Simpler tax for small businesses April 2

Simpler tax for small businesses

April 2013 sees the introduction of a new cash basis for calculating taxable income for small unincorporated businesses.
The stated aim of the measures is to make it easier and simpler for small businesses to deal with their tax affairs.
By simplifying the calculation of taxable income for small unincorporated businesses, the objective is to give small businesses greater certainty over the preparation of taxable income figures for their self assessment tax return and to clarify and simplify self assessment of business income.
The measures will allow taxpayers to choose the method of computing taxable income that best suits their business. They will not be appropriate for every small business.
General description of the measures
The first measure will allow eligible unincorporated businesses to calculate taxable income figures on a simpler cash basis if this suits the business. Such businesses will not have to compute figures of debtors, creditors and stock, or distinguish between ‘capital’ and ‘revenue’ expenditure and they will not have to compute capital allowances to arrive at a taxable income figure.
The second measure will allow all unincorporated businesses to choose to use flat rate expenses for particular items of business expenditure.
Proposed revisions
Legislation will be introduced to allow eligible small businesses to calculate their taxable income by taking business cash received in a year and deducting allowable business cash expenses paid in a year. This will mean they will generally not have to distinguish between revenue and capital expenditure.
For flat rate expenses, legislation will be introduced with effect for the tax year 2013-14, to allow all unincorporated businesses to deduct certain expenses on a simplified flat rate basis.
The key aspects of the cash basis are that:
• it is an optional scheme which small unincorporated businesses can choose to use
• businesses can enter the cash basis if their receipts for the year are less than the amount of the VAT registration threshold (currently £79,000) or twice that (currently £158,000) for recipients of Universal Credit. Businesses must leave the cash basis after their receipts exceed twice the amount of the VAT registration threshold (currently £158,000)
• businesses can leave the cash basis if their commercial circumstances change such that it is no longer appropriate for them
• it will work on a cash flow basis. For income, it is what the business receives, when it is received; for outgoings, it is what the business pays, when it pays it. Income includes all means of payment, be it cash, card, cheque or any other form of payment
• a business’ income includes all amounts received in connection with the business including those from the disposal of non-durable assets, for example plant and machinery
• allowable expenses must be amounts paid wholly and exclusively for the purposes of the trade, including for non-durable assets. It will no longer be necessary to calculate and claim capital allowances. Interest payments are also allowed up to a limit of £500
• business losses may be carried forward to set against the profits of future years but not carried back or offset ‘sideways’ against other sources of income
• rules on entering or leaving the cash basis are intended to ensure that income is taxed once only and expenses are relieved once and once only.
Simplified expenses
Simplified expenses are based on ‘easier to follow’ rules that can be used when calculating some business expenses. These simplified expenses are all optional. They are:
• fixed allowances for business mileage (rather than deductions for actual expenditure on purchasing, maintaining and running a motor vehicle or motor cycle, apportioned between business and private use). The car rate may also be used for goods vehicles, such as vans in some cases
• a flat rate to calculate expenses relating to business use of the home (rather than…

CBI publishes tax principles for busines

CBI publishes tax principles for businesses

A statement of principles that sets out steps UK businesses should take in order to improve the transparency and understanding of their tax affairs has been published by the Confederation of British Industry (CBI).

In the area of tax planning, the CBI recommends that British businesses operating in the UK should:
only engage in reasonable tax planning that is aligned with commercial and economic activity and does not lead to an abusive result
respond to tax incentives and exemptions, where appropriate
interpret the relevant tax laws in a reasonable way consistent with a relationship of “co-operative compliance” with HMRC
in international matters, follow the terms of the UK’s Double Taxation Treaties and relevant OECD guidelines in dealing with such issues as transfer pricing and establishing taxable presence, and should engage constructively in international dialogue on the review of global tax rules and the need for any changes.

Regarding transparency and reporting, the CBI recommends that businesses should:
be open and transparent with HMRC about their tax affairs and provide all relevant information that is necessary for HMRC to review possible tax risks
work collaboratively with HMRC to achieve early agreement on disputed issues and certainty on a real-time basis, wherever possible
seek to increase public understanding in the tax system in order to build public trust in that system.

The CBI’s director-general, John Cridland, said: “UK businesses make a huge tax contribution to the UK economy, paying £161 billion this year – almost a third of total tax receipts. But companies need to do a better job of explaining their tax affairs to the public. We are encouraging all companies to explain why they pay what they do in a straight-forward and accessible narrative, ideally on their website.”

Unfair dismissal compensatory award incr

Unfair dismissal compensatory award increases

The maximum compensatory award for unfair dismissal has increased from £72,300 to £74,200 where the effective date of termination occurs on or after 1 February 2013.

Other changes include:

• an increase in the maximum amount of a ‘week’s pay’ for the purposes of calculating a basic or additional award of compensation for unfair dismissal or a redundancy payment from £430 to £450; and
• an increase in the maximum amount of a guarantee payment payable to an employee in respect of any workless day from £23.50 to £24.20.

These new limits apply to any event that gives rise to the award of payment that occurs on or after 1 February 2013.

Returning to work after stress-related a

Returning to work after stress-related absence

If staff take time off because of work-related stress, getting them back to work as quickly as possible is important. A well-managed early return to work will reduce the risk of the absence lasting longer than one month, after which it is considered long term. In general, people find it more difficult to return to work after a long-term absence.

It is important to:

• Keep in regular contact with the employee to help keep work on their agenda. This also offers good opportunities to plan the return to work
• Review the situation. The employee needs to regularly review their situation with their GP
• Hold a return to work discussion to identify what led to the absence and any adjustments their manager could make to improve the situation.

Keep in mind that the person may find it difficult to talk about these issues. There may also be factors outside work that contributed to the person’s work-related stress. Talking to the employee about these will help identify whether adjustments at work will help. But don’t assume that stress is only caused by factors outside of work.

The new pension auto-enrolment scheme Th

The new pension auto-enrolment scheme

The Pensions Act 2008 includes proposed improvements to the State Pension and extending people’s working lives. However, the key reforms for employers involve making it easier for more people to save for retirement by means of automatic enrolment into a pension scheme.

Under the new pension auto-enrolment scheme, all employers will have to automatically enrol eligible jobholders into a qualifying pension scheme. This could, for example, be an existing pension scheme (if it meets, or can be changed to meet, the necessary automatic enrolment criteria), or the new National Employment Savings Trust (NEST).

Eligible workers

The first step for an employer is to determine whether they employ anyone classed as a ‘worker’. A worker may be:

• An employee, or

• A person who has a contract to provide work or services personally and is not undertaking the work as part of their own business.

There are three categories of workers: eligible jobholders; non-eligible jobholders; and entitled workers.

Workers for whom automatic enrolment will be required are those who are:

• Aged between 22 years and the State Pension Age (SPA)

• Earning over the minimum qualifying earnings threshold (£9,440 in 2013-14)

• Working or ordinarily working in the UK

• Not already a member of a qualifying pension scheme.

These are categorised as ‘eligible jobholders’. Most workers will fall into this category unless the employer already has a qualifying pension scheme.

As well as ‘eligible jobholders’, employers also have certain duties to other types of workers who do not meet the criteria for automatic enrolment. Depending on their classification, these workers may have the right to ‘opt in’ (i.e. join a scheme).

Qualifying earnings

Earnings cover all of the following pay elements (gross):

• Salary
• Wages
• Commission
• Bonuses
• Overtime
• Statutory sick pay
• Statutory maternity, paternity and adoption pay.

Contributions will be payable on earnings between the lower threshold of £5,668 and the higher threshold of £41,450 for 2013-14. The earnings between these amounts are called qualifying earnings. The thresholds will be reviewed by the Government each tax year.

What is a qualifying scheme?

A qualifying scheme may be a UK scheme (one with its main administration in the UK) or a non-UK scheme (with its main administration outside of the UK). For a UK pension scheme to qualify it must:

• Be an occupational or personal pension scheme;
• Be tax registered; and
• Satisfy certain minimum requirements (the requirements differ according to the type of pension scheme).

Further information on the minimum features required can be found on the Pensions Regulator’s website.

Employer contributions

All businesses will need to contribute at least 3% of the qualifying pensionable earnings for eligible jobholders. However, to help employers to adjust, compulsory contributions will be phased in, starting at 1% before eventually rising to 3%.

There will also be a total minimum contribution which will need to be paid by employees if the employer does not meet the total minimum contributions. If the employer only pays the employer’s minimum contribution, employees’ contributions will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate.

Timescales

Auto-enrolment is being phased in over a number of years, starting from 2012 (larger employers first, smaller employers last). Each employer will be allocated a ‘staging date’ from when their duties will begin.

The staging date is based on the number of people in the employer’s PAYE scheme. Employers with the largest numbers of workers in their PAYE schemes will have the earliest staging date. The date is based on their size (fixed by the number of HMRC employee records on file as at 1 April 2012) or the letters in their PAYE scheme reference. Employers can check…

Employee benefits The Government plans a

Employee benefits

The Government plans a package of measures to simplify tax-advantaged share schemes for employees. Some measures have already been enacted. In particular, the provisions for the Enterprise Management Incentive (EMI) scheme have been relaxed.

Luncheon vouchers lose their 15p a day tax relief from 6 April 2013 (postponed by one year). This rate has been unchanged since 1948.

The Office of Tax Simplification is considering a review of employee benefits, including abolishing some small reliefs and trying to bring PAYE and national insurance rules closer together.

Company cars and fuel From 6 April 2013,

Company cars and fuel

From 6 April 2013, there are increases in the percentages used to calculate the tax charge for company cars.

There is an increase in the car fuel multiplier from £20,200 to £21,100.

These increases can mean that many employees will be better off not having a company car but being paid more in salary. We can advise on this.

The taxation of company cars and fuel benefit uses a percentage based on the car’s carbon dioxide emissions.

From 6 April 2013, the company van fuel benefit charge will also increase from £550 to £564.