Universal Credit

Universal Credit

Last year saw the introduction of Universal Credit, which is the largest overhaul to the benefits system since the 1940s and which could affect up to 8 million people.  The concept behind the new system is to “make work pay” so that people are not trapped on benefits because they would lose money if they got a job.  The system will combine six working-age benefits into the one new Universal Credit, so it is expected to be easier to run as well as reducing the incidence of fraud and error.  As with most new systems that involve HMRC, we’ll wait to see if what is expected actually happens!

Universal credit will be paid monthly, and claimants will be expected to manage and budge their own payments, for example to landlords if they are in receipt of rent benefit.  This is supposed to make the payment received feel more like wages, thus preparing the claimant for the way things would work if they were employed.

In order to claim Universal Credit you have to apply online, and all data thereafter is also kept online.  This is where your part in the process may kick in, as it interacts with RTI (Real Time Information) and your obligations if you’re an employer.  You must ensure your RTI returns are complete, accurate and submitted on time because the data will be used in Universal Credit claims.  You may not be claiming yourself but you may have staff, and for them it’s vitally important that HMRC have the correct information.

Universal Credit is being slowly introduced between 2013 and 2017, so there’s plenty of time to see how the system will work in practice, and to see what interesting things go awry along the way!

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

When is the best time to convert from an Umbrella company?

When is the best time to convert from an Umbrella company?

Some contractors choose the Umbrella route for accepting payment of their client fees. This can initially be an attractive option as all tax aspects are dealt with by the Umbrella, leaving the contractor free of almost all paperwork. However, setting up with an Umbrella means that, for tax purposes, the contractor is an employee of the Umbrella. As an employee all income, except reimbursed expenses, will be subject to PAYE and employers NIC payments. In some cases the contractor will end up paying far more tax than they need to by choosing this route. They could also miss out on potential tax breaks in other areas simply because they are an employee of their Umbrella rather than set up as Limited Company.

If you are currently with an Umbrella you may be thinking about converting to a Limited Company set up to begin enjoying the financial benefits.

 

Keep more of your income

One of the key advantages of setting up as a Limited Company is that you can increase your net income with good tax planning.

For example:

  • For the 13/14 tax year, if you are a Limited Company and you give yourself an average salary of £12,000 per year, you will be able to take around £26,505 in net tax free dividends per tax year (assuming you are outside of IR35).
  • As a simple comparison, roughly with an estimated income level of £50,000 per annum, the difference in net take home pay would be:

Limited Company of £37,621    v    Umbrella of £30,026.

The Limited Company route offers clear savings for contractors by having a low salary with tax free dividends paid throughout the year.

 

When to make the change

In terms of when in the year to make the change, the start of the tax year is always a good time to switch employments. This way you can take full advantage of the tax allowances available to you in the new tax year. If you switch from an Umbrella to a Limited Company at the beginning of the tax year you will have had little or no employment income and will therefore be able to maximise your tax free dividends.  However, making the switch at any time of the year will make you more tax efficient.

 

How to switch

If are interested in making the change from an Umbrella, or would simply like to find out more, contact us at Intouch Accounting. Making the switch is an easy process and you could soon be reaping the benefits of maximisation of your contractor and personal income.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.