From 6 April 2018 Class 2 NIC will be abolished and Class 4 NIC reformed to include a new threshold (to be called the Small Profits Limit).

Access to contributory benefits for the self-employed is currently gained through Class 2 NIC. After abolition, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 NIC but will be treated as if they had for the purposes of gaining access to contributory benefits. All those with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance and Bereavement Benefit.

Those with profits above the Lower Profit limit will continue to pay Class 4 NIC.

From 6 April 2018 Class 3 NIC, which can be paid voluntarily to protect entitlement to the State Pension and Bereavement Benefit, will be expanded to give access to the standard rate of Maternity Allowance and contributory Employment and Support Allowance for the self-employed.

Changes from 6 April 2018 will align the rules for tax and employer NIC by making an employer liable to pay NIC on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’.

In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NIC. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.

Finally, the exemption known as Foreign Service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.

Legislation will limit the income tax and employer NIC advantages where:

• Benefits-in-kind are offered through salary sacrifice; or
• Where the employee can choose between cash allowances and benefits-in-kind

The taxable value of benefits in kind where cash has been forgone will be fixed at the higher rate of the current taxable value or the value of the cash forgone.

The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or cycle to work. Following consultation, the Government has also decided to exempt Ultra-Low Emission Vehicles which have emissions under 75 grams of CO2 per kilometre.

This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at the date will become subject to new rules in respect of those contracts at the earlier of:

• An end, change, modification or renewal of the contract; or
• 6 April 2018, except for cars, accommodation and school fees when the last date is 6 April 2021.

HMRC have issued their response to the consultations on MTD.  The more cynical among us might take the view that HMRC have decided what they are going to do and any “consultations” are purely for cosmetic purposes!

Their response focuses on concerns about the pace of change; very small businesses; those who struggle with digital technology; burdens on business; data security; and the ability for agents to access clients’ records.

On the important questions of the turnover level at which MTD becomes compulsory and when MTD will be introduced, we are only told “the government will need to consider further issues such as the initial exemption threshold and deferring the changes for some small businesses”.  HMRC suggest that final decisions will be made before legislation is laid “later this year”.  HMRC proposed an exemption from MTD where turnover is less than £10,000 per annum.

A couple of things have been listened to.  Firstly, the proposed implementation in April 2018 has been deferred until April 2019 for businesses with turnover below the VAT threshold.  Secondly, HMRC have agreed to run a series of “pilots” for a full year starting in April 2017.

So, what has changed as a result of the “consultation”?

You can continue to use spreadsheets for record keeping but you must be able to combine these with software for MTD.

Businesses will still be required to submit quarterly updates but those below the VAT threshold will just be able to report turnover, total expenses and profit.

Free software will be available for very straightforward businesses (no details provided!).

Businesses don’t need to prepare and store invoices and receipts digitally.

The year-end reconciliation will need to be submitted by 10 months after the period of account ends or 31 January, whichever is sooner.  If you choose to prepare your accounts to 30 January, this would seem to require you to submit your accounts the next day!  Surely that can’t be right!  The wording about this is not very well presented but the intention actually seems to be that businesses with a 31 March accounting date will be the only ones to retain a submission deadline of 31 January.  If, for instance you prepare accounts for the year ended 30 June 2019, the new deadline will be 30 April 2020 rather than 31 January 2021 (under the current legislation).

Charities will not need to keep digital records.

There is very little information on agent access to client records.  HMRC merely say that the client will be able to choose how much access to grant but there is no practical guidance on how this is expected to happen.

HMRC believe that there will be a one-off cost of £280 per business followed by small ongoing annual savings.  This was in response to a suggestion that MTD could cost businesses over £1,000.

Revised timetable

The revised proposed timetable for implementation of MTD is now:

April 2018 for businesses with turnover above the VAT threshold

April 2019 for businesses with turnover below the VAT threshold, and for VAT purposes for all VAT-registered businesses

April 2020 for corporation tax purposes.

Small business planning is very important as SMEs that fail to plan are certainly planning to fail. You’ve probably heard that phrase many times but don’t dismiss it as a cliché, learn to live by its rules. Small businesses are often so busy treading water, they spend all their energy and attention on staying afloat. Learning how to write or make a business plan is quite essential and it’s a key step for most SMEs.  But if you want to do better than ‘just about managing’, you really need to plan for the future – after all, if you don’t know where you’re heading, how do you know which direction you need to go in?

There is a myth that a huge percentage of new start-ups don’t survive the first year, but this has recently been debunked – in fact, it appears that in the UK, more than 8 out of 10 companies succeed in the first 12 months, and between a third and a half are still trading after five years.

Plan to succeed

These success rates could be down to the support that’s now available for new entrepreneurs. There are a lot of organisations that help start-ups and small businesses succeed. In Hertfordshire, the organisation Wenta has been providing advice and support – a lot of which is free of charge – for entrepreneurs across the county for over 30 years.

Writing your business plan isn’t just a good idea when it comes to applying for loans and support, it will also help you focus your ideas about your company and clarify the direction you need to take it in. Online, the government has published advice about writing a good business plan, along with links to templates and examples to help you draw up your own plans.

Planning the accounts

Our director Keith Grover pointed out that when it comes to planning your accounts, it’s always useful to have a discussion with a qualified accountant as early as possible.

“If you’re borrowing a start-up loan from the bank, for instance, you will need to plan ahead to make sure your accounts system is in place to provide them with the documentation they’ll need in the future, e.g. Profit & Loss accounts, balance sheets, quarterly accounts etc.

“You will also benefit from advice about your business structure – limited company, sole trader etc – and the tax implications that might arise.

Some business people also find it useful to put in place a business agreements at this point, detailing the arrangements to extricate themselves from any trouble that might happen in the future.”

So, failing to plan could have disastrous implications for your new business – planning to succeed will put your company on the right road.

Keeping your accounts in order will help you make better business decisions. We can help you plan for the future when it comes to account management and your tax returns. If you would like to talk to us to see how we can help you, call us on 01992 444466.

It doesn’t matter how many members of staff you have working for you, getting the payroll right is crucial to your business.

The main reasons companies outsource payroll services are to save time and to make sure they’re fully compliant with legislation. If you’re not a payroll specialist, then you’ll have to spend time trying to get to grips with the process when you could be more productively working on your core business instead. Payroll can be straightforward to implement if your employee/s have no issues. But most of the time there are other things to be taken into account such as statutory sick pay, maternity pay, student loans, deductions earnings orders etc.

Keeping in line with legislation is hugely important, so if you’re not outsourcing, you will need to be pro-active to make sure you don’t risk having to pay fines for not getting it right. Legislation about tax, NI and pensions is changing all the time and you could be spending precious time away from your core business researching changes in the rules.

At the moment, companies are getting to grips with the new rules about workplace pensions. Your payroll company can help you implement this and will assist with enrolment of team members and uploading the correct data direct to the pension provider, saving you a lot of time in the process.

Cost-effectiveness

If you weigh up the amount of time you would need to spend every month making sure you complete the payroll correctly and on time, at the same time as continually researching the legislation to make sure you are up-to-date with the laws, it becomes obvious that outsourcing payroll is a cost-effective exercise. And there’s always the worry that if you are not concentrating your time and energy on your core business, you could actually be losing business as a result. And if you make mistakes in the payroll, your business could be subject to fines.

Also, if you run a smaller company, outsourcing will be much more cost-effective than having dedicated team members to run your payroll. Outsourcing also solves the potential problems caused by staff sickness and holidays.

HB Accountants have a dedicated department of payroll professionals who will take care of all your payroll needs. We use HMRC-compliant software and deal with companies of all sizes, from sole traders to limited companies with over 100 employees. If you would like to find out how we can help your company payroll, contact us for more information.

Budget Day will be 8 March 2017 and every year we expect the Chancellor to do something to restrict tax relief for pension contributions.

In recent years the annual allowance for contributions has been reduced from £255,000 in 2010-11 to £50,000 for each of 2011-12, 2012-13 and 2013-14 and then to £40,000 for 2014-15 and 2015-16.  For 2016-17 (the current tax year) the allowance stays at £40,000 but is steadily reduced for anyone with income of more than £150,000, reducing to a minimum allowance of £10,000 when income reaches £210,000.

Apart from this tinkering with the annual allowance, we have seen restrictions placed on the amount of pension fund which can be built up tax-free.  This “lifetime allowance” was £1.8 million in 2011-12, reducing to £1.5 million in 2012-13 and 2013-14, £1.25 million in 2014-15 and 2015-16 and now to £1 million in 2016-17.  It must be emphasised that the figure quoted is the value of the fund at retirement so a relatively modest fund value today could still breach these limits in 10 or 20 years’ time.  You can apply to protect these limits in case they fall any further but that comes at the price of not being allowed to pay any more contributions.

It does seem that in recent years the Government’s approach has shifted from encouraging people to provide for their retirement, towards penalising them if they take this too far.  Given the low interest rates we are seeing at the moment it does seem rather surprising that a fund of more than £1 million is seen to be excessive.

Recent suggestions have been to abolish higher rate tax relief on contributions, or perhaps introduce a new tax rate for pension contribution relief of maybe 25%.  This would perhaps have the “merit” of encouraging basic-rate or nil-rate taxpayers to contribute more to their pensions.  There has also been talk of plans to abolish or reduce the tax-free lump sum (currently 25% of the value of the fund).

Whatever changes the Chancellor makes to the pension legislation in his Budget on 8 March, it would be surprising if he relaxed the position.  It is perhaps more likely that any changes will be disadvantageous.

With that in mind, it might make sense to make any planned pension contributions before rather than after 8 March, just in case, but do be aware of the possible restrictions because the penalties for transgression can be severe.

Although pensions have often received a bad press, they do have some significant tax advantages.  There is still as I write the entitlement to take 25% of the fund tax-free once you reach age 55 and the entire fund can be passed to your descendants free of inheritance tax (IHT) if you are unfortunate to die before reaching age 75.  Pension funds are still outside IHT even after that age but any withdrawals are then taxed as income on the beneficiaries.  It is therefore now more likely that pension funds may be established for the benefit of passing funds to the next generation whilst the “pensioner” lives on other savings such as ISAs.

With effect from 1 April 2017:

The National Living Wage for those aged 25 and over will increase from £7.20 to £7.50 per hour.

The National Minimum Wage will also increase as follows:

Apprentices aged 16-18 or over 18 in their first year:             from £3.40 to £3.50 per hour

16-17 year olds:                                                                               from £4.00 to £4.05 per hour

18-20 year olds:                                                                              from £5.55 to £5.60 per hour

21-24 year olds:                                                                              from £6.95 to £7.05 per hour

With effect from 6 April 2017 a new Apprenticeship Levy is being introduced.  This will be charged at 0.5% of the employer’s total pay bill but there will be an offset of £15,000 so only employers with an annual pay bill in excess of £3 million will need to pay anything.  There are the usual rules for connected companies and the levy will be collected on a monthly basis through PAYE.  This will cause problems if bonuses are paid early in the tax year.  For example, if the total pay bill in month 1 is (say) £300,000 (because of bonus payments), a levy of £250 will be payable.  If the total pay bill for month 2 drops back to £200,000 or less, the £250 will be repaid in month 2!

Our previous update on this topic was on 30 August 2016 following the publication of consultation documents by HMRC.  There was a very significant response to these, most of which was unfavourable.

The House of Commons Treasury Committee has considered the HMRC proposals and published a report on 17 January 2017 which has identified a number of serious shortcomings with the HMRC proposals.

The Committee highlighted the additional costs and administrative burdens for very small businesses which they felt might either drive them out of business or into the “hidden economy”.  They also felt that the proposed changes were being introduced too quickly.  Both of these issues could adversely affect millions of taxpayers and their relationship with HMRC.

The original proposal was for all businesses with a turnover in excess of £10,000 per annum to be in MTD, with a requirement to make four quarterly reports every year and a final “sweep up” report after the end of the year.  The Committee considers that turnover threshold to be much too low and proposes instead the VAT threshold, which is currently £83,000 per annum.

The original timetable was for the changes to be introduced from April 2018, but the Committee suggests these should be delayed until April 2019, and possibly later.

The Committee also suggests that there should be proper pilot schemes evaluated before the proposals are implemented.  HMRC have apparently run some pilots on an invitational basis but the Committee has pointed out that the people who are most likely to be adversely affected are also those who are most likely to have declined any invitation to take part in the pilot!  The suggested pilot schemes will need to cover the full reporting cycle of four quarterly reports and the end of year update.

The provision of appropriate software is also an issue.  The Committee points out that there will need to be adequate free software available for smaller and less complex businesses, but the Government has yet to set out how this may be accomplished.

The Government will consider the Committee’s report and respond in due course.

In 2014, the Government published the results of a call for views from UK businesses about corporate responsibility, and published it in a report, Good for Business & Society. In it, the authors describe corporate responsibility as a voluntary action that “creates shared value for business and society”.

Whilst many companies have defined their CSR policies, we feel that because all the fundraising we do as a team are activities we’d get involved with anyway, we don’t need to make it official, whether it’s for the benefit of charity fundraising, helping out in the local community, or giving local businesses a boost.

Charities

Our official charity of the year – as last year – is Teens Unite. Karen Chase, one of our directors, explains why she organises so many fundraising and awareness-raising activities for the charity. “It makes me sad when I think about the young people they help, so I not only wanted to raise money for them, but in doing so I also hope to encourage other companies to do the same. On a personal level, I organise lots of little events in the office throughout the year, such as dress down days, cake sales and a ‘tuck shop’. I also use networking events as an opportunity to talk about the work of Teens Unite which, let’s be honest, people are far more interested in than if I was talking about accounts! As a company, we run stalls at local events to help the charity sell goods that have been donated to them. So although our fundraising for Teens Unite can technically be described as CSR, it’s purely coincidental.”

Every year, the whole team come together to help organise a quiz night to raise funds for a good cause. In 2016 we raised £1,600 to help the Paralympian ambitions of Herts sportsman Shaun Whiter who had recently lost both legs in a traffic accident.

Community

Mark White runs Hoddesdon’s Give Your Town The Run Around initiative, which HB also sponsors. It was launched in 2014 as a way of encouraging the town to get fit, and gets the entire community to turn out for the race and to cheer on the runners. The number of runners taking part is rising year-on-year, and in 2016 there were 750 entrants. This year Mark will ensure that HB Accountants is involved: “Local businesses will enter teams for the run – whether we will find enough volunteer runners from the office this year remains to be seen, but we will encourage as many of our team as possible to come and help raise money for charity on the day”.

Business

The Love Hoddesdon initiative was launched by independent retailers in 2014 to attract shoppers to the town. Catherine and Charlotte have offered their support by being on the Love Hoddesdon committee to help promote the town and all the events that take place in it.

We are also a sponsor of the annual Ambition conferences in which sales and marketing experts give presentations to local small businesses and sole traders in Hertfordshire to help them succeed in business. Ambition 2017 will take place on Thursday 30 November in Hoddesdon – so save the date!

Networking

We get involved in a lot of local business networking groups which are a great way of connecting with and supporting the business community. We also run the administration for the Hoddesdon Networking Breakfast, an informal and well-attended ‘drop in, drop out’ event, which is held once a month so local business people have the opportunity to meet. Every other month, HNB is held in the Your Town hub which was set up as a business and community centre in 2015 for the benefit of community groups and start-up businesses.

If you would like more information about the Hoddesdon Networking Breakfast, or details of any of our charitable events, contact charlotte@hbaccountants.co.uk.