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Simple ways that you can improve morale at your business

We all know how important our employees have been to our businesses since March 2020. Of course, we would never get anywhere without them, but we have had to rely on our staff in so many new and unexpected ways during the course of the pandemic. It has been an incredibly turbulent period of time with tremendous uncertainty, and we have needed to count on them for their resilience, flexibility, and trust as we have navigated a course through this storm.

It has also been a period in which we have had to support them in ways we may not have previously expected. As we head into the autumn, we still need to make sure that we are there for them, and we could all use a little morale boost as we head into the shorter, darker days with the prospect of tax hikes to come. Here are a few tips to help you boost morale.

Give Them Opportunities To Grow

One of the most difficult things to deal with during the pandemic was this sense of being stuck. Lockdown didn’t help, of course, as all the usual things we’d do to get away were closed off from us, but it was also hard to demonstrate growth in our businesses when we were working so hard to simply stay afloat. As we head into the autumn and we look for ways to bounce back, it’s important to remind your staff that they have a future in your business. Give them the opportunity to learn about emerging technology and promote from within where you can. Give them more responsibility and you will be rewarded.

Make Them A Part Of Your Plan To Give Back

Given that we are all looking for ways that we can give back to organisations and charities that need us right now, you might be thinking about how you can start making charitable donations through your business.

One of the simplest ways that you can do this is by making your employees part of the journey and setting up donations through payroll. This way, they can pick the charity of their choice and know that, by making charitable donations through an employer, they are contributing in the most tax-efficient way for the charity. Find out more about the benefits of payroll donations and how you can get it set up at your business by talking to PayCaptain.

Keep Showing Them You Have Got Their Back

Throughout the pandemic, we all had to learn to be flexible when it came to supporting our employees. Working from home made that easier in a lot of ways, as people could set up their own flexible hours to make sure they could look after other commitments such as home-schooling or caring for elderly relatives. It also made some things harder, such as looking after the mental health of our employees.

We’ve all read so much about the impact of the pandemic on mental health, and as we head into autumn and winter, we need to make sure that our team knows that we still have their back. Continue to offer support where you can and remember that they will reward you for it.

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How will NIC increases to pay for health and social care affect you?

Article by GoSimpleTax

Boris Johnson wins Commons vote: Social care tax rise.

MPs yesterday voted 319 to 248 for a 1.25 percentage point rise in National Insurance for workers and employers to help fund health and social care.

From 6 April 2022, National Insurance contributions (NICs) for employees and employers will rise by 1.25 percentage points, as part of a new annual £12bn healthcare levy announced by Prime Minister, Boris Johnson, which he described as “reasonable and fair”. 

Small-business organisations disagree and they haven’t welcomed the manifesto promise-breaking tax increase. However, the government says the increase in NICs and other measures are needed to tackle the “health backlog caused by the Covid pandemic”. Moreover, some of the money (reportedly £5.4bn over the next three years) will be used to improve the UK social care system, according to the government.

From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed on payslips.

So what will it mean for sole traders?

Critics have been quick to point out that the increase in NICs will disproportionately affect lower earners and sole traders.

Sole traders pay two types of National Insurance: Class 2 (£3.05 a week) if their profits are £6,515 or more a year; and Class 4 if their profits are £9,569 or more a year.

Sole traders pay 9% Class 4 NICs on profits between £9,568 and £50,270 and then 2% on anything they earn above that. The changes when introduced will mean they will now pay 10.25% and 3.25% respectively on their profits. 

What about employees?

According to government website GOV.uk:

• If you earn £20,000 a year, you currently pay £1,251 a year in NICs, which will increase by £130 a year from April 2022. 
• If you earn £30,000 a year, you currently pay £2,451 a year in NICs, which will increase by £255 a year from April 2022.
• If you earn £50,000 a year, you currently pay £4,851 a year in NICs, which will increase by £505 a year from April 2022.
• If you earn £80,000 a year, you currently pay £5,479 a year in NICs, which will increase by £880 a year from April 2022.
• If you earn £100,000 a year, you currently pay £5,878 a year in NICs, which will increase by £1,130 a year from April 2022. 

What if you’re a landlord?

Landlords must pay Class 2 NICs if their profits are £6,515 a year or more and what they do counts as running a business (ie being a landlord is their main job, they rent out more than one property and buy new properties to rent out, etc). If profits are under £6,515, a landlord can make voluntary Class 2 NIC payments to get benefits, such as a state pension.

But, as explained on GOV.uk: “You do not pay NICs if you’re not running a [property rental] business  – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.” 

Other tax changes announced  

As well as having to pay higher NICs, directors of small limited companies who receive part of their income from dividend payments will pay more tax. 

From April 2022, tax on dividend income will increase by 1.25%. So, after the £2,000 allowance, those in the basic rate for Income Tax will pay 8.75% on dividend payments (currently it’s 7.5%), while those in the higher rate Income Tax band will pay 33.75% (currently 32.5%) and those in the additional rate will pay 39.35% (currently 38.1%). 

The 1.25% tax increase on share dividends as well as NICs at 1.25% NIC increase will seem particularly unfair to many small-company directors who received little or no government financial assistance to survive during the pandemic. And in some cases, there may no longer be a tax advantage, which could see some deregister as companies and operate instead as sole-trader businesses.     

Reaction from business organisations

“An anti-jobs, anti-small business, anti-start-up manifesto breach” – was how the Federation of Small Businesses (FSB) described the tax increases.  

FSB national chair Mike Cherry said: “These hikes will have business owners and sole traders feeling demoralised at the point when they’re trying to recover from the most difficult 18 months of their professional lives. For those thinking about starting up, they send completely the wrong message.

“Business owners who have done all they can to retain and support their staff during the pandemic are now being punished for that loyalty with an £11bn increase in NICs, which essentially serve as a jobs tax. 

“This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead. At the same time, those running companies, many of whom were left out of pandemic support measures, face a fresh assault on dividend revenue.”

The British Chambers of Commerce (BCC) opposes the changes and believes that tax increases risk hampering the UK’s economic recovery. “Businesses strongly oppose a rise in National insurance contributions, because it will be a drag anchor on jobs growth at an absolutely crucial time,” said Suren Thiru, BCC head of economics. “This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery.”

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. 

GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees. Available on desktop or mobile application.

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Making Tax Digital for landlords

Article by GoSimpleTax

How much do you know about Making Tax Digital (MTD)? Well, if you’re a UK landlord you should know some basic facts, because MTD could affect you in the near future.   

Making Tax Digital is an ambitious government initiative that will completely change how people and businesses keep their financial records and report data to HMRC. 

MTD is being introduced to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes. These are estimated to have cost the government more than £9.9bn in lost tax revenue in 2017-2018 alone. 

Making Tax Digital will totally transform how financial records are kept and reported to HMRC. MTD for Income Tax will bring in a new way of reporting your earnings as a landlord to HMRC. This guide provides a basic overview of MTD and its implications for landlords. 

Here’s what we’ll cover

• How MTD will change record keeping and reporting
• When MTD for Income Tax will be introduced
• How to voluntarily join MTD for Income Tax 

How will Making Tax Digital for Income tax change things?

When introduced, you (or your accountant if they look after your books and tax returns) will need to use MTD-compatible software to maintain digital records of your income and expenses. 

Your MTD-compliant software will summarise your figures, which you must send online via your HMRC digital account (you will get up to a month after every quarter end). You’ll also be able to see how much tax you owe, based on the information you’ve supplied, so you can budget for paying your tax bill. 

At the end of the tax year, you’ll need to finalise your business income and submit a final declaration, confirming that the updates you have provided are accurate, with any accounting adjustments made. Then, you’ll soon receive your tax bill. You must submit your final declaration and pay the tax you owe by 31 January the following tax year. 

When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from their next accounting period – starting on or after 6 April 2023.

You’ll still need to send HMRC a Self Assessment tax return for the tax year before you signed up for MTD for Income Tax. But after that, you can wave goodbye to completing an annual Self Assessment tax return and all the hassle and panic that can go with it. Having to record your expenses every quarter might also prevent you from forgetting and not claiming some.

If you’re already using software to maintain your financial records, HMRC recommends asking your provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists software that is compatible with Making Tax Digital for Income Tax. If you currently maintain paper records, you’ll need to find an MTD-compatible digital solution. 

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. You may be able to sign up voluntarily for MTD for Income Tax if:

• you’re a UK resident 
• you’re registered for Self Assessment as a landlord and 
• your returns and payments are up to date. 

You can sign up now for your current or next accounting period. It could be a good way to get used to the requirements of MTD and make sure you have the right software and systems in place. If an accountant maintains your financial records and/or looks after your tax returns, they can sign up for MTD for Income Tax for you. If you need to report income from other sources (eg wages from working for someone else), you cannot sign up voluntarily.  

Visit GOV.UK to sign up your business for Making Tax Digital for Income Tax. You’ll be asked for your:

• name
• email address
• National Insurance number
• accounting period
• accounting type (eg cash or standard accounting)
• Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up.

MTD: What if I have more than one property for rent or let?

You only need to report your earnings and expenses via MTD for all of your properties together, you don’t need a digital account for each property. However, your should maintain detailed records for each individual property, for your own benefit, so you can better understand and compare income and costs. 

Making Tax Digital: What if I co-own property?

If owned by a business partnership of which you’re a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner. 

Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.

In cases of jointly held property, for example, where a husband and wife own a property for rent or let, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital.

Where can I find more information about MTD for Income Tax?

• Head to government website GOV.UK for HMRC guidance on Making Tax Digital for Income Tax. 
• HMRC has also created videos about Making Tax Digital for Income Tax and you can view a recorded webinar on Making Tax Digital for Income Tax. 

About GoSimpleTax

Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

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Should you register as a sole trader or form a limited company?

Article by GoSimpleTax

COVID-19 helped to push UK business start-up figures to new heights in 2020. According to the Centre for Entrepreneurs, annual year-on-year UK business formations in 2020 rocketed by 13% to 772,002.

A key decision when starting a business is which legal structure do you choose when registering. The three most common options are sole trader, limited company and ordinary business partnership, although most people become a sole trader. Sole traders make up about 59% (3.5m) of the total UK business population of 5.9m, and they include many freelancers, contractors and agency workers. 

Ordinary business partnership members make up about 7% (405,000) and basically these are sole traders who go into business together. The UK also has about 2m (34%) active private limited companies. So, why do so many people in the UK who work for themselves operate as sole traders?

Here’s what we’ll cover

• What is a sole trader?
• How much tax do sole traders pay
• The key advantages of being a sole trader
• Sole trader v limited company: what’s more tax-efficient?

What is a sole trader?

Being a sole trader is the same as being self-employed. In law, you and your business are the same thing, which makes you personally responsible for your sole trader business debts. If you don’t build up large debts and your business is successful, this won’t be an issue, of course. 

To become a sole trader, you must register for Self Assessment (SA), the system (UK tax authority) HMRC uses to collect tax from sole traders. You’ll then pay Income Tax on your profits during the tax year (20%, 40% or 45% depending on your income/earnings). You work out your profits by deducting your expenses and any allowances from your income/earnings/sales.

Sole trader NICs

Most self-employed people pay their National Insurance contributions (NICs) via SA: 

• Class 2 if your profits are £6,515 or more a year (£3.05 a week) and 
• Class 4 if your profits are £9,569 or more a year (9% on profits between £9,569 and £50,270 and 2% on profits over £50,270 – all figures quoted are for the 2021/22 tax year).

Declaring sole trader earnings and VAT

Sole traders aren’t required to submit annual accounts to HMRC, but they must maintain accurate financial records (which can be checked) and submit details of their income and business costs in their annual SA100 tax return, which must be filed each year.

If your VAT-taxable earnings/turnover goes over £85,000 a year (the current VAT threshold) or you know they will, you must register for VAT. You’ll then have to charge VAT, collect it and pay it to HMRC. This also applies to limited companies. 

Need to know! The UK tax system is being fully digitised under Making Tax Digital, which means Self Assessment will be replaced come 2023.  

The advantages of being a sole trader

It’s very easy to register online for Self Assessment so you can start your sole trader business. There are no costs and the process is very quick (minutes not hours or days). The tax admin is much easier when compared to a limited company, which means it can be done quicker. This saves cost, whether you do it yourself or pay an accountant to do it for you. 

The paperwork and financial record-keeping requirements when you’re a sole trader are minimal; completing your SA tax return is more straightforward and any losses you make can be offset against other income. 

Many customers won’t care whether you’re a sole trader or not, as long as your prices, products and/or services meet their expectations. In any case, you can easily change to a limited company structure later if you wish. And sole traders can employ others and their businesses can grow and prosper. 

Being a sole trader can give you much more flexibility and control over your business, because you’re not answerable to shareholders – and you won’t have to share your profits with them either. You will enjoy more privacy, too, because the annual accounts of limited companies must be published on the Companies House website, which means anyone can view them. Sole traders do not have to publish their annual accounts.  

Sole trader v limited company: which is more tax-efficient?

Example 1

Sole trader profit = £50,000 Net income = £38,717                                                                 

Ltd co profit = £50,000 Net income = £40,109

Difference = £1,392

Example 2

Sole trader profit = £100,000 Net income = £67,752

Ltd co profit = £100,000 Net income = £69,469

Difference = £1,717

Example 3

Sole trader profit = £150,000 Net income = £91,723

Ltd co profit = £150,000 Net income = £92,057

Difference = £334

These examples assume that all profits are extracted from the business, salary up to Secondary National Insurance threshold (£8,840) is taken and the remainder paid as dividends (2021/22 rates).

Conclusion

As the above examples show, operating as a limited company can reduce your tax bill. However, if you need to pay an accountant each month to look after your tax admin and complete your annual accounts and Corporation Tax returns, in reality, any financial advantage as the director of a limited company can be minimal or non-existent.

Each year, hundreds of thousands of people in the UK who decide to work for themselves register as a sole trader and many go on to establish and grow highly successful small businesses. In many ways, being a sole trader is the easier and cheaper choice and it need not hamper your business or your ambitions. 

About GoSimpleTax

Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.