As we near the end of the financial year we are taking a look at the changes which will be introduced in April that will affect many of our clients.
Introduction of a National Living Wage
From 6 April 2016 a new mandatory ‘National living wage’ (NLW) will apply to workers aged 25 and over. The first national living wage will be set at £7.20 (this is the current over-21 national minimum wage rate of £6.70 plus a premium of 50p) and will run alongside the other National Minimum Wage (NMW) rates. The government expects the NLW rate to rise to over £9 by 2020.
Regulations are to be introduced under the Small Business, Enterprise and Employment Act 2015 to increase the penalty for underpayment of the NMW. Employers paying below the minimum wage currently face a fine equal to 100 per cent of the underpayment owed to each worker, but this will double to 200 per cent of the arrears owed if the debt is not cleared within 14 days. The maximum penalty will remain at the rate of £20,000 per worker (previously the entire fine was capped at £20,000).
Pension Auto Enrolment Scheme
Over the next two years SMEs with fewer than 30 employees will be required by law to start enrolling their employees on to a pension scheme. Up until now they have been exempt from the pension auto enrolment scheme but they will have to start the staging process of their pension schemes from next year or face fines. According to the National Employment Savings Trust (NEST) 48% of SMEs are not sure of their staging date. You can check your organisation’s staging date on the NEST website
Higher taxes on dividends
From April 2016 the dividend tax rate (after the £5,000 allowance) will be 7.5% for basic-rate tax payers, 32.5% for higher-rate tax payers and 38.1% for additional-rate tax payers. This will affect how SME owners choose to be paid in the future. A combination of minimum wages and dividends may no longer be a feasible option, especially for higher-rate tax payers. Individuals who are basic rate payers who receive dividends of more than £5,001 will need to complete self assessment returns from 6 April 2016.
Travel and Subsistence Relief
As of 6 April 2016, any worker employed through an umbrella company or a limited company director working inside IR35 can no longer claim for travel and subsistence costs as expenses and incur tax relief on these costs.
Contractors working outside of IR35 will not be affected by the proposed changes. However, limited company directors, which are already deemed ‘caught’ by IR35, will not be able to claim tax relief on their expenses in the same way as they have previously done.
One-person company
From April 2016, limited companies whose sole employee is the director will not be able to claim the National Insurance Employment Allowance.
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