What’s New on Public Sector IR35 2017-18?

A lot of doctors are working with the NHS as a locum doctor and IR35 has become a big issue to most doctors. It is nearly the anniversary of the public sector IR35 rule that kicked-in from April 17. Here we have provided the updated guidelines on the tax implications if you are inside IR35 and being paid to your Ltd company, the expenses claims and considerations of closing down a company.

Tax Treatment When You Are Inside IR35 and Being Paid to Ltd Company

A lot of locum doctors were deemed inside IR35, they still have active limited companies and being paid to the company bank account, but after tax/NI deducted as an employee. This caused a lot of confusion when it comes to corporation tax and income tax. And most importantly how one can avoid being taxed twice for the same income.

As the income inside IR35 were still technically ‘employment income’, you would declare this income under Self-Assessment, but you may not have additional tax liability on this income as taxes were already deducted.

When it comes to Ltd company corporation tax, the same gross income should be treated as the ‘revenue’ for the company. But equally, the same gross amount will be taken out as ‘director’s salary’ so that the income will not be taxed under corporation tax.

For example, Dr Rebecca being paid £6,000 gross per month, the tax/NI deducted was appx £1,500. That gives net amount of £4,500. Dr Rebecca would need to count the £6,000 as revenue, but £6,000 as ‘director’s salary’ which is ‘deductible expense’, so there’s no corporation tax charged on that income. And that income would declare the IR35 under her Self-Assessment.

Expenses Claims

If you still run an active company, any expenses that are necessary for the company are still tax deductible, e.g. your bookkeeping software or subscriptions. When you are doing any consultancy jobs that are outside of IR35, the expenditures that are directly related to those activities are still tax deductible.

When inside IR35, you may not claim travel and subsistence the same way as a self-employed individual. As you are technically an ‘employee’, you may only claim the travel to temporary workplace and that are necessary for you to perform your job. You may not claim travel from home to ‘clients’ office’ by justifying your home is your usual workplace, as those will be treated as usual work commute.

Company Strike Off Considerations

Some individuals might feel as though it is not worth to keep the company running and they just want to do the job, get paid and be tax efficient. In order to close down the company, the company has to be at least 3 months dormant. One thing to be aware of is the final assets of your company, if its less than £25,000 then you can do a normal strike off. Anything remaining will be counted as capital gain. If there is more than £25,000 you might need to use a liquidator to apply for members voluntary liquidation.

Summary

  • You would need to make sure you declare the income as employment income in your self-assessment.
  • Inside IR35, you are technically an employee, so any expenses related to the work that is inside IR35 you will claim the expenses as an employee.
  • You need to look at your long-term vision, if running a business is not your long-term vision then you would need to look at closing down the company.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Save Money This Year with Tax Breaks for Couples

It was Valentines Season, and as you celebrate with your significant other, I thought you could use a few pointers about how to make your status as a couple work for you – financially speaking. For this feature, couples will refer to married pairs (because marriage is recognized by the law).

Here are a few tips to help you put money aside for other household items.

How can I save money as a married spouse?

Under the current UK tax regulations, the following scenarios can result in tax breaks for married couples:

  1. Marriage Allowance

For couples in different tax brackets, marriage allowances present a great tax relief option. If you earn less than £11,500 and your partner falls within the £11,501-45,000 tax bracket, you can transfer 10% of your unused personal allowance to your partner. He/she will then be able to save up to £230 per annum.

  1. Sharing ownership of Buy to Let Property

Transferring ownership of a property between a married couple will incur no capital gains tax. This is what makes it a great tax relief strategy for couples. This strategy involves one spouse transferring shares of a property to the other. If your spouse earns lower income and pays tax at lower rate, this enables part of the property income being taxed at lower rate. However, the overall situations of both partners need to be assessed in order to determine whether or not this strategy is a good fit.

  1. Transfer of Business Ownership

If your partner makes a significant and legitimate strategic contribution and bringing him or her on board was part of your long-term business strategy, transferring shares of your business to them will help you save tax in the long term. Your business will enjoy the first £5,000 tax-free allowance, while the payment of dividends and salaries to you and your spouse will reduce the taxes owed by the business.

  1. Savings on Wedding Cost

This is a creative way for couples to save money through tax relief if they’re planning to get married. Donating valuable wedding decorations to your church, or a charity that is close to your heart, is considered as charitable donations and you can get tax relief from it. However, be aware of the limitations. For example, you will not get tax relief if the size of the donation is more than 4 times of the tax you’ve paid in previous year.

  1. Inheritance Tax

As a married couple, you and your spouse could double your nil rate band for inheritance tax purposes. What that means is that your inheritance value could go untaxed for up to £650,000 if your spouse did not utilize his/her inheritance tax.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Brexit: Looking at the Bigger Picture

A few interesting things happened this past week. The Eagles won the US SuperBowl for the first time in history. And EU leaders met to discuss one of the most crucial topics for UK companies: Brexit.

Since I felt that this issue concerns you, I invited an expert on EU trading to offer a new perspective on what Brexit means to business owners.

This week, my guest was Charles Markowicz. Charles runs a firm that helps companies from non-EU countries acclimate to the trading conditions of the EU. As a business owner working on issues of EU compliance for over two decades, Charles had some unique opinions to share about Brexit. Hopefully, you can learn from his insights.

Brexit is a time for evaluation

One of the first factors Charles noted is that the Brexit negotiations are volatile and business people should treat it as such. As Brexit negotiations are underway, you as a business owner should keep informed and look at all possible scenarios. What would a hard Brexit mean for your company? What would a soft one? How likely is either outcome? Are you prepared for both these scenarios? Do you have contingency plans in place? Only by evaluating the position of your business can you better prepare for any Brexit outcome.

You need to be ready for the cost

During our conversation, Charles pointed out a significant point: businesses based in the UK can expect the downside of losses in terms of time and money for as long as Brexit negotiations run. He cited a study that showed the UK’s economy could take a hit of about 2-3% from a soft Brexit and up to 15% from a hard Brexit.  Even the English pound has taken hits so far. You need to accept, that Brexit might have adversely affected your company, before moving on to step three.

The best course of action: prepare a plan

One path Charles proposed was expanding your market. For instance, setting up a subsidiary in an EU country or one per continent, preferably one with English speakers. The benefit of such market diversification is that your business would be able to source materials cheaply and export products despite the outcome of Brexit.

To summarize, being aware, staying informed and preparing for the consequences of Brexit is the best way to look at the bigger picture for your company.

Don’t forget to follow me on Facebook/Youtube for these and more interesting takes on emerging financial issues.

Have an engaged, informative week!

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me