National Insurance thresholds are changing – Are you ready?

From 6 July 2022, the Primary Threshold (PT) for National insurance will increase to £12,570. This is the threshold at which employees begin paying National Insurance contributions (NICs).

This will bring the rate in line with the current rate of personal allowances for income tax and means those earning below this amount each year will pay no tax or NICs.

It also means that a larger proportion of a person’s income will be free of NICs, meaning that most employees will enjoy a cut to their NICs.

This jump in the PT comes at a time when many employees are experiencing difficulties due to the cost of living and follows the Government’s decision to increase NIC rates in April.

On April 6th, the rates of NICs increased by 1.25 percentage points. This means, for example, that the main rate for employees rises from 12 per cent to 13.25 per cent.

The increase in NICs was legislated for to increase spending on health and social care and will be formally replaced by a new Health and Social Care Levy in April 2023, which will maintain this increase to provide funding to these sectors.

The increase in the PT means that most employees should see minimal change in their NIC bill, while lower earners below the limit might see their contributions cut entirely.

How does this help self-employed individuals?

The Lower Profits Limit (LPL), the point at which self-employed people start paying Class 4 National Insurance, will also be increased to £12,570 at the same time.

This measure also reduces Class 2 NICs liabilities to nil on profits between the Small Profits Threshold (SPT) and LPL.

This ensures that no one earning between the SPT and LPL will pay any Class 2 NICs but continue to accrue National Insurance credits.

What about employers’ contributions?

The changes to the NI thresholds do not affect the Secondary Threshold. This is the point at which employers must start making contributions, which remains at £9,100 per year.

As such, employers will have to continue paying NICs for their employees once they earn £9,100 per annum or more, even though the employee does not have to contribute until they earn £12,570 per year.

Do Directors enjoy the same threshold?

The PT for Directors for the entire tax year is £11,908 per year. Changes to the NI rules and an increase in dividend tax rates mean that it is important to reassess your remuneration strategy to minimise the tax burden on the business and individuals.

Link: Rates and thresholds for employers 2022 to 2023

‘New deal’ for tenants to be delivered in Renters Reform Bill

The ‘biggest change to rent law in a generation’ will be delivered with the Renters Reform Bill (the Bill).

The Government says it says it will improve the lives of millions of renters by driving up standards in the private and social rented sector, delivering on the Government’s mission to level up the country.

Levelling Up and Housing Secretary Michael Gove said: “This is all part of our plan to level up communities and improve the life chances of people from all corners of the country.”

A new Private Renters’ Ombudsman will be created to enable disputes between private renters and landlords to be settled quickly, at low cost, and without going to court.

The new law will be put in place for the 4.4 million households privately renting across England by extending the Decent Homes Standard to the private rented sector for the first time – giving all renters the legal right to a safe and warm home.

It is designed to ensure all renters have access to secure, quality homes, levelling up opportunities for the 21 per cent of private renters who currently live in homes of an unacceptable standard.

Part of the Bill will also ban Section 21 ‘no fault’ evictions, protecting tenants from unscrupulous landlords, while strengthening landlords’ legitimate grounds for taking back their property.

Link: The Renters Reform Bill

Take action – Loans to small businesses drop to record low

Research from the Federation of Small Businesses (FSB) shows that successful applications for finance among members have dropped to the lowest level on record.

Conversely, figures from the Bank of England show the annual growth rate of lending to big corporates has increased significantly since the start of the year.

It has led to the accusation that banks are “pulling up the drawbridge” on lending to small businesses.

The FSB’s quarterly Small Business Index (SBI) show just 43 per cent of applications have been approved and that just nine per cent applied in the first quarter of 2022.  That is the lowest number since SBI records began.

Lack of finance ‘a threat to economic growth’

The business body has now called for a culture change in financing and has warned that economic growth will be threatened otherwise.

Commenting on the survey, FSB national chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.

“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.

“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.”

A large proportion of what is available is being used to cover cashflow problems, often caused by late invoice payments from customers, according to the FSB.

Managing cash flow problems caused by late payments

The survey shows that 61 per cent sought traditional overdraft or loan products, while a quarter applied for asset-based finance, such as invoice finance.

Other methods included smaller numbers seeking funds through peer-to-peer platforms (seven per cent) and/ or crowdfunding (five per cent).

Your accountant will be able to provide advice and guidance.

How can businesses obtain necessary finance?

Measures that might persuade lenders to provide finance might include:

  • Keeping balance sheets and other documentation to show the business has been well run
  • Improving the company’s credit rating
  • Producing a business plan that is strong, concise and clear
  • Opting for the appropriate kind of loan, like instalment, short term or line of credit
  • Having the ability to provide collateral for the loan

If you are looking to finance your business, you should seek professional advice beforehand.

Link: Lending to small businesses hits all-time low

Managing costs to offset spiralling inflation – Our top tips for cutting your bills

A leading business organisation has highlighted the problems faced by industry after new figures show a steep rise in business costs.

According to figures from the Office for National Statistics (ONS), producer input price inflation stands at a record-high 18.6 per cent, and the consumer prices index at nine per cent and could go higher.

It says the disparity between the two figures shows how businesses are having to absorb rising costs rather than pass them on to the consumer.

How could Government help businesses manage costs?  

The FSB says that although the Government cannot control the wholesale price of oil and gas, it can go further to help small firms with property costs – increasing the ceiling for small business rates relief and extending the energy support issued via the council tax system to the rates system.

In addition, a sick pay rebate for the smallest businesses would give them a measure of breathing space.

However, what can businesses do for themselves now?

Make better use of space

Maximise office space by checking whether you are stocking too many supplies or making optimum use of office furniture. You may also be able to renegotiate your lease or find cheaper premises.

With advances in communication technology, you could also explore the possibility of running your business from home or on the road.

Review your suppliers

Make sure you are getting the best value for money, particularly in areas like communication with mobile phone deals and the cost of broadband and consider cloud-based software for general bookkeeping and data management.

Go for ‘nearly new’ equipment

Sometimes, it may not be possible to invest in the latest piece of equipment and so it may be worth considering refurbished or remanufactured supplies.

Properly refurbished computer equipment can result in big savings as can equipment like copiers, without sacrificing too much performance.

Many refurbishment companies even offer warranties on the goods they sell. However, you should be aware that the purchase of refurbished or recycled goods could affect your ability to claim certain reliefs, such as Capital Allowances.

Make better use of your accountant

While accountants can manage your books and compliance tasks, they can also provide strategic advice and identify areas where savings can be made.

Link: Input price growth hits record-high

Penalties for misuse of Coronavirus Job Retention Scheme

New legislation allows HM Revenue & Customs (HMRC) to recover Coronavirus Job Retention Scheme (CJRS) grants that have been overclaimed.

Those who fall foul of the legislation could face interest charges, financial penalties and even be named and shamed.

If a business overclaimed a CJRS grant and has not repaid it, it needs to inform the tax authority within 90 days.

The new legislation allows looking for incorrect claims, but the authority says by paying back anything owed, any tax liability can be avoided.

However, firms may be penalised if they did not notify HMRC within the notification period that they were chargeable to income tax on an overclaimed CJRS grant.

If a penalty is applied, there are factors taken into consideration which include:

  • When the CJRS grants were received;
  • When it became repayable; or
  • When it became chargeable to tax because circumstances changed.

The authority can then charge a penalty of up to 100 per cent of the amount the business was not entitled to receive.

If the business was aware it was not entitled to a grant and did not disclose that within the notification period, the law says that the failure was deliberate and concealed and substantial penalties could apply.

When determining the amount involved, HMRC will make a tax assessment of the amount the business was not entitled to and have yet to repay.

Penalties and interest payments

The outstanding amount identified by the assessment must be paid within 30 days or any late charge will incur interest.

A further penalty may also apply if the bill has not been settled by 31 days after the due date.

What happens with a partnership?

If a partnership receives an overclaimed CJRS grant that it does not repay, HMRC may assess any of the partners for income tax who will be jointly and severally liable for the amount assessed.

What happens with insolvent businesses?

If a company is insolvent and HMRC cannot recover the tax it owes, company officers can become personally liable to pay the tax charged on their company’s overclaimed CJRS grants.

Naming and shaming defaulters

HMRC says that if a deliberate penalty is imposed it may publish details of the defaulter.

Link: Penalties for not telling HMRC about Coronavirus Job Retention Scheme grant overpayments

Be prepared for changes to VAT penalties and VAT interest charges

Changes to charges and penalties applied to late submission of VAT returns will kick in from January next year.

For the VAT period starting on or after 1 January 2023, new penalties will replace the default surcharge for returns submitted or paid late.

Any VAT returns received late will also be subject to late submission penalty points and financial penalties.

What happens if I submit my VAT return late?

A new points-based system is set to be introduced for late submission penalties. For each late return, you will receive one penalty point.

Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

How am I affected if I pay late?

Up to 15 days overdue – No penalty charge if you pay in full or agree to a payment plan on or between days one and 15.

Charge at 16 and 30 days overdue – The first penalty charge will be at two per cent on what you owe on day 15, if you pay in full, or agree to a payment plan on or between days 16 and 30.

Overdue by 31 days or more – On top of what you owe on day 15, there will be a further two per cent added to what you owe on day 30. In addition, you will incur a second penalty at a daily rate of four per cent per year for the duration of the outstanding balance.

HM Revenue & Customs (HMRC) is giving people some breathing space to familiarise themselves with the new arrangement and will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

How much interest will I pay on late payments?

From next January, HMRC will charge interest on late payments from the day your payment is overdue until it is paid off in full.

The rate is the Bank of England base rate plus an additional 2.5 per cent.

More detailed guidance on VAT penalties is set to be published in December.

Link: Prepare for upcoming changes to VAT penalties and VAT interest charges

How hard-pressed SMEs can obtain business support

Small businesses are the lifeblood of the UK economy, but with rapid inflation and other economic headwinds making trade difficult, they can struggle to access support.

There is a wide range of important tax reliefs available to SMEs, which could provide some much-needed financial assistance.

These include:

Employment Allowance claims

This scheme allows eligible businesses to reduce their National Insurance contributions (NICs) bills by claiming up to £5,000 each year of their NIC bill. This is available to employers if their Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

Super-deduction and Annual Investment Allowance

Businesses can cut their tax bill through the super deduction by up to 25p for every £1 they invest in qualifying equipment, which can include machinery, computers, most commercial vehicles and office furniture.

The temporary £1 million limit for the Annual Investment Allowance (AIA) has also been extended to the end of March‌‌‌ 2023.

The AIA allows businesses to spend up to £1 million on qualifying business equipment, and deduct in-year its full cost before calculating their taxable profits.

Business rates savings

Any tax cut is welcome, which is why the retail, hospitality and leisure sectors, should take advantage of the 50 per cent business rates cut.

The Government says this is worth £1.7 billion for up to 400,000 eligible properties.

The business rates multiplier has also been frozen for another year. This is used to calculate business rates and usually rises with inflation each year, but for the coming year has been held at 49.9p and 51.2p, depending on the type of business.

There is further relief through green technologies, where there will be no business rates from April this year and eligible heat networks will also receive 100 per cent relief.

Big discounts on digital technology

Eligible businesses can receive a 50 per cent discount on buying new software worth up to £5,000 with the Government’s Help to Grow: Digital initiative, which also offers free impartial advice and guidance on the best technology to choose.

Its sister scheme, Help to Grow: Management, is 90 per cent funded by the Government and uses UK business schools and one-to-one mentoring to deliver business expertise on everything from leadership and financial management to marketing and digital adoption.

Claimants for both schemes must:

  • Be based in the UK;
  • Have actively traded for at least a year; and
  • Have between five and 249 staff members.

Fuel duty savings for businesses

The Government has cut fuel duty on petrol and diesel by five pence per litre for 12 months.

The Government says that this represents a saving of £200 for the average van driver and £1,500 for the average haulier.

However, the reality is that many of these savings have been absorbed by fuel retailers who have continued pushing up the price at the pumps.

As a result, Boris Johnson has reportedly asked transport officials to draw up plans to target petrol stations that choose not to pass on the 5p fuel duty cut to customers.

According to reports in The Telegraph, Transport Secretary Grant Shapps has suggested a “pump watch” name-and-shame scheme, with Downing Street officials confirming that they “are considering mechanisms available to expose those companies that aren’t passing on tax benefits to consumers.”

Link: Five ways SMEs can get financial support for their business

Expansion of the Trust Registration Service – What you need to know

From 1 September, changes to the rules regarding the Trust Registration Service (TRS) mean that more trusts will need to be registered with HM Revenue & Customs.

The TRS was introduced five years ago to make the beneficial ownership of assets held in trust more transparent.

While many trusts have had to sign up for the service already, the remit of the service is expanding to include a greater number and type of trusts than ever before.

What changes are being made to the Trust Registration Service?

From September, the requirement to register with the TRS will apply not only to trusts with a tax liability but to all trusts.

This includes trusts set up many years ago, which may have been forgotten about or left dormant, but which remain extant.

This registration process has been open since 1 September 2021, but time is running out to complete it.

Will your trust need to register?

If you operate a trust the answer is likely to be yes. Under the changes, only a limited number of exemptions exist.

Some other less common types of express trusts that are set up for particular purposes are also excluded from registration unless they are liable for tax.

Be aware that this change to the rules means that for the first time some offshore trusts will also need to be registered.

How do I register for the Trust Registration Service?

To comply with the registration requirements, trustees will need to input details of the settlor, trustees and beneficiaries into an online portal.

At a minimum, trustees will need to confirm annually that there have been no changes and notify the TRS of any changes within 90 days.

Some trusts may have already completed a 41G form containing some of this information. However, HMRC has confirmed that this did not collect sufficient evidence to meet the requirements of the new rules.

Therefore, those trusts which registered separately with HMRC before must now using this form must register and resubmit information via the TRS.

HMRC strongly recommends that trustees familiarise themselves with the TRS system and obtain the information required to register in advance of the deadline in September.

Link: Manage your trust’s details

Revenue updates guidance on tipping apps

When HM Revenue & Customs’ (HMRC’s) current guidance on the tax treatment of tips and troncs was first published back in 2014, tips and troncs were paid almost exclusively in cash or through card transactions.

Of course, in the eight years since, things have changed dramatically and payments are frequently made via app-based platforms, whether for delivery drivers or waiting staff.

Now, HMRC has updated its guidance to take account of these changes and clarify the tax position that applies to different arrangements.

Importantly, the new guidance does not change the tax status of payments made through app-based platforms. Instead, it offers further clarification of the position and its application in various circumstances.

The two key takeaways are:

  • Tips and troncs passed from an app to an employer without an independent troncmaster are subject to National Insurance and PAYE, even if they are intended by the customer to be passed to a specific member of staff.
  • Tips paid directly by third-party apps to employees are not subject to National Insurance and PAYE. The onus is on employees to notify HMRC of this income.

App-based tipping arrangements can be set up in many different ways, with seemingly small variations in how they’re operated having sometimes significant impacts on the tax positions of employers and employees alike.

It is crucial not to make assumptions about the tax status of any app-based set-up you are using as errors can lead to HMRC inquiries and potentially hefty penalties.

Our top tips for hiring your first employee

There has been a surge in new company formations in the last few years, as entrepreneurs develop new and exciting business ideas and bring them to market.

On top of this, there are a growing number of workers with ‘side hustles’, who are quickly scaling up their operations to deal with demand from their customers and clients.

While many businesses may initially rely solely on the work of their founder, there comes a time when operations grow so much that they need to consider hiring their first employee.

Hiring your first employee will lighten the workload, but it also brings with it new tax and payroll requirements.

If you have previously been one of the 4.2 million businesses in the UK with no employees, other than yourself, and you are looking to bring in a new worker here are our top tips to get you started.

Inform HM Revenue & Customs

Before you can hire someone, you need to register as an employer with HMRC. Doing so will provide you with an employer PAYE reference number so you can manage your payroll.

This must be done within four weeks of your new employee’s first payday. The registration process is fairly quick, but receipt of your reference number can take up to five working days, so you must factor this in.

Set up effective payroll processes

You will need to manage your payroll online each month, report this information to HMRC and make the correct payments of tax and National Insurance, as well as paying into any benefit schemes or pensions offered to your employees.

As such you will need to implement processes and payroll software systems that allow you to do this.

You may already have existing systems in place that manage your personal payroll, but you should consider whether these are still sufficient when you hire your first employee.

Don’t forget, you may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

The weekly or monthly administration of your payroll can be time-consuming and is often complicated by regular changes to the rules surrounding pay, which is why many businesses choose to have their accountant manage it for them.

Create a basic workplace pension scheme

If any of the workers you hire are eligible for a workplace pension you will need to set up and manage a scheme for them.

You must automatically enrol your staff into a pension scheme and make contributions to their pensions if all of the following criteria apply:

  • They are classed as a ‘worker’
  • They are aged between 22 and the State Pension age
  • They earn at least £10,000 per year
  • They usually (‘ordinarily’) work in the UK.

You will also need to calculate and make an employer’s contribution of at least three per cent each month to the scheme and ensure that an overall minimum contribution of eight per cent is made.

The additional five per cent is usually made up of an employee contribution, but both you and an employee can offer to contribute more should you wish to.

Your employees can choose to opt out and leave the scheme, but you will still need to re-enrol them every three years.

Paying the National Minimum Wage

You are legally required to pay your employees at least the correct National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and above. Failing to do so could result in you being fined and publicly named and shamed.

The current NMW rates, as of April 2022, are as follows:

23 and over 21 to 22 18 to 20 Under 18 Apprentice
April 2022 £9.50 £9.18 £6.83 £4.81 £4.81

 

Be careful if you make deductions from pay, other than for tax, National Insurance or a small number of other exceptions, as these cannot normally reduce a worker’s pay below the National Minimum Wage – even if they agree to it.

Many employers have previously been caught out by this, as well as other important changes, such as a person’s birthday where it carries them into the next NMW band.

Protect your business

Although not directly related to tax or pay, businesses should take steps to protect their interests. This includes ensuring the new staff member has the correct legal status to work in the UK, producing clear, written employment contracts and policies, and taking out employer’s liability insurance in case of accident or injury at work.

Failing to take these steps could leave your business exposed to costly risks, including fines and potential compensation payments.

Seek help

These are only a few of the steps that you as a prospective or new employer may need to take and it is well worth seeking payroll and HR advice before hiring your first employee, both to protect yourself and to take away the administrative burden.

Link: Becoming an employer for the first time? What you need to know