Tax news

On Tuesday Chancellor George Osborne announced his emergency budget, which on the whole brings positive news for contractors and freelancers.  Here’s our brief summary of the pertinent points:

If, like us, you like to keep a watchful eye on the machinations of HMRC you’ll probably know that for the past few years they have been implementing an ambitious electronic filing system – in other words, a lot of the form filling you do for the tax man now needs to be completed online.

Today the Conservative party have signaled their intention to review IR35 as part of an overall review of small business taxation – should they be elected, that is.

We’re rapidly approach 5^th April and the start of the 2010/11 tax year.  Last week Alistair Darling announced his predictably benign budget and confirmed what’s ahead for the upcoming tax year.  Here’s our review of the 2010/11 tax announcements for contractors and freelancers.

You may have heard that HMRC have recently implemented a new PAYE computer system – good news in the long term, but during the changeover process HMRC identified one or two technical discrepancies which have resulted in some incorrect tax coding notices being issued.

While somebody somewhere in the depths of HMRC is no doubt busily fixing this glitch, official guidance has been on how contractors might be affected – here it is in a nutshell:

It’s not often you have cause to mention the words ‘student loan debts’ and ‘good news’ in the same breath, but in this case it might just be appropriate. HMRC have announced a new initiative to cut out student loan over-repayments, which frequently occur if you repay your loan off via PAYE deductions (pretty much everybody, then).

The Government’s one-year VAT holiday will end on 1st January 2010, with rates expected to return to 17.5% from the 15% we have enjoyed all year. HMRC have confirmed the normal tax point rules will apply: date of invoice or date of payment, whichever comes first.

So if the invoice or payment is made before 1st January, VAT will be at the rate of 15% - anything after that date will be charged at 17.5%. To help us through the transition, HMRC have issued some guidelines we should note:

• VAT should be calculated at 17.5% from 1st January.

In his speech to the Labour Party Conference, the Prime Minister, Gordon Brown announced an extension of free nursery places, to be financed by the withdrawal of the tax and National Insurance (NIC) exemptions for childcare vouchers.

The proposal is that the provision of free nursery places will be extended to two year-olds (this would be on top of the existing free childcare available to three and four year olds). It is expected that 250,000 children will benefit from this by 2015/16.

HMRC are warning employers that from May 2010 they may have to pay a penalty if they do not pay their PAYE on time. These are generally due each month, on time and in full.

HMRC will implement late payment penalties for payments due from May 2010. From then on, employers may have to pay penalties if they make more than one PAYE payment late in a tax year. The new penalties will apply to all employers, including large employers (those with more than 250 employees) who currently are subject to a Mandatory Electronic Payment surcharge.

Pension contributions made by an individual are usually paid net of basic rate tax. Where the individual is a higher rate taxpayer further relief is due which significantly reduces the net cost of the contribution.

In the Budget this year the government announced its intention to restrict tax relief on pension savings with effect from 6 April 2011 for people with taxable income of £150,000 or more. The relief will be tapered down until it is 20%.