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Spring Budget 2017 – A Business Owners Guide

2017.03 Hammond BudgetSmall business owners will probably find that yesterday’s budget was not as bad as some of the headlines are making out. Yes national insurance will increase for the self-employed and company shareholders will again see an increase in their personal tax bills but a quick look at the numbers shows that, for now, these increases are likely to be modest.

Mr Hammond suggested that the self-employed earning below £16,250 will actually end up paying less National Insurance – and this seems about right. In fact even if profits were around the £25,000 mark then the increase (which will start from April 2018) will be only around £140.

As for small company owners that pay themselves using a mix of salary and dividends (for the best 2017/18 salary and dividend mix see here) the announcement means a basic rate taxpayer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.

On The Bright Side

Very welcome was the postponement to Making Tax Digital for the self-employed which for those under the VAT threshold means that quarterly reporting will not now become mandatory until April 2018 (starting April 2020 for limited companies).

And any firm coming out of Small Business Rate Relief will receive an additional cap next year on increases of no more than £50 a month.

Download our more detailed guide to the budget (including current and newly announced tax rates and thresholds) here.

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National Minimum & Living Wage Rise from April 2017

National Living Wage (NLW) rates (for those over 25 years old) and National Minimum Wage (NMW) rates (for those under 25 years old) are to rise starting 1 April 2017.

The eagle-eyed among you may notice that those on the National Minimum Wage (NMW) are enjoying their second increase in a year (the last being 1 October 2016).

In summary, and effective 1 April 2017 the follow minimum wage rates will apply

  • Workers aged 25 and over – £7.50 per hour (up from £7.20 from 1 Apr 2016)
  • Workers aged 21 – 24 years old £7.05 per hour (up from £6.95 from 1 Oct 2016)
  • Workers aged 18 – 20 years old £5.60 per hour (up from £5.55 from 1 Oct 2016)
  • Workers under 18 years old £4.05 per hour (up from £4.00 from 1 Oct 2016)
  • Apprentice rate £3.50 per hour (up from £3.40 from 1 Oct 2016)*

* The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

Employers may be relieved to know that future rises are now planned for just once a year in April.

Ensure your payroll procedures are up to date. For further details and more rates visit gov.uk

Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.


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Optimal Directors’ Salary and Dividend Mix for 2017-18

Probably the most important post of the year for limited company directors!

Question: What’s the most tax efficient salary and dividend mix for the 2017/18 tax year?

An owner managed limited company will usually pay their directors / shareholders with a mix of salary and dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2017/18 is:

Upper limits for 2017/18

Salary – per annum: £8,164 (last year £8,060)
Salary – per month: £680 (last year £671)

Dividend – per annum: £36,836 (last year £34,940)
Dividend – per month: £3,069 (last year £2,911)

It should be noted that since the introduction of the dividend ordinary tax rate of 7.5% on dividends over £5,000 there will be a personal tax bill of £2,138 (last year £2,025) if dividends are paid all the way up to the basic rate limit of £45,000 (last year £43,000).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,500 and dividends up to a maximum of £33,500 (the overall tax saving between the director and the company being around £234).

This second option will not be the best fit for everyone. More that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


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Bogus Companies House Correspondence

Just a reminder that there are many businesses out there purporting to be or work with UK government agencies such as Companies House and HMRC. Before acting on any such correspondence arriving by email or letter please take care to verify its legitimacy.

Carefully watch out for the imitation letters – those which copy very closely the style and logos used by Companies House and HMRC.

As an example, this week I received a letter from Commercial Register demanding that I update and return my company’s details by a given deadline. There was no request for payment. Pictured below (overlapping the enclosed form (at the top) and the return envelope)

commercial-register-scam

On closer inspection the letter comes from Direct Publisher S.L.U. Madrid. Whilst many scams involve requesting a small payment by return (say £15-£30 typically) it seems that Commercial Register await your return of details then invoice your company €993 euros for an advertising directory entry! Apparently this is for the order you place when completing your details – which is certainly not made clear.

Please be careful with your personal and company details.

Feel free to share this info with fellow business owners and your own admin staff. And, as a Massey Accounting Company client please always feel free to ask if in doubt.

As a reminder the legitimate Companies House logo is shown below

ch_gds_logo

Of course Companies House and HMRC are aware of such frauds and their guidance can be found here:

Reporting fraud to Companies House

HMRC Avoid and report internet scams and phishing

 

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Are gifts to customers allowable against tax?

As a general rule gifts to customers are not allowable against your taxable profits.

However, follow this guidance and you can afford to be a little more generous with your customers this year:

Small gifts which carry a conspicuous advertisement for the trader are an allowable expense. Common examples include: branded diaries, pens and mouse mats. The advertisement must be on the gift, not just the wrapping.

Unfortunately the expenditure of the following kind is specifically excluded (even if it incorporates your advertisement): Food, drink, tobacco, gift vouchers and gifts exceeding £50 per recipient (even if it carries your business logo).

Source material: http://www.hmrc.gov.uk/manuals/bimmanual/BIM45070.htm

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National Minimum Wage Rise from 1 October 2016

Ok, so this is getting confusing. The National Minimum Wage (NMW) now runs alongside the National Living Wage (NLW).

The National Minimum Wage (NMW) rates rise from 1 October 2016 whereas we don’t expect an increase in the National Living Wage until April 2017.

In summary, and effective 1 October 2016 the follow minimum wage rates will apply

  • Workers aged 25 and over – £7.20 per hour (as has been the case since 1 April 2016)
  • Workers aged 21 – 24 years old £6.95 per hour (up from £6.70)
  • Workers aged 18 – 20 years old £5.55 per hour (up from £5.30)
  • Workers 16 – 17 years old £4.00 per hour (up from £3.87)
  • Apprentice rate £3.40 per hour (up from £3.30)*

* The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

Ensure your payroll procedures are up to date. For further details and more rates visit gov.uk

Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.


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A tax free gift, is it true?!

A tax free gift, is it true?!

In general, an employer will report gifts made to employees on their annual Benefit-in-Kind Return form P11D meaning that both the employer and employee will pay income tax and national insurance on the value of the gift.

However since 6th April 2016 employers are now, sensibly, able to give tax free gifts to employees up to the value of £50 without the cost or complication of reporting a Benefit-in-Kind.

Such gifts now have a statutory exemption under the Trivial Benefits-in-Kind rule, which must meet each of the following four conditions to qualify for the exemption:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

Practical points

  • This is a useful statutory exemption allowing employers to provide most gifts without needless complication.
  • To be treated as a trivial benefit in kind the gift must cost under £50. If your gift costs £51 then the whole amount will be taxed on the employer and employee as a benefit in kind.
  • The gift must be freely given and not as a reward for employee performance (examples include birthday gifts, Christmas presents, a gift on the birth of a new baby, the cost of a summer garden party).
  • Whilst cash or cash vouchers cannot be given, store / gift vouchers may be given.
  • There is no change to the amount of tax relief the business will receive on the cost of the gift. For example a garden party may still count as entertaining which is not allowed for corporation tax.

Source info: https://www.gov.uk/government/publications/tax-exemption-for-trivial-benefits-in-kind-draft-guidance/tax-exemption-for-trivial-benefits-in-kind-draft-guidance

Related topics

Entertaining and Meals Out – What is the correct tax treatment?

Are gifts to customers allowable against tax?

Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.