Posted by admin - April 4, 2014 3:00 pm The Good and not so Good Tax Update

Many people will be relieved to have received the good news on changes to the Annual Employment Allowance which were announced in the last Budget. However, HMRC, it seems, whilst giving with one hand also seems to have taken with the other. Therefore our latest tax update comes with mixed news.

Firstly the good news:

Annual Employment Allowance

HMRC has published the final version of arrangements which set out how employers should claim the Employment Allowance.

The employment allowance will enable the majority of businesses and charities (including Community Amateur Sports Clubs) to reduce their employer’s national insurance contributions by up to £2,000 a year.

Eligibility

If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. It can also only be claimed against one PAYE scheme, even if your business runs multiple schemes.

However, not all businesses can claim this allowance. Examples include those who employ someone for personal, household or domestic work, such as a nanny, gardener or care support worker.

Public authorities, including local, district, town and parish councils are also unable to claim this allowance as are businesses who carry out functions which are either wholly or largely of a public nature i.e. NHS, GP and prison services. In addition, Academy schools or independent schools which are a trading business can claim, but schools run by public funding cannot claim.

As a result of the number of business exemptions to this allowance this can be a tricky area to navigate.  If you need help to clarify your eligibility then please do not hesitate to contact your local MFW office for further information.

Software

Most payroll software, including HMRC’s Basic PAYE Tool (BPT) can be used to make the claim. Records will need to be kept for a minimum of three years after the end of the tax year in which you claimed the allowance.

All payroll clients of McCabe Ford Williams can rest assured, however, as our payroll software will make this claim for you automatically and will retain the necessary records.

However, if you are unsure as to whether your current software complies with these rules then please do get in touch.

Unused allowance

If you have a business with more than one PAYE scheme and you don’t use the full £2,000 allowance during the year on your nominated PAYE scheme, then you can apply to HMRC at the end of the tax year for a refund of any unused balance. You can only do this, however, if you have employer Class 1 NICs liability on other PAYE schemes, and your PAYE payments are all up to date.

If you have not used your Employment Allowance award in full (e.g. because you claimed the Employment Allowance late and did not have enough employer Class 1 NICs liability for the remaining part of the year), HMRC will offset the balance against other current or future PAYE liabilities, so the allowance is not lost.

What a business cannot do, however, is move their Employment Allowance to another PAYE scheme during the tax year. However they can stop their claim at the end of the tax year, nominate another PAYE scheme in the new tax year, (before making any NICs or PAYE payments), and make a new claim against that scheme.

If a business changes ownership before the full £2,000 allowance is used, any current claim will stop. The new owner will, however, be able to make a claim in their own right.

Sole/Joint Director companies

In a sole or joint director company with no other employees, it is generally suggested that the director(s) earn a low salary, drawing dividends on top.

For the 2014/15 tax year, the optimum annual salary we would normally recommend would be £7,956, while the personal allowance is £10,000.

The reason for this is that any salary above £7,956 per annum incurs 12% NIC for the director, plus 13.8% NIC for the employer and combined, this will outweigh the Corporation Tax benefit (usually 20%) of the higher salary.

However, with no Employers NIC to take into account, increasing the optimum salary to £10,000 would save the company 20% Corporation Tax, while only costing the director 12% in employees NIC.

Any salary above this level though would incur 20% personal tax for the director, (which is equal to the 20% the company would save), and together with the additional 12% employees NIC would make a higher salary more expensive overall, even with the balance of the £2,000 employment allowance available.

For a business with profits of £50,000 before director salary, the saving would be in the region of £164 per annum for each director, as long as the total Employers NIC does not exceed £2,000.

As a result, the optimum salary for a director/shareholder will depend on whether they employ other staff or not together with their associated salary levels.

To ensure you are maximising on your Annual Employment Allowance then please do contact your local MFW office who will be able to assist.

Well all looks good so far, but now here’s for the not so good, (and dare we say less publicised) news:

Statutory sick pay (SSP)

Currently, if you have a high proportion of your workforce off sick at the same time you may be able to recover some or all of the Statutory Sick Pay you pay.

Firstly, did you know that you cannot automatically recover SSP?

You can only recover any Statutory Sick Pay you’ve paid in a tax month that’s over and above 13 percent of your gross Class 1 NICs liability for that month. This is known as the ‘Percentage Threshold Scheme’ (PTS) and unless you qualify for this scheme you are not entitled to recover any SSP.

To work your eligibility to reclaim Statutory Sick Pay, you’ll need details of:

• all the SSP you paid to your employees in the tax month – or months – for which you want to try to recover SSP
• the total amount of gross Class 1 National Insurance contributions (NICs) you paid in each of the tax months for which you want to try to recover SSP

However, from 6 April 2014, PTS is being abolished and no SSP can be recovered by any businesses!

This new legislation was announced in the same budget as the Employment Allowance but it could be argued, flew in under the radar and may well therefore come as a shock to many!

It is expected that these changes will save the Treasury in the region of £50 million a year and it is understood that funds saved will be reinvested into a new Health and Work Service which will aim to provide an alternative form of support to SSP. This should benefit employers by enabling employees on sickness absence to return to work (where possible) more quickly. It will also assist employers to better manage any sickness absenteeism.

Further details are on the Health, Work and Wellbeing initiative site on Gov.uk.

If you need any further advice on the changes to SSP then do please contact your local MFW office.