April Question and Answer Corner
Newsletter issue - April 07.
Q. I deal in small electronic goods such as Sat Navs, CD-players and DVD players. I heard there was something in the Budget that could affect my business. Can you explain please?
A. This is to do with special powers the VATman has to demand from you any unpaid VAT arising in your supply chain. From 1 May 2007 the type of goods that can trigger the use of this power is expanded to include electronic items that may be owned by individuals and used by them personally for leisure, amusement or entertainment, and this would include Sat Navs and DVD equipment. To avoid the VATman asking you for extra VAT be sure to carry out reasonable checks to establish the integrity of all your supplies, supplier and customers. If you are concerned that you could be caught up in deals that deliberately under price the goods on offer, please talk to us without delay.
Q. I am a contractor and I work through a managed service company. The organisation that runs this company wants to transfer me into a new personal service company to avoid the Budget tax changes. Will this work?
A. Probably not if there are no other major changes in how everything is organised and run. Your new personal service company will be treated like a managed service company where the provider controls aspects of the personal service company such as the finances, the payments made to you out of that company, or how you find your next contract. The payments to you from the personal service company will have to have PAYE deducted from them after 5 April 2007, even if they are called "dividends". You will also no longer get a deduction for your travelling expenses. For more advice on how you could structure your own personal service company with a view to avoiding both the new MSC legislation and IR35 please talk to us.
Q. One of my employees has just told me she is pregnant and says I have to give her a full year off work. Is this true, and do I have to pay her for all that time as well?
A. Your employee is correct, she is entitled to up to 52 weeks of statutory maternity leave, but this leave is not necessarily paid leave. You only have to pay her Statutory Maternity Pay (SMP) while she is on maternity leave, if she has been on your payroll for at least 26 weeks, including the 15th week before the baby is due. The SMP also doesn't last for the full 52 weeks, it currently can only be paid for up to 39 weeks. This has increased from 26 weeks for babies due after 31 March 2007. The SMP is also not paid at the employee's full wage rate. The first six weeks are paid at 90% of her average weekly wage and the rest of the period is paid at a flat rate of £112.75 (from 6 April 2007). As a small employer you can claim back from the Taxman all the SMP you pay out, plus an extra 4.5% as compensation for the employer's class 1 NIC you have to pay on the SMP.