Things to do before 5 April...

As the new tax year approaches and some radical changes come into force it may be worthwhile considering whether you need to do anything to mitigate your future tax liabilities.

1. For those of you in the upper echelons of income earning, the new 50% tax rate will have a huge effect. Simply speaking the raise in tax is by 25% (10% added over 40% – we can all play the % game) so anything that you can do to avoide the increase will be of immense value. Convert income to capital, receive income early, defer income until later years when a more lenient tax regime is in place are all tactics that can have a beneficial effect for a small outlay.

2. Incorporate your business. For those sole traders and partnerships earning over £15,000 incorporation can often reduce the overall tax and NI bill without a huge increase in compliance costs.

3. Plan capital expenditure. If you are anticipating spending over £50,000 on new plant and equipment, spend £50k now and £50k after the 6 April and get the benefit of 100% capital allowances on the whole amount.

All these point need detailed planning. Give us a call now to avoid last minute chaos.

Posted By Haydn Pyatt - 2010-02-11.
Tags: Tax, Self Employed

Are you really Self Employed ?

Can you create conditions to favour self employment?

If you want to substantiate being self employed, we strongly recommend that you draw up and enforce a suitable contract defining the services provided. You will need to give particular consideration to the following points:

Pricing

One of the main requirements is that self employed workers bear some element of risk in the arrangement, which means you will have to avoid the ‘hourly rate’, in favour of a ‘price for the job’. The main principle is that the price, scope, and timing of the work should be agreed, and evidenced in writing, before the job commences.

Workmanship

Within reason, the more freedom the worker has in the detail of the way the work is carried out the better. You must also make it clear that the worker will have to put right any faulty work at his or her own expense.

One of the strongest tests of self employment is the right to substitute a worker who is equally capable of carrying out the work.

All self employed workers should hold public liability insurance.

Provision of equipment

Where practical, the worker should supply at least some of the important equipment or tools. Of course, the extent to which equipment is required depends upon the nature of the work.

What about the construction industry?

The construction industry is subject to exactly the same rules as any other type of industry. However, there are some special considerations.

Where the work entails use of heavy equipment or expensive plant, it is sometimes recommended that contractors hire the equipment to their subcontractors, who then include the cost within their ‘price for the job’. Such arrangements may seem artificial, and there is the danger that with substantial hire costs being included in the pricing, the subcontractor’s turnover may breach the VAT threshold and force him or her to register for VAT. However, this is not necessarily a bad thing because VAT registration is often cited as further evidence of self employment.

With regard to pricing work, a competitive tender is best, but in practice it should not really matter who makes the first suggestion of an appropriate price.

Although there is a special scheme for taxing construction industry workers, registration as a subcontractor under the scheme in itself does not necessarily prove self employment status.

What about personal service companies?

These guidelines apply equally to the so called IR35 rules to test whether a worker would be treated as an employee of the client, if it were not for the existence of an intermediate service company.

Posted By Haydn Pyatt - 2009-03-06.
Tags: Self Employed