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With the new Labour government now in place, many self-employed workers anxiously await changes that could impact them and their businesses. This week, the new Chancellor, Rachel Reeves, announced that the Autumn Budget 2024 will be delivered on October 30th, 2024. As the first Budget presented by a Labour Chancellor since 2010, there is considerable anticipation among contractors and small business owners about potential new measures. 2010 Chancellor Alistair Darling targeted contractor tax schemes under the previous Labour government. Reeves has already hinted at potential tax increases, stating that public finances are worse than Labour had anticipated before taking over from the Conservatives. In the months leading up to the election and subsequent change of government, the previous administration had promised not to raise national insurance, VAT, or income tax. These taxes account for two-thirds of UK tax revenue, and with the public finances in worse shape. Than expected, balancing the Budget may prove more challenging for Reeves than initially thought. One of the key manifesto promises expected to be included in the upcoming. Budget is the removal of the VAT exemption on private school fees, a measure projected to raise £1.5 billion. However, this amount is minor compared to the £22 billion deficit that Labour has inherited. Which has already been earmarked for funding education policies, including the recruitment of 6,500 new teachers. Labour’s manifesto promises to close the carried interest tax loophole and intensify efforts to combat tax avoidance. Additionally, Reeves has committed to holding only one major fiscal event each year, ending the era of “surprise budgets” that have become commonplace. She has only one opportunity to outline the government’s agenda for the next 12 months. Will IR35 be addressed in the Autumn Budget 2024? Ideally, contractors would see the Off-Payroll Working Rules repealed, ending the mishandling of IR35 determinations by organizations that engage contractors. Many tax experts are hopeful for a return to Labour’s original IR35 framework from 2000, but this seems unlikely. In 1999, Gordon Brown announced plans to introduce legislation addressing “avoidance in the area of personal service provision.” At that time, the government was concerned about the growing trend of ‘disguised employment,’ where individuals provide services to an organization like employees but operate as limited companies. This arrangement allows contractors to benefit from a lower tax liability than traditional employees. As a result, IR35 was introduced in April 2000. These tax rules ensured that individuals who would ordinarily be classified as ‘employed’ by HMRC are taxed accordingly rather than as ‘self-employed.’ Since its introduction, IR35 has faced significant criticism, leading to the formation of. The Professional Contractors Group (now known as IPSE) to oppose the legislation. The IR35 rules have pushed many contractors back into traditional employment, increasing PAYE and National Insurance contributions for HMRC. Because of this, some experts believe that a move towards a ‘Single Work Status’ approach might be more likely than a return to the original IR35 framework. What is Single Work Status for Limited Companies? Some experts believe that the introduction of the Single Worker Status could impact how IR35 status is determined. In Labour’s ‘Plan to Make Work Pay,’ published in May, the concept of Single Worker Status involves creating a new, unified worker classification as part of broader efforts to enhance pay and working conditions. This initiative also aims to simplify resourcing and compliance for businesses. Particularly for those who are self-employed but operate as limited companies. The new framework is expected to clearly distinguish between genuinely self-employed individuals and other workers. Currently, the three tiers of worker status—employees, self-employed individuals, and other workers—come with different rights, most notably in how taxes are paid. With the increasing prevalence of short-term contracts, often associated with the “gig economy,” determining an individual’s worker status has become more challenging, creating a grey area that has raised government concerns. What changes would Labour’s Single Worker Status Provide? Contractors would be reclassified as ‘workers,’ entitling them to employee benefits and protections like holiday pay, sick pay, redundancy rights, and protection against unfair dismissal. They could also become eligible for statutory benefits such as family leave and the ability to request flexible working arrangements. While many self-employed individuals value their current flexibility, this change may introduce more restrictive conditions regarding project selection and working hours. This could impact contractors’ ability to work with multiple clients simultaneously, especially considering the potential for increased liabilities with HMRC. Additionally, contractors may face increased administrative burdens, including dealing with legal complexities and more extensive bookkeeping. Do you need to hire a Limited Company Accountant? With potential changes on the horizon following the Autumn Budget 2024 announcement. Now is an ideal time to consider partnering with a limited company accountant like Account Ease. While running your own limited company can be an exciting and rewarding experience, many self-employed individuals prefer to manage it independently. However, enlisting the help of a professional to free up your time and provide expert guidance is crucial for long-term success. A limited company accountant specializes in handling the financial affairs of limited companies. Our experienced team is well-versed in the intricacies of UK tax law. Company regulations, and accounting standards, ensuring you stay ahead of any changes 2024 may bring. Their expertise is invaluable in maintaining your business’s compliance, efficiency, and financial health. Benefits of Hiring a Limited Company Accountant Expertise in Tax and Compliance: Navigating UK tax laws and company regulations can be challenging due to their complexity. A limited company accountant stays current with the latest regulations and can manage Corporation Tax, VAT, and other financial obligations on your behalf. They ensure you claim all eligible allowances and deductions, which could result in substantial savings for your business. Time Management: Balancing the demands of running a business while handling accounting tasks can be overwhelming and time-consuming. An accountant can relieve you of these responsibilities, allowing you to concentrate on your core business activities. Financial Reporting: Accurate and timely financial reporting is essential for making well-informed business decisions. Accountants can

Understanding the different methods of Directors Pay is crucial for maximizing earnings and effectively managing tax liabilities, both personally and for the company Salary: A salary is a routine payment provided by the company to a director and is the most prevalent form of compensation for directors. Advantages State pension years that qualify for it: Having a regular income that is greater than the earning limit of earnings means director earns qualifying years towards their state pension. Contributions to personal pensions: Allow for higher tax relief for personal pension contributions since your applicable UK income will be greater Income proof: A regular income may make it easier to bring the evidence needed to obtain loans or for insurance against critical illness. The eligibility for redundancy: Having been paid a salary could be a sign that director’s eligibility for redundancy payouts Disadvantages Income tax and NICs: Directors’ salaries are subject to income tax and National Insurance Contributions (NICs) Tax Rates and Considerations In the UK, the tax rates for different types of income vary: Bonus The term “bonus” refers to a single amount paid to directors. They may be annual or could be linked on the achievements of directors. They can be non-contractual or contractual. A contractual bonus implies that directors and employees are aware of their rights to receive a bonus. It is typically calculated on the performance. A contract might also provide the guarantee of a specific amount. A non-contractual reward is a situation where a company can decide how much a bonus is paid out and in what amount. Bonuses are tax-exempt and NICs when applicable. Dividends Dividends are the payments to shareholders using the company’s earnings. Directors who are shareholders may also receive dividends. Advantages Tax rates that are lower Tax rates for dividend income: The tax rate for dividends may be lower than that of income tax. There are no NICs No National Insurance contribution is due on dividends Dividend allowance The majority of people in the UK are entitled to an allowance for dividends, which payoff with tax-free income as high as PS500 per year. Disadvantages Reserves for distributable distribution Dividends are only able to be paid out of profits from the company and the company must be able to have enough reserves for distribution. Reimbursement of costs Costs paid directly through the director’s behalf on company can be reimbursed. Examples of personal expenses can include subsistence and travel as well as other equipment and services. Drawings Contrary to a sole trader business, a limited company an entirely separate business entity from its managers and owners. This means that, unlike the case of a sole trader company, you are not able to take any drawing. In the case of taking a payment from a restricted company that isn’t dividend, bonus or salary is declared as an unpaid loan to director. Directors loans must be managed in a manner that is appropriate to the situation.   How to select directors’ compensation Dividend vs salary Many factors impact the choice of the way a director will be paid. In general, directors of owned companies are paid an equal amount of salary. Dividends as well as bonuses in the most tax efficient manner. There are a few things to take into consideration when determining which is the perfect way to pay and the balance payment. Efficiency in taxation: Asking your accountant to create calculations can benefit you reduce your tax burden. The calculations could contain several different choices to think about and you can select the tax-efficient mode of payment. Financials for business: It is crucial to warrant the business has enough profits to pay dividends. And be able to pay for bonus and salary payouts. If your bonus and salary have wiped out company profits there could be no distribution reserve to pay dividends to shareholders. Personal circumstances: A different consideration is the personal situation of directors. For instance, they have financial targets, obligations and other sources of income. Taxable benefits in the form In in addition to bonuses, salary and dividends Directors may also be eligible for tax-deductible benefits. These may include company vehicles as well as medical insurance, fuel, and other advantages. Benefits that aren’t tax-free (such such as parking at work, mobile phones and beverages at the workplace) are subject to income tax as well as the NICs. Directors’ Pension As a director in a limited company, registering in a pension scheme for the company. Lets you plan for your future. Contributions to pensions made by the company are also an allowed expense for limited companies. Saving for a pension can be an excellent method to make money from your company that you’re happy to deposit into a retirement account which you can access upon retirement. What Account-Ease accountants can do to benefit Our experts are able to benefit you with regards to organizing your pay in the desirable way that suits the individual, taking into consideration your specific situation as well as tax efficiency. Contact our helpful team by giving us a call at 0208 133 4599 or fill out our on-line Contact form.

Starting a side business or going freelance full-time can be both thrilling and daunting. Before diving in, it’s crucial to stay compliant with the law by registering as self-employed with HMRC. Consulting an accountant for self employed can ensure you pay the correct amount of income tax and National Insurance Contributions, helping you avoid unnecessary financial penalties. Registering as a Self Employed While it is pretty trustworthy for most of the peoples, there are instances in which your employment status is not apparent. You’re in all likelihood to be self-employed if the subsequent elements follow: You run your very own business You’re capable of decide whilst and the way you work, as well as what you figure on You have the option of hiring different peoples You have more than one client or customer concurrently You are not paid a normal salary or revenue You acquire earnings that is not taxed underneath PAYE for items or services you provide It’s also possible to be employed and self-employed at the identical time, inclusive of while you’re doing freelance work on top of your day job. Tip: If you’re still unsure, check out the HMRC Employment Status Indicator tool. You’ll be asked a series of questions to determine your employment status. You can also call up HMRC to ask about your employment status. C to invite about your employment popularity. When Do I Need to Register as Self-employed? You need to register as soon as you become self-employed. It doesn’t matter if you haven’t yet found work or brought in income, as HMRC considers your business to be in operation the moment you start actively seeking work-such as when you begin your marketing activities. If you fail to register within three months of starting your business, you’ll be charged a fine of £100. Further delays may result in additional penalties. How Do I Register as Self-employed? You’ll need to register as self-employed if you’re setting up as a sole trader or partnership. You won’t need to register if you’re setting up a limited company, as you’ll be considered as both the owner and an employee of the business. This process is more complicated, and we’ll cover this in a separate article on setting up a limited company. As a sole trader, you can register: Online: Fill in this form if you’ve sent a return online before. If you haven’t sent a return online previously, you’ll need to register first. Or by post: Fill up this form, print it out and then post it to HMRC. Steps to Register as Self-employed Online with HMRC The process of registering as a self-employed person in the UK is easy. This step-by-step guide will benefit you get through the process: Access the HMRC Website: Start by visiting the HMRC website. Create an Government Gateway Account If you do not have any and you’re not sure how to get one, you’ll need to set up an Government Gateway account. It will grant the ability to access HMRC’s services online. Fill out your registration form: Once logged in, find the option to register as self-employed and fill out the form with your detail. Then, fill in the form with all your details. Include your address, name, National Insurance number, and the kind of work you’ll be performing. Fill out the form: When you’ve completed your form online, send it in. HMRC processes your request and then send you a receipt. Get Your Unique Taxpayer Reference (UTR): HMRC will mail you a letter that includes the details of your UTR that will be required for any future tax returns. Tax Responsibilities of Self-employed When you’re self-employed There are a number of important legal obligations you have to meet. This includes: Income Tax As a self-employed individual If you are self-employed, you must submit an annual self Assessment tax form to HMRC. The tax return determines your tax liability from your income after deducting allowable expenses for business. You’ll be taxed on your profits, which are your earnings minus expenses. You’ll pay tax on your profits, which is your income minus expenses. Consider availing self assessment service if you are not pro at tax obligations and doing it yourself. Deadlines for Key Deadlines: 31st of January It is the deadline for you to complete tax returns. Self Assessment tax return and pay any tax owed for the previous tax year. 31st Jul: If the tax you owe is large and you are in need of a second payment, make another installment on your account on this date. National Insurance Contributions (NICs): In addition to the tax you pay on your income In addition, you must contribute National Insurance Contributions (NICs). There are two kinds of NICs that self-employed people must pay: Class 2 NICs They are paid when your earnings are greater than an amount that is certain (currently PS12,570 per calendar year). Class 2 NICs can be used to contribute to benefits similar to those of the State Pension. Class 4 NICs They are calculated based upon your earnings and are paid out if your earnings surpass a greater threshold. Class 4 Net NICs are calculated using an amount of your earnings. Register for VAT: If your turnover for business is more than PS90,000 over a 12-month period, then you have to be registered to charge VAT. This means that you’ll be charged VAT on products or services and file taxes on VAT for tax purposes to HMRC. If your revenue is less than this it is possible to sign up voluntarily in order to claim VAT on purchases made by business. Maintaining Proper Records Other legal obligations, like making your tax return in a timely manner is easier if you keep accurate documents. Make sure you keep the records of your sales, expenses, and also pay records if you employ employees. Keep the originals of all important documents, such as bank statements, receipts and invoices. Once you’ve filed the tax returns for a particular year, all pertinent documents that pertain to the year’s return should be retained for a period of five years. This is due to the fact that HMRC might ask you to look over the documents, and you could be fined if you don’t keep track of your records.