With the new tax year on the horizon along with a new budget and the effects of Brexit, change is certainly afoot. Our latest blog aims to provide an overview of the key payroll and tax amendments expected to affect small business owners in 2020 and beyond.
Increase to National Minimum and Living Wage
Already a large expense for small businesses, it was announced earlier this month that the National Minimum and and Living Wage will increase in April 2020.
In real world terms, this increase which takes effect on 1st April will see monthly gross wages for an employee aged 25 and over and working 40 hours a week, increase from £1313.60 to £1395.20.
Employers NI will also increase in response by almost £10 a month per employee based on current personal allowance figures of £12,500.
An overview of the new rates has been provided below and it is worth remembering that apprentices aged 19 and over and in the second year of their apprenticeship are entitled to the NMW for their age group. Looking forward there are intentions to lower the eligibility for the Living Wage to 23 and over by 2021 and 21 and over, potentially by 2024.
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
|April 2019 (current rate)||£8.21||£7.70||£6.15||£4.35||£3.90|
Parental Bereavement Leave and Pay
A new law relating to Parental Leave is expected to come into force on 6th April 2020 which provides additional support for employees who suffer the loss of a child under 18 or still birth after week 24 of their pregnancy.
The new requirements provide provision of up to 2 weeks paid leave.
Employment Contract Updates
Confirmed to apply from 6th April 20, all workers as well as employees will be entitled to a written statement of employment.
HMRC define workers using the following criteria:
- they have a contract or other arrangement to do work or services personally for a reward (your contract doesn’t have to be written)
- their reward is for money or a benefit in kind, for example the promise of a contract or future work
- they only have a limited right to send someone else to do the work (subcontract)
- they have to turn up for work even if they don’t want to
- their employer has to have work for them to do as long as the contract or arrangement lasts
- they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client
This change means that all persons the business appoints to perform work on it’s behalf will need to receive a statement of their key terms of such employment on or before their start date. Such statements provide an overview of working days, place of work and grievance procedures amongst others however this will be extended to cover the additional points:
- the hours and days of the week the worker /employee is required to work, whether they may be varied and how
- entitlements to any paid leave
- any other benefits not covered elsewhere in the written statement
- details of any probationary period
- details of training provided by the employer
ACAS have a basic template for use however we would always recommend seeking specialist advice on employment law.
Businesses who use agency workers will need to be mindful of new rights that apply after 12 weeks of assignment in relation to equal pay requirements.
Such agency workers will be entitled to receive equal pay from week 13 in line with those permanently employed by the business along with key information that sets out employment relationships and terms and conditions with their appointing agency. If considered to be employees, they will also be protected from unfair dismissal or detriment in asserting their rights in relation to The Agency Worker Regulations.
IR35 – Off Payroll Working
IR35 itself has been around for many years and has affected mainly private sector workers, the highest attention having fallen on TV presenters cases in recent months. The IR35 rules relate to owners of limited companies providing services to third parties. Such working arrangements have often been mandatory but have also created tax benefits for the directors of such companies who may otherwise be classed as an employee if the limited company did not exist.
These rules are now being extended to the private sector with more onus falling on fee payers (appointing businesses or clients), to determine whether the rules apply. If deemed to be within IR35, consultants and freelancers face deductions of between 20-33.5% as tax is deducted at source along with potential Employers National Insurance if the fee payer does not absorb this cost.
Whilst similar to the rule of CIS in respect of the 20% deduction, care should be taken when appointing freelancers as they can become deemed employees regardless of being a limited company or when you are performing work for larger businesses who may be required to apply the rules.
At present a consultation on the new rules is underway however it is very likely at this late stage that any changes will be implemented or the scheme delayed.
Find out more about the changes here.
CIS for VAT – Domestic Reverse Charge
Delayed for 12 months in October 2019, the CIS for VAT rules will see an additional 20% deducted from sub contractors bills and passed over to HMRC. The rules are aimed at cutting down non-payment of VAT within the construction industry and will potentially affect cash flow for many small businesses. HMRC suggests that monthly returns may be more beneficial for businesses and individuals falling with the scheme which will make claiming back any overpaid VAT a quicker process. If businesses are eligible, a claim for gross payment status will also help cashflow removing the deduction of CIS tax from invoices.
Find out more about the changes here.
Whilst many of us will be glad never to hear this word again, there is still some way to go before the divorce with the EU is finalised although a transition period will hopefully be agreed for the rest of 2020. Leaving the EU will certainly have an effect on small businesses in relation to employment, taxes and movement of goods.
Information on the latest changes and preparations you can make can be found here.