Sponsored content: Understanding the new changes to salary sacrifice and flat rate VAT
- Credit: Archant
Financial experts have spent the last few weeks digesting the finer points of the chancellor’s Autumn Statement and assessing what it really means for tax payers, business owners and savers.
What Philip Hammond has done, in his bid to close down loopholes and make our financial system fairer, is actually make it more complex, says Keith Senior, of Jacobs Allen Chartered Accountants and Chartered Tax Advisers.
“The tax code is becoming ever more complex rather than them making it simpler, which was a stated Government aim.”
For employees, there will be changes to the salary sacrifice scheme.
“Pensions, childcare, bikes and ultra low emission vehicles will remain exempt but the chancellor has effectively got rid of all of the other benefits that you could enjoy tax-free or at lower tax,” said Mr Senior.
While workers can still enjoy some additional benefits as part of a comprehensive salary package – including normal cars, smart phones and, for some, private education for their off spring – they will now be liable for tax on those extras.
“You can understand the reasons for doing that but there could be some discrimination issues for instance with telephones. If you are given a mobile phone and that is the only phone you have access to for work purposes then you will be fine but if you choose a new phone contract as part of a salary sacrifice package then you will be liable for the tax.
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“Employers will need to be smarter in how they offer these benefits in kind.”
For those working as VAT-registered sole traders, changes to the flat rate tax scheme could make it less appealing.
The flat rate scheme is usually adopted by those who have few outgoings related to their business and charge predominantly for their services.
Explaining the current system, Mr Senior said: “If you are VAT registered you can charge customers your standard charges plus 20pc.”
You can then opt to pay the HMRC a flat rate which at a default rate is 12pc but varies according to the sector in which you work. Under this system you cannot reclaim the VAT paid on services and goods you have purchased for the business but the benefits of lower tax on income far outweigh the losses.
“Under the new system, anyone who doesn’t buy goods valued at 2pc of their total gross income will see their flat rate VAT increase from 12pc to 16.5pc,” explained Mr Senior.
It was not all bad news for tax payers though, and Mr Senior said: “I had anticipated the chancellor would try and move away from having two fiscal events in the year and reverse the situation we have got into of having the main spring budget and the mini budget in the autumn.
“He has gone one stage further and we may now have just one budget in the autumn.”
This would mean legislation could be published and go through the three-month Government approval process before being officially adopted at the start of the next financial year.
Mr Senior pointed out that this will help people make decisions about long-term financial matters such as saving for retirement.
“That is to be welcomed,” he added.
For further help understanding the new tax codes and how to make the most of your income, contact Jacobs Allen.