What the Chancellor didn't tell you
The Chancellor’s Budget speech is only ever part of the story. On the Treasury website there's a lengthy document that lays out all the provisions of the Budget in full glory. And hidden in that document, and others published to accompany the Budget, are some issues that could potentially spring some big surprises for small businesses.
The Chancellor didn’t mention IR35 in his speech but that doesn’t mean it’s not to be found in the Budget.
“The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business. This will include:
- strengthening up specialist compliance teams to tackle avoidance of employment income;
- simplifying the way IR35 is administered; and
- subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)”
The emphasis is mine.
Would this mean that an individual such as a virtual FD, operating through their own limited company, would be taxed as an employee of each of their clients, instead of as a business in their own right?
That could add a lot of pain for small business owners who outsource to expert service providers, because they could find themselves having to operate PAYE and NIC on the money they pay for those services.
Not really a measure that “unashamedly backs business”.
The Chancellor promised to address VAT anomalies and loopholes.
What he didn’t say was that he would do this by adding to the number of goods and services on which VAT is chargeable at the standard rate.
And, to my mind, the so-called closing of loopholes has actually not made the issue any less complicated.
These are currently open for consultation, but the plan is to apply VAT at the standard rate to all food “which is at a temperature above the ambient air temperature at the time that it is provided to the customer, with the exception of freshly baked bread...Freshly baked bread that is cooling down in racks will remain zero-rated. ‘Bread’ will be defined in guidance”.
Why not just say that all takeaway food is either standard-rated or zero-rated? That would surely make things easier?
It’s not all bad
There are some positives in the small print, too. Here are some of the best:
Increase in the VAT registration threshold
The VAT registration threshold, which is the amount of taxable sales a business can make a year without having to register for VAT, is to go up from £81,000 to £82,000 from 1st April 2015. That could potentially save quite a lot of small businesses from having to register and charge VAT. I’m very glad to see the Government didn’t take the advice of certain accountants and abolish the VAT threshold altogether and make all businesses pay VAT.
Extension to recommendation for cash accounting
The Chancellor agrees with a recommendation made by the Office of Tax Simplification (OTS) and plans to introduce an optional cash accounting system for sole traders and partnerships with turnover under the VAT registration threshold. Businesses with turnover under £77,000 could start using this system, and then they would be able to continue using it until their annual sales reach £150,000. This not only picks up the OTS recommendation but builds on it. The OTS recommended that the cash accounting system be available for businesses with annual sales of £30,000 or lower and I’m glad to see the Government has taken this further.
More online services from HMRC
From April, HMRC are promising two new online services.
The first is a single online tax registration form which will let a new business owner register for income tax self assessment, corporation tax and as a PAYE employer all at the same time. This is useful in part but I would question how many brand new businesses will take on employees straight away. Many will wait at least a year if not longer.
HMRC are promising an online Business Tax Dashboard in April, which will let businesses see how much tax they’ve already paid and how much they owe. (Did they take that idea from the FreeAgent tax timeline, I ask myself?)
And in October, VAT registration and de-registration will move online. I think that’s good news because it will speed up the process of VAT numbers being issued, which can currently take several weeks.
The OTS also recommended that HMRC speed up its response times and introduce a dedicated small business helpline.
They’ve declined to set up the helpline, because they believe that more online services and simpler forms will obviate the need for it.
And they’re aiming by March 2015 “to deal with 80 per cent of correspondence within 15 working days, and 95 per cent within 40 working days.”
I don’t think that’s anything like good enough. Apart from anything else, if we kept HMRC waiting for a response for 8 weeks, they’d be sending in the heavy mob!
Like most Budgets this is a mixture of good and bad news for small businesses, and there is yet time to respond to the potential IR35 changes. I encourage all small business owners to make their voices heard and take part in the consultation on this subject.
This blog post was first published on 21 March 2012 and was last updated on 1 April 2015.
- Video: an introduction to VAT by HMRC
- You deserve better: why you need to break up with your spreadsheet
- Simple ways to save yourself future Self Assessment stress
- Making Tax Digital consultation response published
- Not feeling (a) fine? You might have a ‘reasonable excuse’ for not completing your tax return