Do you employ anyone under the age of 21?

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If you employ anyone under 21 years old you will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the new Upper Secondary Threshold (UST) for those employees.  This comes into effect from 6 April 2015 so be prepared to change the NI Category letters of those employees to ensure you’re paying the correct amount of NI contributions.

The Abolition of employer National insurance contributions for under 21’s section of GOV.UK has been updated and now includes more detailed guidance for employers, plus detail on the new category letters and rates.

Budget Special

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The Chancellor’s 2015 Budget contained some important announcements and confirmed a number of changes planned for the new tax year.

Following this, we have put together a PDF which contains the latest tax and financial information, which we trust you will find useful. For more information on how the changes may affect you, please contact us. Budget-newsletter-March-20151.pdf

NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015

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NO EMPLOYERS NIC FOR THOSE UNDER 21 FROM 6 APRIL 2015 A Government policy to reduce the number of school leavers not in employment, education or training is to abolish employers NIC for those under the age of 21. This exemption starts 6 April 2015 and will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond that limit.

Dividends or salary

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To illustrate how important it is to ensure the correct treatment of payments to directors as salary or dividends, a recent legal case has confirmed the position –

The case in question is   Richard and Julie Jones v HMRC [2014] UKFTT 1082 (5 December 2014).

They took a small salary and regular dividends from their recruitment company which was absolutely fine until the company got into financial trouble!

Their accountant (unethically but in an attempt to help their client) suggested they should re-write history and change the dividends to salary so that the liquidator couldn’t recall the dividends.

HMRC then decided to demand PAYE and NI and pursued Richard and Julie personally.

HMRC was refused the right to collect PAYE tax and NI due on the salary, not because the law didn’t allow it, but because it wasn’t possible for Richard & Julie to reclassify the dividends. They had been properly paid and the correct procedure followed. History couldn’t be rewritten and the dividends should have been changed to loans if the dividends were illegal.

Loans to directors then have a whole other raft of tax implications so it really is important to get this right and make sure that any dividends taken are legal and correctly paid.

TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES

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TAKE ADVANTAGE OF YOUR 2014/15 ISA ALLOWANCES Your maximum annual investment in ISAs for 2013/14 is £15,000. Your investment needs to be made before 6 April 2015. In addition, have you thought about investing for your children or grandchildren by setting up junior ISAs or pensions? In the 2014/15 tax year, you can invest £4,000 into a Junior ISA for any child under 18 who does not have a Child Trust Fund.

Employment allowance continues

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THE £2,000 EMPLOYMENT ALLOWANCE CONTINUES FOR 2015/16 The £2,000 “employment allowance” introduced in 2014/15 continues to be available for 2015/16. Note that this allowance provides relief from paying employers NIC on the first £2,000 of contributions. The £2,000 allowance is set against employers NIC on a cumulative basis during the tax year. The allowance is available to most employers, although those under common control are restricted to just the one £2,000 allowance. Husband and wife companies with no other employees charged to national insurance may find it tax efficient to change the mix of salaries and dividends to take advantage of the £2,000 allowance. From 6 April 2015 it may be advantageous to increase directors’ salaries to the new £10,600 personal allowance instead of the NIC threshold of £8,060 (£155 a week). The extra £2,540 will save £508 (20%) corporation tax (£1,016 for two directors) whereas the additional employees NIC would be just £305 each. Husband and wife company – from 2015/16: Salary £10,295 net = gross £10,600 Dividend up to BR band £28,606 net = gross £31,785 Top of BR band £42,385 Net cash extracted (each) £38,901 Total extracted £77,802 for couple There would however be 20% corporation tax payable. Profits before tax £71,515 @ 20% = £14,303 corporation tax, thus profits before salaries and tax would be £92,715. This results in an overall tax and NIC rate of just 16.1%. A salary in excess of £10,600 would attract income tax (at 20%) and employee’s NIC at 12%.