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Will Scottish taxpayers pay less?
From 5th April 2016 a new Scottish Rate of Income Tax (SRIT) will come into force in Scotland. Although is it currently anticipated that taxpayers in Scotland and the rest of the UK will pay the same rate of tax next year, it is likely that the regions will diverge in coming years as more power is devolved to Scotland.
Who is Scottish?
The criteria applied to determine Scottish taxpayers are based on where the individual lives, and not where they work or their feeling of national identity. All of the following would be classed as a Scottish taxpayer:
- WILLIES (Working In London Living In Edinburgh)
- Scottish Parliamentarians (regardless of where they live)
- People living and working in Scotland
- People living in Scotland and working across the border in Carlisle / Newcastle etc
HMRC are responsible for assessing whether or not someone is a Scottish taxpayer. Anyone that HMRC deems to be Scottish based on their principal residence will be issued with a new S tax code. Your payroll software should automatically process the SRIT for anyone with a new S code. As with student loans, it is not for the employer to use their own judgement about applying the SRIT. If an employee disagrees with their tax code, it for the employee to resolve this with HMRC. Employers must act on instructions from HMRC.
Do English employers need to do anything?
Even if your business operates exclusively in England (or any other region of the UK outside Scotland) you will need to comply with regulations as they apply to any of your employees who live in Scotland. Surprisingly, there is no legal obligation to inform HMRC if you move and although employers really ought to know where their employees live, it might not always be obvious, especially if an employee has more than one residence.
It is common to think that any of the criteria below qualify for Scottish taxpayer status, but it isn’t the case.
- National identity
- Place of work
- Where income is generated (eg property income in Scotland)
- Regular travel to Scotland
Will Scots benefit?
The costs of the SRIT are to be borne by the Scottish Government. HMRC currently estimates that the total costs of implementing SRIT will be in the range of £30 million to £35 million over the seven-year period from 2012-13 to 2018-19. This is split between IT expenditure of between £10 million and £15 million, and non-IT expenditure of £20 million. The additional annual costs of operating the SRIT will be between £2m and £6m. The lower estimate corresponds to a SRIT where Scots pay the same rate as the rest of the UK. If the SRIT diverges from the neutral rate of 10%, the costs rise in administering the tax regime in the UK including pensions, gift aid and disputes over residence.
Why is the SRIT being introduced?
Scotland as a whole is likely to be worse off as any difference in tax raised is offset by an adjustment to the block grant from Westminster. It is estimated that 2.6m people will be issued with an S tax code. The annual running costs are therefore less that £3 per taxpayer but it is a valid question to ask if it is a good use of taxpayer’s money if tax rates are the same across the UK. It is anticipated that after additional powers are introduced in 2017 the SRIT could be more progressive, meaning that wealthier individuals would pay a higher proportion of tax. For anyone thinking about their residence status and still had a choice, now is a good time to get advice on the best situation for you!
For more information on the SRIT and for guidance on operating your payroll scheme, please contact Alterledger.
Thanks to http://www.freedigitalphotos.net
One of the great joys of working as a ‘CIMA MiP’ (“Chartered Institute of Management Accountants, Member in Pratice”) is that we are generally dealing with ‘small’ and ‘micro’ client firms (micro defined by EU regulations as firms with less than 10 employees/ £2m turnover; small defined as firms with less than 50 employees/ £10m turnover) and that we become involved in an enormous breadth and depth of subjects.
One of the less welcome challenges however is that as far as most small and micro business owners and managers are concerned, one accountant is the same as any other and this includes the myriad unqualified accountants who practice their particular brand of accounting services at rock-bottom rates. Indeed it is rare that I have been asked whether I am a ‘qualified’ accountant, and is rarer still that I am asked what that qualification is (in fact I cannot ever recall being asked that question by a client). The client generally assumes that because one calls oneself an ‘accountant’ then one can ‘do accounts’ and that accountants are all the same.
My particular practice specialises in manufacturing clients and most new clients have come from existing client referrals. Fortunately I do not need to be a great sales person to convert a prospect into a new client when (a). there is a recommendation from an existing client and (b). we appear to ‘speak the same language’. Clients generally put this down to my having owned and run manufacturing firms and to some degree that is true, but is is also because of my CIMA training.
If you’re looking for year end accounts, audit, or tax computation then you will likely be talking to a ‘Certified Accountant’ or ‘Chartered Accountant’, but where they will be reporting back to you on how well (or otherwise) you did overall last year and what your tax liability is, the CIMA ‘Chartered Management Accountant’ will be working with you to establish what activities made money and why, and whether you can do more of it, and of course which did not and how to avoid this in future; indeed the focus is very much ‘future’ as much as ‘past’.
In terms of the client business, it’s not difficult to see that helping the client to understand their business is a valuable element in managing, changing, and improving the business, and this is something which CIMA qualified people have to offer any business, so it’s a great shame that Chartered Management Accountants tend to be employed by big businesses who understand the difference between the different accounting disciplines.
None of this is to say that a Certified Accountant or Chartered Accountant could never do what the Chartered Management Accountant does, but it is not what they have been trained to do and equally as a Chartered Management Accountant in practice for twenty-two years I provide a ‘full service’ including year end accounts and tax returns for my clients, albeit the main focus remains helping them to improve their business.
I would urge Chartered Management Accountants to seriously consider a career in the small and micro business sector which accounts for 99.3% of the 4.7 million businesses in the UK (source: BIS 2013) and 47% of private sector employment (source: FSB 2013) and which is a vital part of the UK economy: whether in practice servicing a number of clients, or a full-time employee of a particular firm, I am sure that you will find the experience very rewarding
I would equally urge owners and managers in that sector to become aware of the differences between the main accounting bodies and the relative strengths of each, and to be sure that whoever they engage with will meet the needs of their particular business.
Paul Driscoll is a Chairman of CIMA MiPs in South West England and South Wales, a director of Central Accounting Limited, Cura Business Consulting Limited, Hudman Limited, and a number of manufacturing companies, and is a board level adviser to a variety of other businesses.
Before you have even started trading, getting advice from an CIMA accountant can be critical here are some key areas where advice can really help:
- Creating the Business Model and Business Plan
- Obtaining Loans, Finance and Investment
- Business Structure, Shares and Shareholder Agreements
- Choosing Accounting and Business Software and Systems
- Creating a Cash Flow Forecast
- Understanding your legal duties
Then when you start trading……
- Tax Compliance – PAYE, NI, VAT, Corporation Tax
- Pensions – Auto Enrolment
- Managing relationships with Banks and Investors
- Budgeting and Forecasting
- Product Pricing and Tendering
Once the business has become established……
- Growth Strategies
- Funding Growth
- Research and Development
- Decisions on whether to buy or rent new equipments and premises
- Managing the Cash Cycle
CIMA Accountants have worked in business, they understand from the inside what running a business is really like and how to make a business successful.
You can also get some useful tips from HMRC http://www.hmrc.gov.uk/startingup/