Here at Sapphire, we like to keep ourselves and our customers in touch with legislation and current affairs in our industry.
This blog post aims to highlight the important issues raised during the Autumn Statement by the Chancellor of the Exchequer.
- Income tax: personal allowance in 2015-16 – The income tax personal allowance will be increased to £10,600 from April 2015. The higher rate threshold will be increased to £42,385 (2014: £41,865).
Sapphire Comment: This effectively increases the most tax efficient PSC salary from £833 per month to £883
- (Announced previously) Transferable tax allowances for married couples – From 2015-16 married couples and civil partners will be able to transfer £1,050 of their income tax personal allowance to their spouse or civil partner.
- National Insurance: Rates remain unchanged – (Employer’s 13.8% and Employee’s 12%) but the thresholds at which NICs are due have been raised from £153 to £155 per week (£8,060 per annum) for Employee’s and £156 per week (£8,112 per annum) for Employer’s
Sapphire Comment: The £2,000 “additional” Employer’s allowance will apply for 2015/16 therefore on a salary of £10,600 only Employee’s NICs of £305 pa is due (£10,600- £8,060 x12%)
Low Paid Workers
- (Announced previously) Simplifying self-employed National Insurance contributions (NICs) – Following a consultation announced at Budget 2013, from April 2016 Class 2 NICs which are £2.80 per week from 6th April 2015 (2014: £2.75) for the self-employed will be collected through Self-Assessment.
- No Employer’s NICs on Apprentices under 25 years old
The government previously announced in the Budget 2014 that any Employer who employs under 21’s will not have to calculate or pay over any Class 1 Secondary (Employer’s) National Insurance contributions. Further to this announcement, the government today announced that they will abolish employer NICs up to the upper earnings limit for apprentices aged under 25. This will come into effect from April 2016.
- The self-employed and Tax credits
From April 2015, self-employed Working Tax Credit (WTC) claimants will need to register their self-employment with HMRC for Self-Assessment purposes and provide a Unique Tax Reference number in order to be able to claim. Those declaring income less than the equivalent of working 24 hours a week at the National Minimum Wage (NMW) will also be required to provide evidence to HMRC that the work they are undertaking is genuine and effective.
Sapphire Comment: This is an attempt to prevent abuse by Self Employed workers who may not be submitting tax returns.
- National Minimum Wage – The adult rate has increased to £6.50 from October 2014. The government has announced funding will increase by £3m in 2015-16 for enforcement of NMW.
Sapphire Comment: This makes the “fully loaded” NMWR for Umbrellas effectively £7.76 without any scope for a fee (£8.26 if a fee of £20 is charged)
Personal Service Companies
- Close company loans to participators – The government has completed its review into the tax charge on loans from close companies to individuals, trusts and partnerships that have a share or interest in them. The government does not intend to make any changes to the structure or operation of the tax charge following this review.
Sapphire Comment: The beneficial loans exemption limit was increased from £5,000 to £10,000 from April 2014 and, following the above mentioned review, these loans will continue to be available to directors and shareholders without any tax penalty
- (Announced previously) Corporation tax rates –The main rate of corporation tax will be reduced to 21% from April 2014 and then to 20% from April 2015 (which aligns the rate with the small companies’ rate).
- (Announced previously) Offshore and Onshore intermediaries – From 6 July 2015 onwards, Recruitment Agencies will have to send HMRC reports that contain details of all workers and their payments where the Agency, or the payroll operator, didn’t operate PAYE.
Sapphire Comment: This is an onerous reporting requirement for Recruitment Agencies who will have to report (by individual contractor) every payment made to an Umbrella company or a PSC. Agencies will become responsible for any ‘uncollected PAYE’.
- (Announced Previously) Government response to the Office of Tax Simplification (OTS) review of employee benefits and expenses – In response to the OTS review of employee benefits and expenses, the government will consult on 4 simplifications including abolishing the £8,500 threshold, voluntary payrolling of benefits, a trivial benefits exemption and a general exemption for non-taxable expenses. The government also intends to review the rules underlying the tax treatment of travel and subsistence expenses, and will call for evidence on remuneration practices to inform any future reforms.
Sapphire Comment: This was an interesting development and implies that the OTS is shaping tax policy for temporary workers. The initial conclusion of the OTS’s “review of Employee Benefits and Expenses” on January 2014 that the definition of a temporary work place may be defined as “a place where a worker spends less than 30% of their time” will have significant ramifications for the Umbrella Model when it is eventually introduced. It is likely that this initiative will now be linked with the announcement in (12) below
- Consultation on Umbrella Companies
It has been announced that the government will consult on the operation of Umbrella companies with a view to eliminating the advantage such arrangements provide by claiming expenses. The precise extracts from the Autumn Statement are:
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Sapphire Comment: This was a widely expected development and shows that the umbrella industry’s efforts to emphasise “Compliance with legislation” in order to secure government support has been mis-placed. The government is effectively stating that it is intending to eliminate the umbrella industry in its current form. The Summary of savings in (14) below shows additional tax revenue from this initiative from 2016/17 which implies that any legislation will apply from April 2016 BUT the suggestion of “action” in Budget 2015 may be an attempt to stymie the political campaign which has been run against umbrellas by UCATT and others in recent weeks.
The context for Government Policy on self-employment
Self-employment has been increasing steadily as a proportion of total employment over the last 14 years, from 11.7% in the 3 months to December 2000 to 14.7% in the 3 months to September 2014. Recent ONS analysis shows the rise in self-employment since 2008 primarily reflects fewer people leaving self-employment, with an increase in those who have been self-employed for 20 years or more. This suggests ongoing structural change in the labour market, rather than people becoming self-employed because they cannot find other work:Sapphire Comment: 50% of total government revenue comes from PAYE and National Insurance so it is logical that government is incentivised to maintain this stream of revenue. In the other words, the government wants to control the growth of self-employment because the growth of self-employment makes the collection of tax revenue more difficult. (c/f the elimination of the Construction Industry Scheme in 2014)
Summary of Budget Savings
- Summary of Savings from Avoidance and Tax Planning
Off Shore Structures
- Promoters in Tax avoidance cases
Legislation was introduced in Finance Bill 2014 to require taxpayers to deposit amounts, so that the amount in dispute is held by HMRC while the dispute is resolved. These changes will take effect from Royal Assent to Finance Bill 2014. Additional action is to be taken against the promoters of such schemes with the autumn statement extracts as follows:
Sapphire Comment: This is a continuation of the government’s attack on offshore schemes and it is clear that this attack will now be extended to Promoters of such schemes.