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9 November 2013 - General

Kevin McDaid, Chartered Tax Adviser (ATT, CTA) Ex HMRC, 30 years + experience
52 Albert St, Thornton, Bradford, BD13 3ER, Tel 01274 214979, Mob 07939 222437


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£2,000 Employer NIC break from April 2014

As announced in the 2013 Budget, a new employment allowance will commence in April 2014 which will reduce employer NIC by up to £2,000 a year. The allowance will be available to all employers to set against employers Class 1 secondary contributions (employee NIC, which currently applies at the rate of 12% once salary exceeds £7,755 per annum or £149 per week, will not be affected).

More details on how to claim the employment allowance will be made available in early 2014. It is anticipated that it will be a relatively straight forward mechanism via the RTI system applying for all PAYE schemes since April 2013.

HMRC have indicated that there will be certain restrictions and anti-avoidance measures aimed at preventing those who are not genuine businesses from taking advantage of it. HMRC have indicated that the allowance will not be available to individuals who employ nannies or other domestic workers.

The allowance is clearly aimed at helping smaller employers as HMRC’s forecasts suggest: - 450,000 small employers will no longer pay Class 1 secondary NICs in 2014–15 and, on average, employers with fewer than ten employees over the course of the year will see their employer NICs bill reduced by 80 per cent.

Worth sole traders incorporating?

The allowance may even prompt sole traders and partnerships to consider setting up as limited companies in order to take advantage of it. Sole traders (and most individual partners in a partnership) are self-employed – if there are no employees in the business, there will be no opportunity to claim the employment allowance. However, as a director or employee of their own company, the payment of a salary to the business owner could enable the employment allowance to be claimed. This would have to be considered alongside an overall profit extraction policy involving the payment of dividends.

Existing small companies

A popular profit extraction strategy for owners of small companies has been the payment of a low salary, with the balance of the business owner’s income being extracted from the company by way of dividends.

In order to qualify for NIC credits (30 years of credits are currently required for a full state pension) a salary of at least £109 per week has to be received by the employee/director. No NIC will be payable either by employer or employee until the salary exceeds £147 per week. The employment allowance will now enable a sole trader to pay himself (as an employee of his own company) almost £22,200 in 2014/15 without paying any employer NIC although tax at 20% and employee NIC at 12% will still be relevant.  

I have prepared some in depth calculations as to how the new allowance may impact on the most tax efficient way of extracting profits from your own business. Please contact me if you would like a copy.


Reminder that 2012–13 self-assessment returns submitted manually after 31 October 2013 will attract penalties

If you are required to complete an annual tax return - but have not yet done so HMRC are reminding those who have not sent in their 2012–13 tax return by 31 October to do it online from November to avoid a £100 late-filing penalty – even if they have no tax to pay, or pay their tax bill on time.

The deadline for online filing of the 2012–13 tax return is 31 January 2014. Online filing requires registration at, after which HMRC will send the registrant an activation code by post. HMRC are advising those who need to register and file their tax return online to allow sufficient time for this process.

It should also be noted that if there is a tax underpayment and this is to be collected via a restriction in the following year's PAYE (possible in certain circumstances up to £3,000) the return must be submitted to HMRC by 30 December 2013. Returns submitted after this date may still qualify for PAYE treatment of the underpayment but it is not guaranteed.


Daily Penalties for late submission of Self Assessment returns

HMRC have decided to appeal against the decision in the case of Morgan & Donaldson v HMRC where the First Tier Tribunal decided that the daily penalty for the late submission of the 2011 tax return was not properly imposed. 

Whilst this case did not receive a huge amount of publicity in the tax press it is, potentially, a very important case, in that it challenged HMRC policy of automatically imposing late filing penalties.

The Tribunal indicated that the legislation at Para 4 Sch 55 Finance Act 2007 indicated that HMRC must ‘decide’ whether or not a penalty should be applied in each individual case rather than simply having computer generated penalty notices being issued in all cases. Unsurprisingly, with over one million late returns in 2012, HMRC contest the Tribunal’s assertion.

It seems that some HMRC offices were accepting appeals and cancelling penalties on the back of this decision. However, all such appeals will now be stock piled until HMRC’s appeal against the decision is determined. This could take many months.

I would suggest that if anybody has incurred a daily late filing penalty for their 2012 tax return to appeal against it. However, it may be prudent to pay off the liabilities but to include a note to the effect that if the appeal is successful, repayment will be required from HMRC.

Kevin McDaid

9 November 2013