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Income Tax personal allowance

and higher rate threshold from 2018

Income Tax personal allowance 2018

1. Income Tax personal allowance and higher rate threshold from 2018

The tax-free personal allowance will rise with inflation to £11,850 from April 2018
The personal allowance – the amount you earn before you start paying income tax – will rise from £11,500 to £11,850. This means that in 2018-19, a typical taxpayer will pay £1,075 less income tax than in 2010-11.

As announced at Autumn Budget 2017, the government will increase the Income Tax Personal Allowance to £11,850 for the tax year 2018 to 2019. The basic rate limit will also be increased to £34,500 in 2018 to 2019. Changes to the basic rate limit will apply to England, Wales and Northern Ireland. Since April 2017, the Scottish Parliament sets the basic rate limit for Scotland. Taken together, these changes will increase the higher rate threshold, above which individuals in England, Wales and Northern Ireland pay income tax at 40%, to £46,350 in 2018 to 2019. The increases are based on the September 2017 Consumer Prices Index and will be introduced by statutory instrument later in 2017.

The National Living Wage and the National Minimum Wage will increase from April 2018
The National Living Wage for those aged 25 and over will increase 4.4% from £7.50 per hour to £7.83 per hour from April 2018. Over 2 million people are expected to benefit. For a full-time worker, it represents a pay rise of over £600 a year.

2. VAT: maintain thresholds for 2 years from 1 April 2018

VAT: no change in registration and deregistration thresholds

As announced at Autumn Budget 2017, the VAT registration and deregistration thresholds will not be uprated for a period of two years. There will be no revisions to existing legislation and no new legal provisions will be introduced.

Therefore legislation will continue as follows:

  • the taxable turnover threshold that determines whether a person must be registered for VAT will remain at £85,000
  • the taxable turnover threshold that determines whether a person may apply for deregistration will remain at £83,000
  • the registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000

The two year period ends on 31 March 2020. The government will consult on the design of the VAT threshold.

3. Extension of joint and several liability (JSL) on the online marketplaces and displaying VAT numbers online

As announced at Autumn Budget 2017, the government will legislate in ‘Finance Bill 2017-18’ to extend the scope of existing JSL rules to hold an online marketplace jointly and severally liable for:

  • any future VAT that a UK business selling goods via the online marketplace fails to account for after HMRC has issued a notice to the online marketplace, ensuring that all sellers are in scope
  • any VAT that a non-UK business selling goods via the online marketplace fails to account for, where the business was not registered for VAT in the UK and that online marketplace knew or should have known that that business should be registered for VAT in the UK

The government will also legislate in ‘Finance Bill 2017-18’ to require online marketplaces to ensure that VAT numbers displayed for third party sellers on their websites are valid. They will also be required to display a valid VAT number when they are provided with one by a third party seller operating on their platform. These requirements will be supported by a regulatory penalty.

The changes will have effect on and after Royal Assent of Finance Bill 2017-18.

4. Tax Administration

Simplifying late submission and late payment sanctions

As announced at Autumn Budget 2017, the government will publish a response to the recent consultation on proposals for late submission penalties and reform of sanctions for late payment. This was the most recent of a series of consultations on late payment and late submission sanctions.

The response document will be published on 1 December 2017. Alongside the summary of responses, a further consultation on harmonised interest and late payment sanctions will also be published. The government will be taking forward the points-based model for late submission sanctions through consultation on draft legislation in summer 2018. The government intends to legislate for this model in a future Finance Bill.

5. Making Tax Digital: changing the scope and pace

As announced at Autumn Statement 2015 and confirmed at subsequent fiscal events, the government legislated Making Tax Digital for Business (MTDfB) in Finance (No.2) Act 2017. This legislates to allow HMRC to require certain businesses, self-employed individuals and landlords to keep records digitally and update HMRC on a quarterly basis.

A tax information and impact note was published at Spring Budget 2017. In a Written Ministerial Statement on 13 July 2017, the government announced that only businesses with a turnover above the VAT threshold will be mandated to use MTDfB from April 2019, and then only to meet their VAT obligations. Businesses with a turnover below the VAT threshold will not be required to use MTDfB from April 2019 but can choose to do so. An updated statement of impacts will be published on 1 December 2017. The scope of MTDfB will not be widened before the system has been shown to work well and not before April 2020 at the earliest.

1. The main rate of National Insurance contributions (NICs) for the self-employed will increase Currently, the self-employed may have to pay both Class 4 and Class 2 NICs:

  1. Class 4 NICs at 9% are paid on profits between £8,060 and £43,000
  2. Class 2 NICs are paid on profits of £5,965 or more

From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019. Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This better reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.

2.Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018

This will reduce the tax difference between the self-employed and those working through a company. At Summer Budget 2015, the government announced that dividend taxation would be reformed from April 2016 by replacing the Dividend Tax Credit with a £5,000 dividend allowance, and increasing the rates of tax paid by 7.5 percentage points in each band, to 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate. AT Spring Budget 2017 it was announced that the tax-free allowance for dividend income will be reduced from £5,000 to £2,000. Legislation will be introduced in Finance Bill 2017 to change the amount of dividend income that is charged at the nil rate by section 13A to £2,000 from tax year 2018 to 2019.

3. Changes to VAT registration threshold

From 1 April 2017 the VAT registration threshold will increase to £85,000 from £83,000 and the deregistration threshold will rise from £81,000 to £83,000, announced by Chancellor Philip Hammond as part of the Spring Budget 2017 The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) is currently set at £83,000 and is the highest in the EU. Those trading below the threshold can choose to register voluntarily. The deregistration threshold for taxable supplies is currently £81,000. It is set lower than the registration threshold to avoid businesses trading around the threshold level having to frequently register and deregister. Normally, the VAT registration and deregistration thresholds are revalorised annually in line with inflation through the use of the Retail Price Index (RPI). Revalorisation of the threshold will prevent around 4,000 small businesses from having to register for VAT by the end of the 2017 to 2018 financial year. The changes to the thresholds will have effect from 1 April 2017.

4. Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD)

Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory. Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.

5. National Minimum and National Living Wage:

Employers need to get ready for the increase on 1 April 2017 The hourly minimum wage a worker is entitled to depends on their age and whether they are an apprentice. The National Living Wage for those aged 25 and over will increase from £7.20 to £7.50 per hour. The National Minimum Wage will also increase: • for 21 to 24 year olds - from £6.95 per hour to £7.05 • for 18 to 20 year olds - from £5.55 per hour to £5.60 • for 16 to 17 year olds - from £4.00 per hour to £4.05 • for apprentices - from £3.40 per hour to £3.50* (*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year)

6. Construction Industry Scheme (CIS) Subcontractor Verifications

From April 2017 HMRC will no longer accept any telephone calls to verify subcontractors. This change is one of a series of improvements we have made to CIS to increase efficiency and accuracy, and to reduce administration. These have also included the ability to amend returns online, and the addition of an online message/alert service.

1.Introducing a new National Living Wage of over £9 an hour by 2020

From April 2016, a new National Living Wage of £7.20 an hour for those aged 25 and over will be introduced. This will rise to over £9 an hour by 2020.

2. The tax-free Personal Allowance will be increased from £10,600 in 2015-16 to £11,000 in April 2016

The tax-free Personal Allowance – the amount people earn before they have to start paying Income Tax – will increase to £11,000 in 2016-17.

Increases to the Personal Allowance since 2010, when it was £6,475, mean that a typical taxpayer will be £905 a year better off in 2016-17.

The government has an ambition to increase the Personal Allowance to £12,500 by 2020, and a law will be introduced so that once it reaches this level, people working 30 hours a week on the National Minimum Wage won’t pay Income Tax at all.

3.The higher rate threshold of income tax will increase from £42,385 in 2015-16 to £43,000 in 2016-17

The amount people will have to earn before they pay tax at 40% will increase from £42,385 in 2015-16 to £43,000 in 2016-17.

4. Reforming dividend tax

The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased.

This simpler system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe.

5. The Employment Allowance will increase by a further £1,000 to £3,000

Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000. The Employment Allowance gives businesses and charities a cut in the employer National Insurance they pay.

This means, next year, businesses will be able to employ 4 people full time on the National Living Wage and pay no National Insurance at all.

6. HCorporation Tax will be cut to 19% in 2017 and 18% in 2020

The main rate of Corporation Tax has already been cut from 28% in 2010 to 20%, in order to boost UK competitiveness. It will now fall further, from 20% to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.

Small Firms Must Set Up Pension Schemes

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Small Firms Must Set Up Pension Schemes

Small businesses that employ fewer than 30 people will be asked to enrol their staff in a company pension scheme from Monday.

The new regulations cover companies that employ anyone over the age of 22 who earns more than £10,000 a year, as well as people with a single employee such as a nanny. Each employer will be given a deadline for putting plans in place and 14,000 will be affected by the first phase, which starts this week.

It is part of the Government's automatic enrolment scheme, which was established amid fears people were not putting enough money aside for their old age. By the end of October 2017, as many as 1.3 million small businesses will be signed up, enrolling 10 million workers into a pension scheme.

But it will not be easy for everyone.

Liesl Smith from the Federation of Small Businesses said: "Often they get bogged down in running the business and so they don't necessarily have time to think about the actual human resource part of the business… so I think it's a real challenge particularly for smaller businesses."

Smaller companies such as hairdressers and grocers will be included as the scheme rolls out. In some cases, people might be employing just one person, such as a nanny or a carer. Employers could ultimately be fined if they ignore their auto-enrolment duties.

Sky News visited a jewellers in Birmingham where they are preparing to introduce a pension scheme. It is going to cost £4,000 to set up by their deadline of February 2017.

London trumped for innovation by other regions of the UK

London trumped for innovation by other regions of the UK

London and Manchester are way behind Oxford, Liverpool and Teesside in a ‘league table’ of UK areas creating new goods and services, according to research.

Liverpool has a higher proportion of firms creating new cutting-edge goods and services than London, finds a new study by the Enterprise Research Centre (ERC) of 14,000 firms.

ERC’s analysis of six key indicators of innovation has allowed it to produce an ‘innovation league table’ for 45 Local Enterprise Partnership (LEP) areas in England and equivalent zones in Scotland, Wales and Northern Ireland. These indicators range from new products being brought to market, to collaboration and research and development (R&D) activity.

While nationally 45 per cent of firms report being ‘innovation active’, only 18 per cent are engaged in new product innovation.

Firms in Oxfordshire report the most innovation activity followed closely by Greater Cambridge and Peterborough. South East Midlands (centred on Milton Keynes) and Gloucestershire follow relatively closely.

Professor Stephen Roper, who led the ERC research, says firms’ ability to innovate plays an important role in sustaining growth and competitiveness, with economic implications for whole regions.

'For the first time, this research gives us a picture of which localities of the UK have the highest proportion of firms introducing new products and services. The findings run counter to the dominant narrative of a country dependent on London, with innovation being much more dispersed across the country than was previously thought,' he adds.

Is your small business ready for a loan?

Is your small business ready for a loan?

Looking for funding to get your start-up business off the ground? Raising seed capital is no small feat but there are a number of things you can do to ensure your business has the best chances of securing a loan.

In order to help you get your small business loan approved, the government-backed Start Up Loans Company has outlined 10 essential questions you need to ask yourself before applying for funding.

1. Have you written a business plan?

A written business plan is one of the first steps in turning your business idea into a reality. It helps to clarify your business idea and identify any potential problems. When applying for funding, your business plan is the ‘face’ of your application, so make sure it’s saying what you want it to say. If you’re struggling with structuring or writing your business plan, you can use these guides.

2. Do you have proof of any sales or contracts discussed in your business plan?

A good business plan will detail the market your product or service is targeted at. It will also detail the demand for the product or service your business will provide. If you’re going to make claims of sales or contracts in place already, you have to be able to verify them with proof. This might mean providing a copy of the contract etc.

3. Is your business plan up to date? And have you reviewed the content?

The dynamic nature of business is likely to mean that things will change as you work on your business plan. It is imperative that, when you apply for funding, you are presenting a business plan that is as up to date as possible. Simple things like checking your spelling will improve your application’s professionalism and increase your likelihood of getting funding.

4. Have you prepared a cash flow forecast?

This is a forecast of how you see your business performing financially. But also, for anyone assessing whether to lend or grant you money, it’s an opportunity to see if you have thought everything through. So make sure you include all of your costs and your revenue streams and most importantly, be realistic. It might look impressive to have £1m in the bank after 12 months, but this is generally not going to be the case.

5. Does your business plan match up to your cash flow forecast?

Check that the numbers you mention in your business plan are in your cash flow forecast. Everything needs to tally, so make sure you check that you aren’t saying one thing in your plan and another in your cash flow.

6. Have you got a Personal Survival Budget?

Before applying for funding, you need to work out the absolute minimum that your business needs to make to support you – this is called a Personal Survival Budget. This is done by looking at exactly how much money you need to survive i.e. to pay essential bills such as rent, food and childcare. Too often this is ignored or not done well enough. Use a website such as the Money Advices Service and look at your bank statements. You’ll be surprised how much you are actually spending!

7. Do you know the industry you are looking to enter?

It’s very important that you know the industry your business is entering. Do as much market research as possible; know the products, the competitors and how others in the market operate. It shows you are committed and it’s always impressive when someone can answer these questions without having to consult their phone.

8. Can you demonstrate that you have managed your existing debt, hire purchases and bills as best you can?

You need to show that you can manage finances and be able to confidently demonstrate that you will manage further debt well.

9. Do you have an exit strategy or a plan B?

Not all start-up businesses work out. If you can demonstrate that you have alternative options, you will come across as more responsible and improve your chances of accessing funding, especially debt.

10. Finally, do you know what you require the funding for?

Provide (in as much detail as you can) a breakdown of what you need the money for. Supplying quotes for equipment or work to be done is always helpful and shows that you are only looking for what you need.

How poor management is harming UK small businesses

How poor management is harming UK small businesses

Warwick Business School puts underperformance down to a failure to apply best management practice

UK small and medium-sized companies are unable to grow as fast as they could because of their owners’ poor management skills, according to research from Warwick Business School. Published this week, its report – Leadership and Management Skills in SMEs: Measuring Associations with Management Practices and Performance – identified a failure to apply best management practice as the reason for underperformance among the UK’s smaller firms.

To understand the challenges facing small businesses, author Professor James Hayton surveyed 2,500 English firms with between five and 250 staff, conducting more than 2,900 interviews – 371 of which were with managers at firms led by “senior management teams”, rather than single individuals. Armed with that material, Hayton plotted links between entrepreneurial savvy, management and leadership skills and the implementation of management best practices, to see how these factors affected three performance measures:

  1. turnover;
  2. productivity, and
  3. employment growth.

Finance for your Business

Funding available for small businesses

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Finance for your Business ,Funding available for small businesses

With the government pledging to help SMEs through the stages of start-up and growth, there is a range of funding initiatives for SMEs to take advantage of.

Regional Growth Fund (RGF)

Businesses looking for funding of less than £1 million, can apply for support through Regional Growth Fund programmes. These are schemes run by national or local organisations that have been awarded RGF cash to offer grants and/or loans to eligible businesses. Since 2011, £1.7 billion has been allocated to RGF programmes, supporting more than 9,400 small and medium-sized businesses. To be eligible, your business must be based in England, have a growth plan, create or protect jobs, and be investing private capital. See a list of ‘live’ RGF programmes and funding opportunities.

Start-Up Loans

This government-funded initiative provides loans, mentoring and support for start-ups or very small, early-stage businesses with potentially viable propositions but who are unable to attract investment from high-street banks. To be eligible, businesses must be yet to launch or have been trading for less than 12 months. The scheme provides free business planning to ensure applicants are in the best possible position to receive funding. Every loan application is considered according to the needs of your business, with an average loan size of around £6,000. The final loan size will be determined by your business plan. Find out more about Start-Up Loans.

Government grants

Small businesses can benefit from grants from the UK government, the Scottish Parliament, the Welsh Assembly and the Northern Ireland Assembly. Each grant provider has its own application process and criteria for applying. For a full list of providers use the government’s business finance support finder.

This tool allows you to search for funding opportunities based on the location, size and type of business you run.

UK Export Finance (UKEF)

UK Export Finance helps UK exporters by ‘underwriting’ bank loans offered to overseas buyers of UK products and services. This means it takes on the risk of the loan from the bank, so that the bank is more likely to offer it. It can also help UK exporters to raise tender and contract bonds and access working capital finance. To be eligible for export insurance, your business must be based in the UK and the buyer must be overseas. Find out more about UK Export Finance (UKEF).

Business Finance Partnerships

With a government investment of £1.2 billion, the Business Finance Partnership is designed to diversify the sources of funding available to small and medium-sized businesses via non-bank lenders. Loan terms will vary, but businesses can directly apply for finance with a number of non-traditional fund managers and lenders. Find out more about Business Finance Partnerships.

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