HMRC

The IR35 changes: Who will be impacted by the reforms?

The off-payroll working (IR35) rules for the private sector have changed. These delayed reforms came into effect from 6 April 2021 and could significantly impact some contractors.

That said, according to research from EY TaxChat, very few contractors know what the changes actually mean for them. Of the 500 self-employed workers surveyed, only 14% claimed to be up-to-date.

At The Salary Calculator, we’ll have you clued up in no time at all. This article will explain:

  • How the IR35 rules have changed
  • Why the changes have been introduced, and
  • What determines IR35 status

How have the IR35 rules changed?

The IR35 rules exist to ensure that contractors and those who hire them pay the correct amount of tax. It targets those who provide their services via an intermediary, such as a Personal Services Company (PSC).

The rules on who is classified as employed have not changed. However, the burden of responsibility for who determines this status has changed. 

It is now the responsibility of medium-sized and large businesses to determine the employment status of a contractor. 

These businesses must outline the reasons behind the contractor’s employment status in a Status Determination Statement. A contractor has the power to dispute this.

The changes do not apply to small businesses. To be classified as a small business, a business must have:

  • A maximum annual turnover of £10.2 million 
  • A balance sheet total of £5.1 million or less, and
  • 50 employees or less

IR35 does not apply to sole traders. 

Why have the IR35 changes been introduced?

According to the HMRC, those who are “genuinely” self-employed should not be concerned by the changes. The new rules were introduced to ensure that more businesses are compliant with the law. 

Specifically, the reforms seek to crack down on companies who hire contractors through “disguised employment” for tax purposes, which, according to HMRC, is rife. Data shows that only around 10% of Personal Service Company (PSC) owners have assessed their status as employed.

What determines IR35 status?

IR35 status is largely determined by the level of supervision, direction and control a contractor has. 

So, if a contractor has the power to determine their working hours, with little or no oversight and only provides work outlined within the contract, they are likely to fall outside of IR35.

Other factors include whether or not the contractor provides their own equipment, if they are paid on a project-by-project basis, their level of exclusivity and mutuality of obligation (MOO).

It can be a bit of a minefield figuring out where you stand when it comes to IR35. But, don’t worry, there are resources out there to help.

HMRC has a tool called CEST which can help you work out whether or not IR35 applies. That said, it’s important to note that CEST should only be used as a guideline and does not provide a definitive answer on your IR35 status.

For more information about where you stand, head over to Employed and Self Employed to learn about the tax implications of different employment statuses.

 

Tags: , , , , ,

Tuesday, May 4th, 2021 Income Tax, National Insurance No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

What you need to know about the new 1257L tax code

The world of tax can sometimes feel confusing. That said, it’s essential to stay informed and up-to-date with the latest tax changes. 

At The Salary Calculator, we’re here to help you every step of the way. So, there’s no need to worry.

One of the recent tax changes is the introduction of the new 1257L tax code. In this article, we’ll explain:

  • What the 1257L tax code is
  • What the numbers and letters mean
  • Who the tax code applies to 
  • The amount of tax you must pay under the 1257L tax code
  • What to do if you think you have the wrong tax code

What is the 1257L tax code?

The 1257L tax code informs employers or pension providers how much tax you owe the government each month. It’s the most common tax code for 2021/22 and can be found on your payslip.

In line with finance minister Rishi Sunak’s announcement in March 2021, this tax code is expected to stay the same until 2026.

The tax code for the previous year was 1250L.

What do the numbers and letters mean?

Understanding the numbers and letters within the tax code is pretty straightforward. They indicate:

  • The amount of tax-free income you are entitled to
  • The amount of tax you must pay above the personal allowance
  • Whether other circumstances must be considered

The number 1257 refers to the £12,570 personal allowance, and the letter L entitles you to a standard tax-exempt personal allowance.

An emergency tax code is indicated by the letters “W1”, “M1”, or “X” and is used in a number of situations. 

If an individual begins a new job, starts receiving a state pension, or begins working for an employer after a stint of self-employment, these letters will be attached to their tax code.

Who does the tax code apply to?

The 1257L tax code is typically used for individuals who have one registered employment, with no unpaid tax, tax-exempt income or taxable benefits.

How much tax must I pay under the 1257L tax code?

If an individual has the 1257L tax code, they can earn £12,570 before they are taxed. Per month this allowance works out as £1,047.

Above this threshold, individuals will be taxed on income earned. So, if you earn between £12,571 and £50,270, you will be taxed at the basic rate of 20%. 

Meanwhile, earnings within the bracket of £50,271 and £150,000 are taxed at the higher rate of 40%.  If you earn over £150,000, you’ll be taxed the additional rate of 45%.

What if I think I have the wrong tax code?

There are a number of legitimate reasons why your tax code may not be 1257L. That said, sometimes mix-ups happen, and you can end up with the wrong tax code. This can happen if you’ve recently changed jobs or if you’ve started a new job while receiving your pension.

Whatever the reason, if you think your tax code is wrong, it’s easy to fix. All you need to do is reach out to HMRC and tell them as soon as you spot the mistake. 

Contact HMRC either by phone on 0300 200 3300 or speak to an adviser via the HMRC Webchat.

Tags: , , , ,

Wednesday, April 28th, 2021 Income Tax No Comments

What Do I Need To Complete My Tax Return?

[Sponsored post]

If you have earnings outside of PAYE, chances are you’ll need to file a tax return. This is an annual submission, due on the 31st January, that lets HMRC know your taxable income and how much tax you need to pay. If you fail to submit it or forget to pay your tax bill, you could face a fine.

So to ensure that doesn’t happen, we’ve asked Mike Parkes from GoSimpleTax to explain the tax return process and keep you on the right side of the taxman.

Get registered with HMRC

If you’ve been a sole trader or received income from other sources (like property) before, you may have already filed a tax return. If not, you’ll need to register for Self Assessment with HMRC.

Once complete, you’ll receive a Unique Taxpayer Reference (UTR) number that identifies you and enables you to submit a tax return. When your UTR arrives, you’re able to set up your Government Gateway account. It’s here that you’ll file your return (either manually or through software).

Bear in mind that it could take up to 20 days to receive your UTR, so be sure not to leave it too late.

Have all your documents to hand

Now you’re registered, the next step is to prepare the information you need to complete your tax return. This includes:

  • Your UTR
  • Your National Insurance number
  • Employment income and benefits received during the year (forms P60 and P11D)
  • Any income you’ve received as part of a self-employed business
  • A total of any rent you’ve received
  • Certificates detailing interest you’ve received from your bank
  • Any income you’ve received from overseas
  • Any income you’ve received as part of a partnership (one partner should also file a tax return for the partnership as a whole)
  • Information about any dividends received
  • All taxable benefits you’ve received from the state
  • All capital gains you’ve made by disposing of assets
  • Information about any Gift Aid payments you’ve made
  • Details of any pension contributions (you may be able to claim some of this money back)
  • Details of any tax payments you’ve already made this year

All of the above information only needs to refer to the tax year that you’re filing for. In other words, if you’re filing before 31st January 2021, the period will cover 6th April 2019 to the 5th April 2020.

Don’t forget your expenses

While it’s important to keep track of your income, it’s equally important to keep track of your expenses. Any expenditure you’ve incurred during the year may be allowable and used to lower your tax bill. Whether you’re self-employed or a landlord, HMRC have prepared lists of regular expenses you’d expect to see.

You won’t need to send any evidence with your tax return. However, it’s important that you keep your records safe for up to six years in case HMRC investigates your tax return.

Pay your tax bill

Once you’ve filed, HMRC will calculate your total tax liability. Obviously, if you file early, you’ll be aware of your liability well ahead of the payment due date, allowing you to manage your cash flow better.

There’s no legal requirement to file early though – both the tax return and any money you owe are due on 31st January following the end of the tax year.

This tax year, however, HMRC are allowing some Self Assessment users affected by COVID-19 to spread their tax bill over a period of 12 months. Users that file early will be able to determine how much they can pay right away, and then how much they’ll need to pay each subsequent month, using the government’s Time to Pay service.

You can check your eligibility and set up your payment plan by logging in to the Government Gateway. Alternatively, you can call the Self Assessment Payment Helpline on 0300 200 3822 and talk through your options.

That’s it! You’ve officially completed your tax return. Now to prepare for the next one…

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed sole traders and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

Tags: , , , , , ,

Monday, January 11th, 2021 Income Tax No Comments

Why You Should Go Digital For Your Self-Assessment

There are always people who prefer paper-based accounting and self-assessments, reluctant or uninterested to learn to use new tools, they prefer physical copies over digital documents. But this could come at a cost.

By transitioning to digital, your accounts will be easier to manage and they’ll take a fraction of the time to process, enabling you to work on other elements of your business.

We’ve asked Mike Parkes from GoSimpleTax to explain more, and highlight how you can benefit from going paperless.

Real-time answers

Paper, by nature, is chaotic. You’ll need to file and accurately record your accounts – up to six years of your accounts, in fact, to ensure that you are covered if HMRC launch an investigation into your tax return. That’s sure to take up a lot of space, and it also doesn’t provide you with an easy-to-access overview of what you owe the taxman.

Digital files, on the other hand, are much easier to read. Especially if you invest in a tax return solution like GoSimpleTax. Tools like these allow you to record your income and expenditure in real time, meaning that whenever a you wish to know your tax liability it is available in a few short clicks.

Plus, as some tax return software providers also highlight any opportunities to claim tax relief, there’s an extra incentive for you to stay on top of your record-keeping.

Record income more easily

Another benefit of going digital is the ease with which you can record your income. At the moment, you have to log each of your paid invoices into your tax returns. But with invoicing tools, that all changes.

By using software to request payment, any invoices paid will automatically update your accounts. For example, if you receive a payment for an invoice you sent, your predicted tax bill will be automatically updated based on the amount of that payment. This saves you time and also unifies two of your businesses most important admin tasks: invoicing and the tax return.

You can also use these digital tools to understand when to schedule sending invoices as well as the follow-up emails to ensure that customers pay on time. Integrations with online payment solutions like SumUp and PayPal can additionally help your customers pay you more quickly using a debit or credit card, saving you from chasing payments in the first place.

Each of these payments will then filter into your tax returns, making the 31st January tax return deadline much easier.

Enhance security

Tax return and invoicing software also allows you to log all income and expenses in the system. That means no more hoarding scraps of paper – instead, you can take photos of your expenditure and you can upload it to the cloud, where it’s secure and less likely to be stolen.

Be MTD-ready

Last but not least, going digital means you’ll be ready for upcoming legislation. Making Tax Digital (MTD) was a government initiative launched in 2019 to gradually digitalise the UK tax system. It started with MTD for VAT, which stipulated that VAT-registered businesses with a taxable turnover above the VAT threshold would need to digitalise their accounts by 2022.

Soon this will extend to all self-employed individuals with an annual income above £10,000. The reason for this is that the government believes, by using software to submit tax returns, there will be fewer avoidable mistakes. These mistakes cost the government £8.5 billion in 2018/19.

By adopting this software now, you’re well ahead of the MTD for Income Tax roll-out date. So, not only will you be compliant with the incoming legislation, but you’ll also benefit from a streamlined workload well ahead of your competitors.

About GoSimpleTax

GoSimpleTax software submits directly to HMRC and is the solution for self-employed sole traders and anyone with income outside of PAYE to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

Tags: , , , ,

Wednesday, December 16th, 2020 Income Tax No Comments

Who needs a UTR number anyway?

** 25/01/21 HMRC updated their guidance to state that they would not be issuing fines for late self-assessment tax return submissions until 28th February 2021. However, the deadline of 31st January remains for payments and any late payments will incur interest at 2.6%.

[Sponsored post]

If you are a self-employed sole trader, partnership or limited company in the UK a Unique Taxpayer Reference (UTR) number is required. The number is unique to the individual or organisation and will never change.

You will also need a UTR if you have other forms of income or expenses that require you to file a Self-Assessment tax return.

Should you not yet have a UTR you will be unable to submit your self-assessment tax return and could run the risk of upsetting HMRC. Penalties are introduced by HMRC for late filing**.

So, to help reiterate the importance of UTR numbers and how to correctly acquire your own, we’ve asked Mike Parkes from GoSimpleTax to shed some light on their role in tax return submissions.

What is a UTR?

A UTR helps HMRC identify and process tax returns against the correct taxpayer’s records.

If you have income outside of PAYE or own a business and don’t act compliantly when it comes to your Self-Assessment tax return, you could face criminal prosecution.

Who uses them? 

Any individual with self-employed income or income from rental property probably forms the biggest group that will need a UTR.

These individuals will need to perform a Self-Assessment tax return. For other taxpayers, it may also be relevant when registering for the Construction Industry Scheme or working with an accountant.

How can I get one?

As you won’t receive a UTR number unless you’re registered as either self-employed or a new business, you’ll need to do so on HMRC’s website. Alternatively, you can call them on 0300 200 3310. There is no cost to doing either.

Be careful if you have already started trading. HMRC expects you to register within at least three months of the end of your first month in business. They will consider strict penalties if you fail to do so.

To avoid these fines, register as soon as you can with all the below information to hand:

  • Full name
  • Date of birth
  • Email address
  • Home address
  • Phone number
  • National Insurance number
  • The date you started self-employment

Double-check that you have fully completed the process if you’re still waiting on your UTR following registration.

What if I’m already registered?

You should already have a UTR code somewhere. If you’ve misplaced it, start by checking any correspondence that you may have received from HMRC. All previous tax returns will reference it, along with any notices you may have had to file a return, payment reminders or statements of account.

In addition, your HMRC online account will also display the code, provided you can access it. If none of these options prove fruitful, contact the Self-Assessment helpline.

About GoSimpleTax   

​GoSimpleTax software submits directly to HMRC and is the solution for freelancers and the self-employed alike to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Get started today, it is free to try – add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

Tags: , , , , ,

Monday, November 16th, 2020 Income Tax, Jobs, National Insurance No Comments

Sponsored Links

Close X

This website uses cookies - for more information, please click here.