NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015 A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.
To illustrate how important it is to ensure the correct treatment of payments to directors as salary or dividends, a recent legal case has confirmed the position –
The case in question is Richard and Julie Jones v HMRC  UKFTT 1082 (5 December 2014).
They took a small salary and regular dividends from their recruitment company which was absolutely fine until the company got into financial trouble!
Their accountant (unethically but in an attempt to help their client) suggested they should re-write history and change the dividends to salary so that the liquidator couldn’t recall the dividends.
HMRC then decided to demand PAYE and NI and pursued Richard and Julie personally.
HMRC was refused the right to collect PAYE tax and NI due on the salary, not because the law didn’t allow it, but because it wasn’t possible for Richard & Julie to reclassify the dividends. They had been properly paid and the correct procedure followed. History couldn’t be rewritten and the dividends should have been changed to loans if the dividends were illegal.
Loans to directors then have a whole other raft of tax implications so it really is important to get this right and make sure that any dividends taken are legal and correctly paid.
TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.
THE £2,000 EMPLOYMENT ALLOWANCE CONTINUES FOR 2015/16 The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week). The extra £2,540 will save £508 (20%) corporation tax (£1,016 for two directors) whereas the additional employees NIC would be just £305 each. Husband and wife company – from 2015/16: Salary £10,295 net = gross £10,600 Dividend up to BR band £28,606 net = gross £31,785 Top of BR band £42,385 Net cash extracted (each) £38,901 Total extracted £77,802 for couple There would however be 20% corporation tax payable. Profits before tax £71,515 @ 20% = £14,303 corporation tax, thus profits before salaries and tax would be £92,715. This results in an overall tax and NIC rate of just 16.1%. A salary in excess of £10,600 would attract income tax (at 20%) and employee’s NIC at 12%.
MAKE CHARITABLE PAYMENTS UNDER GIFT AID TO SAVE MORE TAX Higher rate taxpayers should make any charitable payments under Gift Aid so that you obtain additional tax relief. The charity will also be able to reclaim the basic rate tax from HMRC
A new tax break from 6 April 2015, which will be eligible to more than 4 million married couples and 15,000 civil partnerships.
The Allowance means a spouse or civil partner who doesn’t pay tax – therefore is not earning at all or is earning below the basic rate threshold (£10,600) – can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner – as long as the recipient of the transfer doesn’t pay more than the basic rate of income tax.
Applying online is straightforward. Couples can register their interest to receive the Allowance now at gov.uk/marriageallowance.
The maximum saving is 20% x £1,060 = £212
However, the partner giving up the allowance must not be earning and the partner getting the allowance must not be a higher rate tax payer.
When it comes to extracting profit from your company, it is important to consider both the tax and business implications of the various options available. Taking a salary or bonus rather than a divided could reduce the national insurance bill. While a dividend is paid free of national insurance contributions (NICs), a salary or bonus can carry up to 25.8% in combined employer and employee contributions. However, a salary or bonus is usually tax deductible to the company. The last date for paying a 2014/15 dividend is 5 April 2015. Any related higher or additional rate tax on the dividend may not be due until 31 January 2016. However you may have already paid some of the tax through the payments on account system. The rules can be complex – please talk to us about the implications of paying a dividend. Timing may also be an important consideration – it may be helpful to delay the timing of bonuses and dividends if taxable income is likely to exceed £100,000 or £150,000, especially if income in 2015/16 will be less. Other tax-efficient ways of extracting profit may include: using tax-free allowances, such as mileage payments, or reducing profits by the payment of employer pension contributions. However, each option requires careful consideration, so please contact us for further assistance.
Proper financial planning is always important, but as the end of the tax year approaches, now is the time to ensure that your business and personal finances are as tax-efficient as possible. Contact Liric for some of the planning strategies that are available to you before 6 April 2015.
The company car remains a key part of the remuneration package for many employees, but it is important to consider the tax and national insurance implications of your company car arrangements. Employees and directors pay tax on the provision of the car and on the provision of fuel by employers for private mileage. Employers pay Class 1A NICs at 13.8% on the same amount. The amount on which tax and NICs is paid is calculated by multiplying the list price of the car by an ‘appropriate percentage’. It may be worth considering paying your employees for business mileage in their own vehicle, at the statutory rates. We can review your company car policy and discuss the options available to you. An employer-provided van may be a viable tax-efficient alternative to the traditional company car. There are also special reduced car benefit rates for environmentally-friendly cars.
Future changes – The maximum taxable percentage is set to rise from 35% to 37% in April 2015. From April 2015 the five-year exemption for zero carbon and the lower rate for ultra-low carbon emission cars will come to an end. Two new bands will be introduced for ultra-low emission vehicles. The diesel supplement will also be removed in April 2016, making diesel cars subject to the same level of tax as petrol cars. With robust planning and expert advice, you can minimise the tax bill and maximise your business and personal wealth now and in the coming years. Please contact Liric for further advice.
Remember, 2015/16 sees the introduction of a transferable personal allowance for married couples and civil partners. As the amount that may be transferred is 10% of the basic personal allowance, that will now be £1,060.
The recipient must not be liable to tax above the basic rate and is eligible to a tax reduction of 20% of the transferred amount, in other words £212.
Hopefully we will pick this up where we can, but we don’t always act for both husband and wife so if you think this applies to you remember to let LIRIC know.