IR35 in the private sector – HMRC announces consultation

In last Autumn’s Budget, the government announced that it would consult on how to tackle non-compliance with IR35 rules in the private sector. On Friday, HMRC issued this eagerly-awaited consultation which they say “looks at improving the rules around ‘off-payroll’ working so contractors who work through their own company pay the right tax.”

At Intouch, we would suggest that HMRC learn from the negative feedback following the public sector reform and at the same time, remember that private sector and public sector hirers are different entities with different motivations and potential responses. They engage with their clients in different ways and often at different levels and as such we’d encourage HMRC not to view them as the same with respect to off-payroll rules and deemed employment. Input should be taken from across the industry with a view to tailoring a bespoke private sector solution that improves compliance whilst mitigating any potential administrative burdens.

The consultation timescales mean that any changes could be introduced as early as April 2019, although we’d urge HMRC to take the time to consider timings very carefully to avoid any negative impact to the UK economy as we move forward with Brexit.

Intouch will be responding to the consultation and we encourage all other interested parties to contribute; that means contractors as well as end-hirers who want to continue to have access to and support self-employed contractors. You can see the consultation and how to send your response here – you have until 10th August!

If you want to have your say but need to brush-up on your IR35 knowledge, check out our resources below:

Guide – Embracing IR35
Infographic – IR35; Don’t panic!
IR35 FAQs

 

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.

 

What you need to know about IR35

Familiarising yourself with numerous legislation is just one of the many tasks involved in setting up your own business. But for contractors, specifically, there’s a crucial piece of legislation to get to grips with: IR35.

 

What is IR35?

IR35 is a type of tax legislation put in place to prevent contractors from limiting their tax liabilities by supplying services through a Limited Company, despite carrying out the same work as the company’s employees. In short, it’s designed to stop false self-employment.

 

Does it affect all contractors?

HMRC defines ‘disguised employees’ as contractors who are treated and act like any other member of staff working for a company. IR35 law aims to stop disguised employees trading under an intermediary, which would entitle them to greater tax benefits.

It may seem simple on paper, but in actual fact, many contractors have found it difficult determining whether or not the legislation applies to them. Trading as a Limited Company and working ‘outside’ of IR35 can result in higher take-home pay than an Umbrella agreement, but you need to be certain about your position or you could face financial penalties.

Another thing to bear in mind is that the legislation applies to each individual contract. This means that you might be outside of IR35 for one contract, but within its scope for another. And that’s why it’s important to conduct thorough contract review processes, in order to clarify if any part of your work falls inside the legislation.

 

What penalties could I face?

Contractors found to have been ‘careless’ can be fined 30% of unpaid tax. This climbs to 70% of unpaid tax if the contractor was aware they were inside of the legislation but deliberately did not make the payment; and 100% of unpaid tax if they also tried to conceal their actions.

 

Whose responsibility is to determine IR35 status?

Big changes were introduced from April 2017, which saw the responsibility of determining IR35 status move from the contractor to the client. But this is only where the contract is with a public sector body. The government are currently also debating rolling it out to cover the Private Sector, although this is likely to take some time, if it happens at all.

Some evidence suggests that this has had a negative impact on the industry, causing firms to insist their contractors trade under an Umbrella agreement to relieve the burden of payroll and other administrative duties.

 

Pairing up with a professional

If you’re considering setting up as a contractor, the experts at Intouch Accounting can help you to navigate the minefield that is IR35. We’ll make sure you understand your rights and risks under IR35 and other laws, and will review your contracts for compliance. To find out more about our service, get in touch today.

 

 

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.

 

 

 

 

 

 

Spring Statement 2018

Today saw the Chancellor Philip Hammond deliver his first ever Spring Statement and we’re pleased to say that the future is looking positive for contractors. The Chancellor was upbeat about the recovery of the UK economy and spoke of continued investment in public services and large infrastructure projects. The announcement of a consultation on extending tax relief on training funded by the self-employed plus a review of late payments made to small businesses both also bode well for the future.

We had our ears open for news of the IR35 private sector consultation that was announced in the Autumn Statement last year, and although it wasn’t mentioned in the announcement itself, further information published following the Chancellor’s speech has confirmed that a consultation will be published in the coming months.

Philip Hammond’s written statement announced: “In the coming months the Government will publish: Off-payroll working – a consultation on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reform. The Government will work with businesses and individuals to mitigate the potential administrative burdens of any future changes.”

We would now urge the Government to take time to consider the right approach based on input from across the industry and will of course keeping close to any future announcements.

The IR35 saga has been rumbling on for so long that you may have lost track of the backstory. So, if you want a quick potted history of IR35, what’s happened, why it matters and what might happen next, then read on…

What is IR35?
IR35 is the tax legislation which determines whether an individual is truly self employed, or working as a ‘disguised employee’ in permanent employment in order to take advantage of certain tax relief schemes which permanent employees cannot. If you are ‘inside’ IR35 you are considered a permanent employee and will therefore be taxed as such. If you are considered to be ‘outside’ IR35, you are considered self employed. IR35 applies to all business sectors and specialisms and your status can vary from contract to contract, depending on the nature of the work and details of the contract.

Until April 2017, the contractor was responsible for determining whether their contract was inside or outside of IR35, according to the rules set out by HMRC.

IR35 in the Public Sector
From April 6th 2017, legislative reforms meant that the burden and responsibility of determining IR35 status for Public Sector Contracting was now with the client, not the contractor. This legislative move was perceived by some commentators as HMRC ‘testing the water’ in advance of potentially rolling out the reforms to the Private Sector.

However, the implications of the Public Sector reforms have been more wide-reaching than anticipated, with Public Sector entities like the NHS blanket-applying IR35 across all contracts for fear of getting it wrong and incurring fines. Not wanting the associated administrative burden of payroll management, they also insisted on their contractors using umbrella companies. This double whammy of having the Employer’s National Insurance costs passed down to the worker (and not borne by the Engager) plus the cashflow disadvantage of being taxed at source and still having to pay the umbrella fee left contractors substantially out of pocket. Many decided to work elsewhere, return to permanent employment, or work only in the Private Sector in future if their skills were transferrable.

IR35 in the Private Sector?
Following speculation that the IR35 reforms might be rolled out into the Private Sector imminently, contractors were relieved by the announcement in the November 2017 budget that a full review and consultation would be carried out before any decisions being made. We’ll be watching closely for the results of this consultation which may be published in the coming weeks or months.

If you have any questions relating to IR35 or want to find out more about our Contractor Accounting service, call us now on 01202 375 562.

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.

Dividends – how often should I take them, and when are they taxed?

Dividends can sometimes be difficult to understand and many contractors find themselves wondering when they should take them and when they actually get taxed? In this blog we answer these two questions and cover the timing and tax point of dividend declarations.

 

Question 1: When are dividends taxed? Is it when they’re paid, or the date they’re declared?

A dividend will be included on your tax return, according to the date the dividend was declared as becoming payable. The date it was paid is not relevant. For example:

A dividend declared 1 April 2018, that was ‘payable’ on 7 April 2018, is included as income for the 2018/19 tax year regardless of when it is actually paid.

Remember! Should HMRC decide to investigate, in order to support all dividends, you should keep copies of all dividend vouchers and minutes. Your contractor accountant should have a dividend template for you to use, then you can simply send them a copy every time you use it.

Tax planning opportunities

If you have some of your basic rate tax band left, have sufficient profits in your company and for whatever reason, you don’t want to pay yourself a dividend at that time, you’re able to declare a dividend immediately payable, if you intend to take the cash at a later date. This means you can fully utilise your tax allowances year on year, as it ensures the dividend falls into a specific tax year.

Don’t forget that as of 6 April 2018, the dividend allowance is £2,000. This applies for 2018/19. It’s worth taking at least £2,000 in dividends, as this amount is tax free, regardless of which tax band you fall into. Your contractor accountant will be able to review the level of dividend allowance available and amend this as necessary.

 

Question 2: How often should you pay yourself dividends? What are the dangers of monthly payments looking like disguised salary?

We generally recommend our clients to pay themselves dividends either monthly or quarterly. You can, however pay them whenever you wish.

As long as the correct dividend voucher and minutes paperwork are in place and your company has sufficient funds to cover the distributions, there’s little chance that HMRC will see your dividends as salary.

We do advise all clients to keep their salary and dividend payments completely separate from one another and pay all shareholders separately in the correct proportions, so that a clear audit trail can be provided. Should you be subject to an HMRC review, having clear audit trails in place can make all the difference, as every item is easy to trace and nothing has been missed or hidden.

If you’re looking for specialist, tailored advice regarding dividends that’s unique to you and your circumstances, speak to our team today to find out how Intouch can help you. Our Personal Accountants are here to be your guide, to ensure you get the best and most from contracting.

 


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.

What are alphabet shares and why do contractors need to be aware of them?

What are alphabet shares?

 

Limited Companies are traditionally formed with a nominal number of ordinary shares. As the company grows and more shareholders are added, alphabet shares are certainly something to consider.

 

In this blog, our Personal Accountant Patrick Gribben explores what alphabet shares are and how they could be of benefit to you.

 

Dividend waivers vs alphabet shares

Dividends are received by all the shareholders of a Limited Company, in proportion to their personal shareholdings. Should there be a need for one shareholder to be paid a different amount to the other shareholders, there either needs to be a dividend waiver or the share structure needs to be amended.

 

  • If you believe you’ll use dividend waivers on a regular basis to distribute company profits disproportionately to the same class of shareholder, then it’s advised to use alphabet shares as a permanent alternative method.
  • HMRC are more likely to question dividend waivers
  • Waivers can be seen as unreliable as all shareholders must give their consent each time
  • Alphabet Shares do not need the consent of all shareholders, as dividends are declared by reference to shares held, meaning that dividends declared as being payable to holders of Ordinary shares have no bearing on dividends declared as being payable to holders of an Alphabet share
  • It is possible to attribute rights or restrictions to alphabet shares. This could be in relation to voting rights or or rights to distribution on wind up.
  • Alphabet shares allow freedom and flexibility in paying dividends, so payments can be made to a certain class of share without having to pay the same amount in dividends to each company shareholder. If your Limited Company’s shareholders are taxed at higher rates than one another (if at all) then alphabet shares are a particularly good idea.

 

Settlement Rules

Whether you decide to use dividend waivers or alphabet shares, it’s important to understand whether either is caught by the Settlement Legislation.  In short, the Settlement Legislation is designed to expose and punish anyone who uses dividend waivers or alphabet shares purely to divert income from one person to another, thus resulting in a tax advantage.

 

For alphabet shares it’s particularly important to understand that a lack in voting rights (for example) could result in being caught by the Settlement Legislation.

 

To ensure you do not fall foul of the Settlement Rules, we advise you do the following:

 

  • Any new shares made under the alphabet scheme must be an outright gift and have exactly the same rights as the original ordinary shares. Restrictions cannot apply (such as being non-voting, carrying lesser rights to capital, or promise to return shares on demand). You must not make the shares redeemable preference shares.
  • If you decide to gift shares to spouses, it’s recommended to show that they have an active interest in the running of the company, such as becoming a director, the company’s secretary or even an administrator.
  • Only pay dividends into a bank account that holds the recipient’s name (such as joint accounts) to ensure you don’t attract unwanted HMRC attention.
  • Remember that in order to claim Entrepreneur’s Relief should you decide to sell the company, a 5% share is required.
  • Pay some dividends to each type of share, so as to minimise the risk of HMRC claiming that dividends should not be paid, unless one class of share was not allocated any dividend.

 

Should you have any questions about alphabet shares and how they could compliment your Limited Company, speak to one of our expert advisers today.

 

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.

Dividends – how often should I take them, and when are they actually taxed?

Dividends

 

Dividends can sometimes be difficult to understand and many contractors find themselves wondering when they should take them and when do they actually get taxed?

 

In this blog our Director, Duncan Strike answers these two questions and covers the timing and tax point of dividend declarations.

 

Question 1: When are dividends taxed? Is it when they’re paid, or the date they’re declared?

 

Neither of these answers are correct. A dividend will be included on your tax return, according to the date the dividend was declared as becoming payable. The date it was paid is not relevant.

 

For example:

A dividend declared 1 April 2017, that was payable on 7 April 2017, is included as income for the 2017/18 tax year. The amount would be classed as a loan, if it was paid on 4 April, until 7 April. It would not change the tax year it’s regarded as a dividend.

 

Remember! Should HMRC decide to investigate, in order to support all dividends, keep copies of all dividend vouchers and minutes. Your contractor accountant should have a dividend template for you to use, then simply send them a copy every time you use it.

 

Tax planning opportunities

If you have some of your basic rate tax band left, have sufficient profits in your company and for whatever reason, you don’t want to pay yourself a dividend at that time, you’re able to declare a dividend immediately payable, if you intend to take the cash at a later date. This means you can fully utilise your tax allowances year on year, as it ensures the dividend falls into a specific tax year.

 

Don’t forget that as of 6 April 2016, the new £5,000 dividend allowance was introduced and still applies for 2017/18. It’s worth taking at least £5,000 in dividends, as this amount is tax free, regardless of which tax band you fall into. We will review the level of dividend allowance available and amend this as necessary. Use our new dividend calculator to find out how much you’ll pay in dividend tax this tax year.

 

Question 2: How often should you pay yourself dividends? What are the dangers of monthly payments looking like disguised salary?

 

We generally recommend our clients to pay themselves dividends, either monthly or quarterly. You can, however, pay them to yourself whenever you wish.

 

As long as the correct dividend voucher and minutes paperwork are in place and your company has sufficient funds to cover the distributions, there’s little chance that HMRC will see your dividends as salary.

 

We do advise all clients to keep their salary and dividend payments completely separate from one another and pay all shareholders separately in the correct proportions, so that a clear audit trail can be provided. Should you be subject to an HMRC review, having clear audit trails in place can make all the difference, as every item is easy to trace and nothing has been missed or hidden.

If you’re looking for specialist, tailored advice regarding dividends, that’s unique to you and your circumstances, speak to our team today to find out how Intouch can help you. Our Personal Accountants are here to be your guide, to ensure you get the best and most from contracting.

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.

The rules surrounding tax and Christmas gifts

Tax and Christmas

“It’s the most wonderful time of the year” or so the song goes, when people are busy thinking about what gifts to get each other and possibly what they’ll receive in return. But what are the rules surrounding gifts to employees or clients? Can you claim back the VAT and tax?

 

In this blog we explore how gifts can be given and how to avoid excessive tax for your company or the person who receives the gift.

 

Giving and receiving

There are two sides to tax when it comes to Christmas gifts; one is for the giver and the other is for the receiver. The giver is your company, so is your company able to claim a tax relief for the cost, or does your company have to pay any taxes because of its generosity?

 

Giving to yourself or other employees – direct tax deductions

Remember that even if you’re a one man band, as a director of your Limited Company you’re also an employee, and therefore can still gift yourself at this time of year. Also if your company employs other people, then provided they receive the gift and not you, then the same rules apply.

 

Limit to your generosity

It’s worth remembering that if you go a little too crazy with your company gifts you could end up with a big lump of coal in your stocking, in the form of a National Insurance and tax bill. The basic limit is £50, so if you buy a gift that costs more than £50 (including any delivery charges) it will count as a taxable perk for the employee that receives it. They will have to pay Income Tax and as the employer, you’ll have to pay class 1A NI at 13.8% of the full cost, plus the tax due if you pay that on their behalf. So for example if you were to give a £60 gift it will cost you a total of £85 because of the tax and NI due.

 

If you limit each employee’s gift to £50 per person, it will then cover them for the trivial benefits exemption for employees (which means you don’t have to worry about their or your tax or Class 1A NI).

 

Remember though that cash gifts are not covered by the exemption.

 

VAT

You are able to reclaim the VAT incurred on purchasing the gift if you are not using the Flat Rate Scheme. You may, however, have to account for VAT in the return period in which you purchased the gifts, as they are treated as a supply, if the gifts received by the recipient are more than £50 in a year. If a gift is exempt or zero rated (i.e. a book) you will not have to account for the VAT, unless you are on the Flat Rate Scheme.

 

Gifts for your clients – direct tax deductions

A tax deduction above is not eligible for business gifts for your clients, but there is a similar exception. As long as the client’s gift costs less than £50 and it is not part of a series of gifts to the same person in the same accounting period (which will then exceed the £50 limit), it is tax deductible. This other exemption, however, does not apply to tobacco, food or drink.

 

The rules surrounding VAT on gifts for clients is the same as that for gifts for employees. Therefore you must account for VAT if the gift, or gifts (if there’s a series) have a value that exceeds £50.

 

HMRC – the Grinch that stole Christmas!

To HMRC, Christmas gifts do not hold any special significance, therefore the same tax and VAT rules apply. So whilst it would be nice to think that a waiver on tax and VAT for Christmas gifts would be HMRC’s gift to us, we wouldn’t hold your breath!

 

Final thoughts

If you’re planning gifts for employees or clients, remember to follow the above rules to ensure you don’t receive unwanted attention from HMRC this coming New Year.

 

Ensure you speak to your Personal Accountant before you purchase any gifts, as they will be able to advise you on how much tax and VAT you’ll be paying.

 

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.

How to invest in another company tax efficiently

How to invest in another company tax efficiently

 

Picture the scene; you have a friend that has offered you shares in their own company. You want to invest, but is it more tax efficient to purchase them through your Limited Company, or personally?

 

Duncan Strike, Director of Intouch Accounting, explores below what it really means to invest in another company tax efficiently, and how to ensure you come out better off.

 

Tax: investing in a private company

When buying ordinary shares in a company you have two opportunities to make money:

 

1. As an income (in the form of dividends)

2. An increase in share value

 

Should you personally purchase the shares, dividend tax will apply on dividends and capital gains tax (CGT) on increased share values. The position of tax is different when you invest through your company; the dividends the company receives are normally exempt from Corporation Tax, and it pays corporation tax on any increases in the share value.

 

Tax on dividends

6 April 2016 saw many changes for individuals, but remained untouched for companies. With that in mind, the differences for individuals and companies are irrelevant should your company receive the dividends then pass them onto you.

 

Beware! Your company will not pay any tax on dividends but as soon as they are passed to you, you will have to pay tax on them in the normal way.

 

Remember: During the period where your company retains dividends but does not pass them onto you, it will not have to pay tax on those dividends. So effectively your company could store up your dividends, and then you only pay tax on them once you receive them.

 

Tax: capital growth

If you personally own the investment shares, you’ll only have to pay CGT on any growth in value at the point when you sell them. The position is traditionally the same if your company owns them (i.e. it will pay the CT owed on capital growth when it sells them).

 

However, bear in mind that different rates, reliefs and allowances apply, which can in turn make the tax bill for personal ownership completely different from that payable with company ownership. These include the CGT personal allowance, entrepreneurs’ relief and the new Investors’ Relief.

 

Beware! In respect of the increased value of shares, it is near impossible to be certain if personal or company ownership will result in the lowest tax bill, until all the circumstances are known and the entitlement to relief is established. But remember that by personally owning shares, it will avoid the double taxation which can apply with company owned investments.

 

For example: You use your company to buy 1,000 shares, costing £10,000, in your friend’s company. After five years your friend’s company’s shares are worth £50,000. Ignoring CGT reliefs your company pays CT at 18%, on the £40,000 gain (ie £7,200). When the net amount of £32,800 is paid to yourself, you will have to pay personal tax on it, even though your company has also already been taxed. This could result in an overall tax rate of up to almost 51%.

 

Income vs capital growth

Personal ownership is likely to result in a lower tax bill on capital growth, whereas the tax position for dividends favours company ownership. It’s worth considering whether your company or you personally should invest based on what type of return you can expect – capital growth or dividends.

 

Confused by investments?

You’re not alone! That’s why it’s always important to run your plans past your Personal Accountant to ensure you’re on the right track to achieving your Limited Company contracting aspirations.

 

Are you still hunting around for the perfect contractor accountant? Why not speak to our team of expert advisers today, who will run you through our monthly all inclusive service, that’s tailored to the needs of Limited Company contractors. We look forward to hearing from you!

 

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.

What every Limited Company contractor should know about the Personal Savings Allowance

Personal Savings Allowance

 

6 April 2016 was a big day for Limited Company contractors, with many new changes affecting their everyday professional lives. One of these changes was the introduction of a new Personal Savings Allowance (PSA) which will see around 95% of taxpayers no longer having to pay any tax whatsoever on their savings income, such as interest.

 

So what does this mean for Limited Company contractors? In this blog, our Director of Operations, Laura Hepworth, explores how you’re affected, what you need to know and how to make the most from the new PSA.

 

Back to basics – what is the PSA?

The PSA was introduced by the Government to reduce the amount of tax paid on people’s personal savings income. In short it means that any savings earned in building societies, banks, NS&I products company bonds and credit unions won’t be taxed up to a certain limit.

 

This is, however, decided upon depending on whether you are a basic, higher or additional rate taxpayer.

 

Basic rate taxpayers that earn up to £43,000 per year (20%), are able to earn up to a maximum of £1,000 of savings income before any tax is due. Higher rate taxpayers that earn up to £150,000 per year (40%), are able to earn up to £500 of savings income. Unfortunately if you are an additional rate taxpayer, then the allowance it not available to you.

 

How does the PSA work?

For basic rate taxpayers, banks and building societies used to deduct income tax from the interest earned on accounts (not including ISAs) at a flat rate of 20%. Higher rate taxpayers would see the additional 20% collected through their PAYE code, or when submitting a self assessment tax return. Additional rate taxpayers would have to inform HMRC of how much savings income they’d accumulated through a self assessment tax return, where they’d then pay the additional 25%.

 

Now it’s a much simpler system. Banks and building societies no longer take the flat rate income tax (20%) from the interest earned and instead they pay you gross and report interest details directly to HMRC.

 

More trust has been bestowed upon PAYE codes, as HMRC believes this new method will allow people’s tax codes to be identified by the amount of savings income they have earnt in previous years.

 

Whilst this is good news for those who’s tax code will be adjusted to now include tax free savings, for others who do not receive an income but do generate a savings income, will be expected to submit a tax return.

 

What happens when you exceed your PSA?

Your PAYE tax code will automatically be adjusted and HMRC will deduct any owed tax from your take home pay.

 

Should you exceed your PSA limit, you don’t have to wait until HMRC adjusts your code, you can notify them whenever.

 

Does the PSA have an effect on the £5,000 dividend allowance or existing ISAs?

Good news! As the dividend allowance is separate, it’s not affected. Existing ISAs are tax-free and are therefore also not affected.

 

What happens when you have a joint account?

Should you have a joint account, then both of you will receive a PSA. If one of you is a basic rate taxpayer and the other a higher rate taxpayer, then as a duo you will receive a PSA of £1,000 and £500 respectively.

 

How are multiple accounts affected?

HMRC will cross-reference all of the information they gather from each of the banks or building societies you hold accounts with, to understand your tax code and the amount of tax due.

 

How do monthly cashback / reward schemes affect PSAs?

The PSA includes savings income and interest, but it’s worth understanding that not all banks and building societies are considered as ‘savings income’. For example, if you receive a monthly monetary reward (such as a cash bonus for using a specific banking provider) then this is classed as ‘annual payments’ and are therefore not covered by PSA. So in HMRC’s eyes this means that annual payments are subject to tax.

 

If you’re not a taxpayer, you’re able to claim back the tax by using an R40 form and returning it back to HMRC.

 

How is the interest paid on PPI and other compensation payments treated?

Tax is still required to be taken from any compensation interest paid, as it’s not considered to be part of PSA. Whilst this is the case, you may still be able to claim back the tax by completing an R40 and returning it to HMRC.

 

Final thoughts

PSAs can sometimes be confusing, that’s why it’s always useful to have an unlimited source of expert advice at your fingertips. As an Intouch Accounting client, your Personal Accountant is on hand to guide you through the sometimes confusing world of contracting, to ensure you get the best and the most from your career.

 

Speak to our team today about the tailored, specialist advice and guidance we can offer you, to help you achieve your Limited Company contracting goals.

 

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.