Summary of presentation at the IPSE Freelancer MoneyBox Event - - PowerPoint PPT Presentation

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Summary of presentation at the IPSE Freelancer MoneyBox Event

January 2016

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“The staff and accountants always offered me a network of support and advice and nothing was too much trouble for them.”

Selena B

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Contents

IPSE Freelancer MoneyBox - Event introduction 2 Self-assessment tax return – Meeting this year´s deadline 3 Salary set-up 4 Dividends 6 Is it worth taking more dividends out before April 2016? 8 Coming to the end of a contract? Plan fast if you are closing down 9 Travel and Subsistence - Supervision, Direction or Control 10 Our top tips ahead of these recent changes 11 APPENDIX 12

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IPSE Freelancer MoneyBox - Event introduction

K&B Accountancy were delighted to attend the IPSE Freelancer MoneyBox event, hosted on the 13th January 2016. We thoroughly enjoyed the evening and hope you did too. This document will provide a re-cap of the presentation that was presented by Johnny Leung, a Director at K&B Accountancy Group. For more information and regular updates, please follow us on social media and visit our blog.

Johnny Leung, Director at K&B Accountancy Group, presenting his talk. IPSE members enjoying the exhibition.

www.kbaccountancygroup.com/blog

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Self-assessment tax return – Meeting this year’s deadline

The 2014/2015 self-assessment tax return deadline is fast approaching. Hopefully you are well on top of your paperwork and it has already been submitted to HMRC. If you have not completed or started to complete your self-assessment tax return, please get in contact with your accountant urgently. Missing the deadline on 31st January will result in a late penalty of £100. Further delay can lead to a substantial fjne, including daily penalties. Whilst the deadline is on the 31st of January, this is a Sunday. Therefore, your accountant might not be able to submit your self-assessment tax return any later than the 29th January. If you are processing your own tax return online, we strongly recommend you avoid submitting it on the 30th or 31st of January. We are expecting that a large number of people will be submitting their last minute tax returns online which could put a lot of pressure on the HMRC´s online system. Therefore, to avoid any potential delays and unnecessary stress, submitting your tax return before the weekend of the 30th and 31st January is recommended. At K&B Accountancy Group we include self-assessment tax returns as part of our monthly package, with no additional fees*. For one off personal tax returns, our fee starts from £125 plus VAT.

* Subject to T&C’s.

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Salary set-up

Contractors who are outside of IR35 will be familiar with the low salary, high dividend set-up. However, how low should the salary be for this tax year?

Before 5 April 2016

It is worth noting that although employer allowance is going up to £3,000 after April, most contractors operating a Personal Service Company (PSC) will not benefjt. This is because companies operating with the director as the sole employee will no longer be eligible for this relief from April 2016. 2015/2016 is the last year that this generous allowance can be capitalised. As a result, those who are claiming a salary at the primary threshold of £8,060 or less could be missing out – even if you have to pay a small amount of employee’s National Insurance Contribution (NIC). This is because director salary is a tax-deductible

• expense. As shown on our calculation (Table 1) by paying £304.80 NIC, you could get

£508 worth of company tax saving back (net saving of £203.20).

Table 1

There is still time to maximise your salary set-up, as the tax year does not end until April.

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After 5 April 2016

When we go into the 2016/2017 tax year, having a salary over the primary threshold might not be as benefjcial as this year. This is because if you are the sole director and employee of a company, your company will have to pay employer’s NIC again. We have prepared some fjgures (see Table 2 below), to assist contractors when making a decision regarding their salary in the 2016/2017 tax year. A more detailed schedule, including dividend calculation is included in the Appendix on page 12 at the back of this document.

Table 2

At the moment we do not have any further information detailing if a limited company with husband and wife set-up will be excluded from the employment allowance. HMRC’s consultation for the employment allowance ended on 3rd

• January. We will provide you with an update

when know more.

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Dividends

There are two signifjcant changes in the way dividends will be taxed after April 2016. 1) The 10% tax credit is being abolished. This means that from 6th April onwards, what your company declares is exactly what you will get in cash. No more grossing up from Net to Gross dividends. From 6th April, the effective tax rate will be the same as the actual tax rate, unlike the current regime. Also, instead of 10% tax credit, there will be a £5,000 allowance. This makes the fjrst £5,000 worth of dividends tax-free. 2) There will be a 7.5% increase on the current year’s effective tax rate, across all tax rate bands – as explained in Table 3.

Table 3

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An example:

To demonstrate how the changes of dividend tax will impact contractors and freelancers, we are going to compare dividend tax liabilities before and after 5 April 2016 with the following scenario: A contractor operating outside of IR35 taking a salary of £10,000 per annum and £33,000 worth of dividend

Although the entire dividend is now inside of the basic tax rate band (10% grossing up no longer exists), dividend tax will increase from £600 to £2,025! Over a 300% increase for basic rate tax

• n dividend!

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Is it worth taking more dividends out before April 2016?

Many clients have asked us here at K&B Accountancy Group if it’s worth taking more dividends out before April 2016. It’s defjnitely the case if you’re not fully utilising your basic rate band, as dividend is effectively taxed at 0% before it falls into a higher tax rate band this tax year and, more importantly, unused basic tax rate band will be lost forever after the tax year ends. Contractors should always take dividends up to their basis rate threshold if their company has suffjcient profjt. It’s also worth taking more money out before April 2016 if you’re expecting to withdraw dividend in the higher tax rate band. For example, if you’re planning to take

• ut a large amount of funds for a deposit on a property, it’s best to do so before April

– provided your company has enough reserves – rather than waiting until you fjnd the property and are faced with the additional 7.5% income tax after April 6.

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Coming to the end of a contract? Plan fast if you are closing down

If you are at the end of your contract and planning on closing down your company, please consult with your accountants as soon as possible. This is because the government are proposing to treat distribution after 6th April 2016 from a liquidation, as an income distribution, where:

• An individual receives a distribution from the winding up of a closed company in

respect of shares held.

• Within 2 years the individual continues to be involved in a similar trade or activity.
• A main purpose of these (entire) arrangements is to gain a tax advantage.

This could mean instead of paying 10% capital gain tax on the distribution by utilising Entrepreneurs Relief (ER), the amount will be taxed as if it is dividend under the new tax rules. This will effectively take ER away from contractors.

HMRC consultation on the treatment of company distributions will end on 3rd February 2016 and further details will be published, so watch this space.

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Travel and Subsistence - Supervision, Direction or Control

Contractors working through an intermediary, such an umbrella company will not be able to claim Travel and Subsistence expenses for ordinary commuting after 5 April 2016. This is applicable unless they can demonstrate and provide evidence on the lack of Supervision, Direction, or Control. It means that most, if not all umbrella contractors, currently under an overarching contract will be affected. Although the new test on Supervision, Direction, or Control is not required for a limited company, the Travel and Subsistence restriction still applies to contracts that are caught under IR35. Therefore, for PSC contractors, it’s now important more than ever to ensure you’re fully aware and understand your IR35 status to avoid non-compliance. The good news is that HMRC has not touched IR35 this time, but they’re likely to continue reviewing this legislation and present further proposals in the future.

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Our top tips ahead of these recent changes

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APPENDIX

Examples of Salary Set-Up after 5 April 2016

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Why K&B Accountancy Group?

K&B Accountancy Group is located in the heart of London’s prestigious business district, Canary Wharf. With over 15 years’ experience, our expert team of accountants will support you through all aspects of running your own business.

We offer specialist accountancy services for contrac- tors, freelancers and the self-employed We explain things clearly, without accountancy and tax jargon We offer a personalised service to meet each of your individual requirements.

“I have recommended K&B to many peers and four of them have joined under my recommendation.” John

@KBAccountancy /KBAccountancyGroup /k-&-b-accountancy-group

www.kbaccountancygroup.com 020 7078 0211 David F