Electric Trainer

Taxable Redundancy Pay - a big tweak

Although I focus on business skills in my workshops, I inevitably meet a lot of people who are thinking of setting up on their own after receiving some sort of redundancy package.

Everyone seems to know that the first £30K of a redundancy package is tax-free. What happens to any amount over the £30K is not nearly so easily understood.

A recent change to the rules has caught out at least one of my trainees, so I thought I'd try to clarify what's going to happen if you are lucky enough to be the recipient of more than £30K in redundancy pay.

It used to be the case that any extra (over £30K) was taxed at the basic rate of income tax (20%). This was good and bad.  Good: because you had less taken away at first, even if you owed more later (because you might actually have been a higher rate tax payer). Bad: because some people forgot that they would owe tax on what they received, and spent it all before this became clear to them.

The change that's just come in is to do with the rate of tax for the extra pay - the amount above the tax-free £30K. The extra is now usually taxed at the top rates of income tax - i.e. 40% or 50%. In effect the 'good' vs 'bad' scenario has been reversed. 

It's now 'good' because you can't forget to pay tax on the extra pay which you might owe at the end of the tax year. But it's 'bad' because they take it away from you up front.

You can't invest it yourself to earn some interest. And presuming you are a lower rate tax payer you will have to wait till the end of the tax year until you can get it back.

So that's improved cash flow for HMRC, and much less cash flow for the person trying to get a new business off the ground.

It's a bit rubbish if you ask me. But then no one did. In fact I don't remember seeing this anywhere before they introduced it.

It seems particularly harsh as only a tiny percentage of earners in the UK are actually 50% tax payers.

And I know of at least one person who was badly advised in advance of the change, being told that his taxable redundancy pay would be taxed at 20% when in fact it was taxed at 50%.

There's a transcript of a BBC Moneybox interview about this in February. Sorry I didn't spot it then.

You can read the transcript on the Moneybox website. The relevant item is towards the end of the programme. (Hat tip to Geoff Adams-Spink for spotting.)

For more info, Direct Gov also has details of the redundancy payments helpline.

Another year, another tweak

So here we are again at the start of the new financial year. Happy New Year!

You've probably noticed stuff about changes to tax and national insurance thresholds.

Apart from sounding very dull, most of this involves tweaks to a creaking system which makes little sense to right minded people.

Mr Osborne says he's going to have a good look at how the Treasury collects our money, possibly putting tax and national insurance into one big tax to make it simpler. A bit like the the simplifying approach they've proposed for the state pension and universal credit.

We'll see.

Meanwhile are there any changes which make a difference on a daily basis to small businesses and freelances like you and me?

Well if you've been following my tweets over the last two weeks you'll have spotted a few small ones.

The car mileage allowance for business trips goes up to 45p per mile. It's been 40p per mile since 2002, so not exactly generous, but hey....

The motorbike (24p) and cycle (20p) mileage rates are not being changed it seems.

If you are trying to avoid VAT, the new level at which you have to be VAT registered is £73,000 turnover. That applies to sole traders as well as limited companies, remember. And it's turnover, not profit.

Things for freelances to look out for in the longer term include a possible re-vamping of IR35 legislation (which stops people pretending to be self-employed when they're really acting like an employee). But that probably won't happen until tax and national insurance are re-invented.

If you're a former trainee, all your handouts and downloads are now updated with new info for 2011-12.

And will this be the year where you starting keeping your expenses records from day one as you go along? Put aside 5 minutes every week to do it and you'll have pretty well completed your tax return by this time next year. 

Enjoy!

Hoorah for the King's Speech - and the clever freelance

I tweeted yesterday that the King's Speech showed the value of the experienced freelance. Within a few minutes I had enough responses to demonstrate clearly that 140 characters are sometimes just not enough.

So here' goes...

There's a wonderful scene towards the end of the film where the King points out that Logue has no qualifications, no training, no authority. The implication being that this made him an unskilled nobody - an accusation the King had thrown at him in an earlier scene.

Logue calmly runs through all the experiences that had given him the skills he needed to help people with speech problems. He also pointed out how many successes he'd had.

This struck a chord with me. If you work for yourself it's essential to understand what skills you have, what you've achieved and what makes you different.

You also need to find ways to explain this to potential clients. It's more important than any formal qualification.

New freelances starting out in the creative industries sometimes find it difficult to see how anyone will take them seriously - especially if they've only ever worked as an employee of the BBC and are going through a redundancy process.

The most important thing is to recognise and value all the experience you've collected, and turn that to the advantage of the client and yourself.

It didn't do Lionel Logue any harm. And having Geoffrey Rush playing you in a film about your life wouldn't be so bad either.

Humanising Wikileaks

How is the British media coping with Wikileaks? As a broadcaster, journalist and trainer it's a good question to ask at the end of another fascinating week.

It's been difficult to remember at times that Wikileaks is not the same as Julian Assange. And as John Naughton says, the real story here is the former, not the latter. 

But for journalism to have an impact the story must be relevant and accessible. The best way to do that is to humanise it.  Assange has therefore become the face of Wikileaks. 

[I did a Google image search on 'wikileaks' this morning and half the images on page one are of Assange. Most of the others are rather dull screengrabs. Plus, bizarrely, one photo of Sarah Palin.]

This has been partly deliberate on the part of Assange and his co-workers. He has said it's better to be the organisation's front man than have journalists constantly speculating on who's behind it. 

He's also deliberately blurred two distinct issues this week,  calling Sweden "a cipher" for the US. Full marks to Will Heaven in the Telegraph for pointing out the difference. [For an outline of the Swedish charges, see the Daily Mail.]

So Assange has done little to dissuade anyone of the view that he and Wikileaks are the same thing. This no doubt benefits Wikileaks in the short term. With all the attention on one man, others can get on with their work. [For more on Assange promoting the Wikileaks agenda, read City University's George Brock.]

But does that help us understand what's going on?

Focusing on one man - who happens to look distinctive and have a foreign sounding name - no doubt helps sell papers and get viewers. But parallels with a Bond villain, and headlines about a 'fugitive', don't get to the bigger story about Wikileaks.

Any digital native will point out that Wikileaks is more leak than wiki, but its actions have certainly encouraged new ways for people to express mistrust of governments, and anger when commercial operations are leant on.

Hacktivists - a word I learnt this week - appear to come straight out of a Stieg Larsson thriller, adding to the intrigue around Wikileaks, and bringing DDoS to the news pages.

I suspect DDoS attacks on Visa or Mastercard are the digital equivalent of chaining yourself to the railings: a nuisance to the target institution, but probably more damaging to reputation than to daily operations. 

That's not to belittle the implications. Some admirable causes down the ages have successfully included railings. 

But Wikileaks is more an idea - even a philosophy - than an organisation. Very hard to pin down, and almost impossible to strangle. Equally hard to frame in a news story, not least as there are implications for journalism itself.

You simply have to engage with it. And we've hardly started down that road.

OMG- Not ANOTHER change to VAT!

Yes - you can't fail to have noticed that VAT's on the rise again. From 4 Jan 2011 the standard rate is 20% (up from 17.5%).

While the papers are talking about the cost to us as real people who buy stuff, it's worth pausing a moment to work out what it might mean for you as a small business, or freelance, or whatever you call yourself.

If you're not VAT registered it will just mean things you buy for the business are 2.5% more expensive.

[For some this might be the point at which they take the plunge - especially as getting a 5th of the cost back from purchases is not insignificant. Just don't take the plunge without considering the implications for your business.] 

If you are VAT registered, there are a couple of issues to be aware of:

1/ Any invoice with a tax point of 4 Jan 2011 or later will have to include VAT at the new higher rate. Invoices up to 3 Jan 2011 will charge VAT at the old rate of 17.5%, regardless of when you are paid.

2/ If you're in the flat rate scheme for small businesses (aka "VAT for lazy people"), the flat rate that you use to calculate how much you give to the VAT people will go up.

For example the 'Film,radio TV and video production' flat rate goes up from 10.5% to 13%.

Personally I will be ensuring that I have no invoices dated 1st-3rd Jan 2011, just so that it keeps the calculations simple. It will mean my Jan-Feb-Mar VAT quarter will be all at the new rate.

It might be a bit more complicated for you if you have a VAT quarter that runs, for example, Dec-Jan-Feb. In this case you'll have a mixture of rates across the quarter. Don't panic about this. Just do calculations up to 3rd Jan, and a separate calculation for the period from 4th Jan.

HMRC have some helpful documents here:

about the change in the standard rate
about the change to the flat rate percentages if you're in that scheme

Finally, if you are VAT registered and you use one of David Thomas Media's old income and expense spreadsheets, bear in mind that changing the VAT figure on the summary sheet will change the VAT calculation all the way through the sheet - in all the category tabs.

Ditto the VAT and flat rate figures on our cash flow spreadsheet.

Solutions? You can overtype the relevant parts of your records from 4 Jan, or do calculations manually until your next financial year.

Of course you could also do something clever with the formulae if you know how.

Let's hope it'll be a while before they fiddle with it all again. Anyone want to bet that the rate comes back down again just before the next general election?

New kit for the roving reporter

Trying to keep up with technology is never easy. Just when you thought you understood the ins and outs of the latest flash recorder or editing software something else arrives on the market.

Two things happened to me this week which got me looking into equipment and software for reporting and carrying out interviews.

Firstly, I've been playing with an amazing iPhone app called VC Audio Pro.  It's from Vericorder which specialises in mobile recording kit. The app puts a mixing desk and editor in your phone. You can record, edit, mix, top and tail, all with taps, pinches and finger-swipes. For just £3.49.

I'm still in the experimental stages, but it feels very intuitive. I particularly like the way it slips straight into record mode when you tap the main screen. No messing around while your interviewee escapes or your actuality gets missed.

Vericorder sells an XLR adaptor which not only allows you to use a professional mic with your smart phone, but also lets you monitor what's going into the phone via headphones.

I thought that was a major advantage until I read this review by a radio reporter at WTOP in the Washington DC. It appears the quality of the iPhone mic is so high you may be better off recording straight from that.

I'll be playing with all this for a while, and let you know how I get on.

The second thing to come my way this week was a phone call from one of my charity clients, asking about kit for down the line interviews. They have an old "ISDN room", but are moving to new premises and want to upgrade, possibly adding video as well as audio.

Here's another area where things are on the move. ISDN (essentially high quality phone lines) have been the way of getting audio from remote or ad hoc studios for decades.

Not any more, as this article by Sam Upton at the BBC College of Journalism explains. The BBC is trying out LuciLive, another app which gets you on air in studio quality.  At £250 it's not exactly dirt cheap, but it's still a fraction of the price of installing ISDN. 

I'm interested in any experiences you have of using kit like this in the field. Meanwhile I'm off to play with my new mixing desk. (*now - where did I leave my phone?*)

BBC's new challenges

In amongst all the talk of cuts to budgets and freezes on spending, my eye was naturally drawn to today's story (for example in the Guardian) about changes to the funding of the BBC. 

Many papers (like the FT) have run stories focusing on the freezing of the licence fee for the next 6 years - though these articles are generally tucked away on inside pages.

On its own this would be a pretty shocking announcement for demoralised BBC staff, raising the spectre of years of squeezed programme budgets as inflation and rising costs eat into the money.

But for me, having in the past spent 16 years at the BBC World Service, the real story is the agreement of the BBC to take over funding of the World Service, S4C in Wales and BBC Monitoring.

As David Elstein points out on the Today programme, the real effect of all these changes added together will be a reduction in the BBC's spending power of 25%. That's enormous.

But this is not just about the money. It's also about the effect on those who run BBC departments and programmes.

I remember dealing with BBC restructurings in the 1990s and 2000s and coming across unforeseen knock-on effects on departments in Bush House. I have no doubt that the changes announced today will bring new challenges for World Service staff. Some of those challenges will become clear within years rather than months.

Here are some areas to watch:

Distinctiveness

Broadcasting to audiences outside the UK requires a different approach from UK broadcasts. Bringing the World Service within the funding structure of the BBC provides an opportunity for the best of World Service practice to have a higher profile in the rest of the BBC.

It also provides a challenge for the World Service to remain focused and distinctive in its output when BBC bosses in the UK may only be vaguely aware of how it is valued overseas. 

Up to now the FCO grant-in-aid has effectively been a ring-fenced budget for the World Service.  This will no longer be the case, which means everyone will be arguing over the same (reducing) source of money.

World Service managers will have to argue their corner against high-spending UK TV departments, not easy when radio and overseas services can feel like second-class citizens.

Independence

It's always been difficult to explain to citizens of other countries that the BBC World Service is editorially independent but funded directly by the FCO. Arguably it will be easier to convince the world of the BBC's independence if the World Service is funded directly by the licence fee.

Alternatively BBC World Service staff will have to guard against UK-focussed priorities which may not be in the best interests of overseas listeners. 

The Daily Mail Factor

The licence fee payer will now be funding the World Service, so brace yourself for tabloid stories about UK viewers' money being wasted on unworthy foreigners.

Career prospects

It's not fashionable to talk of 'career paths' these days, but everyone needs to feel they're moving forward, and anything that breaks down barriers to movement must be a good thing.

In recent years there has been much closer coordination between programme makers and journalists working for UK outlets and those reaching overseas audiences.  Expect this to continue, especially as Bush House is emptied and everyone moves to the new Broadcasting House. This may well provide better opportunities for staff to move between different parts of the BBC.

Having said that, it will be much more difficult to get a job at the BBC in the first place, given the shrinking funds.

Good luck to all at the BBC who will be grappling with these issues in the coming years. Let me know if you can think of any more.

(Update: here's a nicely succinct list of pros and cons from someone closer to the decisions than I ever was.)

 

'Small business mentioned in budget' shock!

Well Mr Osborne has spoken. There's plenty of analysis of the coalition's emergency budget elsewhere. Nick Robinson says 'age of austerity' and Robert Peston says...well, something I didn't quite catch.

As promised, I've been listening to it all and reading the press releases, so you don't have to.

Here are some of the areas I think will affect small businesses like you and me.

Value Added Tax

VAT up to 20% (from 17.5%): - the rise from 4th Jan 2011 (after the New Year bank holiday) may persuade some to register for VAT. Getting 20% back off business purchases is a pretty attractive proposition with a rate this high.

VAT Flat Rate Scheme: - because the standard rate is going up, so is the flat rate. For example the Film, radio, TV and video category is currently 10.5%. This will go up in January to 13%. Read more about the flat rate changes: http://www.hmrc.gov.uk/budget2010/bn45.htm

(The reduced rate of VAT will be unchanged at 5%, by the way. And exempt items like kids' clothing and newspapers will remain exempt.)

Income tax and National Insurance

Personal allowance:- individuals and sole traders will be allowed to have an income of £7,475 before paying any tax (up from £6,475). The rates of income tax stay the same.

National Insurance: sole traders' class 2 NI contributions might be unchanged at £2.40 per week. They'll come to a view about it in the autumn. But class 4 NI will be 9% (up from 8%) and the top rate will be 2% (up from 1%). Both from April 2011.

If you're operating as a limited company, class 1 NI on an employee's salary is 12% (up from 11%) and the employer's contribution is 13.8% (up from 12.8%), but with a 'tax holiday' on the latter if you set up from today, and if you employ fewer than 10 people, and set up outside London and south-east. (I'm still checking thresholds and other details on this...so don't quote me...will post again on this.)

Corporation tax for small businesses

Also for limited companies - the small business rate of corporation tax will be reduced to 20% (from 21%). In fact this is the first time I remember a Chancellor talking about the small business rate in a budget speech. He also said he recognised the importance of helping the smallest of businesses. Collectively they (we) are a significant force.

Capital allowances

This year you've been able to put up to £100,000 of capital equipment against your turnover to reduce your tax bill. This is called the Annual Investment Allowance. 

The cap has been reduced to £25,000 from next year - a reduction of 75%. This seems draconian, but most people I work with will not spend that much on capital equipment in a year. And even if you did you can spread the costs above that cap at a rate of (typically) 20% until April 2012, when it will go down to 18%.

Still checking the small print. If you want to have a look yourself (with a stiff drink close at hand*) try the treasury website:
http://www.hm-treasury.gov.uk/junebudget

Let me know how you feel the budget will affect you and your business. And feel free to point out anything I've missed.

Now - time to go out and enjoy the sunshine!

*I suggest cider or perry - the planned increase in duty has now officially been abolished

Dissecting the election: old media vs new

The always fascinating BBC College of Journalism blog has a couple of new posts about the recent election coverage.

Much discussion by a panel of journalists and political activists about the role of new media vs old.

Not many conclusions, but it seems that new media (Twitter & Facebook) furthered the conversation, but didn't start it.

Read a summary of the discussion here.

View a video of the discussion here. 

Getting tax back from HMRC

I'm sometimes asked about tax rebates, tax refunds and emergency tax in business skills workshops, particularly where people are changing from employee to freelance/self-employed status. Or where they are both employed and self-employed.

Well, as if by magic, Jasmine Birtles has talked about this on her wonderful MoneyMagpie.com website.

The key thing here is to check with HMRC, even if you're just vaguely thinking that you might be owed something.

Many people don't like contacting the Revenue because they think they are somehow going to be stung for more cash by umbrella-wielding, bowler-hatted monsters.

In fact the HMRC helplines - and the people who staff them - have been set up to be, well, helpful. In my experience they are also charming and polite.