IR35 and PSC continued

iStock_000046786954_SmallThis is the second part of the two-part series of looking at IR35 and personal service companies.  Carrying on from the last blog, if you are a limited company with just yourself as the director running the company and have only one customer, you are likely to fall into the deemed payment category. This blog will go through some examples and look at other company types that can be affected by IR35.

IR35 Employment status tool

The following examples go through the HMRC checklist (that was in the last blog) to show how they may fall in or out of the IR35 rules.  This is not a definitive test, and each case will be treated differently, but these examples will give you an idea of what to look for…. Continue Reading

IR35 Personal Service Company

IR35 Personal Service CompanyThis two-part series will look into how contractors with limited companies may be affected by IR35 and what to do to overcome it.

What is a personal service company?

A Personal Service Company or PSC is the name given to a limited company that has been created by a contractor for the purpose of serving one customer only. If that company did not exist, they would be an employee of the customer.  It is also known as an intermediary company. One of the main reasons for creating this company is for the tax advantages…. Continue Reading

Childcare costs for Contractors

Childcare costs for Contractors

This blog covers the frequently asked subject of childcare costs for contractors.

Contractors who work through their own limited company are considered to be employees of the company. Therefore, as an employee of your limited company, you can pay for your child care costs through your business until your child is 15.  It means you can be exempt from tax and national insurance of up to £55 a week or £243 a month on childcare costs.

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2017/18 Tax Rates and Allowances

Tax Taxation Audit Refund Accounting ConceptHere are 2017/18 tax Rates and allowances:

 

  2016/17 2017/18
  £ £
Income tax rates - (non-dividend income)
0% – starting rate for savings only note 1 Up to 5,000 Up to 5,000
20% basic rate tax 11,001 – 43,000 11,501 – 45,000
40% higher rate tax 43,001 – 150,000 45,001 to 150,000
45% additional rate tax Above 150,000 Above 150,000
1  If an individual’s taxable non-savings income exceeds the starting rate limit, then the starting rate for savings will not be available for savings income
Scottish rates of income tax                                                                                                   note 2
0% – starting rate for savings only note 1 Up to 5,000 Up to 5,000
20% basic rate tax 11,001 – 43,000 11,501 – 43,000
40% higher rate tax 43,001 – 150,000 43,001 -150,000
45% additional rate tax Above £150,000 Above £150,000
You pay the Scottish rate if you live in Scotland.
1  If an individual’s taxable non-savings income exceeds the starting rate limit, then the starting rate for savings will not be available for savings income.

2  The Scottish Parliament has voted to freeze the basic rate of income tax of 20 per cent, also freeze the higher and additional rates at 40 per cent and 45 per cent respectively, and maintain the higher rate of income tax threshold at £43,000 in 2017/18, as set out in the table above.  

 

Income tax rates – (dividend income new rules from 6/4/2016)
Up to £ 5000  note 1 and 2 0% 0%
£ 5000  – £ 32,000 7.5% 7.5%
£32,001 – £150,000 32.5% 32.5%
Above £ 150,000 38.1% 38.1%
1 From April 2016 the dividend tax credit is abolished and replaced with a new £5,000 tax-free Dividend Allowance

2 From April 2018 the allowance will be reduced to £ 2,000

Child benefit/Guardian’s allowance rates
Higher rate (eldest child only) (per week) 20.70 20.70
Other children 13.70 13.70
Guardian’s allowance 16.55 16.70
1  An income tax charge will apply to taxpayers with income exceeding £50,000 in a tax year, when child benefit is also received by them or their partner. The charge will reduce the financial benefit of receiving child benefit for those with income between £50,000 and £60,000 and remove it completely for taxpayers with income above £60,000.
Personal allowances
Personal allowance – note 2 11,000 11,500
Dividend allowance – note 5 5,000 5,000
Maximum Married couple’s allowance for those born before 6 April 1935 – note 3 8,355 8,445
Married couple’s allowance – minimum amount – note 3 3,220 3,260
Micro entrepreneurs allowance:    
Individuals making property or trading incomes below the level of the allowance would no longer need to declare or pay tax, while those who exceeded the level from their can benefit by simply deducting the allowance instead of calculating their exact expenses. For more information see ACCAs  article. n/a Allowance- 1,000
Income limit – note 1 100,000 100,000
Income limit for Married couple’s allowance- born before 6 April 1935  note 3 27,700 28,000
Blind person’s allowance 2,290 2,320
Rent-a-room relief – note 6 7,500 7,500
Transferable tax allowance for married couples and civil partners 1,100 1,150
Personal savings allowance for basic rate tax payers – note 4 1,000 1,000
Personal savings allowance for higher rate tax payers – note 4 500 500
1  This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit

2  From 2016-17 onwards, all individuals will be entitled to the same personal allowance, regardless of the individuals’ date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth

3  This allowance is subject to the £27,700 income limit. The individual’s married couple’s allowance is reduced by £1 for every £2 above the limit. That reduction only applies after any reduction to their personal allowance The individual’s married couple’s allowance is never reduced below the minimum amount. 

The relief for this allowance is given at 10%. 

These amounts are subject to indexation – the annual increase in CPI – and have been frozen for 2016-17 at 2015-16 levels in order to prevent any cash loss to individuals as a result of negative growth in CP

4  Basic rate tax will no longer be deducted from personal savings interest.

5  From April 2018 the allowance will be reduced to £ 2,000

The government will consult on proposals to redesign rent-a-room relief, to ensure it is better targeted to support longer-term lettings.

 

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What is a UTR?

MoneyUTR stands for Unique Tax Reference. It is a 10 digit number that is issued by the HMRC and is used to identify you for all your tax matters. You receive your UTR when you register with HMRC if you have become self-employed or have started a limited company.

How do I apply for a UTR?

When you decide you want to work for yourself either as a sole trader or a Director of a limited company, one of the first things you need to do is inform HMRC. The information below will give you details on how to notify HMRC depending on your particular situation…. Continue Reading

Relevant life insurance for company directors

Boats

Relevant life insurance is a fixed term, death in benefit insurance policy that you take out through your company which pays out a tax-free lump sum on the death of the person insured.  It is suitable to put through your company if certain conditions are met and hence benefit from further tax savings on the premiums.  Some of the conditions that need to be met include:

  • You can only take a policy that covers the death of the director and not critical illness or disability.

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Employment Reference

View from the london eyeAs an employer, part of your role is to provide employment references for your employees. You could be in a position of making or breaking their next move. It may be tempting to try to provide a reference that does not reflect your employees in a good light, as a way to holding on to them. Or you may be glad to see the back of them and want to portray this to the new employer.

This blog is intended to guide you in avoiding employment reference traps. … Continue Reading

Buy to let properties taxation

A cobweb covered in dew during heavy fog in Blorenge Woodland TrIf you own or are considering acquiring one or more buy to let properties, you will be thinking about buy to let properties taxation. This includes whether you should purchase the properties in your own name or through a limited company.  Incorporation may seem more attractive following the announcement of tax relief restrictions on mortgage interest incurred on personally owned rental properties.

From 6th April 2017, the amount of relief available for mortgage or loan interest paid is progressively restricted. By 5th April 2020, interest will not be allowable in calculating taxable profit, but the resulting tax liability will be reduced by 20% of the interest paid. … Continue Reading