The Construction Industry Scheme (CIS) in the United Kingdom is a nationwide tax-deduction
scheme for British contractors and subcontractors. Contractors deduct money from subcontractor
payments and submit it to HM Revenue & Customs (HMRC) under the Construction Industry Scheme
The initiative attempts to address unethical industry practices such as hiring people on a “cash-in-
hand” basis and failing to comply with tax requirements. This article provides a simplified insight to
look at the scheme, including instructions on how to register with HMRC, file monthly returns, and
define who and what type of work is included.
How Construction Industry Scheme (CIS) Works
If you work as a contractor in the construction sector, you should be aware of your obligations under
the Construction Industry Scheme (CIS). It is essentially a PAYE-like scheme that demands that the
contractor is usually obliged to withhold tax on its payments to the subcontractor and pay the
deduction to HMRC.
Contractors are businesses that work in the construction sector and hire subcontractors to do the
actual job. According to UK law, contractors can be any legal business entity, including companies,
sole traders, and partnerships, which can include real estate developers, construction companies,
and even labour agencies.
CIS covers the following types of work:
• General works related to buildings
• Dismantling or demolition
• Heating, lights, electricity, water, and ventilation works
• Groundworks and preparation of site
If a business that isn’t in the construction sector spends $1 million or more on construction work in
three years, it may be considered a contractor. Housing associations registered in the United
Kingdom or operating in the United Kingdom are examples of this. The scheme does not cover
construction work done outside of the UK. A company headquartered outside the UK that performs
construction work in the UK, on the other hand, is subject to the rules and must register and pay tax.
If you meet the following criteria, you must register with the CIS as a contractor:
• you pay subcontractors to do construction work.
• Your company does not conduct construction work, yet you spend more than £1 million on it
Before you hire your first subcontractor, you must first register with CIS. Check HMRC’s status
guidelines. You should also consider if the subcontractor should be treated as an employee.
Contractors that perform certain types of construction work must comply with CIS and:
• Register with the scheme before hiring their first subcontractor
• Always check if they should hire individuals instead of subcontracting the work
• Verify with HMRC that subcontractors are registered with CIS
• make necessary deductions from subcontractor payments
• pay the money to HMRC
• give subcontractors with deduction statements
• all CIS deductions must be reported to HMRC on a monthly basis
• maintain complete CIS records
• notify HMRC of any changes to their business
Subcontractors should register for CIS as well. If they are eligible, subcontractors who do not want
any CIS deductions might apply for “gross payment status”. Failure to comply with the CIS
programme might result in penalties for contractors.
Verify if your subcontractor has registered with CIS and what their payment status is. The method
for verifying that a subcontractor is genuinely self-employed and should not be classified as an
employee of your company for taxation purposes is a critical component of the scheme. It is
important to understand that even though a contractor withholds tax on payments made to you and
may receive paperwork that looks similar to payslips, you are not being considered an employee and
hence will not be entitled to any of the employment rights that come with being an employee.
You should also establish that the subcontractor is self-employed in the contract between your
company and the subcontractor. However, if the contract is for employment, you must regard them
as employees for tax purposes and pay PAYE instead of registering them for CIS.
Who pays the tax under the CIS Scheme?
After properly verifying a subcontractor under CIS and based on HMRC’s response, the contractor is
obligated by law to withhold the following taxes from any payment owed to a subcontractor (they
will be listed in the subcontractor’s Self-Assessment tax return):
• If they are not registered as sub-contractor – 30% from non-CIS-registered subcontractors,
excluding the equivalent of VAT and the cost of plant hire or supplies.
• If sub-contractors are registered at the standard/ net rate – 20% from CIS-registered
subcontractors who are eligible to receive gross payments, excluding the equivalent of VAT
and the cost of plant hire or supplies.
• If the sub-contractor is registered with gross payment status, there are no deductions if a
subcontractor qualifies for gross payments.
The contactors will not deduct amounts from invoices (sent by the subcontractors) for direct
expenses such as material costs. The contractor’s deductions are subsequently remitted to HMRC,
who regards these as advance payments of the subcontractor’s income tax and national insurance
The contractor must provide a PDS (Payment Deduction Statement) to the subcontractor within 14
days of the end of the current tax month for any deductions made. The subcontractor should keep
these statements since they will be helpful in completing a Self-Assessment tax return.
A subcontractor may seek a duplicate copy of a PDS document that has been lost or misplaced. The
contractor must furnish it, but it must be properly labelled as duplicate.
You can utilise the CIS online service to submit monthly returns, as well as to verify your list of
subcontractors, view previously filed returns, and alter any data that need to be changed.
There should be no outstanding HMRC payments or tax returns. While HMRC frequently overlooks
minor compliance errors, having many failures recorded might result in your gross payment status
being revoked (which is reviewed once per year). HMRC laws require subcontractors to notify any
company changes, including:
• Change in company type, address (private or registered)
• Changing your business name
• Changing the business structure (which necessitates a new gross payment status review)
• Addition of any new shareholders (in the case of companies)
• The core trade has come to an end
A contractor accountant can assist you in staying on top of intricate compliance rules, claiming
overpayment CIS, and ensuring that you are paying the smallest amount possible.
Support from Bloom Financials
This is a brief overview of the processes you’ll need to follow to verify subcontractors and stay in
compliance with CIS.
If you have any questions about the scheme or require assistance with the verification procedure or
tax deductions, our team of experienced professionals would be happy to assist you. Don’t hesitate
to get in touch with us for more information.
As with any bookkeeping, errors can happen when completing a VAT return, especially if you’re maintaining a small growing business. VAT is incredibly complicated, and you should always seek advice about the VAT treatment of any transaction if you are uncertain. If you realise you’ve made a mistake once you’ve submitted a VAT return, try not to panic! Although sometimes simple, these errors can lead to significant VAT Penalties. Business owners should seek specialist VAT advice regularly to ensure they do not fall into these traps. The process for reporting and correcting VAT errors is relatively straightforward, and this brief guide explains the steps you should follow. This simple guide explains what to do in both scenarios.
As a VAT-registered business, you must submit VAT returns every three months.
Your VAT online account tells you:
- when your VAT Returns are due
- when the payment must clear HM Revenue and Customs (HMRC) account
When you submit the Return, the figures for the amount of VAT you collected and paid should be accurate and based on the correct rate of VAT. However, suppose you realise after submitting a return that you mistakenly omitted a receipt or a payment, charged a customer the wrong VAT rate, or made an error in your calculations. In that case, you must act quickly to put matters right.
Calculating the net value
To calculate the net value of errors, you must do the following
Add up the additional tax due to HMRC
In certain circumstances, you can correct an error that you made in a previous VAT return by adjusting a future VAT return. VAT Errors come in all different shapes and sizes, but they generally arise where there is an Error on a VAT Return. It can be where a business:
- Fails to record the VAT on a sale where it should have been
- Reclaims VAT on a cost where it should not have done so
- Makes a calculation error in a VAT return
- had a net error value (any VAT you overpaid minus any VAT you underpaid) below the HMRC reporting threshold of £10,000
- Error was not deliberate (you should notify HMRC of any deliberate mistakes by following the instructions below)
- Error was made in a return for an accounting period that ended less than four years ago
How to Make the Adjustment
You can adjust your next VAT Return if the net value of the errors is £10,000 or less. You can also adjust your next VAT Return if your error amount is up to 1% of your box 6 figure (up to a maximum of £50,000). If it is above the reporting threshold of £50,000, you must report to HMRC regarding the error.
If the error means you owe VAT, add the net value to box 1 of your Return. If the error means you are due a VAT refund, add the net value to box 4 of your Return. It’s essential to keep a record of the date of the error, the date you made the adjustment and the details of the error. You should also adjust your own VAT records to reflect the correct figures.
Reporting an error to HMRC
If you need to report a VAT return error to HMRC because it doesn’t fit the above criteria, you should fill out form VAT652 and send it to HMRC. While it’s possible to make an error report to HMRC without form VAT652, having one should make the process much easier. If you’re unable to access a form, you can write to HMRC directly to report an error.
When you contact HMRC, make sure you have the following to hand:
- details of how each VAT error arose
- the VAT accounting period in which the error(s) occurred
- if the mistake was an input tax or output tax error
- the amount of VAT under-declared or over-declared by your business in each VAT period
- how you calculated this amount
- whether any of the errors reporting resulted in your business paying HMRC an amount that wasn’t due
- the total amount of VAT to be adjusted
HMRC’s VAT Notice 700/45 provides detailed information about correcting VAT errors, but you should consult with your accountant if you have any concerns about your VAT return.
HMRC’s Penalties for VAT Errors
HMRC may charge you penalties and interest if an error is due to careless or dishonest behaviour. You should tell HMRC about careless errors separately in writing, as well as adjust your current VAT Return. It may lead to a reduction in the penalty. If you’re late filing a VAT return or making payments to HMRC, you’ll enter a 12-month probation period. Should you file any further late returns or make late payments within this 12-month ‘surcharge period’, you will incur a default surcharge penalty. The probation period is reset for a further 12 months.
Prompted errors attract higher penalties than unprompted errors, so it’s essential to notify HMRC if you spot an error. In order for HMRC to consider any reduction to a penalty, you should inform them that you have made a careless error or deliberate inaccuracy regardless of its size or value. You need to be aware that HMRC might choose to issue you with a penalty if they consider that you have acted carelessly or dishonestly. The penalty can range from:
- up to 30% if you have been careless
- up to 70% where it’s a deliberate error
- up to 100% if it was is both intentional and concealed
You should receive a reply from HMRC to confirm if your calculations are correct within 21 days. If you manage to convince HMRC that the appropriate action has been taken to prevent these errors from happening again, they may suspend the penalty.
Every business calculates the VAT amount, makes a return and sends it to HMRC. Not every Return but some of the returns may contain errors, and it is best to solve the same by making adjustments as early as possible before sending it to HMRC. However, you mustn’t make any further errors during the period the penalty is suspended. If you would like professional tax advice on any aspect of VAT reporting or error correction or would like confirmation that you are complying with HMRC’s VAT rules, Bloom Financials experienced tax consultants will be glad to help.
- What to Look for in a Rental Property
- Characteristics of a profitable business rental property
- What are the immediate benefits of renting property?
- What are the major disadvantages of renting property?
- Adjustment of rental property business in Covid-19
- What if a tenant runs a company out of a rented space?
- What credentials should tenants consider if they’re running a business out of a rented space?
- How Do We Help?
Every property owner has one primary goal in mind, to create value from the land for goodwill or reputation. So, they usually set up well-managed and fully furnished houses. The land is sometimes purchased and rented by the owners to carry out their commercial activities. In such cases, owners are likely to benefit from various tax advantages.
However, we will focus on the advantages of rental property for starting or running a business in the United Kingdom. However, there are benefits and downsides to purchasing a rental property to create consistent long-term income and capital appreciation. Conversely, it requires a strong relationship between the tenants and property owners. Tenants are the “Limited Liability Entity” who signs the lease with the owner.
The rented property or home can also be utilised in numerous ways such as office, shop or restaurant. Tenants sometimes run their business from rented property that helps them to take benefit of taxes. Every owner and tenant running a business or wants to start from a rented property must consider some helpful tips regarding the land. Moreover, tenants working from a rented property needs to consider some authorised planning and government policies.
What to look for in a Rental Property
While starting a business from a rented property, you should consider the land or property area, which may help create money.
Property pricing: Business owners should keep an eye on other properties’ listing prices and check municipal records for final selling prices to get a sense of what a neighbourhoods’ true market worth is.
Tenant attraction: Look for a property with a qualifying neighbourhood and fair rentals for both appreciation and tenant attraction. It will also increase the property’s worth if you decide to sell it after a few years.
Profitability of ventures: It is critical to purchase a property at a reasonable price in order to assure a lucrative operation.
Characteristics of a profitable business rental property
Taxes on real estate
Taxes on profitable rental properties vary significantly from targeted regions to commercialism. If the neighbourhood is more commercial, the owner will almost certainly pay more. However, if a person is operating a business, it is not regarded as a negative thing. Commercial zones may help a variety of businesses, including restaurants and retail. Long-term tenants are attracted to the area by the high property taxes.
The vacancy rates and types of tenants that an area will attract are determined by the community in which it is purchased. If you buy near a university, there’s a good likelihood that more students will come. That’s the way a business won’t have to struggle to find more tenants every summer.
The Job Market
More renters are drawn to areas with increasing employment prospects. In addition, tenants are more inclined to relocate to places with more work prospects. Business owners must be confident that tenants would seek out such a place due to migrating to the neighbourhood.
Business owners should take a tour of the area to see the parks, restaurants, gyms, movie theatres, public transit, and other amenities that attract tenants. Try to find places with the finest combination of public facilities and private property. As a result, the prospects of attracting renters will improve.
Development in the Future
Visit the areas that will be more developed in the future. It’s an excellent growing location if there’s a lot of building going on. Also, keep an eye on new projects that may increase the value of nearby houses.
What are the immediate benefits of renting property?
For businesses, there are various advantages to owning a rental property.
- Financially rewarding and have numerous tax benefits
- Less insurance deductions, mortgage interests, and maintenance costs.
- Selling a rental property and investing in another business without incurring capital gains taxes, if a business owner uses “1031 exchange”.
- Business owners treat a room or portion of a house as a rental, deducting a percentage of the mortgage interest and other expenditures from the revenue.
What are the major disadvantages of renting property?
Owning a rental property has a number of drawbacks for businesses, listed down below.
- As real estate is not a liquid asset, there is a lack of liquidity.
- A sale may take many months to complete.
- Taxes and insurance costs are constantly rising.
- There is no guarantee that taxes would not grow faster than rents.
- Natural catastrophes can also have an impact on insurance rates.
Adjustment of rental property business in COVID-19
The way businesses operate has evolved dramatically over the years, especially following a COVID-19 lockdown. Employees are increasingly opting to work from home rather than commute to the workplace. As a result, it has become a major source of concern for landlords, as rented property carries legal ramifications when it comes to renters working there.
When it comes to rented property, there are various legal considerations for both company owners and renters. It also necessitates the allocation of significant resources from the government and other management organisations.
In covid-19, maintaining a rental business in the best possible way has become a worry. With the new travel restrictions throughout the world, finding new renters and keeping existing ones is a complicated issue. Managing the rental premises may be a problem for business owners.
Business owners must consider a temporary adjustment in rental pricing to maintain business and minimise losses. Rent reductions for present or future renters will make properties far more competitive. Tenants who are going through a difficult time and don’t have a steady source of income require empathy and flexibility in order to rent out their properties.
As a Tenant, how to pay in Covid-19?
Some tenants may only want a little compassion to pay their rent so that owners may work with them in various ways.
- Payment in instalments.
- Long-term payment plan
- Ask for extra time to pay rent
- Contract-based extensions in case of tenant is not a UK resident.
How to avoid money loss in Covid-19?
To avoid a significant financial loss, owners should examine the following options:
- Learn about the government’s protections for COVID-19-affected tenants.
- Business owners must investigate any local government subsidies or grants that may be available.
- During the months when COVID-19 is in effect, a business owner who receives a loan from a bank must negotiate for a more flexible mortgage.
- Many owners are laying off tenants and workers right now. If you have tenants, you must carefully consider the expense of laying off workers since this would very certainly need rehiring, training, and onboarding new employees, which is not a sensible way to manage time.
What if a tenant runs a company out of a rented space?
There are many self-employed tenants in the United Kingdom who work from their homes or rented properties. Thus, a tenant must primarily comprehend how working from a rented house would benefit him and how much tax he may claim.
For both sole traders and partnership businesses, there are two techniques for estimating tax business use of home or rented property.
The flat-rate method: In this arrangement, tenants are asked how many hours they spend each month running their company. The amount of tax you pay varies depending on how many hours you work at home every month. This technique is quicker since it just considers the costs of heat and light, not rent, council tax, or telephone and broadband.
The costs method: When a limited company operates a home-based business, the renter must employ the cost method. The amount of tax levied in this way is determined by the nature of business, and labour renters undertake at home.
Tenants can conduct their business from home or rented property depending on the type of business they are performing and obeying the legal regulations of the government. Nowadays, most tenants concentrate on running a home-based company. They do, however, have government-imposed laws and regulations.
If a company’s revenue is entirely derived via the internet, the UK government does not impose any tax limits. On the other hand, if your firm requires in-person meetings with overseas clients or freight deliveries, the government will force you to purchase a commercial property to conduct your business.
What credentials should tenants consider if they’re running a business out of a rented space?
Authorised Planning and Permission
Tenants must get approval from the council before altering traffic patterns or the living circumstances of their neighbours. Tenants may also require approval from their mortgage provider or landlord, the local planning office, and the local council to conduct a company from their house.
The tenants must think about getting the right business insurance.
For landlord property, tenants are charged business rates according to different business conditions:
- If a landlord’s property is used for both commercial and personal purposes by tenants.
- If tenants offer goods or services to visitors to the landlord’s premises, the landlord will receive a commission.
- If tenants hire individuals to work at the landlord’s place of business and make alterations to the landlord’s place of business, they will pay more property rent.
How We Help?
The growing epidemic is having an impact on many aspects of businesses. Bloom Financials believes that a pro-active, problem-solving approach is always more vital throughout COVID-19. It is up to us to turn this difficult situation to our advantage. So, let’s activate our optimistic thinking!
We have the professionals on board to advise and recommend how owners and tenants can stay afloat amidst this crisis. Our staff has produced practical guidance on how to negotiate payments with your renters and landlords, as well as how to find money-saving options.
We also make it simple to claim tax and use of business via home expenditures by allowing tenants to manage all of the bills and leases. So, just the percentage of a business cost can record as an expense in your accounts.
- Income tax losses overview
- What kinds of losses your company can experience?
- Limitations on how long you have to file a claim for loss relief?
- How to Get a Tax Refund if You’ve Had a Loss?
- What are the tax consequences under COVID-19 if a self-employed person loses money?
- What can Bloom Financial do for you?
Income tax losses overview
The overall profit is the sum of all net income and net chargeable gains on capital assets. If a company’s income exceeds its costs, it is considered a successful business. If it spends more money to generate revenue than it earns, it is said to be losing money. In most cases, income tax losses are determined over a one-year accounting period.
Trading is frequently the primary source of earnings of a firm, and these are calculated using its worldwide profit before tax indexing in its records. Moreover, for sole traders, any profit and loss on loan generally entails the trading profits and are a separate source of income or loss.
A firm or sole trader may experience loss in one or more of their sources of income. There are three categories of losses that mostly come into contact, trading, property, and non-trading.
Profitable businesses must pay taxes on their earnings. However, if a company is going through a challenging period and isn’t producing enough money or profit, it should check to see whether there is any loss alleviation available.
It is critical to be informed of the many ways in which trading losses of sole traders and trading partners might be alleviated if a firm is going through a period of survival and failure. This article will discuss the types of relives available for businesses and how they can protect themselves in these situations.
What kinds of losses your company can experience?
According to the applicable tax legislation and HMRC guidelines, the following reliefs are available for different types of losses in the UK:
- Common Trading Losses
This type of loss is measured as a percentage of total income from all sources. In this loss, the government offers relief based on the first available earnings from the same trade.
- Losses sustained in the first four years of trading
This loss is computed as a percentage of total revenue in the previous tax year from all sources.
- Relief from a Terminal Illness (losses arising in final 12 months of trade)
On a last-in, last-out (LIFO) basis, this sort of tax loss is determined for unrelieved terminal losses against earnings of the same trade assessable in the three prior tax years.
- On incorporation, a single trader’s unrelieved trading losses
This tax is applied on income (such as salary, rental income, and dividends) from a company to which the firm that created the losses has been transferred.
Limitations on how long you have to file a claim for loss relief?
A sole trader must file a claim for loss relief within one year of the tax return’s regular filing date for the loss-making year.
For example, a relief claim for losses in 2018/19 may only be filed by January 31, 2021.
However, in some cases, HMRC accepts late claims, but you must file your claim on time to avoid lengthy procedures.
Certain ‘income tax reliefs’ that an individual may claim are subject to limitations. However, restriction on relief for trade losses is carefully enforced by the UK government, and it varies depending on the circumstances in which a corporation is operating.
How to get a Tax Refund if You’ve Had a Loss?
As previously stated, income losses arise when operating expenditures exceed net income. As a result, it becomes evident that any company can go bankrupt at any time. However, sole-traders and new businesses frequently experience significant revenue losses.
When a start-up generates products and services in the early stages of its firm, it may encounter several money management challenges. The primary cause for start-up losses is their unfamiliarity with real-time financial and accounting administration.
The form of business, such as a trading company, a partnership, or a sole-trader, determines how to claim a tax refund for business losses and how quickly you receive that return.
1- Tax relief for sole-traders and partnerships:
For claiming a tax refund, the simplest and quickest method is to file a personal tax return. If you’re a sole-trader or a partnership, you have four options for triggering a loss:
- Deduct any other income from this year’s tax return, the prior year’s tax return, or both.
- For three years, carry back losses accumulated in the first four years of trade. If you’re a sole trader or a partnership, make sure you file your claim before the deadline.
- Claim compensation for profits made in previous years on the same trade.
- Use the loss to offset future earnings from the same deal.
2 – As a self-employed person, claiming loss relief against income
Self-employed people usually file a claim for loss relief on their Self-Assessment tax return.
- If the loss can be traced back to more than one year, you can get a reimbursement.
- If the amount of loss is calculated from the previous year’s net income, you can claim the relief.
3 – Claims made outside of a personal tax return (PTR)
When an individual wants to file a claim before filing their tax return, this is known as a ‘stand-alone claim.’ In this situation, you must write HMRC a letter including the following information:
- Transaction name
- The amount and duration of business loss
- Intensions behind utilising the loss by a person
What are the tax consequences under COVID_19 if a self-employed person loses money?
Losses incurred by self-employed or partnership workers might be deducted from other earnings. Although losses are never desirable, there may be a chance to get a profit from them.
Some Covid-affected firms and self-employed persons who do not qualify for government assistance may be able to profit from a new way to enhance cash flow thanks to the loss carryback provisions.
The Covid Act includes a variety of temporary income tax provisions to assist those affected by the Covid-19 limitations.
There are three factors to consider:
- Self-employed people can ask for their 2020 losses and some unused tax depreciation to be “thrown back” for the 2019 tax year, lowering the amount of income tax owed on such gains.
- Self-employed people can file “interim claims” based on the amount of assistance they expect to get.
- For the tax year 2020, farmers will opt out of income averaging.
What can Bloom Financials do for you?
We strongly concentrate on relief claim and money management experience to assist our clients in identifying, assessing, and decreasing their risk exposure, hence lowering risk costs. For loss-related claim services, we got one of the best consulting teams in the industry.
Businesses, sole traders, and self-employed individuals exposed to various loss recovery claims require specialist advice to assist them in detecting difficulties. We’re dedicated to supporting their clients with loss prevention and claims management. Our expert claims team serves as facilitators and instructors, enhancing our clients’ position at critical periods in their businesses.
Pension Tax Relief: What Is It?
Key Processes to Get Pension Tax Relief
Tax Relief: In-Case of Not-Paying Tax
How to Avoid After-Effects of Not-Paying Tax?
Relevant UK Earnings
Salary Sacrifice Arrangements
Self-Invested Personal Pension Schemes
Higher Rate Taxpayers
Tax Credits and Universal Credits
Pension Tax Relief: What Is It?
Tax relief is an added amount into a pension that individuals generally set aside for retirement. Pension tax relief (PTR) is a helpful feature; when a person pays into retirement, a significant amount of tax money under the government is transferred into that pension as a substitute.
Hence, PTR supports dropping the amount of payable tax and raising future savings. However, tax relief is determined based on the individual’s income tax and pension scheme. HMRC also imposes limits on the amount of tax relief that is entitled to individuals.
Key Processes to Get Pension Tax Relief
Individuals with pension contributions have to go through “Relief at source” and “Net pay” as two main ways to obtain tax relief. An employer decides the process of workplace pension tax relief. On the other hand, self-employed workforces use the Relief at Source method.
Process 1: Relief at Source
The government boosts people’s contributions with relief at source so they can claim higher tax returns.
Employer subtracts regular taxes from employees’ taxable UK salaries and pension contributions and sends it to the pension provider. Afterwards, the pension provider privileges 20% in tax relief unswervingly from the government and adds it to the employee’s pension pot.
Employees who pay more tax rates than 20 per cent, employed or self-employed, can claim further tax relief via a tax return. Furthermore, employees can also claim extra tax from the HMRC head-on.
Process 2: Net Pay
Pension contributions are cut out from the lower amount of UK earnings in net pay, so the individuals pay less tax.
Employer subtracts the total amount of pension contribution from employee’s salary before any tax deducted by HMRC. However, a person can receive tax relief while paying less tax if he pays the full pension contribution himself.
In net pay, whatever tax rate an individual pays, he can obtain complete tax relief without claiming it. Moreover, in this method, the employee will not receive tax relief if he does not pay any tax.
Tax Relief: In-Case of Not-Paying Tax
If an individual earns less than the Personal Allowance and does not pay tax, he will not get tax relief. Depending on a tax relieving scheme, employees with a workplace pension are not subject to tax relief if they do not pay taxes.
There are two types of not-paying tax cases, i.e., net pay and relief at source.
Case 1: Employee’s workplace pension set up with the net pay method gets deducted from the full amount of pension contribution before any tax subtractions.
Instead of getting tax relief directly from the pension contribution, in this method, employees receive tax relief via a lower tax bill. However, if they don’t pay tax, there will be no tax bill and tax relief.
Case 2: Under the relief at source method, the pension provider always claims tax relief at the basic rate of 20 per cent.
However, the pension provider claims tax relief from the government and adds it to the employee’s pension pot. Thus, if an employee does not pay according to UK earnings, he will not benefit from tax relief.
How to Avoid After-Effects of Not-Paying Tax?
There are several ways you can avoid the after-effects of not paying tax, listed down below:
- Ask the employer to set up a workplace pension scheme.
- Query the employer to consider a tax relief scheme that operates well at the relief at source method.
- Ask the employer to operate the same method for all staff in the scheme to avoid tax relief losses.
- Don’t try to leave the scheme that an employer sets up.
- Don’t try to create a new & self-owned scheme; otherwise, you’ll miss the contributions that your employer made.
Tax Relief Method for Employee’s Scheme
The easiest approach to check the scheme is to ask the human resources department if you’re employed or check with the pension provider.
Check your scheme according to the two methods listed below:
- Net Pay: Complete pre-tax pension contribution.
- Relief at Source: Lower pension contribution taken from after-tax pay and tax relief is claimed from the government by employee’s pension provider.
Relevant UK Earnings
Relevant UK earnings are the type of earnings that are comprised of multiple forms of money.
It includes income from employment such as salary, wages, bonus, kids benefit, and overtime commissions. Moreover, it encompasses redundancy payment above the £30,000, profit-related pay, income from a trade, rental income, and patent income.
Salary Sacrifice Arrangements
Many employers offer their employees’ pension schemes in conjunction with a salary sacrifice arrangement to avoid National Insurance contributions (NIC).
A salary sacrifice agreement is a contract between an employee and an employer that requires them to give up a portion of their pay.
Moreover, it can impact future pension calculations so that employees must be knowledgeable about all facets of employment laws before settling on salary sacrifice arrangements.
Self-Invested Personal Pension Schemes
In a self-invested personal pension, the contributions to the scheme are usually treated as after-tax pay. Pension provider claims a basic tax rate of 20% from HMRC, add it to pension pot and provide tax relief.
For Example, The pension provider will claim £20 if an employee contributes £80. As a result, a total of £100 will be added to the employee’s pension account.
Higher Rate Taxpayers
Higher rate taxpayers can claim more tax relief from HMRC via a self-assessment tax return.
For Example: If an individual pay income tax at 40%, he can claim an extra £20 tax relief. It makes the cost of a £100 contribution into your pension £6, which means £20 claimed through your pension provider and £20 reclaimed by you.
Tax Credits and Universal Credits
Benefits such as universal credit or tax credits into pension contributions reduce the amount of income that is taken into account in assessing employees’ higher awards.
Employees should double-check the position for any benefits they are claiming. Whether you’re in a net pay scheme or getting relief at a source, make sure the authorities are aware of your pension contribution amounts.
Pension Planning for Better Tax Relief
Employer pension contributions are tax-efficient if the yearly allowance is not exceeded. However, if an individual owns a business, he can deduct pension payments as a business expense, which can be a tax-efficient approach to extract value from the company.
Though, with all of the recent changes to pension laws, employers may discover that their pension is no longer the greatest investment for long-term investments.
Bloom financial employees’ pension tax relief services assist both employees and employers in determining the best options. Our team helps in dealing with a spouse’s pension to provide a joint income in retirement, Net pay & Relief at source methods, and choosing the accurate employee workplace scheme.
- Brief Background
- Kickstart Scheme Introduction
- Step by Step Process to Apply
- Government and Employers Contributions in Scheme
- How Kickstart Scheme Supports Building Skills?
- Gender and Age Restrictions in Kickstart
- Where the scheme is accessible?
- What are the deadlines to apply?
- Advantages of Kickstart
During the pandemic, youngsters are more likely to work in shutdown sectors or remotely. Whether they are working in hospitality or retail, youth unemployment can be seen 13% much higher. However, lockdown damages every sector at a minor level, but the industries and businesses are also rapidly moving towards digitisation.
During the outspread of COVID-19, the chancellor of the United Kingdom analysed the situation countrywide fully and decided to contribute positivity to the lives of unemployed individuals. Thus, Kickstart Scheme has been announced.
The Kickstart Scheme began with the chancellor’s good intentions and was part of a package of initiatives that included traineeships stipends and incentives for employing apprentices. Particularly young individuals who are in danger of long-term unemployment.
Kickstart Scheme Introduction
Kickstart Scheme has one chief objective to provide the facility of jobs to unemployed individuals and improve the future of employability. However, the scheme especially supports young people between 16 to 24, offering a high-quality job for six months. Furthermore, the job stipend is fully paid by the government at the national minimum wage for at least 25 hours a week.
Young individuals claiming universal credit for work internships that last up to six months will be eligible for Kickstart. The government will fund the entire stipend, as well as NI payments and pension contributions, in a single plan.
Step by Step Process to Apply
If any individual currently claiming universal credit will have to follow an eligibility criterion. One can follow the below-listed steps to apply in the scheme.
Individuals can communicate directly with a Work Coach about current job openings through the Kickstart Scheme. Individuals who do not currently have a work coach can inquire at their local Job Centre office.
- Join application support workshops/sessions
Participate in sessions to learn more about the Kickstart Scheme, connect with organisations that are recruiting, and figure out how to apply.
- Explore types of positions available
The Kickstart Scheme is open to all industries and is expected to attract a broad spectrum of job applicants from England, Scotland, and Wales. As a result, it is critical to learn more about accessible occupations.
- Keep track of roles where they are being posted?
While there isn’t a single site where you may look for jobs, you can start by looking online and discussing your options with your Work Coach afterwards.
The local Job Centre will find all possible employees through the initiative and provide relevant CVs until you have picked the best applicant.
There is no limit on the number of new workers employers can hire under the program.
Small businesses recruiting more than 30 people can submit a bid directly online through the main Kickstart page.
Large corporates having more than 30 employees can easily bid online without too long a procedure as large corporates can get more advantages via the Kickstart scheme.
Government and Employers Contributions in Scheme
The government of the UK is focusing on the unemployment of youth. On the other hand, the private company employers are getting the chance to hire young talents on behalf of the government offering salaries. However, if employers want to hire an employee permanently or pay more wages, they can pay from their funds.
The government will pay companies £1,500 per Kickstart placement if employers require additional funds for assistance, training, aid, uniforms, setup fees, resources and equipment.
How Kickstart Scheme Supports Building Skills?
These days, companies are concentrating on the industrial required skills to grow their businesses or startups. Thus, the government planned to offer some skill-based training jobs with the leading organisations. The kickstart scheme is meant to help the youngsters to gain experience while working with experts and industry leaders. Also, they will get a chance to work in pressure and hectic environments.
Ultimately, Kickstart is a chance to jumpstart the careers of thousands of young people who could otherwise be left behind due to the epidemic. The initiative ensures that a new generation has a brighter future and that the UK recovers stronger as a country.
Gender and Age Restrictions in Kickstart
Men and women working in retail and hospitality significantly impact their wages and employment in the present economic atmosphere. Men and women have nearly identical unemployment rates, with males having a little higher rate than females. Also unemployed are those aged 16 to 24. As a result, both men and women are eligible to participate in the Kickstart Scheme.
Where the scheme is accessible?
The initiative is available to firms from all industries in England, Scotland, and Wales.
What are the deadlines to apply?
Employers can apply until 17 December 2021 for funding to create jobs for 16 to 24 year olds on Universal Credit.
Employers who applied for a Kickstart Scheme grant before 17 December 2021 and If their application is successful, they can spread the job start dates up until 31 March 2022. They’ll get funding for 6 months once the young person has started their job.
If your application is not successful, you can apply again until 17 December 2021. You cannot apply again after this date.
Advantages of Kickstart
- The scheme is designed to grow the company’s workforce
- Equip companies with extra human resources,
- Hire talents without any cost or wages for the next six months.
- Having the ability to hire additional workers to increase income while not paying them until money begins to flow can be a game-changer.
- Lessening the massive COVID-19 impacts on the economy
- Providing experience of a real job
- Reducing their chances of long-term unemployment
- Boosting skills
Kickstart can be a very effective way for business and industry growth with a new workforce. They can benefit from the extra human resources and defer the cost of doing so for six months. Bloom Financials Kickstart training and support programme has been developed to ensure your company satisfies all compliance criteria for the scheme. Our experts manage your hiring process from start to finish and help to ensure that you only have to deal with the most serious applicants.