Tax Changes Affecting Small Businesses

This month sees the implementation of a host of changes to the British tax system, as announced by Chancellor, George Osborne. Read on for our summary of the new rules and regulations that concern entrepreneurs and SME owners.

RTI Begins

Real Time Information (RTI) is a new PAYE reporting system introduced from April 6.

The new workflow is designed to ensure employers notify HM Revenue & Customs (HMRC) about gross pay, tax, National Insurance contributions when or before payments are made, rather than waiting until the end of the tax year.
 
Employers will be required to make submissions under RTI known as ‘Full Payment Submissions’ (FPS). These will be created by the employer’s payroll software and sent directly to HMRC automatically online.

In anticipation for RTI employers should ensure their employee information is accurate before migrating to RTI. 

The first FPS submitted must also include the hours that each employee regularly works each week – required for Tax Credit purposes.

Staff paid beneath the Lower Earnings Threshold (LET) will also need to be reported on, and as a result their details will need to be obtained in the same way as any other normal employee.

Personal Tax Allowance increase

The Personal Tax Allowance will increase for workers aged under 65 from £8,105 to £9,440 for the new tax year, starting on April 6. As a result, an increasing number of the lowest paid workers will no longer be required to pay tax at all.
 
Meanwhile those who earn between £9,441 and £41,450 in the forthcoming tax year will pay the basic tax rate of 20 per cent. Individuals who earn between £41,451 and £159,440 will be in the 40 per cent tax band for the 2013/14 tax year.
 
From April 6, a new tax band of 45 per cent will also be introduced, replacing the current 50 per cent rate for individuals who earn more than £159,440.

Tax Returns

HMRC will soon begin to despatch letters to taxpayers from April 6 for those needing to file a tax return for the 2012-13 tax year. 
 
As usual, the deadline for paper-based self-assessment tax returns will be October 31, with online submissions required by January 31 2014.

Universal Credit

A new in and out-of-work credit, integrating six of the main out-of-work benefits, is to be implemented from April 28 in one job centre in Ashton-under-Lyne, Greater Manchester.
 
The Universal Credit scheme is designed to increase incentives to work for the unemployed and encourage longer hours for those working part-time.
 
Job centres will test the new sanctions regime, as well as introduce a fortnightly job search trial, which aims to ensure all jobseeker’s allowance and unemployment claimants are automatically signed onto Job Match – an internet-based job-search mechanism.
 
A national programme is due to begin in October for new claimants, following a trial at four job centres throughout the summer.

50p tax rate cut for high earners

The 50p tax rate for high earners, introduced in April 2010, has been scrapped as of April 6. Britain’s highest earners will benefit to the tune of more than £100,000-a-year as a result of the switch from a 50p top tax rate to a 45p rate this month. 
 
Labour critics had originally balked at the fact it would save some 8,000 of the richest people in the country £40,000 a year. However, Labour leader, Ed Miliband now believes that those earning more than £1 million-a-year will stand to benefit by an average of £107,000 as a result of the changes.
 
The 50p rate was introduced by Labour for those earning more than £150,000-a-year, but the Coalition claimed it was bringing in hundreds of millions of pounds – rather than billions – for the Treasury.
 
Chancellor, George Osborne, defied his many critics for cutting the 50p rate, arguing it displays Britain’s commitment to business and an enterprise economy. Even at 45p, the top rate will remain above the 40p top tax rate that existed throughout the majority of Labour’s previous reign.

Date published 4 Apr 2013

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.