Archive for December, 2014

Autumn Statement 2014

George Osborne gave his annual “Autumn Statement” to Parliament on 3 December 2014. What does it mean for the “man on the street”?

Overall it was a generally positive statement, with a lot of the provisions being in favour for small businesses and basic rate tax payers.

However, there was some potentially bad news for sub-contractors who use umbrella companies that are not complying with Revenue rules. Some unscrupulous umbrella companies use loopholes to avoid tax, and the government are looking to bring regulations into the 2015 Budget to counteract this problem.

The tax free personal allowance will be increasing by £500 to £10,500 from April 2015. This means you will not pay any tax on the first £10,500 of your earnings. Earnings above that incur 20% tax and you’ll start paying higher rate tax of 40% if your earnings hit £42,285

The statement promises improvements to the CIS system which it says will reduce the administrative burdens on construction businesses. Details are to be published “shortly” though no time-frame has been given.

New stamp duty rules came in on 4 December 2014 making the charges a lot fairer. Homes under £125,000 are exempt from stamp duty. For residential properties costing more than £125,000, stamp duty is only paid on the excess rather than the whole cost. (The rules will be different in Scotland.) The new rates of stamp duty are:-

Purchase price of property New rates paid on the part of the property price within each tax band
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,001 and over 12%

So if you buy a home for £300,000, you will pay £5,000 stamp duty calculated as follows:-
 The first £125,000 is taxed at 0%
 The next £125,000 is taxed at 2%, which works out at £2,500 tax
 The last £50,000 falls in the 5% bracket which works out at £2,500 tax

Should maths not be your favourite subject, the Revenue have an online Stamp Duty Land Tax calculator http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm The Treasury believe that 98% of people buying residential property will save money on stamp duty; those spending more than £950,000 or so will be paying more, so you might want to hold off buying that ten bedroom mansion in the country you’ve had your eye on.

If you employ an apprentice, the government are abolishing employer National Insurance for apprentices aged under 25 on wages up to the upper earnings limit (currently £805 per week) as a means to make apprentices more affordable and to encourage more businesses to hire them.

Savers will be happy to know the ISA allowance is rising to £15,240 from April 2015.

One of the more bizarre announcements results in family holidays abroad becoming ever so slightly cheaper: Children under the age of 12 will become exempt from tax on economy flights from 1 May 2015. The age limit increases to under 16s from 1 March 2016. The average saving is £13 for a child to fly to Europe and £71 on a flight to the US. Whether that’s enough of a saving to get everyone rushing to lastminute.com remains to be seen.

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National Insurance: some common questions for the self-employed

Why am I paying two lots of National Insurance?
When going self-employed, it might appear that National Insurance is being paid twice.

National Insurance is grouped into different classes, and self-employed people pay Class 2 and Class 4. (In case you’re wondering what happened to Classes 1 and 3, Class 1 is for employees and Class 3 is for voluntary contributions if there are gaps in your record: more on this later.) Class 2 is a flat £2.75 a week and Class 4 is 9% of your profits over £7,956 and up to £41,865; anything above that attracts 2% Class 4 National Insurance. These rates, like all other rates quoted in this blog, are based on the rates for the 2014/15 tax year.

Have I got to pay National Insurance if I’m self-employed?
If you’re earning above certain amounts – yes. If you earn more than £5,885 a year you have to pay Class 2, and if you earn more than £7,956 you have to pay Class 4.

You don’t pay National Insurance if you’re aged under 16 or over the state pension age – currently 65.

If you earn less than £5,885 per year, you can apply for a “small earnings exception” and not pay any Class 2. However, paying Class 2 is the cheapest way of keeping your National Insurance record up to date and ensuring you’re entitled to state pension and other benefits. You are entitled to full benefits if you’ve paid Class 2 for a certain number of years, called “qualifying years”, as follows:

• men born before 6 April 1945 need 44 qualifying years
• men born on or after 6 April 1945 need 30 qualifying years
• women born before 6 April 1950 need 39 qualifying years
• women born on or after 6 April 1950 need 30 qualifying years

Do I still have to pay National Insurance if I have a private pension?
Yes.

What if I haven’t paid enough National Insurance?
If you suspect you don’t have enough qualifying years, you can first check with the Revenue by calling or writing to them, or completing a form online on their website https://online.hmrc.gov.uk/shortforms/form/NIStatement?dept-name=&sub-dept-name=&location=40&origin=http://www.hmrc.gov.uk

The statement will tell you how many years you are missing (if any) and how much in voluntary contributions it will cost to fill in the gaps.

I’ve heard how you pay Class 2 is changing – is that right?
To make the system more simple (and sensible), the Government is changing the way Class 2 National Insurance is paid. At the moment, Class 2 is invoiced by the Revenue and paid to them in a separate system from the rest of your tax. You may currently be paying the Class 2 on a monthly or six monthly basis. Class 4 National Insurance is paid at the same time as income tax in January (and sometimes July) each year. From the tax year starting in April 2015, most people will be able to pay their Class 2 liabilities along with the rest of their tax and Class 4 National Insurance.

This may mean that it will no longer be possible to pay Class 2 if your earnings are below the small earnings exception limit, resulting in low-earners having to pay the more expensive voluntary rates to keep their National Insurance record up-to-date. Watch this space for more details as they become available.

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