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The election’s over, what’s next?

So now we know the outcome of the most unpredictable election in a generation. The question for good businesses is not “How did that happen?”, but

“What happens next?”

The Tories look like they will be just one seat short of an overall majority. They are likely to form a government without partners, as the opposition is too divided to vote them out, so another 5 years as PM for David Cameron is on the cards.

The main opposition is likely to come from within the party. By this, I mean from his euro-sceptic element. It is possible that EU membership becomes the main battle ground for the next five years.

This uncertainty will be damaging to business, and my hope is we get to the promised in/out referendum as soon as possible.

What does that mean for business?

In many ways it is good news for business. The economic policy will continue. Deficit reduction will remain the central aim. In fact, the aim will be to generate a surplus.

The uncertainty over our EU membership is perhaps the biggest worry for business, especially those who export to that bloc.

General comments

The stability that this result brings probably means that interest rates will stay low for a while longer. We should see a gradual rise back to “normal” levels by 2020. This provides an opportunity to pay down debt, and strengthen the balance sheet.

As I write (midnight on Election Day), sterling has risen on the FX markets, meaning UK exports are more expensive, but imported costs are lower. The pressure for an early rise in interest rates is much reduced.

Here are a few specifics, and some suggested action.

A lower target for tax avoidance revenue

Despite my question on TV (!), (http://www.bbc.co.uk/iplayer/episode/b05t39yq/election-2015-english-regions-election-2015-a-bbc-spotlight-special) we have no idea on where the Government will raise the extra £5bn they pledged in their manifesto. We can expect most of the “vanilla” planning to remain unchallenged.

Presumably, some of the more esoteric strategies will be attacked, and there may be a tightening up of the rules on some of the CGT reliefs. Tax relief on pension contributions may also be restricted.

Therefore, the action point is to review the normal salary/dividend mix, expecting the planning to remain available.

If you are planning to sell your business over the next five years, it might be sensible to start planning now, as the only major taxes not subject to the “no increase” pledge are CGT and Corporation tax.

More encouragement to take on workers

The Tories have pledged to continue the employment allowance, so employers will be able to take up to £2,000 per annum off their Employer NIC bill. The pledge was to keep it for five years!

They want to fund up to 3 million more apprenticeships, and aim for full employment.

Small businesses should now be considering whether this is the right time to take on an apprentice. The skills shortage is likely to be the biggest brake on growth over the next five years.

The action to take here is to develop a five year plan to recruit apprentices and train them up to be your next generation of managers.

More encouragement to start up businesses

The recent pension rule change has opened up a new source of funding. Up to 10% of retirement age people are considering using their pension pot to fund a new venture.

In addition, the Government want to triple the number of start-up loans to 75,000.

Those considering a new business venture should look outside of the traditional sources for funding; there are a huge number of alternatives to the “Big Four” banks.

Other taxes

Cameron pledged no increase in Income tax, VAT or NIC for five years. It is difficult to see where he can increase taxes, as the Tories want to increase the IHT limit to £500,000 per person (£1m for married couples and civil partners).

The UK is in a competitive market for non-EU companies, so it is difficult to see them reversing the recent trend in reducing corporation tax rates.

This pretty much leaves only CGT, business rates, council tax and consumer taxes (alcohol, tobacco and fuel duty) as the only major areas in which taxes could be raised.

The recently announced review of business rates is expected to increase the take by £1bn, so now is the time to review that rates bill and make appeals if you think you have a case.

Tax reliefs

The other way in which tax could be raised is to restrict tax reliefs. For example, tax relief for pension contributions and gift aid could be restricted to the basic rate of tax. Gift aid relief costs around £1bn a year. Cutting gift aid relief could protect another £0.5bn of tax, without “raising” any tax.

Pension tax relief costs around £4bn a year. Another £2bn could be protected by limiting relief.

If a pension contribution is planned, it may be sensible to do it sooner rather than later, as tax relief may be restricted after the next budget or Autumn statement.

Good housekeeping in general

Of course, major changes are always a good reason to review your prices and costs. We can assist in identifying the “low cost, big impact” changes that would have the most effect, and help you to implement them if required.

Contact us, or your current adviser for help with this.

A Government give-away (with conditions)

Introduction

One of the goods things to come out of recent budgets is the new holiday for Employer National Insurance Contributions (“NIC”). The Employment Allowance allows small and medium enterprises (“SME”) to deduct up to £2,000 from their employer NIC payments.

The details

The holiday is worth up to £2,000 per annum. This starts on April 6th 2014, and must be claimed by qualifying employers. HMRC are expecting employers to take the deduction as early as possible, so many will see the benefit on 19 May 2014 (when the first payment is NOT made.

You can only claim it once, even if you run more than one PAYE scheme. If you are part of a group, only one company can claim the allowance.

Who cannot claim?

The main exclusions are companies and organisations that provide “public sector” services. These include:

  • NHS services
  • General Practitioner services
  • the managing of housing stock owned by or for a local council
  • providing a meals on wheels service for a local council
  • refuse collection for a local council
  • prison services
  • collecting debt for a government department

but also includes those;

  • who employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils

How do we claim it?

The claim is made using your own payroll software, or by using HMRC’s own Basic PAYE Tools. You can check how much of the allowance you have claimed by logging on to HMRC’s online service and “Viewing PAYE Liabilities and Payments’.

Arrangements have been made for those employers who are exempt from online filing, and more detailed guidance is available on HMRC’s website.

Other issues

If you have more than one payroll, you can only claim against one of them. At the end of the tax year, if you have not claimed the whole £2,000, you can apply to HMRC to have the balance refunded on the second PAYE scheme.

If you do not apply for a refund, and have an unused balance (i.e. you have paid Employer NIC that you haven’t covered with the EA), you can set the balance off against future PAYE liabilities. Please note, you cannot generate an unused balance in any other way. Neither can employer NIC in excess of £2,000 per annum cannot be used to generate an unused balance.

You can claim EA up to four years after the tax year has closed, but HMRC will set off the refund arising against future or existing PAYE liabilities, unless you specifically ask for a refund.

So what will you do with the extra cash?

A maximum saving of £166.66 per month is not life-changing, but it can be put to good use.

You could give a pay rise to a lower paid worker. Passing on part of that could mean a significant increase (in percentage terms) for that employee. It can also help to head off any discontent. Pre-empting the rise in the National Minimum Wage (“NMW”) can present you as a caring employer, rather than one who has to be forced into giving pay rises.

However, you should consider taking the opportunity to remind them of the difficulties faced by small businesses, and their critical part in making you’re a success.

Alternatively, you could just bank the savings. Cash is king, and particularly when the banks are still not providing enough finance to the SME sector. £2,000 a year may not sound like much, but it can help as a source of free funding.

Perhaps a better alternative would be to use it to invest in updated equipment. If your credit rating is good enough, there are sources of cheap funding around. Replacing older computers, perhaps on a lease or HP contract, will increase productivity, and boost morale. It will also address the need to move on from Windows XP machines, following Microsoft’s withdrawal of support for that operating system.

Words of warning

It is unlikely, but you could lose eligibility part way through a tax year. If that happens, you have to make the appropriate change to your payroll software, and repay the Employment Allowance previously given!

If you use an outside payroll agency, you will need to advise them if you qualify, and of you cease to qualify. Some payroll agencies do not know enough about your business to determine whether you qualify.

If you change payroll software, you may need to file another EPS, to activate the Employment Allowance within the software, although HMRC will roll forward the entitlement each year.

Some employers run a separate payroll for paying senior staff, to maintain confidentiality. If you have more than one payroll, perhaps run by different providers, YOU will have to decide which one gets the EA, and advise all providers accordingly.

You can only deduct the EA from the Employer NIC, not the employee NIC and/or PAYE deducted. Make sure your payroll staff or provider know this, as there are now penalties for late payment of PAYE/NIC.

You will need to maintain records proving entitlement and the amounts claimed, for three years after the end of the tax year to which they relate. You cannot rely on HMRC to record the amounts claimed, and proof of entitlement.

What should we do next?

So there are a few thoughts for consideration. If we can help in your decision-making, please let us know.