Rates, Allowances & NIC Update

Rates and Allowances for 2011/2012

Below are key areas to note:-

• Personal Allowance:  For those aged under 65, the personal allowance will be increased by £1,000 from £6,475 to £7,475. 
  It is worth noting that a new concept of withdrawing the personal allowance for those with adjusted net income over £100,000 was introduced in 2010/11 and will continue for 2011/12.  The reduction in the allowance is by £1 for every £2 of adjusted net income above in the income limit.  Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses.
• Tax Bands and Rates:  The basic rate limit will be reduced from the current £37,400 to £35,000.  This means an individual will pay 40% tax rather than the basic rate of 20% when their total income exceeds £42,475.
  The new rate of income tax of 50% (the “additional rate”) will continue for 2011/12 and this applies to taxable income above £150,000.
  If dividend income is part of total income, this is taxed at 10% where it falls within the basic rate band, 32.5% where liable at the higher rate of tax and 42.5% where liable to the additional rate of tax.

 National Insurance Contributions (NICs)

Changes to the NICs are as follows:-

• The current government have confirmed that the rate changes announced by the previous government will be made.
• From April 2011, a further 1% will apply to the rates applicable to employers, employees and the self-employed.
•  The main rate of Class 1 (employee) NICs will be 12% and the Class 4 rate will be 9%.
•  The employer rate will increase to 13.8%.
•  The additional rate of Class 1 and 4 contributions payable will be increased from the current 1% to 2%.
•  Changes to the thresholds for next year have now been announced and the point at which NICs are payable will increase significantly from April 2011.
•  The level at which employees start to pay contributions will increase to £139 per week (the primary threshold) and for employers the weekly limit will be £136 (the secondary threshold).  Both the primary and the secondary thresholds were aligned at £110 for 2010/11.
•  The upper earnings limit and the upper profits limit will continue to be aligned with the income tax higher rate threshold of £42,475.

 PAYE

HMRC plan to introduce changes to the PAYE system and have published a consultation document “Improving the operation of Pay As You Earn:Collecting Real Time Information”.    To download this document, please click here

PAYE real time information means employers will send HMRC information about tax and other deductions from employees’ pay when the employee is paid, rather than at the end of year as at present.

The intention is to pilot the system from April 2012 and to begin to move employers onto the new system in stages over the 18 months.  It is expected that all employers will be using the new system by October 2013.

We will post further developments on our website as they happen.

 Class 2 NICs – New Payment Arrangements

The new payment arrangements for Class 2 National Insurance Contributions (NICs) which are currently payable by the self-employed are as follows:-

•  The current rate is a flat rate of £2.40 per week for 2010/11 – the new rate of payment will rise to £2.50 per week in 2011/12.
•  Currently, these contributions are paid by quarterly account billing or by monthly direct debit – for April 2011 onwards, due dates for payment are to be aligned with the self assessment payment dates as for income tax and Class 4 NICs (this means the payment will change for 2011/12).
• From April 2011 onwards, there will be no monthly collections of Class 2 NICs until August 2011. 
• When the monthly direct debit collections commence from August 2011 onwards, it will mean that by January 2012, six instalments will have been paid – equal to half the liability for the year.  By July 2012, the liability for the year will have been paid in full.
•  Unlike income tax and Class 4 NICs, there will be no balancing payment on 31 January 2013 because Class 2 is a set amount and therefore, does not need to be estimated.
• Instead of paying monthly via direct debit, you can opt to pay Class 2 contributions by two six monthly direct debits (one on 31^st January in the tax year and one on 31^st July following the end of the tax year).

 On-line Corporation Tax Filing

• All Corporation Tax Returns (including form CT600, supplementary schedules, tax computations and company accounts) in relation to accounting periods ending after 31^st March 2010 and submitted after 31 March 2011 must be filed on-line (paper returns will no longer be accepted).
• In addition to the above, all related corporation tax payments must be paid electronically.
• Compulsory on-line filing will not change:-
   Who has to file a company tax return
   When the return has to be filed or the tax paid
   What is legally required to be filed as part of a company tax return

Increase in the Standard Rate of VAT

You will no doubt be aware that from the 4^th January 2011, the standard rate of VAT has increased from 17.5% to 20%. 

•  Businesses currently calculating their VAT using the VAT inclusive fraction of 7/47 should now use the new fraction of 1/6.
•  If the goods or services were provided prior to 4^th January 2011, the business may apply VAT at 17.5%.
•  If a business has received a payment or issued an invoice before 4^th January 2011 but the goods will be provided or services delivered after 4^th January 2011, then the supplier has a choice of either:-
   Leaving the VAT charged at 17.5% or
   Accounting for VAT at the new rate of 20%
•  If a credit note is issued after 4^th January 2011 in respect of an invoice issued prior to 4^th January 2011, then the credit note must reflect the VAT percentage relating to the invoice.

 Note:-

The reduced rate of 5% and the zero rate remains unchanged.

HMRC have issued lots of guidance which can be found at the link below:

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm

If you would like help dealing with the change in VAT, please contact miranda@blueskycf.com or telephone 0845 2583 759.

Changes to the Advisory Fuel Rates from 1^st December 2010

HMRC have issued new advisory fuel rates for employees driving employer provided cars – this is to reflect the increase in fuel prices.  The new fuel rates take effect for all journeys undertaken from 1^st December 2010 until further notice.  Employers using the advisory rates should advise affected employees and update any expense forms as soon as possible.

It is worth noting :-

• Employers do not need a dispensation to use these rates
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates.  Such claims should be based on the actual costs incurred
• The advisory rates are not binding where an employer can demonstrate that the costs of business travel in employer provided cars is higher than the guideline mileage rates.  The higher cost would need to be agreed with HMRC under dispensation

 If you would like to discuss your car policy, please email miranda@blueskycf.com or telephone 0845 2583 759