The Chancellor kept saying that this budget would will be dedicated to the most hardworking individuals, families and the government’s goal was to raise wages, employment and growth.

Budget 2018 Summary  

IR35

IR35 is a tax legislation planned to fight against tax avoidance by those employees who are selling their services to the clients through a third party more like a limited company. But, in reality, they are fulfilling all the services in the same ways as an employee. In case, if you are categorized as an employee then you pay a bit more employment taxes.

In order to bring some fixes into this activity, HMRC brought changes to IR35 in the public sector in April 2017. The changes moved responsibilities in making IR35 status taxations from the limited company (i.e. the worker) to the agency and the final client.

However, after some issues, the government finally come up with an idea to proceed with caution.

The Private Sector IR35 Planned Changes:      

• Businesses will be accountable for evaluating an individual’s employment status.
• The reform won’t be allowed to apply to the minimum 1.5 million businesses, also won’t apply to large and medium business which takes too long to adjust with the changes being announced in April 2020.
• Medium and Large businesses will need to apply IR35 rules to the individuals working through their own company. This will be implemented from 6^th April 2020.
• Where it’s determined that the rules do apply, the business, agency or third party that pays the individual’s company will need to deduct income tax and employee NICs and pay employer NICs
• HMRC won’t perform targeted campaigns into preceding years when people start giving employment taxes supporting IR35 for the first time following the reform, and businesses’ decisions regarding whether their workers fall within the IR35 rules
• HMRC will continue working with stakeholders to recognize the enhancements for checking employment status for tax and other formalities to ensure that the reform is meeting the needs of the private sector. In Addition, improvements will be tested with stakeholder and other legal experts before execution.

Higher Tax Rate and Personal Allowance Threshold Increase

It is expected that the rate at which individuals will start paying income tax will increase from £11,850 to £12,500 in April 2019. Since, changes are anticipated therefore, announced a year earlier.

Likewise, the higher rate Income Tax threshold will face an upsurge from £46,350 to £50,000 in April 2019.

The Dividend Allowance

For the individuals looking for the news about tax-free dividend allowance, the update is that the tax-free dividend allowance will remain unchanged at £2,000.

National Insurance              

Up till now, there are no anticipated changes for National Insurance or the related rates. However, it’s been expected that this could be re-examined in the future budgets.

Pensions and savings 2019/20:

Lifetime allowance for pensions:

The lifetime allowance for pension savings increases in line with CPI for 2019/20, rising to £1,055,000 (2018/19: £1,030,000).

Savings Starting Rate

Remain unchanged, the band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2019/20

Individual Savings Account ISA

The subscription limit for the adult ISA will be unaffected at £20,000. The junior ISAs 2019/20 will sooner be update in line with CPI to £4,368 (2018/19: £4,260).

Child trust funds:

The government will issue a session in 2019 related to draft regulations for the purpose of maturing child trust fund accounts. Child trust funds for 2019/20, annual subscription will be updated with CPI to £4,368 (2018/19: £4,260).

The National Living Wage

A slight increase will be appear In the National Living Wage i.e by 4.9% t

Business Taxes and Relief

Corporation Tax

Financial year 2019 (start 1st April 2019) = 19% Financial year 2020 (start 1st April 2020) = 17%

Entrepreneurs’ Relief

Entrepreneurs Relief (ER) will be prolonged from 12 to 24 months from 6^th April 2019. (Qualifying conditions)

He also claimed that in addition to current rules on share capital and voting rights, shareholders will be entitled to a minimum 5% of the distributable profits and claimed net assets of the company

R&D Relief

No changes were announced for R&D relief.

Annual Investment Allowance (AIA)

He announced Greater capital investment incentives.

Companies can claim £1 million as AIA for spending occurred from January 1^st 2019 to 31^st Dec 2020.

Business rates

Those companies which are comprising business rates of value

Business rates for companies with a value of £51,000 or less will be reduced by a third over two years.

Other duties and allowances

Fuel Duty

Fuel duty remain unchanged for the ninth sequential years.

Stamp Duty Land Tax: relief for first-time buyers

A relief has been announced to an estimated value of £500,000 from 22 Nov 2017. Those who are eligible but have not claimed previously, will be able to adjust their return to claim a refund.

Capital gains tax: letting relief

The government will reform lettings From April 2020, it only applies in conditions where the owner of the property is in shared tenancy with the tenant.

Making Tax Digital (MTD)

No changes were proclaimed to the VAT threshold of £85,000, the introduction of MTD for VAT registered businesses remains a reality.

VAT and Brexit

Brexit is the only thing that’s been mentioned just for once in the whole year.

Previous HMRC guidance shown that a ‘no-deal’ Brexit’, UK VAT-registered businesses importing goods into the UK will be eligible to add import VAT on their VAT return.

In you are a freelancer, small business or startup, don’t hesitate to contact Certax London. We can help you with tax and accounting services with free consultation.  Contact Certax London today for more information.

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• Capital investment opportunities.
• Flexibility of internal structure and members’ rights.
• The allocation and taxation of business profits.

You can choose your legal structure in accordance with your current business or future business plan.

LLP VS LTD                                    

What is a Limited Company?   

A limited company is a private company that is completely separate from its owners, owned by shareholders and managed by directors. Private limited companies provide limited liabilities to its members, a private company has a separate identity to its shareholders and directors. Also, a limited company will be limited in terms of shares or guarantee, it will be paying corporation tax on all profits, having a UK address, a bank account that can sell shares for profit and gives a dividend to investors.

What is Limited Liability Partnership?

Limited liability partnership is also known as LLP that involves some or all company’s partners and everybody shares limited liabilities. This legal structure was introduced in 2001 by the LLP act 2000 and it is effective for the companies that mostly operates as partnerships similar to accountancy firms or lawyers.

LLP is not different from any other partnership in terms of tax liability, but it offers a reduced financial liability for each partner means, one partner is not responsible for other partner’s negligence or misconduct.

In addition, LLP is a legal structure that you cannot setup for non-profit organisations, they are designed for profit organisations. However, you can setup a non-profit company by using LTD company setup.

Major Differences Between a Limited Company and an LLP

• A limited company can be owned, registered and managed by only one individual, a single person can act as the director and shareholder at the same time. However, there must be at least two members required to setup an LLP. However, you can also set up a sleeping limited company as the second LLP member.

• In a limited company, the liabilities of company’s guarantors or shareholders is limited to their shares amount (paid or unpaid). In LLP, the liabilities of the members is limited to the amount each member guarantees to pay in case, if the business will face financial loss.

• A limited company is allowed to borrow both loans and capital from outside investors whereas, an LLP is only allowed to receive loan capital. Also, LLP is not allowed to offer equity shares in the business to non-LLP members.

• A limited company is bound to pay all the Corporation tax and Capital Gains Tax on all of their taxable income on the other hand, LLP members only pay income tax, national insurance and CGT on all taxable income. Also, LLP itself is free from tax liability.

• Changing internal management structure and distribution of profits is easy and flexible in an LLP system.

• A limited company can be set up as a non-profit business whereas, an LLP is bound to be set up with profit making intentions.

Difference of Tax Liabilities of LLPs and Limited Companies

A limited company is bound to pay a corporation tax which is 19% of their all taxable income. Any salary transferred to the director is liable for income tax, national insurance and employers NI. Also, directors are shareholders in most cases, that’s why they are consider as the employee of their own company due to this reason, much of their received profit is not subject to corporation tax or personal income tax.

In addition, by paying a director’s salary that is not more than his tax-free personal allowance, also, by distributing additional profits as shareholder dividends, a director will legally be able to reduce his personal tax liability.  Dividends are issued from post-tax profit and the amount of tax you’ll pay on your dividends is completely depends on how much you draw. However, first £5,000 of this will be tax-free, known as your dividend allowance. Additional dividend income is taxed at according to the tax bracket of the recipient.

LLP Tax Liability

The members of LLP are considered as self-employed individuals, they are bound to pay income tax and national insurance on their particular profits no matter, whether they take all the profits as salary or add  some  of it in business Plus, they have to register for self-assessment but they are not legally liable for Employers’ National insurance on their income.

The tax liability of LLP members can be high, depends upon the generated profit amount. In case, if the income of an LLP member exceeds the personal tax-free allowance then the member will be subject to the following income tax rates:

• 20% on taxable income up to £33,500 (you will start paying this rate on income above the £11,500 Personal Allowance threshold).
• 40% on taxable income between £33,501 – £150,000 (you will start paying this rate on income over £43,000).
• 45% on income over £150,000.

Which One Is More Tax Efficient?

In LTD Company, you can generate annual profit more than you need to take out of your business, in this way, a limited company will be more tax efficient. You don’t have to withdraw all of your surplus income straightaway, instead of this, you can leave an amount of profit in the business and comply tax by withdrawing the surplus in a future tax year.

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Also, public companies are required by the Securities and Exchange Commission to file an annual report documenting their performance in detail while the private companies are required to publicly disclose financial information.

Private companies can focus on their term growth instead of making sure that the shareholders are getting their quarterly dividends as they don’t have to disclose any financial information.

Private companies don’t need the approval of the shareholders as they will make their own decisions on operational and growth strategy, as long as that it is stated in their corporate documents.

With public companies, if you want to make decisions, make company’s operations, management actions or financial performance then you must inform shareholders for approval for them. There will be unlimited liability for a company’s owners if going public and going public is expensive.

Public companies may have an easier time raising large amounts of capital by selling securities. Because public companies are at less risk and have more potential to reap large rewards, investors are more likely to invest in. Public companies can return to the stock market and raise more capital via a secondary stock offering or by issuing a bond.

Public companies must comply with the rules established by the Sarbanes-Oxley Act. This act contains a myriad of regulations concerning board responsibilities and requires the securities and exchange commission to administer rules that comply with the law.

With public companies if the owners buy back the shares from the shareholders then they can become a private company even if they are members of another company, a small group of investors or any members of the public.

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Becoming a sole trader is one of the most popular option and that 3 quarters of all British business are sole traders. And if you want to become a sole trader then it is really easy to register as one. You will need to phone the HMRC helpline for the newly self-employed. You will be asked the normal questions like your full name, date of birth, your address, telephone number, national insurance number, business starting date, the business name and what type of business and whether you are a sole trader or working with a partner. You can also register online or completing the HMRC form.

You would need to make sure that you do register as self-employed or otherwise you would soon enough get a fine. You must register within 3 months of starting your business or otherwise your business could risk you a £100 fine. To stop that happening you should register straight away.

Being a sole trader can cause you some financial risks and the only one to be for blame is yourself. You should set yourself up a limited business as if you can’t control the company’s finances and get into debt then they can only take your assets of the business away from you, nothing else.

Its better being a sold trader as it is cheaper than being a limited company. It requires more administrative effort when it comes to tax whereas reregistering as a sold trader costs nothing.

If you think that being a sole trader means being on your own then you’re wrong. You can still employ people to work for you. If you do decide to employ people then you must collect National Insurance and Income tax from them to pay towards HMRC. If you do this then you will need to start up payroll.

As all businesses should do is that you would need to keep detailed financial records of your sales and expenses. You should keep all receipts and invoices/bills. This will help you to fill in you tax returns.

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If you have a creative mind then you can literally use the objects around to build and make the perfect product. Even if it is something so simple that helps you out a lot, but before selling this product you would need to see if the market would actually buy you product. This is why you go out into the market and do things such as survey so it can give you feedback that you need.  Now with the internet, we have websites such as eBay which is free to post your products if they turn out to be sellable. Also over the weekend people go to the boot sale. You can always set up a stall at your local boot sale and sell your things there.

If you don’t have the material to make a new product as such then why not have a look around at what you have a home. You can set up a charity shop and sell your things in there. Or if you would like to keep the money then you and advertise your things using the social media websites as they have pages where you can sell you items.

If you have qualification or training in anything then why not sell your service. You can be a part time qualified accountant and work from home if you can advertise and get a couple of clients. If you have training in gardening or building/labouring then you can use them skills to go out and find jobs that need to be done. At least someone on every street would need something done to their house or gardens at one point. So, if you could advertise yourself for doing that then you would be well on your way to be making a living for it.

Here are a couple of ideas to what sort of jobs you can actually do with no money:

• If anyone needs their house painting then you could offer to paint it for them
• Window cleaning. If you know how to do it proper and have all the equipment needed then why not. Most people don’t usually clean their windows themselves.
• Dog walking is a good job to get into as people who have a 9-5-day job they wouldn’t have time to walk their dogs so they could get someone to do it for them
• If you have the knowledge of a subject then don’t put it to waste. You could teach students that would need help in that subject.
• Taxi service. You would need to make sure that you are able to get with a company or be able to set up your own company to be a taxi drive if you can drive

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