Jul 2013
Issue 4, 2013
NEWSLETTER
Tax Calendar
Incorporation: is it time to limit your liability?
July 2013
Nearly 99% of business in the UK is carried on by self-employed individuals operating on their own account as sole traders. A key concern for many sole traders is that if their business fails they may face personal bankruptcy. As a result an individual may decide to incorporate and transform his business into a limited company. Where a sole trader is willing to go into business with a partner, he may decide to form a limited liability partnership (LLP) instead. Whilst a company is a separate legal entity to its owners (shareholders) and it pays tax on its own profits, a LLP is taxed transparently. This means that the LLP’s owners, known as “members”, are taxed on their share of the profits of the business, just like sole traders but without the risk of personal liability for their partner’s or the LLP’s debts, should the business fail. There are many advantages and disadvantages of running a business through a company compared with a LLP or sole trader. These need to be weighed up carefully if you decide to incorporate. For example, a company owner does not pay National Insurance contributions (NICs) when a company distributes its profits as dividends, however, there may be a high tax charge if a company provides a car or other benefits for directors and employees. A company does not suffer higher rates of tax, and therefore may retain profits at no extra charge. Both a sole trader and a member of a LLP will pay NICs on profits but there is no extra tax charge for the benefit of a car purchased via the business. The owners/ members will suffer tax at 40% or 45% if their income falls into higher tax bands. Forming a new company requires care and advance planning. Not only is it very easy to misunderstand the subscription requirements in respect of shares and share capital but you can save time and money by ensuring that you have the correct share classes and shareholders on formation. Forming a LLP can also be confusing; many people fail to set up the required number of designated members. This may adversely affect a member’s limited liability If you would like to consider incorporation, please don’t hesitate to contact us to discuss your requirements.
www.mcmillanaccountants.com
5
End of tax quarter and last date for agreeing PAYE Settlement Agreement (if any) for tax year ended 5 April 2013.
6
Deadline for expenses and benefits annual return forms P9D, P11D and P11D(b) to reach HMRC. Deadline for employers to give copies of forms P9D and P11D to relevant employees. Deadline for form 42 or other related forms (to report share-related benefits provided to employees) to reach HMRC.
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. Deadline for any outstanding Class 1A NICs payments for tax year ended 5 April 2013. 19th for non-electronic payments, 22nd for online payments.
31
Deadline for second Self Assessment payment on account for tax year ended 5 April 2013.
August 2013 2
Quarterly submissions of P46(car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 July).
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
September 2013 19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
This newsletter is written for the general interest of our clients and is not a substitute for professional advice. Please contact McMillan & Co LLP for specific advice before taking any action.
Issue 4, 2013 Page 2
NEWSLETTER Real Time Information (RTI) update HM Revenue & Customs (HMRC) have announced that they are extending their relaxation in employer’s RTI reporting arrangements for small business until the end of the 2013/14 tax year. This means that an employer is permitted to make their Full Payment Submission report when they complete their main payroll run, providing that it is on or before the last day of the tax month (5th). This may be after payment to employees has been made. This week HMRC is sending out letters threatening penalties to an estimated 260,000 employers who have not yet made any reports under RTI. The problem is that
many employers may not yet need to report under RTI as no payments have been made in the tax year. Please contact us if you have received any communications from HMRC with regard to RTI, or if you would like to become an employer and require payroll assistance.
Do I pay a salary or a dividend, and what about pensions? Company owner-directors may chose how to remunerate themselves. Generally this will be by using a combination of salary, other benefits, dividend and pension contributions.
purposes, however, dividend income does not attract National Insurance contributions (NICs) and so dividends can be a very tax efficient form of remuneration for both employer and employee.
The amount that an individual may annually contribute into their pension pot is restricted to the lower of £3,600 p.a. or their net relevant earnings for the year. Net relevant earnings includes earned income including your salary. Set too low a salary and you may find that you have insufficient relevant earnings to make the level of pension contributions that you desire.
What is the optimal combination of salary or dividend to pay in the 2013/14 tax year? If making a large pension contribution is not your concern then it would be advisable to pay a salary that ensures that you qualify for basic state benefits yet is also below the employers NICs contribution threshold. This gives a figure of £148 per week or £7,696 per annum.
Dividend income is not classed as relevant earnings for pension
If you wish to make pension contributions that are higher than your anticipated salary, then remuneration can be structured in different ways, depending on your needs, as you can see. Please contact us to discuss the structure that is right for you.
Employees: top tax free benefits There are a wide range of benefits and assets which an employer may make available to an employee tax free. Savvy employers can add in these perks when creating attractive employment packages. The following are the most popular benefits that may be provided tax-free: A mobile phone. Any equipment required for the job, including a computer, a laptop or tablet. A low CO2 emission car.
An interest free loan of up to £5,000 (£10,000 from April 2014). A free or subsidised lunch, provided that it is offered to all employees. Up to £150 (inc VAT) per year on staff parties and functions. Childcare vouchers or a workplace nursery. A bicycle and safety equipment. A workplace pension scheme.
If you have any queries in relation to any of the topics covered in this newsletter then please do not hesitate to contact us. 28 Eaton Avenue Matrix Office Park Buckshaw Village Chorley Lancashire, PR7 7NA 01772 299888 [email protected]
McMillan & Co LLP is registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
NEWSLETTER
Tax Calendar
Incorporation: is it time to limit your liability?
July 2013
Nearly 99% of business in the UK is carried on by self-employed individuals operating on their own account as sole traders. A key concern for many sole traders is that if their business fails they may face personal bankruptcy. As a result an individual may decide to incorporate and transform his business into a limited company. Where a sole trader is willing to go into business with a partner, he may decide to form a limited liability partnership (LLP) instead. Whilst a company is a separate legal entity to its owners (shareholders) and it pays tax on its own profits, a LLP is taxed transparently. This means that the LLP’s owners, known as “members”, are taxed on their share of the profits of the business, just like sole traders but without the risk of personal liability for their partner’s or the LLP’s debts, should the business fail. There are many advantages and disadvantages of running a business through a company compared with a LLP or sole trader. These need to be weighed up carefully if you decide to incorporate. For example, a company owner does not pay National Insurance contributions (NICs) when a company distributes its profits as dividends, however, there may be a high tax charge if a company provides a car or other benefits for directors and employees. A company does not suffer higher rates of tax, and therefore may retain profits at no extra charge. Both a sole trader and a member of a LLP will pay NICs on profits but there is no extra tax charge for the benefit of a car purchased via the business. The owners/ members will suffer tax at 40% or 45% if their income falls into higher tax bands. Forming a new company requires care and advance planning. Not only is it very easy to misunderstand the subscription requirements in respect of shares and share capital but you can save time and money by ensuring that you have the correct share classes and shareholders on formation. Forming a LLP can also be confusing; many people fail to set up the required number of designated members. This may adversely affect a member’s limited liability If you would like to consider incorporation, please don’t hesitate to contact us to discuss your requirements.
www.mcmillanaccountants.com
5
End of tax quarter and last date for agreeing PAYE Settlement Agreement (if any) for tax year ended 5 April 2013.
6
Deadline for expenses and benefits annual return forms P9D, P11D and P11D(b) to reach HMRC. Deadline for employers to give copies of forms P9D and P11D to relevant employees. Deadline for form 42 or other related forms (to report share-related benefits provided to employees) to reach HMRC.
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. Deadline for any outstanding Class 1A NICs payments for tax year ended 5 April 2013. 19th for non-electronic payments, 22nd for online payments.
31
Deadline for second Self Assessment payment on account for tax year ended 5 April 2013.
August 2013 2
Quarterly submissions of P46(car) (for employees whose car and/or fuel benefit has changed in the quarter to 5 July).
19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
September 2013 19
Monthly CIS payments due.
19/22
Monthly PAYE/Class 1 NICs/student loan payments due. 19th for non-electronic payments, 22nd for online payments.
This newsletter is written for the general interest of our clients and is not a substitute for professional advice. Please contact McMillan & Co LLP for specific advice before taking any action.
Issue 4, 2013 Page 2
NEWSLETTER Real Time Information (RTI) update HM Revenue & Customs (HMRC) have announced that they are extending their relaxation in employer’s RTI reporting arrangements for small business until the end of the 2013/14 tax year. This means that an employer is permitted to make their Full Payment Submission report when they complete their main payroll run, providing that it is on or before the last day of the tax month (5th). This may be after payment to employees has been made. This week HMRC is sending out letters threatening penalties to an estimated 260,000 employers who have not yet made any reports under RTI. The problem is that
many employers may not yet need to report under RTI as no payments have been made in the tax year. Please contact us if you have received any communications from HMRC with regard to RTI, or if you would like to become an employer and require payroll assistance.
Do I pay a salary or a dividend, and what about pensions? Company owner-directors may chose how to remunerate themselves. Generally this will be by using a combination of salary, other benefits, dividend and pension contributions.
purposes, however, dividend income does not attract National Insurance contributions (NICs) and so dividends can be a very tax efficient form of remuneration for both employer and employee.
The amount that an individual may annually contribute into their pension pot is restricted to the lower of £3,600 p.a. or their net relevant earnings for the year. Net relevant earnings includes earned income including your salary. Set too low a salary and you may find that you have insufficient relevant earnings to make the level of pension contributions that you desire.
What is the optimal combination of salary or dividend to pay in the 2013/14 tax year? If making a large pension contribution is not your concern then it would be advisable to pay a salary that ensures that you qualify for basic state benefits yet is also below the employers NICs contribution threshold. This gives a figure of £148 per week or £7,696 per annum.
Dividend income is not classed as relevant earnings for pension
If you wish to make pension contributions that are higher than your anticipated salary, then remuneration can be structured in different ways, depending on your needs, as you can see. Please contact us to discuss the structure that is right for you.
Employees: top tax free benefits There are a wide range of benefits and assets which an employer may make available to an employee tax free. Savvy employers can add in these perks when creating attractive employment packages. The following are the most popular benefits that may be provided tax-free: A mobile phone. Any equipment required for the job, including a computer, a laptop or tablet. A low CO2 emission car.
An interest free loan of up to £5,000 (£10,000 from April 2014). A free or subsidised lunch, provided that it is offered to all employees. Up to £150 (inc VAT) per year on staff parties and functions. Childcare vouchers or a workplace nursery. A bicycle and safety equipment. A workplace pension scheme.
If you have any queries in relation to any of the topics covered in this newsletter then please do not hesitate to contact us. 28 Eaton Avenue Matrix Office Park Buckshaw Village Chorley Lancashire, PR7 7NA 01772 299888 [email protected]
McMillan & Co LLP is registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales
