Nasa Consulting - Newsletter March 2010
This month's newsletter looks in brief at three
topics. With the budget for 2010/11 now released and with
changes in non-residence tax and PAYE rules we take a snapshot on
these three areas.
The Budget 2010/11
This Budget seems to have been the 'quietest' for many years for
contractors. What we all expected was gradual rises in PAYE
taxes and National Insurance, and this is exactly what we got:
- The tax free band of income tax (the first £6,475 of everyone's
income) has remained the same. When taken in the context of rising
food and property prices is a worsening of real income
- Higher earners will pay an additional 10% tax (50% band over
£150k) and lose their £6,475 on their income over £100k per
annum
- National Insurance bands have not been increased in line with
inflation
However on the brighter side:
- There has been a delay in the 1% rise in Corporation Tax until
2011
- There was no mention in the budget about legislating against
tax sharing of dividends between husband and wife - the so called
income shifting
- Business owners who take a low salary and high dividend income
from their companies are less affected from the above NI and tax
changes than are employees receiving salaries.
Nasa Consulting's overall conclusion is that the budget was
neutral to the freelance community and if anything, slightly
favourable.
PAYE deadlines
HMRC have found that many SME's have delayed paying their
monthly or quarterly PAYE and NIC bills as a method of obtaining
short term finance in the economic downturn. As HMRC are owed
billions, they have introduced a fine system for any company which
is late with their payments.
As of the 2010/11 tax year, any company that pays its PAYE late
will receive a fine of a few percent of the amount due. This
is in line with the current VAT settlement system and as some
people have experienced, can easily add up to several hundreds of
pounds.
We will always try to advise our clients of their PAYE and NIC
liability as early as possible in a new month to give a couple of
weeks for payment to be made. Companies with PAYE and NIC of
less than £1,500 per month can still pay on a quarterly basis.
Non Residence - for tax purposes
A recent court case (Gains-Cooper v HMRC) has given greater
clarification for those going abroad on how to deal with their UK
taxes and National Insurance.
In the past it has been thought that as long as someone does not
re-enter the UK for more than 90 days in a tax year, then whilst
they are living abroad, they have no liability to UK tax.
The Gains-Cooper case has thrown this thinking out the window.
In his circumstance, Mr Gains Cooper has been living in the
Seychelles since the 1970's, but has large property and family
interests in the UK. Even though Mr Gains-Cooper did not spend more
than 90 days a year in the UK, the courts found him liable to UK
tax as England had remained "the centre of gravity of his life and
interests". He must now pay tax on millions of pounds of income
that were not declared to the UK authorities.
The principles that have come out of this court case are that
every individual needs tailored advice to clarify their tax
residency to the UK authority when living abroad.
Amongst the headline advice we can provide is:
- If you have lived in the UK, and move abroad, you can be liable
for UK tax as well as the tax of the foreign country
- There are usually treaties in place to ensure you don't get
taxed twice where you have tax residency in these two countries.
You are usually liable for the higher of the two country's taxes,
but not both, on all your incomes
- In order to remove liability to UK tax, an individual needs to
show a complete break from the UK. This could include selling all
property interests and reducing social ties etc
- There are separate rules for those working abroad for a fixed
period, which allow for their UK tax liability to be put on hold,
but still to pay national insurance contributions
Advisors, such as Nasa Consulting, are now going to have to take
much more detail from clients before providing advice on tax and
national insurance payments to non-residents. A picture needs to be
built of the individual's residency profile, which is also going to
have to include the intentions of those individuals and what they
believe their residency future holds.