Budget 2015 – Industry specific Soundbites
- 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
- Transferable tax allowances for married couples (Announced previously) – 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 Contributions (NICs)- 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. Upper limits are now aligned with the PAYE higher rate threshold.
Sapphire Comment: The £2,000 “additional” Employer’s allowance will continue to 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%)
- Class 2 National Insurance Contributions abolished: Self Employed workers will no longer be required to account for these and there will be consultation on the reform of Class 4 NICs to include a contributory benefit test.
Low Paid Workers
- Simplifying self-employed NICs (Announced previously) – 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 (Announced previously)
Any Employer who employs under 21’s will not have to calculate or pay over any Class 1 Secondary (Employer’s) National Insurance contributions. ER’s NICs (up to the upper earnings limit) for apprentices aged under 25 will also no longer be due 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 of Self Employed payment models and tackle self-employed workers who may not be submitting tax returns.
- National Minimum Wage will increase to £6.70 from £6.50 in October 2015- an increase of 3%. The government has previously announced funding will increase by £3m in 2015-16 for enforcement of NMW.
Sapphire Comment: This makes the “fully loaded” NMWR for Umbrellas effectively £8.01 without any scope for a margin (£8.50 if a margin of £20 is charged)
Bank Interest Receipts
- Bank Interest will effectively no longer be taxable for 20% tax payers for the first £1,000 of interest income. Higher rate tax payers will not be taxed on the first £500 of interest income.
Sapphire Comment: This is a useful political soundbite but in reality will not really have much of an impact on many taxpayers with bank interest rates at 0.5% or less
Office of Tax Simplification (OTS)
- The OTS issued a comprehensive report in March 2015 in respect of employment status. This explores the use of so called “zero hours” contracts as well as how self-employed and employed individuals are determined. The aim of the report is to create a “level playing field” in respect of the benefits received by workers/employees/self-employed.Sapphire Comment: The OTS has been very active in the last 3 years and has published many reports. Its status as a temporary appointment means that it will not survive beyond this Parliament so it is impossible to predict how its recommendations will be adopted (or ignored) by the next government.
Personal Service Companies
- (Announced previously) Corporation tax rates –The main rate of corporation tax will be reduced to 20% from April 2015 (which aligns the rate with the small companies’ rate).
- (Announced previously) The end of “Goodwill on Incorporation”
A widely used tax planning mechanism for those moving from self-employment into limited company working will no longer be available going forward
- (Announced previously) Simplification of benefits and expenses– From April 2015 the government will provide a statutory exemption for trivial benefits in kind costing less than £50. An annual cap of £300 will also be introduced for office holders of close companies and employees who are family members of office holders
Personal Tax returns
- Digital Tax Accounts will be used going forward – These will apparently remove the need for a personal tax return to be completed but not much detail has been given
Sapphire Comment: This is an intriguing announcement and will be a very significant change to the current tax system. More detail will be published later in 2015 but such a radical change cannot be expected to be introduced for at least 2 years. This would be a positive development for small businesses but perhaps not for accountants with large tax return departments!
Umbrella Companies and Recruitment Agencies
- (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. Penalties will be given based on the number of offences in a 12-month period:
£250 – first offence; £500 – second offence and £1,000 – third and later offences
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’.
- Restricting Travel and Subsistence Claims for Umbrella and PSCs from 6th April 2016
As expected, the government will be abolishing T&S expense claims for Umbrella workers and those in PSCs who do not meet the new “supervision, direction and control” definition as in the “On-Shore Intermediaries” legislation. The tax saving is estimated at £240m in 2016-17Sapphire Comment: This was a widely expected development and shows that the umbrella industry’s efforts to emphasise “Compliance with legislation” to secure government support has failed. The government is clearly intending to eliminate the umbrella industry in its current form. It is notable that the legislation will be extended to PSCs, implying that the IR35 rules may be applied more rigorously. The use of terms which were used in the “On Shore Intermediaries Legislation (OSIL)” probably means we’re going to see Recruitment Agencies made liable for PAYE debts further down in the supply-chain in the same way as it appears in the OSIL. The ‘greater transparency’ on how workers are employed will be an interesting development and will presumably focus on initial briefings and, perhaps, narrative on payslips
Context for Government Policy on self-employment- it’s all about PAYE!
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. 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 NICs so it is logical that government is incentivised to maintain this stream of revenue. The growth of self-employment makes the collection of tax revenue more difficult so controlling self-employment is a government focus. (c/f the elimination of the Construction Industry Scheme in 2014)
Tax Avoidance Structures including Off Shore Schemes
- Promoters of Tax avoidance schemes
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. Accelerated Payment Notices are being used more heavily than was expected and there will be heavier penalties for promoters going forward.
Sapphire Comment: This is a continuation of the government’s attack on offshore schemes and it is clear that the focus of the attack will be increasingly on “Promoters”
- Additional penalties for “Serial Avoiders”
Individuals who have a history of utilising avoidance schemes will be specifically targetted by HMRC going forwrad
Sapphire Comment: This is a particularly draconian move but underlines the determination of the authorities to eliminate mass marketed avoidance schemes. This may make accountants nervous about engaging with those individuals who have been earmarked by HMRC as ‘high risk’ as there is likely to be additional work for accountants to carry out for such individuals