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The Office for Tax Simplification (OTS) have been looking at this topic and with further reviews proposed it looks like the government are keen to progress this issue.
Differences between income tax and NICs have been identified, by the OTS, as one of the top causes of complexity for small businesses so closer alignment between the two is likely to be welcomed by businesses.
The issues identified with the current system are that:
The OTS have made seven recommendations to achieve closer alignment in its report in March 2016. The government has asked the OTS to undertake further reviews on two of the recommendations. The two recommendations are:
The current calculation basis for NICs can create distortions as shown in the example below:
For an employee who in 2016/17 has three, unconnected jobs, paid monthly, each earning £5,000 per annum, there would be no NICs due as the earnings are below the threshold. In contrast, an employee earning £15,000 from one job paid monthly would pay £832 NICs for the year.
Moving to an ACA based system should resolve this issue.
Despite being calculated by reference to employees' pay, employer NICs do not impact on the contributory benefit entitlements of employees. The OTS proposal is to break the link of employer NICs with the calculation of individual employees' NICs and base the calculation of employers' liabilities on total payroll costs. A flat rate tax on total costs would be simple to calculate and an 'employment allowance' could remove many employers from any liability to the tax. For example a flat rate of 11.5% and an employer allowance of £115,000 would leave only 40,000 employers with a liability and raise the same revenue as at present.
The report on the two reviews is planned to be finalised before the Autumn Statement. The report will set out who might pay less and who might pay more (the 'gainers and losers'), and the benefits and challenges of an ACA system of employee's NICs and a payroll tax system of employer NICs including implementation and transitional issues.
Many employers and employees will look forward to some much needed simplification of the tax system.
The EU referendum result will, of course, have significant long term economic consequences for the UK and many areas of law will need to be adapted to the new era. What are the possible tax consequences of the UK ceasing to be a member of the EU?
From 6 April 2016, CGT rates have fallen from 18% to 10% for gains taxed at the basic rate and from 28% to 20% for higher rate gains. The tax rate will also reduce to 20% for chargeable gains of trustees and personal representatives. The new lower rates apply to most chargeable gains including shares and other financial assets but does not include gains which arise on residential properties. So, the availability of the CGT exemption for the main residence becomes even more important.
Businesses have a one in four chance in a 12 month period of being affected by an information technology security breach according to a government survey.
We are please to welcome Ed Torrance to the CK team. Ed joined us at the end of June and has a mixed role providing general support to all departments in the firm. He recently graduated from The University of Sussex with a degree in English.
It has taken a long time to sort out but after several years of lobbying by professional accountancy bodies and others, the government has provided a sensible set of rules on the question of whether directors are required to be enrolled into an employer provided pension auto enrolment scheme. The latest development has been the issue of legislation to provide the company with the ability to opt to exclude directors from auto enrolment. This will provide comfort for many employers; particularly small employers who have yet to go through the auto enrolment process.
In May 2016, the National Audit Office (NAO) published a report into the quality of HMRC service for personal taxpayers. The report highlighted serious shortcomings in the service which could have meant some taxpayers paying the wrong amount of tax.
Your business makes lots of deliveries by van to clients and quite often drivers have to park on double yellow lines as there is no available parking nearby. The result is quite a lot of Penalty Charge Notices (PCNs) issued by the local authority or the police. Your drivers are instructed to avoid parking in such locations but they often have no choice if the business is to provide an efficient service to clients. Any chance of getting a tax deduction?
On 6 April 2016 a new allowance - the Savings Allowance - was introduced into our tax system. The Savings Allowance applies a new 0% rate for up to £1,000 of interest receipts for a basic rate taxpayer and up to £500 for a higher rate taxpayer.
This publication is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.
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HMRC has published a policy paper outlining the forthcoming changes to the penalties for late payment and interest harmonisation for taxpayers.
HMRC has published a consultation that outlines plans to implement reporting rules for digital platforms first put forward by the Organisation for Economic Co-operation and Development (OECD).
The CIOT has warned that some claims being made by firms offering help with Stamp Duty Land Tax (SDLT) refunds are too good to be true.