Create your own sweetheart tax deal

If, like other self employed people, you’ve just paid your tax bill, you’ll be feeling fairly sick over the news coverage of big companies -for which tax seems to be an optional extra in the UK. The most damning figure is how long it takes to earn the tax paid. For the average British worker this is 73 days; for Facebook it is 11 seconds, Apple 38 minutes, Amazon under two hours, and even with its recent gesture, it takes Google less than six hours to pay its tax bill.

This seems to be all down to sweetheart deals between government ministers, the companies and HMRC. This leaves normal taxpayers, who recognise the need to pay for services, frustrated and angry. These arrangements are the products of both Labour governments, under Blair and Brown, and the current Conservative government. Ironically at a time of anti-EU sentiment, the European Commission seems to be the only organisation prepared to challenge these arrangements.

With successive governments small businesses have become an easy target. Under Labour we had rises in employers’ national insurance contributions to raise taxes. Now the current Government is landing all employers with the huge cost of a national living wage, which is a major blow to farmers and others who can’t pass on the costs. The impact of this will become clear from April onwards, and the Government has no cause to be surprised if employers seek ways to keep wage costs down.

The new minimum will be £7.20 an hour, rising to £9 by 2020. The Government says this will be offset by a reduction in corporation tax, but most farmers are self-employed, so won’t gain from that. The new rate only applies to people over 25, although those below that age are still entitled to the statutory minimum wage. Contract staff are excluded, but the fallout will be hard to escape, unless you become more hard-hearted by cutting back on staff, working on a seasonal or casual basis and generally getting more out of people for the higher wage. The alternative when you can’t raise prices is to accept lower margins for yourself.

Another cost for business is automatic enrolment for pensions. If this doesn’t already apply to your business it’s coming for anyone earning above £5,824 a year, whether as a full or part-time employee. It’s compulsory that all employers offer a pension scheme and the employer must contribute a minimum of 1% of wages to the scheme.

Like the new national living wage, this will make contract employment more attractive – not to avoid the 1%, but to avoid the red tape of setting up and running a pension scheme. Employees don’t have to join, so the temptation is to say you’ll pay them more to sort out their own pension. In many cases that will make sense, but the wrath of the Government could come down on you for thwarting its universal pension plan.

You must be able to show that you have offered a pension, in the shape of a written document. You must be able to show it was an employee’s decision not to take this up, again ideally in writing. If you’re seen to have failed to make this offer, a business with one to four employees will face an initial fine of £400 and then £50 a day until a scheme is made available. Since the amounts involved are small, and the employer’s contribution minimal, it could make sense for older employees to take extra money. But this is a suggestion you can’t make, since the new mantra in government is that everyone should have a pension – so that in time the cost to the Treasury of state pensions can be reduced.

Come April we will be in a new tax year and we all need to learn from those businesses treating tax as optional. We need to be hard-hearted, making sure we’re as tax efficient as possible, securing extra work for the additional minimum wage, making full use of a spouse’s unused personal allowance and even going through the hoops HMRC has put in the way of claiming the new married couple’s allowance. Unlike Google or Apple, no government minister is going to create a sweetheart deal just for us – we have to create our own.

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