NIC and Levy high jinks

No surprises when the Prime Minister announced a hefty 1.25% increase in NIC Class 1 and Class 4 rates from April 2022. The announcement was widely predicted.

Effectively, this is a tax increase on earnings (employed or self-employed) and on costs for employers. It is odd that a 1.25% increase in Income Tax would have created a virtual storm of protest, not only from Conservative politicians and voters aggrieved by the back-peddling on election promises, but by tax payers generally. Whereas, an equivalent increase in National Insurance sails through parliament with hardly a ripple from back-benchers on the blue side of the room.

The Treasury seem wedded to this belief, that a rise in NIC is to be preferred to a rise in Income Tax.

So how will this increase affect business owners?

Employees will bear the brunt of this increase. Smaller employers may escape liability for employers’ contributions by claiming exemption proffered by the Employment Allowance (EA). The EA exempts employers from their Class 1 contributions if they do not exceed £4,000 in the current tax year.

Unfortunately, employers will have to pay the increase in Class 1A NIC which is payable as a fixed percentage of taxable benefits in kind it has provided to employees and staff. The current rate of 13.8% will increase to 15.05% from April 2022, although this charge is an allowable deduction for corporation tax purposes.

There is no equivalent of the EA for the self-employed. Profits chargeable to the Class 4 NIC charges will be subject to a 1.25% increase in the main rate (from 9% to 10.25%) and the higher rate (from 2% to 3.25%) from April 2022.

Surprisingly, from April 2023 this 1.25% increase is withdrawn from NIC rates, and instead morphs into the new Health and Social Care Levy. Does this mean that the Treasury now have two soft candidates for future tax increases on income?

Employed persons who have passed their State Pension age do not presently pay Class 1 NIC on their earnings. This will continue to be the case but, when the 1.25% increase becomes the Health and Social Care Levy from April 2023, this Levy will be deducted from their earning, presumably based on similar criteria to Class 1 NIC.

What about dividends?

Director/shareholders in private companies tend to take the bulk of their earnings as dividends in order to trim NIC costs (dividends are not subject to NIC). However, dividends are subject to a hybrid form of Income Tax and these hybrid rates will also increase by 1.25% from April 2022.

Is tax going to become less complicated as a result of these changes, clearly not. At a single stroke the government has created extra work for HMRC (to develop systems to calculate and collect the new Levy); created similar activity for payroll software developers and managed to introduced a new tax – something that we have not seen for some time – and that will be earmarked for the NHS and Social Care budgets, a so-called hypothecated tax.

Government backs UK entrepreneurs with six hundred million of Start Up loans

The UK Government’s Start Up Loans scheme has now provided £600 million in loans to small businesses outside London, providing extensive support for entrepreneurs across the UK.

The initiative, run by the British Business Bank, was created in 2012 to provide a wide range of smaller businesses with more opportunities to create jobs, expand and develop.

Businesses and entrepreneurs in the North West of England received the most loans outside of London, totalling over £94 million, with those in the South East receiving over £81 million.

Aspiring business owners receive up to £25,000 through the Start Up Loans Scheme, providing support and mentoring services.

Small Business Minister, Paul Scully, said:

“There is so much creativity and dynamism across the UK, but without access to funding and support it’s difficult to fully unlock the entrepreneurial spirit that makes this country great.

“The Start Up Loans programme has helped a diverse range of entrepreneurs across the UK to get their business off the ground, levelling up the entire country and enabling talented business leaders from all backgrounds to flourish.”

 

Recipient of the £600 millionth pound

The recipient of the Start Up Loans programme’s £600 millionth pound was Will Smith, from Northern Ireland. Taking out a loan of £6,000 in January 2020 to launch a bespoke wooden furniture company – Woodwork by Will – the business owner was able to invest in essential machinery and a table saw.

With his own machinery (he was using a friend’s prior to receiving the loan), a job that would have taken three days can now be completed in less than one, enabling him to produce more high-quality artisan products.

Will Smith, Founder of Woodwork by Will, said:

“The support I have received from the British Business Bank has accelerated my business 12 months beyond where it would have been.

I found the whole process with the Bank very straightforward and would have no hesitation in recommending Start Up Loans to other entrepreneurs.”

What is round the corner?

Having glimpsed the light at the end of the COVID tunnel, many of us will have everything crossed that progress towards normality will continue. The winter months are not a brilliant time for infection and we should expect the usual rash of flu, and now COVID, cases to increase.

In the past two years words such as unprecedented and exceptional have become widely used. But do we need to redefine the new normal to include these uncertainties?

What is round the corner?

Government, apparently, is bending to medical opinion that the October, half-term break should be extended and compulsory mask wearing extended if, as is likely, infections rise and threaten the ability of the NHS to cope.

Regional variations will continue to plague a consistent approach even though the borders can be crossed with impunity.

Business owners – having spent the summer reasonably free of restrictions – will dread the thought that compulsory homeworking will return or that their last-ditch attempts to recover from lockdown closure are about to be reversed.

We live in uncertain times and to survive we need to react and reshape our business plans based on current challenges. Strategies need to be developed and implemented that acknowledge the disruption of the past two years and plan, albeit reluctantly, for their unwelcome return.

We recommend that business owners keep an eye on the following in order to minimise any exposure to these disruptive influences:

  • Staffing – now is not a good time to operate with surplus capacity.
  • Cash flow – you should have forecasts for at least six months to a year ahead so you can see when dips in funding require action.
  • Investment – are there investments in IT, software, equipment or other assets that will improve your ability to trade in a stressed market?
  • Financials – are you profitable? Can you sustain loss-making periods? If so for how long? Are you solvent? How long can you sustain loss-making activity before you become insolvent?

We can help you create and maintain vigilance in these areas. Call if you need more information.

Aside from COVID issues, supply lines continue to be stretched due to transport delays – not enough drivers – and locally grown crops may become food for the birds if “pickers” cannot be found at harvest time. The transfer of goods back and forth from the EU continues to be an issue as border controls struggle to deal with the Brexit enforced end of free movement.

There is much in the “uncertainty” pot to consider. To quote yet another cliché, we are not out of the woods, just yet.

Hundreds of business names dismissed by Companies House during pandemic

Over the last two years, Companies House has disallowed more than 800 business names for being ‘too offensive’.

Building That Fought Hitler Limited, Cambridge Cannabis Club Limited, Fancy a Bomb Ltd and Fit as Fork Ltd are among the company names that have been rejected by the executive agency and trading fund for the government.

Other names to be turned down include Go Fudge Yaself Ltd, Just Weed Ltd, Meow Meow Cooking Studio Ltd, Pandemic19 Ltd and The Great Big Corrupt Company.

However, some of these rejected names can later be approved if an adequate explanation is given.

Some words that are deemed as ‘sensitive’ have to be authorised by the Secretary of State in the Department for Business, Energy and Industrial Strategy before an incorporation can use it in its name.

The approval list is made up of 134 words, such as benevolent, British, commission, inspectorate, licensing, parliamentary, Senedd, standards and Windsor.

Words that indicate a potential link with a government department, a devolved administration or a local authority also have to be checked.

Using certain words and phrases in a business name could be classed as a criminal offence.

Architect, building society, credit union, physician, social worker, solicitor, and surgeon are examples of words and expressions that are legally protected.

A representative for Companies House said: “It is important that the register is not abused by recording offensive names.

“We have a statutory responsibility to ensure that the names we register do not have the potential to offend. All applications are carefully considered but we will not register a name which is considered to be offensive.”

Companies House is responsible for manging the UK’s register of businesses, their executives and other stakeholders who help run the company.

  1. they analyse and record business information to then make it accessible for the public.

More than 500,000 limited businesses are newly registered each year, equalling around four million in total.

Between April and June 2021, 190,639 new companies and 115,554 dissolutions were recorded in the UK.

This data highlights that the number of new incorporations has continued to increase during the COVID-19 pandemic, when many businesses had to temporarily close.

Registrations for English and Welsh businesses take place in Cardiff, whereas Scottish and Northern Irish companies are listed in Edinburgh and Belfast.

Tax-free childcare costs

Families are reminded that they may be able to claim for tax-free childcare costs to help pay for breakfast and after school clubs as children go back to school.

In a recent press release HMRC confirmed that Eligible families can save money on their childcare and benefit from a government top-up worth up to £2,000 every year, or up to £4,000 a year if a child is disabled. In June 2021, about 308,000 families across the UK benefited from using Tax-Free Childcare, but thousands are missing out on this opportunity.

Tax-Free Childcare is available to parents or carers who have children aged up to 11, or 17 if their child is disabled. For every £8 a parent or carer deposits into their account, they will receive a £2 top-up, up to the value of £500 every three months, or £1,000 if their child is disabled.

HMRC recognises that families’ personal circumstances have changed since March 2020 as more parents and carers are preparing to return to their workplaces. The 20% top-up is paid into the Tax-Free Childcare account and is ready to use almost instantly, meaning parents and carers can use the money towards the cost of childminders, breakfast and after school clubs, and approved play schemes.

Tax-Free Childcare is also available for pre-school aged children attending nurseries, childminders or other accredited childcare providers. Parents and carers, who are returning to work after parental leave, can apply for a Tax-Free Childcare account for that child before they need to start using it. Families can start depositing money 31 days before they return to work, maximising the potential government top-up saving.

Childcare providers can also sign up for a childcare provider account via GOV.UK to receive payments from parents and carers via the scheme.

Each eligible child requires their own Tax-Free Childcare account. If families have more than one eligible child, they will need to register an account for each child. The 20% government top-up is then applied to deposits made for each child, not household.

Account holders must confirm their details are up to date every 3 months to continue receiving the government top-up.

SMEs can enhance business performance by joining Peer Network scheme

A government-funded Peer Networks scheme is offering support to small and medium-sized enterprises (SMEs) across the UK.

The programme, which is free to join, helps organisations tackle common business challenges through interactive action learning.

Additionally, the scheme’s trained mentors help small and medium-sized businesses handle new opportunities and build a strong support network.

Business leaders can learn from like-minded individuals on the scheme and put practical solutions into place together to overcome common issues.

Virtual workshops on the Peer Network scheme normally take place in small group sessions, but one to one mentoring and coaching is also available.

Trained facilitators are always on hand to help organisations develop and grow.

Head of Operations at Mastercall Healthcare said: “The one-to-one tutor session really helped me work on some long-standing obstacles.

“I’m so glad to have taken part and feel more confident in my own skills and attributes.”

SME leaders on the scheme can share their business concerns with fellow company owners who experience the same challenges.

Jason Thorpe, Managing Director at The Voiceover Gallery said: “By sharing experiences and issues, it enables you to step back from business, and look at things from a different perspective whilst benefitting from the experience of others that may have faced similar challenges.”

Founder and CEO at Datacentreplus, Mashukul Hoque said: “Engaging with other businesses through Peer Networks has been an invaluable experience for me.

“There is a lot to learn from other businesses, particularly in these challenging times.”

He added: “It is an opportunity to share ideas, tips and good practice that others can benefit from as well.”

Any SMEs that have been in business for at least 12 months, employ five or more staff members and make £100,000 or more in revenue can join the scheme.

The programme, which has been created by the Department for Business, Energy and Industrial Strategy, is held at local growth hubs across the UK.

 

 

Supply chain issues gaining traction

News broke in recent days that McDonalds were running out of supplies. As a direct result of these supply chain issues their iconic milk shakes are being dropped from menus together with other bottled drinks. These particular shortages will apply to outlets in England, Scotland and Wales. Supplies in Northern Ireland are holding up, so far…

Is this further evidence that the delivery driver shortage is affecting retailers’ ability to supply goods to consumers?

According to the Road Hauliers Association, 30,000 HGV driving tests were unable to proceed last year and that the driver shortage was exacerbated by changes to the rules following Brexit.

Price inflation

One consequence of supply shortages – aside from goods being unavailable – is that if demand remains high, but in limited supply, prices tend to rise. Witness the incredible price rises in basic building materials in recent months.

If these trends continue and prices for commodities start to rise inflation will rear its head.

The Bank of England are forecasting inflation at almost 4% at the start of next year. It will not require much in advance of this figure before the bank will need to increase interest rates in an attempt to take the heat out of future price increases.

It is difficult to see how these fiscal measures will impact McDonalds and many other retailers if their problem is delivery difficulties, not money supply.

 

What to do?

If your business is being affected by delivery problems you will be sympathetic to McDonalds’ plight.

Aside from the physical need to get goods delivered, affected businesses could consider increasing stocking levels in affected goods, if this is feasible. And then triggering reorder levels at an earlier point in the production process.

This would have the added advantage of buying at lower prices for longer production runs and keeping manufacturing costs down.

The difficulty is that firms are stripped of working capital in the past eighteen months and may be unable to find additional funding or storage space.

We may have to content ourselves with a brew to accompany our next take out. Unfortunately, the driver shortage may take longer to resolve as drivers point to bad working conditions and low pay as further issues facing their industry.

HMRC discloses employer explanations for not paying legal minimum wage

‘She only makes the tea’ and ‘my employees are on standby’ are just some of the strange excuses used by businesses who have paid their workers under the National Minimum Wage, the UK tax office has revealed.

Every employed worker in Great Britain is legally entitled to the National Minimum Wage, but many employers tried cheating the pay system during the last financial year, according to a new Government report.

HM Revenue and Customs (HMRC) has released the most shameful excuses that employers have used for failing to pay their employees correctly, including ‘my workers like to think as themselves as being self-employed’ and ‘young workers have to prove their worth in the first three months’.

One company claimed their employee is ‘still learning so they are not entitled to minimum wage’, while another thought ‘the National Minimum Wage does not apply to their business’.

Other outrageous excuses for not paying employees the legal minimum wage include: ‘She only sweeps the floors’, ‘they weren’t a good worker’ and ‘I thought it was okay to pay young workers less if they are not British’.

During the last tax year, HMRC assisted around 155,000 ‘short-changed’ employees in the UK to retrieve more than £16 million which was owed to them. In addition, they also distributed more than £14 million in fines.

The Director of Individuals and Small Business Compliance, HMRC, Steve Timewell said: “The majority of UK employers pay their workers at least the National Minimum Wage, but this list shows some of the excuses provided to our enforcement officers by less scrupulous businesses.

“Being underpaid is no joke for workers, so we always apply the law and take action. Workers cannot be asked or told to sign away their rights.”

He added: “We are making sure that workers are being paid what they are entitled to and, as the economy reopens, reminding employers of the rules and the help that is available to them.

The national minimum wage differs for each individual as it is dependent on an employer’s age and experience, with under 23s receiving a lower rate than those older than 23.

The current hourly rates are:

  • £8.91 – Age 23 or over
  • £8.36 – Age 21 to 22
  • £6.56 – Age 18 to 20
  • £4.62 – Age under 18
  • £4.30 – Apprentice

As part of the government’s plan to bounce back from the pandemic, HMRC is encouraging employees to regularly monitor their pay, cash deductions and any unpaid working time.

To find out more about the National Minimum Wage, click here.

Electric vehicles for company car drivers

As most drivers of a company car will be aware, if you have any private use of the vehicle this will result in a significant Income Tax charge. The benefit charge is the way that HMRC levy tax on this benefit in kind; and the higher the CO2 footprint of your company car, the higher the Income Tax charge.

Which is why many company car drivers are now looking at electric vehicles – either plug-ins or self-charging hybrids – as a tax efficient alternative.

For example, if you presently drive a gas-guzzling petrol driven car with a CO2 rating of 145g/km you could drastically reduce your benefit in kind tax charge by switching to a hybrid or fully electric car with a CO2 rating as low as 0g/km. There would still be a tax charge, even at 0g/km, but it would be based on a minimum 1% of the list price of the car when new, rather than 33% if rated at 145g/km.

Company car drivers whose private fuel is paid for by their employer will pay an additional Income Tax charge based on the Car Fuel Benefit charge. This charge is calculated by applying the above percentage rate (33% in our example above) to a fixed figure, £24,600 for 2021-22. Accordingly, the Car Fuel Benefit charge added to the driver’s taxable income would be £8,118.

Interestingly, since 6 April 2018, there is no taxable car fuel benefit where electricity is provided for an electric car. Legislation was included in the Finance Act 2019 with retrospective effect where the recharge facilities are made available to all employees at the workplace.

If an employee recharges a company vehicle at home and is then reimbursed for the cost of the electricity used, this may be challenged as earnings. However, the employee could then make a claim for the electric cost using the advisory rates. Currently this is 4p per mile for fully electric cars.

A final point, employers would also benefit from a shift to an all-electric company car fleet. They are obliged to pay a 13.8% National Insurance charge on the total value of benefits provided (car and car fuel benefits); in which case converting to electric would be an additional bonus.

Can you claim the marriage allowance?

In a recent news story published on the GOV.UK website, HMRC confirmed that nearly 1.8 million married couples and those in civil partnerships are claiming the Marriage Allowance to save up to £252 a year in Income Tax.

The allowance enables married couples or those in civil partnerships to share their personal tax allowances if one partner earns an income under their Personal Allowance threshold of £12,570 and the other is a basic rate taxpayer.

They can transfer 10% of their tax-free allowance to their partner, which is £1,260 in the 2021-22 tax year. It means couples can reduce the tax they pay by up to £252 a year. Couples can also backdate their claims for any of the four previous tax years, which could be worth up to £1,220.

If you are eligible, and still not making a claim, you can complete an application online at https://www.gov.uk/apply-marriage-allowance.