From 2015-16 onwards, the collection of Class 2 contributions will be through the self-assessment system. This means that Class 2 NICs can now be paid together with income tax and Class 4 NICs in one chunk on the 31 January following the end of the relevant tax year. In the past, most people have paid Class 2 contributions monthly by direct debit. Following the final payment in July 2015, HMRC have cancelled such direct debit payments, ready for the switch over to the new system of payment under self-assessment. However, those who wish to continue paying their contributions more regularly [...]

According to recent guidance published by HMRC, contractors and freelancers have been bombarded by promoters who make claims that they can help individuals take home up to 90% of their income using a contractor loan scheme. Broadly, promoters have been using this type of scheme to reduce the amount of tax paid on income by making payments which purport to be 'loans' from a trust or a company. Normally, a contractor would receive the contract income directly and pay tax on it. These arrangements artificially divert the income through a chain of companies, trusts or partnerships and pay the contractor [...]

HMRC have published a technical note covering the proposals, announced in the Summer Budget 2015, to phase in a new residence nil-rate band (RNRB) from 6 April 2017 when a residence is passed on death to a direct descendant. The proposed rate bands are: £100,000 in 2017-18 £125,000 in 2018-19 £150,000 in 2019-20 £175,000 in 2020-21 It is proposed that from 2021-22 the band will rise in line with the consumer price index (CPI). Broadly, the proposals mean that where part or all of the RNRB might be lost because the deceased has downsized to a less valuable residence, or [...]

The government has recently confirmed that the draft Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, which were laid before Parliament on 7 September 2015, are compatible with the European convention on human rights. Following a lengthy parliamentary debate, the draft regulations have been approved and are expected to apply from 6 April 2016. The implication of these regulations means that most tax credit claimants will have their working tax credit (WTC) and child tax credit (CTC) reduced from April 2016, but the impact of these changes may have passed many people by. Following the announcement in [...]

Q. I am a VAT-registered sole trader, owning a cycle shop in my local town. I am thinking of opening a second shop in another town and am wondering how I will deal with this for self-assessment and VAT. Will I need to register the new shop for VAT separately and complete two VAT returns - one for each business? A. I presume you are going to be selling similar goods and providing similar services in the new shop. If that is the case, you will be able to do one self-assessment for the two businesses by amalgamating the figures [...]

The Summer Budget 2015 contained an announcement that the government is to consult on proposals to improve the effectiveness of the existing intermediaries’ legislation, commonly known as IR35. The reason for this review was given as the perceived unfairness that two people could be doing the same job and pay very different levels of tax depending on how they are engaged. A consultation document has now been published (Intermediaries Legislation (IR35): discussion document), which sets out the rationale for change, the options to be discussed and the likely next steps. Because of the interaction between allowances available and rates paid [...]

Confusion often arises regarding tips and gratuities as the tax and NIC treatment depends on how they are paid to the recipient. Cash tips handed to an employee, or left on the table at a restaurant and retained by that employee, are not subject to tax and NICs under PAYE, but the employee will need to declare the income to HMRC – HMRC often make an adjustment to the employee’s PAYE tax code number to reflect the amount likely to be received during a tax year so any liability is collected via the payroll. By contrast, if an employer passes [...]

Q. I have recently registered for VAT. What is the difference between ‘normal’ and ‘cash’ accounting? A. Under the normal method of accounting for VAT, you account for the output tax on your sales as they take place or as soon as you issue a VAT invoice, even if your customer hasn’t paid you. Then you can reclaim input tax on purchases you make as soon as you receive a VAT invoice, even if you haven’t paid your supplier. This method can cause cash flow problems if you have to pay a VAT bill before your customer pays you. The [...]

The Summer Budget 2015 contained two announcements affecting the employment allowance (EA). Broadly, the EA potentially cuts every company's NIC payments by allowing businesses and charities to offset up to £2,000 (2015-16) against their employer (secondary) PAYE NIC liabilities. From April 2016, eligible employers will be able to reduce their employer Class 1 NICs liability by up to £3,000 per tax year, instead of the current £2,000. Secondary Class 1 NICs are 'excluded liabilities', and therefore do not qualify for EA, if they are incurred: employing someone for personal, family or household work, such as a nanny, au pair, chauffeur, [...]

In the Summer Budget 2015, the government announced that the level of rent-a-room relief will be increased from the current level of £4,250 to £7,500 from April 2016. This means that from 6 April 2016, an individual will be able to receive up to £7,500 tax-free income from renting out a room or rooms in their only or main residential property. The relief also covers bed and breakfast receipts as long as the rooms are in the landlord's main residence. To qualify under the rent-a-room scheme, the accommodation has to be furnished and a lodger can occupy a single room [...]