Ian Sergeant, our staff accountant, says…

It has been well publicised in recent times that HM Revenue & Customs are targeting aggressive tax avoidance schemes however there are still a number of ways small companies and individuals can minimise their tax bills.  Below is a list of ideas worth considering if you wish to reduce you tax bill.

 

Companies

Making pension contributions through the company should be considered.  Not only does this build the director’s pension fund for later life, it is also a tax deductible expense for the company.  That is provided that HMRC don’t rule the contributions in excess of what is commensurate with the directors’ duties.

When purchasing capital assets the use of the annual investment allowance should also be considered before the year end.  Since 1^st January 2016 AIA is £200,000 per year.  This covers all plant and machinery assets except cars, meaning that the cost of capital assets reduces taxable profits for the year.

 

Individuals

 

Ensure that you are making the best use of ISA contributions available to you each year.   The annual limit which can be split between cash ISA’s or stocks and shares ISA’s is £15,240 per year as of 6^th April 2015.  Any earnings generated from ISA’s are tax free.  Help to buy ISA’s are another form of ISA which have been introduced this year.  These allow prospective first time home buyers to claim an extra £50 for every £200 invested (upto a maximum of £3,000).

Pension contributions are another way of reducing your tax bill. Soon all employers in the UK will have to offer a pension scheme to employees.  The contributions made to an employer pension scheme can either be taken from your gross pay before any tax is deducted or if the contribution is paid net the pension provider claims back basic rate tax at 20% and adds this to your pension pot.

 

For self -employed people this isn’t an option, however if you are paying tax above the basic rate band, making personal pension contributions can also be of benefit.  The contributions made extend the basic rate band and therefore more of your earnings are taxed at 20% rather than 40%.

 

These are just a few simple ideas in order to try and help you minimise your tax bills, and it is key to act before any tax period ends.  So if you would like any further assistance with any tax advice then please let us know.

Jack Clarke, our trainee accountant, says…

I have now been at RT for 4 months and as part of my job I am part of the payroll team, I have learnt a lot about the payroll world and thought I would share some of the useful information…

 

PAYE

HMRC use the PAYE system to collect Income Tax and National Insurance from employment. The only reason you would be exempt from PAYE is if none of your employees earn £112 or more a week, gets expenses and benefits, has another job or receives a pension.

Payments and Deductions

You must make deductions for PAYE, when paying your employees through the payroll. Salary or wages, as well as tips, bonuses, statutory sick or maternity pay are classed as payments to your employee. From any payments made to the employee, tax and National Insurance should be deducted. However, other deductions you may need to include could include student loan repayments or pension contributions.

Reporting

Reports must be made on or before the employee’s payday to HMRC, if you run the payroll yourself. Your payroll software will work out how much National Insurance and tax you owe, including an employer’s National Insurance contribution on each employee’s earnings above £155 a week. You will need to send another report to HMRC to claim on reductions.

Paying HMRC

You’ll be able to view what you owe HMRC, based on your reports. You then have to pay them, usually every month. However, if you’re a small employer that expects to pay less than £1,500 a month, you can arrange to pay quarterly.

If you need any help processing your payroll, do not hesitate to get in touch with the payroll department at Rotherham Taylor!

 

 

Nicola Hardy, our practice manager, says…

National Insurance for self-employed individuals

In contrast to employees who suffer Class 1 NIC contributions via deductions from their weekly or monthly salaries, self- employed individuals are liable to pay two types of NIC as follows:

Class 4 NIC

This is based on your level of profits, it is 9% on profits between £8,060 and £42,385 and 2% on profits exceeding £42,385.

Class 4 NIC is calculated when working out your tax liability on completion of your self assessment tax return and is collected together with your income tax in your January and July payments on account to HMRC.

Class 2 NIC

If your annual self- employed profits are £5,965 or more (2015/2016 rates) you pay Class 2 NIC at a rate of £2.80 per week.

Historically, this has been collected via a monthly or quarterly direct debit arrangement. Should profits have fallen below the small profit threshold above, an individual could apply for exemption from Class 2 NIC contributions, via an application to HMRC.

In a move to simplify and modernise NIC collection, HMRC have moved away from two separate collection systems for Class 2 and 4 NIC, as it has become a significant burden with people having multiple jobs, or moving in and out of self-employment.

For 2015/2016 onwards, most people will pay Class 2 NIC along with their Class 4 NIC and income tax in their January self assessment payments. This also means that anybody falling below the small profit threshold will not have to pay the NIC and will no longer need to claim the exemption.

However, it should be noted that you may still wish to consider making voluntary contributions to avoid/fill any gaps in your National Insurance record to ensure your eligibility to a full state pension and benefit entitlements.

If you have any questions then please contact us. We can expect further National Insurance reforms to be consulted on later in 2015.