Traditional advice would be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.
So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.
The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.
Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.
There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.
Payslips for workers
New rules for payslips took effect on 6 April 2019. There are two main changes. As well as employees you must provide payslips to individuals classed as “workers” for the purposes of employment law, even though they bill you for their services as self-employed individuals.
If an individual’s pay includes an amount based on an hourly rate, their payslip must show the number of hours that equate to the amount being paid. Plus, you must show a total for the pay period for each type of hourly pay, for example, total overtime hours.
“Small” businesses will be outside of the new obligations and services supplied to such organisations will continue to be dealt with under the current IR35 rules with the worker and his or her personal service company effectively self-assessing whether the rules apply to that particular engagement.
The definition of “small” has been widely awaited and the Government have confirmed that it intends to use the existing Companies Act 2006 definition. That is where the business satisfies 2 or more of the following features:
Annual turnover of £10.2 million or less
- Balance Sheet total of £5.1 million or less
- 50 employees or less
The new obligations to determine whether the rules apply, deduct tax and national insurance, and report payments under RTI will apply to the agency or intermediary making payments to the personal service company where the end user is large or medium-sized. There will be an obligation to pass details of the status determination up and down the labour supply chain.
The liability for tax and national insurance will be the responsibility of the entity paying the personal service company, however if HMRC are unable to collect the tax from that entity the liability will pass up the labour supply chain thus encouraging those entities further up the supply chain to carry out due diligence to police compliance.
Advice should be sought to see how the proposed changes are likely to impact on your business.
This new charge will apply to certain loans to directors and employees that are still outstanding at 5 April 2019 and new arrangements put in place after that date.
The charge affects arrangements involving loans made via Employee Benefit Trusts (EBTs) and similar disguised remuneration schemes adjudged by HMRC and the courts to be tax avoidance and liable to PAYE and National Insurance Contributions.
There are new reporting and payment obligations that come into force for employers using such schemes from 5 April 2019 Where the employer does not pay the tax and national insurance the liability can be passed to the individual who benefited from the loan.
Where the individual concerned had taxable income in the 2018/19 tax year of less than £50,000 they will be able to repay the liability over 5 years, and spread over 7 years if their 2018/19 taxable income of less than £30,000.
You might have read or heard in the media that the number of fake phone calls and emails purporting to be from HMRC has risen sharply in recent weeks. One of the latest scams involves a caller claiming that HMRC has started proceedings against you for tax fraud or evasion and from there offering you the services of a lawyer – for upfront payment.
Because sometimes HMRC does make calls or send emails, to help you sort the genuine from the bogus it has updated its guidance on how to spot scams and what steps to take. The guide includes a list of circumstances in which you might be contacted, for example, it is currently carrying out national minimum wage checks by telephone interview. Check HMRC’s latest guide on how to recognise a genuine contact.
In line with recent reductions in fuel prices, HMRC have reduced their suggested reimbursement rates for employees’ private mileage using their company car from 1 March 2019. Where there has been a change the previous rate is shown in brackets.
|1400cc or less
|1600cc or less
|1401cc to 2000cc
|1601 to 2000cc
Note that for hybrid cars you must use the petrol or diesel rate. You can continue to use the previous rates for up to 1 month from the date the new rates apply. The Advisory Electricity Rate for fully electric cars is 4 pence per mile.
In the Autumn Budget the Chancellor announced that the “off payroll” workers rules that currently apply in the public sector would be rolled out to the private sector in 2020. The Government have now issued a consultation paper that sets out proposed tax and national insurance changes that will impact on those supplying their services through personal service companies.
End users will be required to determine whether the rules apply to the services provided by the worker via his or her personal service company. This will be a significant additional administrative burden on the large and medium-sized businesses who will be required to operate the new rules. The current CEST (Check Employment Status for Tax) online tool would be improved before the proposed start date.
The Scottish Parliament has the power to set income tax rates on non-savings and non-dividend income for Scottish taxpayers. It has been confirmed that the 5 band structure and tax rates (19%, 20%, 21%, 41% and 46%) will remain the same for 2019/20. The thresholds for lower tax rates will rise in line with inflation and the higher rate threshold has been frozen.
The 41% Scottish higher tax rate will apply to taxable income in excess of £30,930 as the higher rate threshold will be frozen (at £43,430 when the personal allowance is taken into account). The 46% additional rate will continue to apply to income in excess of £150,000.
Scottish taxpayers (who live most of the time in Scotland) are given an S prefix PAYE code to ensure that they pay the right amount of tax on their employment income. It is important that HMRC are advised of their correct residential address.
Land and Buildings Transactions Tax is the Scottish equivalent of Stamp Duty Land Tax. For residential properties, the rates and bands for land and buildings transactions tax (“LBTT”) will be unchanged for 2019/20, although the additional dwelling supplement will be increased from 3% to 4%.
The lower rate for non-residential properties will be reduced from 3% to 1%, and the upper rate increased from 4.5% to 5%. The upper rate will apply to the portion of the purchase price over £250,000 (reduced from £350,000).