Class 2 National Insurance Payments

Self-employed people need to be aware of forthcoming changes to payments of Class 2 NIC. From April 2011, payments for your Class 2 National Insurance contributions will become due on 31 January and 31 July, the same as a Self Assessment tax bill.

If you currently pay quarterly the change will mean you will receive just two payment requests from HM Revenue & Customs (HMRC) in the year (instead of four bills), in October and April, showing payments due by 31 January and 31 July respectively. You do not need to wait until the due date to make payment.

If you pay monthly by direct debit, your payments will stop temporarily, then resume with the payment for April 2011 being taken in August 2011, and monthly thereafter.  There will be an option to pay 6 monthly (January and July),for those who do not want to spread their payments.

Changes to childcare costs

HM Revenue and Customs has issued a reminder to tax credits claimants, that they must let HM Revenue & Customs (HMRC) know within one month of their childcare costs falling or ending. Deliberately failing to let HMRC know when renewing a claim could constitute criminal fraud and result in prosecution.

HMRC will be using credit reference agencies and data matching to spot patterns of fraud. They are also employing more investigators and will investigate each claim in high-fraud areas.

The Equality Act 2010 has introduced a number of provisions, 90% of which came into force on 1^st October 2010.

Over the last four decades, discrimination legislation has played an important role in helping to make Britain a more equal society. However, the legislation was complex and, despite the progress that has been made, inequality and discrimination persist and progress on some issues has been stubbornly slow.

The Equality Act 2010  provides a new cross-cutting legislative framework to protect the rights of individuals and advance equality of opportunity for all; to update, simplify and strengthen the previous legislation; and to deliver a simple, modern and accessible framework of discrimination law which protects individuals from unfair treatment and promotes a fair and more equal society.

One aspect of this legislation is that employers are no longer able to ask questions about an applicant’s health before offering work, nor can they send out questionnaires containing questions about general health and medication issues with application forms. They cannot require applicants to have a medical assessment before they make a job offer.

Asking an applicant questions about past health, previous absences and sick days lost to work prior to any job offer being made is unlawful.

Before taking on any new employees, employers need to:

1. review recruitment and promotion processes and ensure they comply with the new requirements.
2. Update staff on the new requirements and make sure that all are aware of the prohibition on asking heath questions (apart from the few listed exceptions) and that they do not ask unlawful questions at an interview or initial meeting.
3. Remember that the prohibition on asking such questions applies even if the applicant raises the issue of their disability at the interview.

(source Croner Consulting)

George Osborne’s first budget announced a number of changes, including a prediction that the UK economy will grow at a slower rate than suggested by Alastair Darling in March this year.  The forecast for 2011 was 3.25%, but has been revised to 2.6%.

This summary concentrates on the main tax issues that may affect you.

The good news points for small businesses are the reduction in the corporation tax rate and the increase in the threshold for employer’s NIC.

Bad news includes a reduction in capital allowances, and an increase in the standard VAT rate.

Business Tax

Capital Gains Tax The much reported change in capital gains tax has been confirmed, but is not as bad as anticipated. The rate of 18% will remain, but there will be a second rate of 28% for higher rate taxpayers.  The tax-free limit has remained at £10,100.

The lifetime limit for entrepreneur’s relief will rise from £2m to £5m, and the effective rate will remain at 10%. Corporation Tax

The small profits rate will reduce by 1% to 20% for the financial year that runs from 1 April 2011 to 31 March 2012. The small profits rate applies where a single company has profits of no more than £300,000.

The main rate of corporation tax will also be reduced from 1^st April 2011 to 27%.  There will be reductions of 1% in the main rate in each of the years 2012/13, 2013/14 and 2014/15.

Capital Allowances

Capital allowances on plant and machinery will be reduced from 20% to 18% for items in the main pool.

The maximum amount of the Annual Investment Allowance is also being reduced to £25,000 per year.  This is unlikely to affect very small businesses, that don’t spend more than £25,000 per year on assets.

VAT

The standard VAT rate will increase to 20% on 4^th January 2011.  There is no change to the lower 5% rate, zero rated or exempt supplies.

HM Revenue and Customs have issued a detailed guide for VAT registered businesses

Income Tax and NIC

Employer’s NIC

From 6^th April 2011 the threshold at which employers start to pay Class 1 NICs will be increase by the rate of inflation plus £21 per week.  The level of inflation will be confirmed following the publication of the retail price index in September 2010.

New Employer NIC holiday

New businesses set up in certain regions from 22^nd June 2010 will benefit from a scheme in which they will not have to pay the first £5,000 of employer’s NIC. The North East of England is one of the regions covered by the scheme.

Income Tax

The government’s intention is to reduce the tax liability of lower paid workers, have no effect on employed and self-employed higher-rate taxpayers, and to help employers.

The personal tax allowance for those under the age of 65 will increase on 6^th April 2011 by £1,000, to £7,475.   For many people this will mean paying around £170 less tax during the tax year. Others who earn less than the value of the personal tax allowance will not pay tax.

The basic rate limit will be lowered so that higher rate tax payers do not benefit from the increase in the personal tax allowance.  The limit will be confirmed once the September retail price index figure is known.  This change will see more people becoming higher-rate taxpayers.

The personal allowance provides an amount of tax-free income for individuals earning money through employment or self-employment. Tax is then paid at basic rate on ear

nings above the personal allowance, up to the basic rate limit. Higher rate tax applies to earnings above the basic rate limit.

Pensions

The state pension is to be re-linked with earnings from April 2011.  Basic state pension will rise every year by the highest of earnings, inflation or 2.5%.

Tax Credits and Child Benefit

Families with an annual household income of more than £40,000 will have their eligibility to tax credits reduced from April 2011. Some elements of the tax credits system have been removed, and child benefits will be frozen for the next three years.

For help with these matters, or other tax and accountancy matters please contact us at www.collinsaccounts.co.uk/contact

HM Revenue and Customs (HMRC) have issued a guide to late payment penalties for all employers and contractors.  The penalties apply to periods starting on or after 6^th April 2010.  The full guidance is available on their website at www.hmrc.gov.uk/paye/problems-inspections/late-payments.htm.

The penalties will be a percentage of the total amount that is late in the tax year.   The first overdue payment is excluded from this calculation, so if you only make one late payment, and it is less than 6 months overdue you shouldn’t be charged a penalty.   Subsequently the charges are 1% if 2 to 4 payments are late,  2% for 5 to 7 late payments, 3% for 8 to 10 late payments, and 4% for 11 or more.  Additional charges apply to payments over 6 months late.

To avoid a penalty you can pay on time, notify HMRC if there is no payment due, or contact them if you will have difficulty paying.