RTI extension for micro employers

RTI extension for micro employers

Micro employers will be given until April 2016 to adapt to the real time information (RTI) system for reporting PAYE payments, HM Revenue & Customs (HMRC) has announced.
Micro employers – those with fewer than 10 employees – who need more time to adapt to RTI can continue reporting PAYE information on or before the last payday in the tax month until April 2016.
Under RTI, employers must send employee PAYE information to HMRC in real time, rather than at the year-end.

A separate extension allows companies with fewer than 50 employees to continue reporting PAYE information by the date of their regular payroll run but no later than the end of the tax month in which the payments are made until April 2014. The new extension for micro businesses is separate to this arrangement.

HMRC’s director-general for personal tax, Ruth Owen, said:
“This package strikes a good balance by ensuring RTI improves PAYE processes while minimising the impact on micro-businesses and their agents by giving them up to two years to adapt.”

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Minimum wage rises to £6.50 per hour

Minimum wage rises to £6.50 an hour

The national minimum wage (NMW) for adults will rise by 19p an hour to £6.50 on 1 October 2014, the Business Secretary Vince Cable has announced.

The Government has agreed to follow the three per cent rise proposed by the Low Pay Commission last month. This will be the first time in six years that the NMW has increased above the rate of inflation.

“The recommendations I have accepted mean that low-paid workers will enjoy the biggest cash increase in their take-home pay since 2008,” said Mr Cable.

Other NMW rates will increase by two per cent from 1 October 2014:

the rate for 18 to 20-year-olds will rise by 10p to £5.13 an hour
the rate for 16 and 17-year-olds will increase by 7p to £3.79 an hour
the rate for apprentices will increase by 5p to £2.73 an hour.

Katja Hall, chief policy director at the Confederation of British Industry, said the decision was a “sensible one and will not put jobs at risk.”

Dr Adam Marshall, executive director of policy and external affairs at the British Chambers of Commerce, said he was pleased that the Government has accepted the “evidence-based approach […] rather than succumb to politically attractive alternatives.”

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Directors loans, an update on the new legislation

For many small Limited Companies it is quite a common strategy (right or wrong) for Directors/ Shareholders to draw funds out of the company and make a dividend declaration at the end of the year. Where this often goes wrong is that the director will withdraw too much thus creating an overdrawn directors loan accounts.

Always remember that even if it is your company, it is still a separate legal entity. Any money going in and out from the Director needs to be accounted for correctly.

The rules surrounding loans to participators of close companies are becoming more stringent. HMRC defines a participator as a person who has a share or interest in a company. A participator is usually a shareholder but could also be a director. A participator includes any ‘associate’ – for example, spouse or civil partner, business partner, relative, trustee, or a loan creditor. A participator’s interest in a company can be in its capital – for example, shares.

HMRC defines a ‘close company’ for Corporation Tax purposes as a company that is controlled directly or indirectly by five or fewer participators – or any number of participators if they are all directors.

Where a close company makes a loan to one of its participators the company must pay 25% of the loaned amount at the balance sheet date as s455 (formerly s419) tax. This only applies if the loan is not repaid within nine months of the end of company’s accounting year.

Historically the 9 month rule has been abused. Effectively the director would repay the loan just before the nine month deadline and immediately take out a replacement loan from the company.

As a result HMRC will be applying new tax avoidance rules from 20 March 2013. The replacement of a repaid loan within a short period of time will not be allowed to count as a repayment of the first loan. If at the time of the repayment there are arrangements or intentions to make further loans, which are later actually made, the repayment condition will also not be met.

At present there is no definition of ‘short time’ however, this blog post will be updated once we hear about it.

It is also worth remember that when you pay off a director’s loan on which your company has paid Corporation Tax, the company can reclaim that amount of Corporation Tax paid.

The best way to manage the situation is with good record keeping, strong business management and effective tax planning.

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