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April 2016

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To April’s Tax Tips & MYOB News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.

Tax Briefings
Is one of your staff likely to be claiming maternity Pay?  If so there is a useful briefing on our website

We supply a wide variety of tax briefings that you can read to answer the simplest questions.  Here is the index.

April 2016
· Setting your Director Salary for 2016/17
· DIY PAYE Codes
· Director Only Companies – do you have Auto Enrolment Duties? 
· Do you have to declare a company loan? 
· April Questions and Answers
· April Key Tax Dates
Setting your Director Salary for 2016/17
When you work for your own company you can decide how much salary to pay yourself, how much to pay into your pension fund, and what proportion of the remaining profits to take as a dividend. The split is important as it will affect the tax and national insurance payable by you and your company. There are a number of thresholds which need to be considered.

Personal Allowance
A salary just sufficient to be covered by your personal allowance (£11,000 for 2016/17), will be tax free, assuming you have no other income.

National Insurance Thresholds
You must pay national insurance contributions (NIC) at 12% on your salary above £8,060 (the Primary Threshold). So if the company pays you £11,000, you take home £10,647 after NIC deductions.

The company will also pay employer’s NIC of £398 on that salary. However, most companies are entitled to an employment allowance of £3,000 p.a. to set against NIC due for all the employees. This means the company doesn’t pay over employer’s NIC until the £3,000 allowance is used up. Note that as from April 2016 the Employment Allowance is no longer available to companies with just one Director (and no additional employees).

Note: the NI lower earnings limit (LEL) is the amount of earnings above which a person will accrue contributions to secure a basic state pension. In 2016/17 the LEL is £5824. 

If your company has employees (which may include directors – see also article below), a salary of over £10,000 will mean the recipient has to be automatically enrolled in the company’s workplace  pension scheme, under the auto-enrolment rules. There is the option to opt out after the first month.

If your company makes contributions into your pension scheme on your behalf they get a tax deduction for the cost. Under auto-enrolment and the Peoples Pension your contribution will only suffer a 0.5% Annual Management Charge.

The implications of drawing funds out of a pension scheme can be complex and irreversible, so you should take advice from a financial adviser registered with the financial conduct authority (FCA) before making any decisions concerning pensions.

Option 1: For most companies we recommend you pay Director salaries at the
NI primary threshold of £8,060pa.  At that salary level you won’t be using £2,940 of your tax free personal allowance, unless you have other income to cover it. Therefore the extra you will need is paid as dividend.  This strategy means individuals receive an NI credit towards their state pension, but don’t actually pay any tax or NI. If there are only Directors you will not have the hassle of having to pay any PAYE/ NI to HMRC each quarter. You will not be auto-enrolled into a pension scheme (though you can choose to join).

Option 2: Where Employment Allowance will offset any Employers NI due, you could consider paying Director Salaries at the personal allowance, £11,000pa.  This will apply to small companies with at least two working Directors. But you would have to make employee NI payments each quarter & you will be auto enrolled into your workplace pension at your Company’s staging date. 
DIY PAYE Codes top
Director only companies – do you have Automatic Enrolment Duties? top
All directors and employees now have a new way to tell HMRC that they think their PAYE code is wrong. It takes the form of an online structured e-mail that anyone who pays tax under PAYE can use.

All you need to do is go to HMRC’s secure e-mail page.  This contains a list of questions ranging from basic name and address etc. to details about what should be included in your code number for 2016/17.

If you’re taxed via PAYE you can use HMRC’s secure online email to ask for your code to be amended.

HMRC says it aims to respond within 15 days of receiving your e-mail.

Quoted with permission from Indicator magazine.

The Pensions Regulator states that Automatic Enrolment duties apply to all employers with at least one worker in the UK. A worker is defined as any individual who works under a contract of employment (an employee), or has a contract to perform work or services personally and is not undertaking the work as part of their own business. Exceptions to the worker status as are as follows;
  • One person companies
  • Member of Armed Forces
  • Office Holders
Two Director Companies
Where an entity has two directors, the employer needs to determine whether they have an equal working relationship. If they establish that one is not employed by the other, there will be no automatic enrolment duties unless they take on a worker in the future.

It is an employer duty to determine whether an individual is a worker or not as defined above.

More information about defining the work force can be found in the Pensions Regulator’s detailed guidance on employer duties and defining the workforce.

Our Service
We are happy to help you decide whether you would be considered as an Employer from the Pensions Regulator’s view.  If appropriate we can deregister you from the Pensions Regulator’s list.of employers

For more information see Our AutoEnrolment Service.
Do you have to declare a company loan?
April Questions and Answers top
Say, last year you used £15,000 of company money to buy yourself a new car. Both you and your company will have to declare the loan to HMRC. Is there a legitimate way to avoid having to do this?

Focus on loans
The HMRC has been focusing its attention on directors who borrow from their company. This isn’t surprising considering that the rules on company loans have been tightened. It’s always preferable to avoid scrutiny from HMRC.
Your company’s position
There are three declarations required where your company lends you money: two from your company and one from you.
The first company declaration must be made on its corporation tax return if any part of a loan remains outstanding more than nine months after the end of its accounting period
A second company declaration is needed only where at any point during 2015/16 the amount you borrowed exceeded £10,000. In that case a benefit in kind (BiK) is triggered which must be reported on Form P11D by 6 July following the end of the tax year.
Third declaration: your tax position
You must declare the BiK on your personal self-assessment tax return unless you either repay the loan or pay interest on it. If your company imposes an interest charge on the loan at HMRC’s official rate (3% up to 5 April 2016), the BiK is reduced to zero. This means there’s nothing to declare on your tax return or for your company to report on Form P11D.

The BiK will only be reduced to zero where interest is both charged by your company and paid. Therefore, your company should have a policy of charging interest on money it’s owed by its directors. You should pay the interest by 19 July following the end of the tax year, e.g. for 2015/16 by 19 July 2016.
Q. Can I transfer my personal allowance?

I work part time and don’t earn enough to pay tax, but my wife earns £25,000 a year from her full time job. I have been told that I can transfer some of my personal allowances to her so she can save some income tax. Is this true?

Q. Do I have to repay claimed VAT?

In July 2014 I purchased a commercial unit for £50,000, and as the building was registered for VAT, I notified HMRC, applied for a transfer as a going concern, and did not pay any VAT. At the time of purchase, the premises were let to a tenant but they moved out and the building was empty when the transaction was completed. In September 2014, I applied to de-register for VAT as I was receiving no income. I have since converted the unit into residential flats and I have applied to HMRC for a change of use. Do I need to pay back the VAT previously claimed?

Q. Do I have to pay CGT on the sale of a rented property?

I own a buy-to-let property, and over the last five years, its value has risen from £150,000 to £250,000. I understand that if I sell it now, I would have to pay capital gains tax (CGT) on a gain of £100,000. Can I sell this property and use all the money to buy another property rather than pay the tax now?
April Key Tax Dates top
14 – Return and payment of CT61 tax due for quarter to 31 March 2016

19 – Deadline for finial submission of the year – 19th April. Penalties for late submission.

19 – PAYE/NIC, student loan and CIS deductions due for month to 5/4/2016 or quarter 4 of 2015/16 for small employers. Interest will run on any unpaid PAYE/NIC for the tax year 2015/16

30 – Additional daily penalties of £10 per day up to a maximum of £900 for failing to file self-assessment tax return due on 31 January 2016
Need Help? top
New Clients Welcome top
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About Us top
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