Old News
Interest RatesPre Budget Report Rates & AllowancesPre Budget Report Capital AllowancesPre Budget Report Corporation TaxPre Budget Report SIPPSPre Budget Report UITF40 Service ProvidersSelf Employed Holiday PayNew VAT Bad Debt RulesNew Penalties for Late Payment
Interest Rates
3rd August 2006
The Bank of England has decided increase interest rates to 4.75 per cent, after they had remained static for a year.
Pre Budget Report Rates & Allowances
Next years personal allowances were decided in the Chancellor's Pre Budget in November 2005.
Tax Allowances 2006-07
£ per year (unless stated)
| Personal allowance (age under 65) | £5,035 |
| Personal allowance (age 65-74) | £7,280 |
| Personal allowance (age 75 and over) | £7,420 |
| Blind Person's Allowance | £1,660 |
| Married couple's allowance* (aged less than75 and born before 6th April 1935) | £6,065 |
| Married couple's allowance* (age 75 and over) | £6,135 |
| Married couple's allowance* - minimum amount | £2,350 |
| Income limit for age-related allowances | £20,100 |
*Tax relief for the married couple's allowance is given at the rate of 10 per cent.
National Insurance Contributions 2006-07
£ per year (unless stated)
| Lower earnings limit, primary Class 1 | £84 |
| Upper earnings limit, primary Class 1 | £645 |
| Primary threshold | £97 |
| Secondary threshold | £97 |
| Employees' primary Class 1 rate between primary threshold and upper earnings limit | 11% |
| Employees' primary Class 1 rate above upper earnings limit | 1% |
| Employers' secondary Class 1 rate above secondary threshold | 12.8% |
| Class 2 rate | £2.10 |
| Class 2 small earnings exception | £4,465 per year |
| Class 3 rate | £7.55 per year |
| Class 4 lower profits limit | £5,035 per year |
| Class 4 upper profits limit | £33,540 per year |
| Class 4 rate between lower profits limit and upper profits limit | 8% |
| Class 4 rate above upper profits limit | 1% |
Pre Budget Report Capital Allowances
Small businesses will have the benefit of 50% capital allowances from April 2006, an increase from the current rate of 40%. Many businesses are expected to take advantage of this by deferring capital expenditure until after April 2006.
Pre Budget Report Corporation Tax
The 0% starting rate of corporation tax will be abolished. Companies from April 2006 will pay 19% on all profits within the small company banding up to £300,000.
Pre Budget Report SIPPS
If you've got excited about putting your residential property into your pension fund, then think again. The Chancellor has decided there will be new measures meaning that it is at least no more advantageous to hold these prohibited assets in a pensions scheme than it is to hold them personally. Contact us to discuss in detail.
Pre Budget Report UITF40 Service Providers
Finally, the Chancellor has decided to sympathsise with accountants, solicitors and others in the service sector, by announcing spreading provisions for the excessive tax charged following the basis of calculating work in progress dictated by UITF 40.
The National Minimum Wage has increased again in October 2005
The minimum wage is a legal right which covers almost all workers above compulsory school leaving age. There are different minimum wage rates for different groups of workers from 1 October 2005:
| The main rate for workers aged 22 and over | £5.05 an hour |
| The accredited training rate for workers aged 22 and over who are receiving accredited training in the first six months of a job with a new employer | £4.25 an hour |
| The development rate for 18-21 year olds | £4.25 an hour |
| The development rate for 16-17 years olds | £3.00 an hour |
Self Employed Holiday Pay
Another decision involving entitlement to holiday pay under the Working Time Regulations 1998 (WTR) was given by the Employment Appeal Tribunal (EAT) on 20 May in the case
of Redrow Homes (Yorkshire) Ltd vs. Wright, Roberts and others.
Redrow Homes were appealing two employment tribunal decisions that a number of bricklayers, including Mr. Wright and Mr. Roberts, were workers, and were thus entitled to paid holiday leave.
The particularly interesting aspect of this case is that all of the parties involved, including the original tribunals and the EAT, accepted that Wright and Roberts were self-employed tradesmen.
The issue under consideration by the EAT was whether a self-employed individual could fall within the statutory definition of worker.
According to Regulation 2 (1) of the WTR worker means an individual who has entered into or works under (or, where the employment has ceased, worked under):
(a) Contract of employment; or
(b) Any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking
carried on by the individual.
There was agreement that the tradesmen were not employed under a contract of employment. The issue, therefore, was whether the nature of their working relationship with
Redrow met the three requirements in paragraph (b), i.e.
1. The individual must work under a contract,
2. Under that contract, the individual must undertake to do or perform personally any work, and
3. The other party to the contract must not be a client or customer of a business undertaking carried on by the individual.
The EAT held that all three requirements applied to the tradesmen. The contract was a contract for personal service. Although the tradesmen were self-employed, i.e. were in business on their own
account, they were not carrying on a business undertaking of which Redrow was a customer or client.
The EAT dismissed the appeal and upheld the tradesmen’s right to paid holiday leave.
This decision raises some significant issues that are different to the problem faced by many employers in deciding whether individuals
are employees or self-employed for tax and NICs purposes. In the context of the WTR, the most significant issue is whether or not a self-employed individual is carrying on a
business undertaking.
The factors that may be used to determine whether there is a business undertaking were defined by one of the original tribunals and endorsed by the EAT, namely:
1. The bricklayers worked exclusively for Redrow during the relevant period.
2. They could be ordered to rectify defective work
3. The payment method was a fixed hourly rate or piece rate
4. There was no opportunity to profit and there was no risk of loss
5. Payments were subject to tax on account (i.e. they held CIS4 registration cards rather than the CIS5 or CIS6 certificates that would have indicated
that they were operating as a business).
Therefore, businesses that engage contractors including those outside of the construction industry - even if they may properly be treated as being self-employed, should
consider carefully whether the contractors are carrying on a business undertaking and the business is a client of that business undertaking.
If the factors listed above apply, the self-employed individual may be, by definition, a worker and entitled to statutory paid holiday leave.
New VAT Bad Debt Rules
New VAT rules come into effect from 1 January 2003 which relax the requirment for a trader claiming bad debt relief to tell the customer about the claim. Up to now this has been necessary in order to make a successful claim of VAT.
SI 3027 The Value Added Tax (Amendment) (No. 4) Regulations 2002 come into force on 1 January 2003. From that date there is only a requirement for the trader claiming the relief to tell the non-paying customer about the claim if the supply upon which the claim is based was made before 1 January 2003.
There are also some changes to the rules on the attribution of payments.
The rules were introduced by Section 22 of the Finance Act 2002 inserting section 26A into the VAT Act 1994 (disallowance of input tax where consideration not paid).
SI 3028 Finance Act 2002, section 22, (Appointed Day) Order 2002 provides that section 22 of the Finance Act 2002 (c. 23) will apply to supplies made on or after 1 January 2003.
Customs has also updated Notice 700/18, which explains bad debt relief from VAT.
New Penalties for Late Payment
New mandatory penalties for late payment operate from August 2002.
The legislation has been introduced under an European Directive on combating late payment in commercial transactions.
The new rules provide for:
- a statutory right to interest at 8% over the Bank of England base rate, on overdue payments from all businesses and public organisations;
- the right to reasonable compensation for debt recovery costs incurred as a result of late payment (see below); and
- the right to challenge (or in the case of SMEs – have challenged in their behalf), the imposition of grossly unfair terms and conditions where these undermine the terms of the legislation.
The scale of compensation for recovery costs referred to above varies according to size of the unpaid debt as follows:
Less than £1,000: £40
£1,000 - £9999.99: £70
£10,000 and above £100
An SME (small or medium-sized enterprise) is defined as an entity that has:
- fewer than 250 employees; and
- either has a turnover of less than EUR 40 million or an annual balance sheet total not exceeding EUR 27 million; and
- is independent.
The Better Payment Practice Campaign has published a Users Guide to the Late Payment Act. The guide contains information about the new rules and some example of interest calculations. It can be downloaded from the Better Payment Practice Group website, which is at www.payontime.co.uk.
National Minimum Wage Increase
The minimum wage increased on 1 October 2002 to £4.20 per hour for those over 21 and to £3.60 per hour for those aged 18-21.)
Providing Quality Customer Service – a key to success
Have you seen the latest article on customer service?
New Online Court Service for Bad Debts
Claim bad debts with online court service
The UK Court Service has launched an online debt collection gateway that allows people to file claims at any time via the Internet. Money Claim Online is the Court Service's first step in offering digital justice. The initial service is designed to let individuals, businesses or government agencies issue claims for fixed amounts of money.
Once a claim has been filed - and like all court proceedings should be done only as a last resort - claimants can monitor progress, file acknowledgements or apply for warrants of execution if the claim itself does not work.
The online service asks claimants to explain amounts and particulars of their claims in a maximum of 1080 characters (about 175 words) and to pay the admin charges online with a debit card. There are no fee exemptions for the online service, which is restricted to individuals below the age of 18 or "vexatious litigants".
Once the online claim has been filed, it is passed to the County Court Bulk Centre for processing. A response pack is sent to the defendant, who has 14 days to respond from the date the claim is served.
If the defendant ignores the claim, claimants can request judgments by default online to ordering the debtor to pay up. As with any County Court judgment, unpaid claims remain on the Register of County Court Judgments, which are used by credit-checking agencies.
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