Policy News Journal - 2016-17

The Chartered Institute of Payroll Professionals ……………………………………………………………Policy News Journal

The OTS agreed to carry out a review of small company taxation in 2015 to build on their earlier work on simplifying the system for unincorporated businesses . They have now published their initial report ahead of Budget 2016 as agreed.

The report Small company taxation review contains a mix of long range structural change ideas and simpler short term administrative improvements. The recommended administrative changes include:

 aligning filing and payment dates eg VAT and PAYE, and annual returns and corporation tax  HM Revenue and Customs providing extra support at weekends and evenings when more small company owners deal with their tax affairs  stopping companies providing the same information to various government departments who instead should share the information  looking at the feasibility of having advance clearances for VAT.

The report sets out three main areas for further work:

1. testing whether taxing the profits from the smallest companies on the shareholders rather than the company (‘look-through’) could be simpler for some companies as well as addressing distortions in the system 2. developing an outline for an new ‘sole enterprise protected asset’ (SEPA) vehicle which will give some limited liability protection without the need to formally incorporate 3. simplifying the corporation tax computation, eliminating many sundry tax allowances and potentially calculating corporation tax on a cash basis for the smallest companies.

The OTS envisages taking forward the first and second of these longer range ideas and calls on the government to initiate the third.

The OTS looks forward to receiving input on these ideas and can be reached at ots- smallcompanies@ots.gsi.gov.uk . A range of other recommendations for simplifying the taxation of small companies and streamlining the administration aspects are included in the report and the OTS expects a response from the government in due course

Detailed terms of reference for the review are available.

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Dividend tax rise impacts business 8 April 2016

There are many single employee Personal Service Companies (PSCs) who pay themselves a low salary topped up by dividend income who will be feeling the impact of the reforms to dividend tax and also the possible loss of the Employment Allowance. The dividend tax credit, which reduces the amount of tax paid on income from shares, has been replaced by a new £5,000 tax-free dividend allowance for all taxpayers from 6 April 2016. This simpler system will mean that only those with dividend income over £5000 per year, or those who are able to pay themselves dividends in place of wages, will pay more tax. Under previous rules a 10% tax credit was applied to dividend income and businesses did not have to pay National Insurance Contributions (NICs). The new system abolishes this and now all payments above £5,000 will be subject to a new basic rate of 7.5%, in addition to the £11,000 personal allowance. Higher rate taxpayers will pay tax of 32.5% above earnings of £31,786, compared to 25% previously. Those above the additional rate threshold of £150,000 will see an increase from 31.6% to 38.1%.

The dividend allowance will apply to dividends received from UK resident and non-UK resident companies. For further information see Dividend allowance factsheet and Income Tax: changes to dividend taxation .

The changes to the Employment Allowance may also impact the same businesses. From 6 April 2016, limited companies where the director is the only employee paid earnings above the Secondary Threshold for Class 1 NICs will no longer be able to claim Employment Allowance. The guidance for single directors clarifies what action a company or their payroll providers should take where they may have lost eligibility.


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