How do I pay the tax and National Insurance (NI) due?

You have to make sure your payment reaches HMRC by the deadline, which is the 31^st January. The time you need to allow depends on your choice of payment method. You can pay on the same or next day online or via telephone banking (Faster Payments), via CHAPS, at your local bank or building society, or at the Post Office. It takes three working days to pay via Bacs or post. The deadline date falls on a Saturday this year so realistically you need to make sure your payment reaches them on the last working day at the latest (Friday 30^th January).

What happens if I miss the deadline?

You must pay immediately or HMRC can take action against you. You can make one-off payments for any overdue amounts you owe.

It might be possible for you to get more time in order to pay or to pay your bill in instalments but only HMRC have the power to issue an extension or instalment plan. You best bet is always to let them know in good time what the issue is.

If you do not have a reasonable excuse for missing the deadline then penalties and interest will apply which only makes your tax bill bigger.

If you would like to get an idea of the scale of penalty you could be looking at use Gov.uk’s calculator here: https://www.gov.uk/estimate-self-assessment-penalties

If you disagree with HMRC’s tax decision (the amount of tax you owe) then you need to contact HMRC to discuss this with them directly.

What if you are no longer self-employed?

You have to tell HMRC if you have stopped trading as a sole trader or have decided to end or leave a business partnership. You will also have to send a final tax return and tell any employees that you are shutting the business down. HMRC will need a tax return by the same deadline that applies to everyone else (31^st January).

The final tax return will require you to work out your trading income, add up all allowable expenses (including any costs that are involved with closing down your business), work out your capital allowances (including any charges for sold business equipment/machinery), calculate any Capital Gains Tax owed on any assets sold or ‘disposed’ of, work out your final profit or loss.

What tax relief can I claim?

Your final tax bill could be reduced if you are eligible to claim tax relief in the following forms:

Entrepreneurs’ relief – This could reduce the amount of Capital Gains Tax you need to pay

Overlap relief – This can prevent you being taxed twice on your profits if you stoped trading during a tax year

Terminal loss relief – This can offset a loss made in your last tax year against your profit in the 3 tax years previous to it

What Expenses can I claim?

There are costs that you can claim as allowable expenses. When you are self-employed your business has various running costs and some can be deducted from your final tax bill as they fall under the category of allowable expenses.

Running a limited company enables you to deduct any business costs from your profits before tax.

• Allowable expenses include:
• office costs, eg stationery or phone bills
• travel costs, eg fuel, parking, train or bus fares
• clothing expenses, eg uniforms
• staff costs, eg salaries or subcontractor costs
• things you buy to sell on, eg stock or raw materials
• financial costs, eg insurance or bank charges
• costs of your business premises, eg heating, lighting, business rates
• advertising or marketing, eg website costs

You could also claim capital allowances when you buy something that you keep and use within the business. This could include equipment, machinery, and business vehicles.

If you use something for personal as well as business use you must be sure to only claim allowable expenses for the business costs. Examples could include a family car where you would claim business mileage for business trips, or a mobile phone that would require an itemised list of business and personal calls so you could claim allowances for an appropriate amount.

If you work from home then you could claim a proportion of your costs for:

• heating
• electricity
• Council Tax
• mortgage interest
• internet and telephone use

These are questions we get asked quite frequently, if you have any others you would like to run by us then you can contact us on Facebook (AccountantsABC), Twitter (ABC_accounting), via email (info@abc-accounting-services.co.uk), or pick up the phone and ask us in person 01427 613613.

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Why?

The IR35 legislation’s main purpose is to act as a deterrent to those knowingly avoiding tax and NI contributions. HMRC announced that to abolish IR35 would lead directly to a £550m estimated loss in revenue. Ultimately, HMRC is increasing the financial burden on contractors with a confusing system – who knows why they do what they do?

Who does it effect?

All contractors who do not meet the Inland Revenue’s definition of ‘self-employment’. The rules essentially mean an increased tax and NI liability which will subsequently prevent contactor companies from retaining profits to grow their business in the future.

In more detail

Contractors who IR35 applies to will be liable to Schedule E taxation and NI FOLLOWING DEDUCTIONS FOR EXPSPENSES. This is important: Expenses can be taken as normal before the tax and NI deductions are calculated. Normal Section 198 expenses may still be claimed. There is also provision to other intermediary contractor’s turnover – these include:

• Pension payments
• Business travel
• Subsistence (accommodation + meals away from home)
• Professional Indemnity cover
• Benefits in kind (private medical insurance)

Are you employed or self-employed?

This is the big question and because employment status is often unclear and complex; many contractors find it hard to decide whether IR35 even applies to them.

Use HMRC’s employment status indicator here: http://www.hmrc.gov.uk/calcs/esi.htm

Can IR35 be avoided?

If you can diversify your business interests and change your working practises then a contractor that is clearly self-employed would avoid IR35 legislation. If you can show that you are self-employed and satisfy HMRC’s guidelines then, so long as your contract matches your working practices, IR35 will not affect you.

It is not advised that this legislation is ignored as the financial burden to those who do not make arrangements to meet their tax and NI contributions could be crippling if caught at a later date. Yes IR35 could be revoked or amended but for now it is here to stay and no response would be a poor choice.

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For personal tax the expectations are:

• Individuals born after 5 April 1948 will be entitled to a personal tax allowance of £10,000.
• Employees will be able to increase the maximum value of shares acquired under Share Incentive Plans (SIP) and Save As You Earn (SAYE) schemes. The increased limits will be: SIPs – £3,600 on the free shares that can be awarded to employees and £1,800 on the partnership shares employees can purchase; SAYE – the monthly amount that employees can save will be increased to £500.
• The annual exemption limit for employer-related loans, to be treated as earnings, will be increased from £5,000 to £10,000.

For capital gains tax the expectations are:

• The annual exempt amount to be increased to £11,000.
• The rule that exempts the final 36 months of ownership of a private residence from CGT is to be reduced to 18 months. The 36 months will still apply if the owner is disabled or moved into a care home.

For business tax the expectations are:

• HMRC is introducing new legislation affecting Limited Liability Partnerships. Members of LLPs who satisfy the new criteria as “salaried members” will effectively lose their self-employed status and be taxed under the PAYE legislation.
• There will also be restrictions on the way in which mixed partnerships, those with individual and typically corporate members, allocate profits and losses.

We know more about what is expected in the 2014 budget. For more information go to: https://www.accountancylive.com/autumn-statement-2013-summary

One of the most significant changes comes to National Insurance contributions. The changes promised in last year’s budget come into effect this April:

• Almost every employer who is a business or charity that pays Class 1 NICs on their employee’s or directors earnings is eligible. The Allowance could reduce your contribution by up to £2,000. To check eligibility go to www.gov.uk/employment-allowance for more info. This rolls out on the 6th April 2014 – we waited a year for it so don’t delay and make sure you benefit from day one!

This budget proposes another concession for employee’s under the age of 21:

• From 6 April 2015 employers will no longer be required to pay Class 1 secondary NICs on earnings paid up to the Upper Earnings Limit (UEL) to any employee under the age of 21.

It is another year of waiting but yet another nice reduction in National Insurance contributions.

What we do not know is what surprises there will be in the 2014 Budget. There will be live updates on our social media and significant points posted here throughout the speech on the 19^th March. Once again we await a lengthy speech, some disappointment, some broken promises, some kept, and hope for the outcome to be good for business above all else!

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