals are also now to be subject to paying social contributions when rental income on goods or services via collaborative platforms goes beyond a certain income threshold. For the rental of apartments an individual will have to report their activity in excess of EUR 23,000 in annual income by joining the Social Regime of Independents (RSI), and paying the social contributions. For the rental of movable goods (cars, boats, lawn mowers etc), the threshold is EUR 7720.

These succession of changes within this booming market are the French Government’s attempt to tighten up tax collection, which, in the main sectors is estimated to be worth EUR 28 million a year within Europe. It is further estimated the value of transactions in this sector could be multiplied by 20 in ten years.

For the full, original article and a simple video (in French), see: Figaro.fr

Autumn Statement 2016

Here is a quick summary of the Chancellor’s Autumn Statement from 23.11.16, focusing on the main points for small business, directors and their employees.

In what was a relatively uncontroversial Autumn Statement one of the commonly agreed positives was that this will be the final Autumn Statement. In future just the Annual Budget will remain.

CORPORATION TAX

The Government have committed to cutting Corporation Tax to 17% by 2020 to make UK a centre point to attract foreign investors.

The main rate of corporation tax has already been cut from 28% in 2010 to 20%, and will be cut again to 17% by 2020, by far the lowest in the G20 and benefitting over 1 million businesses.

It is therefore predicted that we will see a change for April 2017 with the current Corporation Tax of 20% expected to be lowered to 19%. Any change would be for all companies.

Tip: Apportion the rate across the year if your company does not have a March year end.

Loss relief can now be off-set within group companies and against different income streams. This requires a step change in planning for group companies, but provides much more flexibility. However at the same time there is to be a reform of loss relief which will restricts the amount of profit that can be offset by carried-forward losses to 50% from April 2017. The restriction will be subject to a £5 million allowance for each standalone company or group.

Capital allowances are at a rate of 18% for plant & machinery, 8% for integral features. 100% (previously 18%) of first year capital allowances is allowed for new companies (eg for a company who acquires energy saving equipment including energy efficient vehicles, and electric charging points). Tip: this is available until 31st March 2019 only and is not allowed if profits exceed £5m

PERSONAL AND EMPLOYEE TAX

Income Tax Personal Allowance is increasing from £11,000 to £11,500 from April 2017. The Personal Allowance is the amount of income you can earn before you start paying Income Tax. The point at which you pay the higher rate of Income Tax will increase from £43,000 this year, to £45,000 from April 2017.

The band rates remain the same: Basic rate band of Income Tax remains at 20%. The higher rate is 40%, then for incomes above £150,000 there is no change at 45%.

The National Living Wage and the National Minimum Wage will increase from April 2017. The National Living Wage for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour. The National Minimum Wage will also increase for: 21 to 24 year olds – from £6.95 p/h to £7.05; 18 to 20 year olds – from £5.55 p/h to £5.60; 16 to 17 year olds – from £4.00 p/h to £4.05; Apprentices – from £3.40 p/h to £3.50

New tax relief is to be created for individuals with small scale activities only, such as car boot sales, internet auction sales, where income is under £1000 it not subject to tax or reporting. This is the same for letting a room of a property eg via Airbnb.

National Insurance Rates to be aligned for employee and employer. That is for the class 1 and class 2. It is the weekly value (not the % rate) which is to be aligned, simplifying records and calculations.

Salary Sacrifice Schemes are being scaled back with most becoming subject to the same tax as cash income. In Salary Sacrifice Schemes, employees exchange some of their salary for a non-cash benefit in kind (previously included areas such as mobile phone, gym memberships and school fees). Both the employer and employee make a tax saving, because the benefit is taxed less than a salary or not taxed at all. Importantly pension, child care vouchers, cycle to work schemes continue, and mobile phones remain a tax exempt item.

Tips: Schemes in place prior to April 2017 will be protected for 1 year, with childcare and car schemes protected for 4 years.

Inheritance Tax. There will be a new transferable main residence allowance for descendant inheriting property. £100,000 limit at April 2017 will rise to £175,000 by 2021. This allowance is added to the nil rate band of £325,000 so is a total of £425,000 from April 2017. This becomes £850,000 per couple, increasing to £1M per married couple in 2021

VAT

Flat Rate Scheme changes: IT contractors among many other freelancers, often use the Flat Rate Scheme, which is where they charge output VAT at the relevant standard rate, and repay VAT at a fixed lower rate. With the condition that no input tax can be deducted. The fixed % rate is different depending on the sector.

The government will introduce a new 16.5% rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses ie service providers. This will help level the playing field, while maintaining the accounting simplification for the small businesses. To use the lower rates, other traders will need to prove they have certain outgoings on goods (not capital items such as cars) as a percentage of sales costs.

Further information, and a summary of other areas, can be found on HMRC website.

Important note: the information contained in this summary is subject to change, is not full or complete and is not intended for the basis of any calculations or returns. For the latest facts and figures always consult the HMRC website.