Hawsons advise in multi-million-pound MBO at MFH Group

Hawsons advise in multi-million-pound MBO at MFH Group

Hawsons advise in Management Buy-Out

The MFH Group headquartered in Sheffield has been acquired by its management team in a multi-million-pound deal.

Working on a nationwide basis, the MFH group’s engineering divisions activities comprise of fixed asset maintenance packages, flexible maintenance services and the relocation and installation of all types of industrial machinery, plant and associated services.  The group also boasts a complementary tool hire business with depots in Sheffield, Leeds and Leicester.

Founded over 30 years ago by Mike Hobson whose wife Audrey took over the running of the business following his death, the group is now operated and owned by Joint Managing Directors Steve Parker and Rob Harmston who see significant growth opportunities and a bright future ahead.

The management team were advised by Hawsons Corporate Finance with legal advice led by Ben Hendry from CMS in Sheffield. The vendors were advised by Roger Dyson at hlw Keeble Hawson LLP.  Funding for the deal was provided by NatWest and Finance for Enterprise.

Hawsons Corporate Finance Partner, Pete Wilmer commented on the MBO: “When we started working with management the MFH group comprised some diverse businesses.  In order to bring a successful conclusion to this transaction it’s been necessary to first re-structure the group and sell its non-core catering equipment hire business, YouCan Hire.

“Having completed the sale of YouCan Hire, negotiated the MBO and raised the necessary finance package, this deal demonstrates the skill and expertise of the team here at Hawsons.  We’re delighted to see Steve and Rob, who have been running MFH for some time now, finally take over ownership.  They have many exciting plans for the future and we wish them all the best.”

 

Pete Wilmer

Pete Wilmer

Corporate Finance Partner

0114 266 7141
Jack Ware, Corporate Finance Director

Jack Ware

Corporate Finance Director, Sheffield

0114 266 7141
Tax Rates 2018/2019

Tax Rates 2018/2019

Introduction to tax rates

We have summarised the key rates and allowances which are fundamental to our business and personal lives. We are sure that you will find them a useful point of reference and have set out below a few examples of how they can be used.

 

Capital Allowances: Plant & Machinery
  • The cost of purchasing capital equipment in a business is not a revenue tax deductible expense. However tax relief is available on certain capital expenditure in the form of capital allowances.
  • Plant and machinery allowances may be available on items such as machines, equipment, furniture, certain fixtures in a building (‘integral features’), computers, cars, vans and similar equipment used in a business.
  • There are special rules for cars and certain ‘environmentally friendly’ equipment.
  • Plant and machinery allowances may be available to owners of commercial property which is let out to a business.
  • The Annual Investment Allowance (AIA) gives a 100% write-off on most types of plant and machinery (but not cars) up to an annual limit.
  • Writing down allowances (WDA) are given for expenditure for which AIA is not, or cannot be, claimed.
  • Structures and Buildings Allowance is introduced from 29 October 2018 at a rate of 2% on a straight line basis

AIA

  • Special rules apply to accounting periods straddling the dates shown in the tables below.
  • The AIA may need to be shared between certain businesses under common ownership.

AIA limits – companies

Expenditure incurred:

Annual limit

From 1 January 2016 £200,000
From 1 January 2019 £1,000,000

AIA limits – sole traders and partnerships

Expenditure incurred:

Annual limit

From 1 January 2016 £200,000
From 1 January 2019 £1,000,000

Other plant and machinery allowances

  • Expenditure upon which AIA is not given/claimed will obtain relief through the ‘main rate pool’ or the ‘special rate pool’ rather than each item being dealt with separately.
  • The annual rate of WDA is 18% in the ‘main rate pool’ and 8% in the ‘special rate pool’.
  • A 100% first year allowance (FYA) may be available on certain energy efficient plant and cars.

Cars

  • For expenditure incurred on cars, costs are generally allocated to one of the two plant and machinery pools.
  • AIA is not available on any car but a 100% first year allowance may be available on certain cars. To qualify for first year allowance, the car must be purchased new.

Cars acquired from April 2018

Emissions (g/km)

Pool

Allowance

≤50 Main rate 100% FYA
≤ 110 Main rate 18% WDA
>110 Special rate 8% WDA

 

Capital Gains Tax
  • CGT is payable by individuals, trustees and personal representatives (PRs). Companies pay corporation tax on their capital gains.
  • There are annual tax free allowances (the ‘annual exempt amount’) for individuals, trustees and PRs. Companies do not have an annual exempt amount.
  • For individuals net gains are added to total taxable income to determine the appropriate rate of tax. The standard rate applies only to the net gains which, when added to total taxable income, do not exceed the basic rate band.
  • Gains which qualify for Entrepreneurs’ Relief  or Investors’ Relief are charged at 10% for the first £10m of qualifying gains.

Rates and annual exemption 2018/19

Individuals 2018/19
  £
Exemption 11,700
Standard rate 10%**
Higher rate* 20%**

* For higher rate and additional rate taxpayers.

** Higher rates of 18% and 28% may apply to the disposal of certain residential property.

Trustees 2018/19
  £
Exemption 5,850
Rate 20%
Car Benefits
  • The car benefit is calculated by multiplying the car’s list price, when new, by a percentage linked to the car’s CO2 emissions.
  • For diesel cars generally add a 4% supplement (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%.
  • The list price includes accessories.
  • The list price is reduced for capital contributions made by the employee up to £5,000.
  • Special rules may apply to cars provided for disabled employees.
  • For cars registered before 1 January 1998 and cars with no agreed CO2 emissions the charge is based on engine size.
CO2 emissions (g/km) 
(round down to nearest 5g/km for values above 95)
% of car’s list price taxed
0-50 13
51 up to 75 16
76 up to 94 19
95 20
100 21
105 22
110 23
115 24
120 25
125 26
130 27
135 28
140 29
145 30
150 31
155 32
160 33
165 34
170 35
175 36
180 and above 37
 
Car Fuel Benefit
  • Car fuel benefit applies if an employee has the benefit of private fuel for a company car.
  • The benefit is calculated by applying the percentage used to calculate the car benefit by a ‘fuel charge multiplier’.
  • The charge is proportionately reduced if provision of private fuel ceases part way through the year. The fuel benefit is reduced to nil only if the employee pays for all private fuel.
Car fuel benefit 2018/19  
Fuel charge multiplier £23,400
 
Company Cars: Advisory Fuel Rates
  • Advisory rates only apply where employers reimburse employees for business travel in a company car or require employees to repay the cost of fuel used for private travel in a company car.
  • If the rate paid per mile of business travel is no higher than the advisory rate for the particular engine size and fuel type of the car, HMRC will accept that there is no taxable profit and no Class 1 NIC liability.

The advisory fuel rates for journeys undertaken on or after 1 March 2018 are:

Engine size Petrol
1400cc or less 11p
1401cc – 2000cc 14p
Over 2000cc 22p
Engine size Diesel
1600cc or less 9p
1601cc – 2000cc 11p
Over 2000cc 13p
Engine size LPG
1400cc or less 7p
1401cc – 2000cc 8p
Over 2000cc 13p

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Child Benefit
Child Benefit is receivable by a person responsible for each child until they reach 16, or 19 if they stay in education or training.If the person (or their spouse or partner) has ‘adjusted net income’ above £50,000 the person with the highest income has to pay some of the Child Benefit as a tax charge.Where adjusted net income is more than £60,000 a year, the tax charge equals the Child Benefit received.

 

Rates – 2018/19 £ per week
Eldest/Only Child £20.70
Other Children £13.70

 

Corporation Tax
  • Corporation tax rates are set for each Financial Year. A Financial Year runs from 1 April to the following 31 March.
  • If the accounting period of a company straddles the 31 March, the profits are apportioned on a time basis to each Financial Year.
  • The Northern Ireland Executive has committed to setting the rate of corporation tax at 12.5% when the Northern Ireland Executive demonstrates its finances are on a sustainable footing.
Year to 31.3.19 Rate %
All profits 19
Year to 31.3.18 Rate %
All profits 19
Employee's Statutory Payments

Statutory pay

  • Payments may be required from an employer if an employee is not at work for a variety of reasons.
  • There are detailed conditions for an employee to qualify for any of these statutory payments.
  • Employees are only eligible for a statutory payment if they have sufficient average weekly earnings of at least the lower earnings limit.

Statutory Sick Pay

  • Payments may be required from an employer if an employee is too ill to work.
  • SSP is generally payable for a period up to 28 weeks.

Statutory Maternity Pay

  • Payments may be required from an employer when an employee takes time off to have a baby.
  • SMP is payable for a period up to 39 weeks.

Statutory Paternity Pay

  • Payments may be required from an employer when an employee takes time off during their partner’s Statutory Maternity Pay period.
  • Payment is for a period of either one or two complete weeks.

Shared Parental Pay

  • Payments may be required from an employer when an employee takes time off following the curtailment of the period of SMP by the mother.
  • Payment is for up to a maximum of 37 weeks and is dependent on the mother’s unused SMP period.

Statutory Adoption Pay

  • Payments may be required from an employer when an employee takes time off when they adopt a child.
  • Payment is for a period up to 39 weeks.
2018/19 Statutory pay rates – 
average weekly earnings £116 or over
 
Statutory Sick Pay £92.05
Statutory Maternity Pay  
First six weeks 90% of weekly earnings
Next 33 weeks £145.18*
Statutory Paternity Pay – 2 weeks £145.18*
Statutory Adoption Pay – 39 weeks  
First six weeks 90% of weekly earnings
Next 33 weeks £145.18*
Shared Parental Pay £145.18*

*Or 90% of weekly earnings if lower.

 
 
Income Tax Allowances
A personal allowance gives an individual an annual amount of income free from income tax.Income above the personal allowances is subject to income tax.The personal allowance will be reduced if an individual’s ‘adjusted net income’ is above £100,000. The allowance is reduced by £1 for every £2 of income above £100,000.An individual born before 6 April 1935 may be entitled to a married couple’s allowance but this is reduced if ‘adjusted net income’ is above the married couple’s allowance income limit (see table below).Marriage allowance – 10% of the personal allowance may be transferable between certain spouses where neither pays tax above the basic rate. The Marriage allowance is not available to couples entitled to the Married Couple’s allowance.
Income tax personal allowances 2018/19 £
Personal Allowance 11,850
Marriage Allowance 1,190
Blind person’s allowance 2,390
Married couple’s allowance
Either partner born before 6 April 1935
 
– Maximum reduction in tax bill 869.50
– Minimum reduction in tax bill 336.00
Married couple’s allowance income limit
Reduce married couple’s allowance by £1 for every £2 of ‘adjusted net income’ above this limit
28,900
 
Income Tax Rates
  • Income tax applies to the amount of income after deduction of personal allowances.
  • Income is taxed in a specific order with savings and dividend income taxed last.
  • Dividend income and savings income falling within the dividend and savings allowances still form part of total income of an individual.
  • The starting rate band is only applicable to savings income. The 0% rate is not available if the taxable amount of non-savings income exceeds the starting rate band.
  • The Scottish Parliament set the rates of income tax and the limits at which these rates apply for Scottish residents on non-savings and non-dividend income.

Income tax rates 2018/19

Band of taxable income Rate Rate if dividends
£   % %
0 – 5,000 Starting rate for savings 0 N/A
0 – 34,500 Basic rate 20 7.5
34,501 – 150,000 Higher rate 40 32.5
Over 150,000 Additional rate 45 38.1
Special rates for savings and dividend income falling into above bands of taxable income
Savings Allowance
Basic rate taxpayers 1,000 0  
Higher rate taxpayers 500 0  
Additional rate taxpayers Nil N/A  
Dividend Allowance
for all taxpayers 2,000   0
Income Tax Rates - Scotland
  • Scottish resident taxpayers are liable on non-savings and non-dividend income as set out below.
  • Savings income and dividend income are taxed using UK tax rates and bands.
Band of taxable income Rate
£   %
0 – 2,000 Starter rate 19
2,001 – 12,150 Basic rate 20
12,151 – 31,580 Intermediate rate 21
31,581 – 150,000 Higher rate 41
Over 150,000 Top rate 46
ISAs
 
The income from ISA investments is exempt from income tax. Any capital gains made on investments held in an ISA are exempt from capital gains tax.Savers are able to subscribe any amounts into a cash ISA, a stocks and shares ISA or an innovative finance ISA subject to not exceeding the overall annual investment limit.Investors may transfer their investments from one kind of ISA to another.A Help to Buy ISA provides a tax free savings account for first time buyers wishing to save for a home. The scheme provides a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. The bonus will be paid in the form of a voucher when the first home is purchased. Conditions apply to the account holder and to the property purchased.The Lifetime ISA is available for those aged between 18 and 40. Save up to £4,000 each year up until the age of 50, and receive a government bonus of 25% (a bonus of up to £1,000 a year). Savers can use some or all of the money to buy their first home, or keep it until they are aged 60 when the account can be accessed tax free. Conditions apply to the account holder and property purchased.  Penalties apply if funds are withdrawn in other circumstances.

 

ISA limits 2018/19  
Overall annual investment limit £20,000
Junior ISA annual investment limit £4,260
Help to Buy ISA monthly subscription limit (initial deposit limit £1,000) £200
Lifetime ISA annual investment limit £4,000
 
Inheritance Tax
  • IHT may be payable when an individual’s estate is worth more than the IHT nil rate band when they die.
  • Lifetime and death transfers between UK domiciled spouses are exempt from IHT.
  • For 2017/18, a further nil rate band of £100,000 may be available in relation to current or former residences.
  • The IHT threshold available on death may be increased for surviving spouses as there may have been a nil rate band not used, or not fully used, on the previous death.
  • There are reliefs for some business and farming assets which reduce their value for IHT purposes.
  • IHT may also be payable on gifts made in an individual’s lifetime but within seven years of death.
  • Some lifetime gifts are exempt.
  • Transfers of assets into trust made in an individual’s lifetime may be subject to an immediate charge but at lifetime rates.
  • There are also charges on some trusts.

IHT rates and nil rate band 2018/19 and 2017/18

IHT nil rate £325,000
Lifetime rate 20%
Death rate 40%
Death rate if sufficient charitable legacies made 36%

IHT reliefs for lifetime gifts

Annual exemption £3,000
Small gifts £250
Marriage  
– parent £5,000
– grandparent £2,500
– bride/groom £2,500
– other £1,000

IHT – reduced charge on gifts within seven years of death

Years before death % of death charge
0-3 100
3-4 80
4-5 60
5-6 40
6-7 20
Land and Building Transaction Tax

Land and Buildings Transaction Tax (LBTT) is payable on land and property transactions in Scotland.

LBTT (Residential property)

Consideration (£) Rate
0 – 145,000 0%
145,001 – 250,000 2%
250,001 – 325,000 5%
325,001 – 750,000 10%
750,001 and above 12%

The rates apply to the portion of the total value which falls within each band. Rates may be increased by 3% where further residential properties, costing over £40,000, are acquired.

Rates may be increased by 4% (3% prior to 25 January 2019)  where further residential properties, costing over £40,000, are acquired.

First-time buyer relief raises the zero tax threshold for first-time buyers from £145,000 to £175,000.

LBTT (Non-residential)

Consideration (£) Rate
0 – 150,000 Nil
150,001 – 250,000 1%
Over 250,000 5%

The rates apply to the portion of the total value which falls within each band. Different rates and bands applied prior to 25 January 2019.

Land Transaction Tax
Land Transaction Tax (LTT) is payable on land and property transactions in Wales from 1 April 2018. Prior to 1 April 2018 SDLT applied in Wales.

LTT (Residential property)

Consideration (£) Rate
0 – 180,000 0%
180,001 – 250,000 3.5%
250,001 – 400,000 5%
400,001 – 750,000 7.5%
750,001 – 1,500,000 10%
1,500,000 and above 12%

The rates apply to the portion of the total value which falls within each band. Rates may be increased by 3% where further residential properties, costing over £40,000, are acquired.

LTT (Non-residential)

Consideration (£) Rate
0 – 150,000 Nil
150,001 – 250,000 1%
250,001 – 1,000,000 5%
Over 1,000,000 6%

The rates apply to the portion of the total value which falls within each band.

Mileage Allowance Payments
  • MAPs represent the maximum tax free mileage allowances an employee can receive from their employer for using their own vehicle for business journeys.
  • An employer is allowed to pay an employee a certain amount of MAPs each year without having to report payments to HMRC.
  • If the employee receives less than the statutory rate, tax relief can be claimed on the difference.

MAP rates per business mile 2018/19 and 2017/18

Cars and vans Rate per mile
Up to 10,000 miles 45p
Over 10,000 miles 25p
Bicycles 20p
Motorcycles 24p
Minimum Wage
  • National Minimum Wage rates apply to employees up to the age of 24.
  • National Living Wage rates apply to employees 25 and over.
  • The Apprentice rate applies to apprentices under 19, or 19 and over in the first year of apprenticeship.
  • Penalties apply to employers who fail to pay minimum wages.
Age 25+ 21-24 18-20 16-17 Apprentice
From 1 April 2018 £7.83 £7.38 £5.90 £4.20 £3.70
 
National Insurance Contributions
  • Employees start paying Class 1 NIC from age 16 (if sufficient earnings).
  • Employers pay Class 1 NIC in accordance with the table below.
  • Employer NIC for employees under the age of 21 and apprentices under the age of 25 is reduced from the normal rate of 13.8% to 0% up to the Upper Secondary Threshold.
  • Employees’ Class 1 NIC stop when they reach their State Pension age. The employer’s contribution continues.

Employees – Class 1 – 2018/19

Earnings per week %
Up to £162 Nil*
£162.01 – £892 12
Over £892 2

* Entitlement to state pension and other contribution-based benefits is retained for earnings between £116 and £162 per week.

Employers – Class 1 – 2018/19

Earnings per week %
Up to £162 Nil
Over £162 13.8
Upper Secondary Threshold (for under 21s and apprentices under 25)
Up to £892
0%

Other National Insurance payable by employers

Class 1A – 13.8% on broadly all taxable benefits provided to employees

Class 1B – 13.8% on PAYE Settlement Agreements

Self-employed – Class 2 and 4

  • A self-employed person starts paying Class 2 and Class 4 NIC from 16 or over (if sufficient profits)
  • Class 2 NIC stop when a person reaches State Pension age
  • Class 4 NIC stop from the start of the tax year after the one in which the person reaches State Pension age.

Self-employed – Class 2 – 2018/19

Flat rate per week £2.95
Small Profits Threshold* £6,205 per year

* No Class 2 is due if the amount of trading profits assessable to income tax and Class 4 NIC is below this figure. However, a person might decide to carry on paying class 2 voluntarily to accrue entitlement to the State Pension and entitlement to other benefits.  

Class 4 – 2018/19

Annual profits %
Up to £8,424 Nil
£8,424.01 – £46,350 9
Over 46,350 2

Class 3

  • A person needs 35 years (30 years if State Pension age is before 6 April 2016) of NIC to get a full State Pension.
  • Class 3 voluntary contributions can be paid to fill or avoid gaps in a NI record.

Class 3 – 2018/19

Flat rate per week £14.65

  • Employees start paying Class 1 NIC from age 16 (if sufficient earnings).
  • Employers pay Class 1 NIC in accordance with the table below.
  • Employer NIC for employees under the age of 21 and apprentices under the age of 25 is reduced from the normal rate of 13.8% to 0% up to the Upper Secondary Threshold.
  • Employees’ Class 1 NIC stop when they reach their State Pension age . The employer’s contribution continues.

 

Pensions: Automatic Enrolment
Auto enrolment places new duties on employers to automatically enrol ‘workers’ into a work based pension scheme. Employers are required to automatically enrol all ‘eligible jobholders’ into a qualifying pension scheme and pay pension contributions on their behalf.

 

Phasing in of contributions

  Employer minimum contribution Total minimum contribution
Employer’s staging date to 5 April 2018 1% 2%
6 April 2018 to 5 April 2019 2% 5%
6 April 2019 onwards 3% 8%

Where the employer does not make the total minimum contribution the employee is obliged to pay the balance.

  2018/19
Automatic enrolment earnings trigger £10,000
Qualifying earnings band – lower limit £6,032
Qualifying earnings band – upper limit £46,350
 
Pensions: Tax Relief on Contributions
  • Tax relief available for personal contributions is the higher of £3,600 (gross) or 100% of relevant earnings.
  • Any contributions in excess of £40,000, whether personal or by the employer, may be subject to income tax on the individual.
  • The limit may be reduced to £4,000 once money purchase pensions are accessed.
  • Where the £40,000 limit is not fully used it may be possible to carry the unused amount forward for three years.
  • The annual allowance is tapered for those with adjusted income over £150,000. For every £2 of income over £150,000 an individual’s annual allowance will be reduced by £1, down to a minimum of £10,000.
  • Employers will obtain tax relief on employer contributions if they are paid and made ‘wholly and exclusively’ for the purposes of the business. The tax relief for large contributions may be spread over several years.
Property Allowance
  • A property allowance is available to individuals.
  • The property allowance will not apply to partnership income or to income on which rent a room relief is given.
Income up to £1,000 Property income assessable NIL
Income over £1,000 Election to deduct £1,000 rather than the actual expenses
 
Self-Assessment: Key Dates
31 July 2018 – Second payment on account for 2017/18 tax year.
5 October 2018 – Deadline for notifying HMRC of new sources of income (including the Child Benefit charge) if no tax return has been issued for 2017/18 tax year.
31 October 2018 – Deadline for submission of 2017/18 non-electronic returns.
30 December 2018 – Deadline for submission of 2017/18 electronic tax returns if ‘coding out’ of any underpayment is required
31 January 2019 – Deadline for filing electronic tax returns for 2017/18. Balancing payment due for 2017/18 tax year. First payment on account due for 2018/19 tax year.
 
Stamp Duty & Stamp Duty Land Tax
 
When you buy shares, you usually pay a tax or duty of 0.5% on the transaction. If you buy shares electronically Stamp Duty Reserve Tax (SDRT) is payable. For shares purchased using a stock transfer form, you will pay Stamp Duty if the transaction is over £1,000.SDLT

 

  • SDLT is payable on land and property transactions in England and Northern Ireland.
  • Property transactions in Scotland are subject to Land and Buildings Transaction Tax.
  • Property transactions in Wales are subject to Land Transaction Tax (LTT) from 1 April 2018. Prior to April 2018 SDLT applied in Wales.

Residential property

The rates apply to the portion of the total value which falls within each band.

Consideration (£) Rate
0 – 125,000 0%
125,001 – 250,000 2%
250,001 – 925,000 5%
925,001 – 1,500,000 10%
1,500,001 and above 12%

From April 2016 these rates may be increased by 3% where further residential properties, costing over £40,000, are acquired.

First time buyer relief

From 22 November 2017 first time buyers may be eligible for first time buyer relief on purchases of residential property up to £500,000. The rates apply to the portion of the total value which falls within each band.

Consideration (£) Rate
0 – 300,000 0%
300,001 – 500,000 5%
for purchases over 500,000 normal rates apply

Non-residential SDLT rates

Consideration (£) Rate
0 – 150,000 0%
150,001 – 250,000 2%
Over 250,000 5%
 
 
State Pension
  • The basic State Pension is a regular payment from the government that an individual may be entitled to when they reach State Pension age.
  • The basic State Pension depends on the number of years an individual has paid National Insurance or has National Insurance credits, eg while unemployed or claiming certain benefits.
  • To receive the basic State Pension an individual must have paid or been credited with National Insurance contributions (NIC).
  • From 2016 the State Pension has been reformed into a new single-tier state pension. In order to benefit from the full amount the individual will need 35 years, rather than the previous 30 years of NIC or credits for the full amount, with pro-rating where 35 years is not achieved. You will usually need 10 qualifying years to get any new State Pension. The amount an individual receives can be higher or lower depending on their National Insurance record. It will only be higher if you have over a certain amount of Additional State Pension.
  • Currently an individual may also be entitled to the Additional State Pension. How much an individual gets depends on the number of qualifying years of NIC, the amount of earnings and whether the individual has been contracted out of the scheme.
Weekly State Pension 2018/19  
Basic – single person £125.95
Basic – married couple £201.45
New state pension £164.35
 
Tax Reliefs for Individuals

Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme (EIS) provides tax relief for individuals prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks for their investment and companies can use the relief to attract additional investment to develop their business. Individuals are entitled to relief on investments in certain unquoted trading companies through EIS.

Maximum investment per annum £1,000,000
Additional investment limit where investing in knowledge-intensive companies £1,000,000
Income tax relief 30%
CGT treatment on disposal if held for 3 years Exempt

Capital gains from the disposal of other assets may be deferred by making an EIS investment.

Seed Enterprise Investment Scheme (SEIS)

The Enterprise Investment Scheme (EIS) provides tax relief for individuals prepared to invest in new and growing companies. Investors can obtain generous income tax and capital gains tax (CGT) breaks for their investment and companies can use the relief to attract additional investment to develop their business. A junior version of EIS known as the Seed Enterprise Investment Scheme (SEIS) has been introduced.

Maximum investment per annum £100,000
Income tax relief 50%
CGT treatment on disposal if held for 3 years Exempt

An individual who makes a capital gain on another asset and uses the amount of the gain to make a SEIS investment will not pay tax on 50% of the gain (subject to certain conditions).

Social Investment Relief (SIR)

Social Investment Relief (SIR) is designed to encourage private individuals to invest in social enterprises including charities. Individuals are entitled to relief on their investment:

Maximum investment per annum £1,000,000
Income tax relief 30%
CGT treatment on disposal if held for 3 years Exempt

Capital gains from the disposal of other assets may be deferred by making a SIR investment.

(All reliefs are subject to detailed conditions being met.)

Venture Capital Trusts (VCTs)

Venture Capital Trusts (VCTs) are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies. VCTs operate by indirect investment through a mediated fund. In effect they are very like the investment trusts that are obtainable on the stock exchange, albeit in a high-risk environment. Individuals are entitled to relief on investments in VCTs.

Maximum investment per annum £200,000
Income tax relief 30%
Dividend income Exempt
Capital gains treatment on disposal Exempt
Trade Allowance
  • A Trade Allowance is available to individuals.
  • There is an equivalent rule for certain miscellaneous income. This will apply to the extent that the £1,000 trading allowance is not used against trading income.
  • The trade allowance is not available against partnership income.
Income up to £1,000 Profits assessable NIL
Income over £1,000 Election to deduct £1,000 allowance rather than the actual expenses
 
Van Benefit
  • Van benefit is chargeable if the van is available for an employee’s private use.
  • A fuel benefit may also be chargeable if an employee has the benefit of private fuel paid for in respect of a company van.
  • The charges do not apply to vans if a ‘restricted private use condition’ is met throughout the year.
  • A reduced benefit charge may apply to vans which cannot emit CO2 when driven.
Van benefits 2018/19
Van benefit £3,350
Fuel benefit £633
 
VAT
  • Registered businesses charge VAT on their sales. This is known as output VAT and the sales are referred to as outputs.
  • Similarly VAT is charged on most goods and services purchased by the business. This is known as input VAT.
  • There are three rates: standard which applies to most goods and services, reduced rate for some goods and services such as home energy and zero rate goods and services, for example, most food and children’s clothes.
  • Some supplies are exempt from VAT for example postage stamps, financial and insurance transactions.
  • A business is required to register for VAT if the value of taxable supplies exceeds the annual registration limit.
  • The government has frozen the VAT registration and deregistration limits for two years from 1 April 2018.
VAT – rates and limits 2018/19  
Standard rate 20%
Reduced rate 5%
Annual Registration Limit
– from 1.4.18 – 31.3.19
£85,000
Annual Deregistration Limit
– from 1.4.18 – 31.3.19
£83,000
 

Disclaimer

This article is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.

Spring Statement 2018: All The Info

The Chancellor Philip Hammond presented his first Spring Statement on Tuesday 13 March 2018.

In his speech he provided an update on the economy and responded to the Office for Budget Responsibility forecasts. In addition he launched consultations on various aspects of the tax system.

In this publication we concentrate on the tax consultations that were announced either at Spring Statement or in recent weeks. We are also taking this opportunity to remind you of tax changes which take effect for 2018/19.

You should contact us before taking any action as a result of the contents of this summary.

Changes to the timing of tax legislation

Chancellor Philip Hammond has implemented some fundamental changes to the UK fiscal timetable.

In the 2016 Autumn Statement, the Chancellor announced that he would be introducing a new Budget timetable, which would see the main annual Budget moving from its traditional spring setting to the autumn and the Autumn Statement being replaced by a Spring Statement. The first Autumn Budget was presented in November 2017.

The new process

While the general process of developing tax policy will remain the same, the timescales for policy making and consultation have changed significantly. The government hopes that the new system will allow more time to scrutinise and consult on draft tax legislation before it is introduced.

The new timing of the Autumn Budget will allow the announcement of most new measures well in advance of the tax year in which they are due to take effect. The Spring Statement also offers the opportunity for the government to consult during the early stages of policy making, and publish calls for evidence on long-term tax policy issues.

Under the new system, measures announced in the Autumn Budget will generally be consulted on during the winter and spring, with draft legislation being published in the summer, ahead of the introduction of the Finance Bill in the winter. This will then receive Royal Assent the following spring.

The personal allowance

The personal allowance for 2018/19 is £11,850.

Some individuals do not benefit from the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000, which is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700.

The marriage allowance

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their unused personal allowance to their spouse or civil partner, reducing their tax bill by up to £237 a year in 2018/19.

Tax bands and rates

The basic rate of tax is currently 20%. From 6 April 2018 the band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. Additional rate taxpayers pay tax at 45% on their income in excess of £150,000.

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In the 2018/19 Scottish Budget, the Finance Secretary for Scotland announced significant changes to income tax bands and rates for Scottish resident taxpayers, introducing five possible income tax rates as shown in the table of rates at the end of this summary. The income tax rates range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

From April 2019, the National Assembly for Wales has the right to vary the rates of income tax payable by Welsh taxpayers.

Tax on dividends

In 2017/18 the first £5,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). From 6 April 2018 the Dividend Allowance is reduced to £2,000. Dividends received above the allowance are taxed at the following rates:

  • 7.5% for basic rate taxpayers
  • 32.5% for higher rate taxpayers
  • 38.1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Comment

The government expects that even with the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance affects family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers is £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000.

Increased limits for knowledge-intensive companies

The government has legislated to encourage more investment in knowledge-intensive companies under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs). From 6 April 2018, the measures:

  • double the limit on the amount an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies
  • raise the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs to £10 million from the current limit of £5 million. The lifetime limit will remain the same at £20 million, and
  • allow knowledge-intensive companies to use the date when their annual turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of the first commercial sale.

This measure is subject to normal state aid rules.

EIS knowledge-intensive fund consultation

The government is consulting on the introduction of a new approved fund structure within the EIS, with the possibility of additional incentives to attract investment. Such a fund structure would be focused on mainly investing in knowledge-intensive companies. This consultation outlines and seeks views on possible elements and constraints of such a fund structure, while also seeking to better understand the capital requirements of innovative knowledge-intensive companies.

Making Tax Digital for Business: VAT

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Regulations have now been issued which set out the requirements for MTD for VAT. Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

The new rules have effect from 1 April 2019, where a taxpayer has a ‘prescribed accounting period’ which begins on that date, and otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019.

HMRC is piloting MTD for VAT during 2018, ahead of its introduction in April 2019.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020, although businesses below the VAT threshold which have voluntarily registered for VAT can opt to join the scheme.

As with electronic VAT filing at present, there will be some exemptions from MTD for VAT. However, the exemption categories are tightly-drawn and unlikely to be applicable to most VAT registered businesses.

Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

In the long run, HMRC is still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.

Corporation tax rates

Corporation tax rates have already been enacted for periods up to 31 March 2021.

The main rate of corporation tax is currently 19%. The rate for future years is:

  • 19% for the Financial Years beginning on 1 April 2018 and 1 April 2019
  • 17% for the Financial Year beginning on 1 April 2020.

Class 2 and 4 National Insurance contributions (NICs)

Class 2 NICs will be abolished from April 2019. The Chancellor confirmed in March 2017 that there will be no increases to Class 4 NICs rates in this Parliament.

Intangible fixed assets

The Intangible Fixed Assets regime, which was introduced from 1 April 2002, fundamentally changed the way the UK corporation tax system treats intangible fixed assets (such as copyrights, patents and trademarks) and goodwill. As the regime is now more than 15 years old, the government would like to examine whether there is scope for reforms that would simplify it and make it more effective in supporting economic growth.

The government is seeking stakeholder views and evidence on specific aspects of the regime, including:

  • the impact of the 1 April 2002 commencement rule and the restriction on goodwill and customer related intangibles on the complexity and competitiveness of the regime
  • the use of the election for a 4% per annum fixed rate of relief
  • the impact of the regime’s de-grouping rules on mergers and acquisitions.

Corporate tax and the digital economy

The government published a ‘position paper’ at Autumn Budget 2017, setting out its view on the challenges raised by the digital economy. In summary, the digital economy has put the corporate tax system under pressure, creating imbalances between those firms with and without a physical presence. Certain digital businesses, like social media platforms or search engines, create value in ways that are not reflected in existing tax rules. The government’s view is that these businesses rely on the active participation of UK users but existing international rules do not take account of this value in determining how much of their profit is subject to UK corporation tax.

This is a long term project. In the meantime there is a need to consider interim action. Of the options that have been put forward, the government thinks the most attractive is a tax on the revenues that businesses generate from the provision of digital services to the UK market.

An updated position paper has now been issued which seeks to address and develop the questions that have so far been raised. This includes:

  • setting out a more detailed explanation of how user participation is considered to create value for certain digital businesses
  • a possible approach for incorporating user-created value into the international tax rules and
  • some of the important questions regarding the detailed design of a revenue-based interim measure.

Cash and digital payments

With cash use falling from 62% of all payments in 2006 to only 40% in 2016, the government will consult and seek evidence about how the role of digital payments is to fit into the growing digital economy. This will include identifying what further work can be done to remove barriers to digital payments. At the same time the government acknowledges that cash must remain accessible and secure, especially for the 2.7 million people entirely reliant on cash payments. It is also determined to further strengthen the crackdown on the use of cash as a method of money laundering and tax evasion.

Online platforms

The government has launched a call for evidence on the role of online platforms in ensuring tax compliance by their users. The types of online platforms the government is principally interested in are platforms:

  • that allow people to earn money from spare resources such as cars and spare rooms
  • that allow people to use their time to generate extra income
  • that connect buyers with individuals or businesses offering services or goods for sale.

The government wants to ensure that, where people have tax obligations because of these activities, it is easy for them to comply. The government considers that some do not fully understand or are unaware of their tax obligations. The focus of the work will be on direct taxes.

VAT collection – split payment

The government wants to combat online VAT fraud by harnessing new technology and is consulting on VAT split payment. This will utilise payments industry technology to collect VAT on online sales and transfer it directly to HMRC. In the government’s view this would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for business.

VAT registration threshold: call for evidence

The government considers that the current design of the VAT registration threshold may be dis-incentivising small businesses from growing their business and improving their productivity. The Office of Tax Simplification had previously recommended that the government examine the current approach to the VAT threshold.

This call for evidence will explore the effect of the current threshold on small businesses. Different policy options will be considered and whether these options could better incentivise growth.

Comment

The UK VAT registration threshold of £85,000 is the highest in the EU.

VAT fraud in labour provision in the construction sector

The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from October 2019. The long lead-in time reflects the government’s commitment to give businesses adequate time to prepare for the changes.

Extension of security deposit legislation

The government announced at Autumn Budget 2017 that it would introduce legislation to extend the scope of existing security deposits legislation to include corporation tax and Construction Industry Scheme deductions, with effect from April 2019. A consultation has now been published inviting comments on the how to implement the changes.

Legislation will allow HMRC to require high risk businesses to provide an upfront security deposit, where it believes there is a serious risk to the revenue. Currently HMRC has powers to require a security deposit in respect of other taxes such as VAT and Pay As You Earn.

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. Currently there is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.

In the current tax year there is a 9% rate for cars with CO2 emissions up to 50gm/km. From 6 April 2018 this will be increased to 13%, and from 6 April 2019 to 16%.

For other bands of CO2 emissions there will generally be a 2% increase in the percentage applied by each band from 6 April 2018. For 2019/20 the rates will increase by a further 3%.

The government previously announced that they will legislate to increase the diesel supplement from 3% to 4%. This will generally apply to all diesel cars (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%. There is no change to the current position that the diesel supplement does not apply to hybrid cars. The change will have effect from 6 April 2018.

Employer-Supported Childcare schemes close to new joiners

Many employers help employees with childcare costs, often by providing childcare vouchers by way of salary sacrifice. Following the roll out of Tax-Free Childcare, the new government scheme to help working parents, existing Employer-Supported Childcare (ESC) schemes were expected to close to new joiners from April 2018. However following the Chancellor’s Statement Education Secretary Damian Hinds made a concession to delay scrapping the scheme by six-months.

Employees already using ESC can choose whether to remain in existing schemes or switch to Tax-Free Childcare, but parents cannot be in both Tax-Free Childcare and ESC at the same time.

Different forms of remuneration

In the Spring Budget 2017 the government stated that it wished to consider how the tax system ‘could be made fairer and more coherent’. A call for evidence was subsequently published on employee expenses. The government’s aim is to better understand the use of the income tax relief for employees’ business expenses. It sought views on how employers currently deal with employee expenses, current tax rules on employee expenses and the future of employee expenses.

Following the call for evidence:

  • the government announced that the existing concessionary travel and subsistence overseas scale rates will be placed on a statutory basis from 6 April 2019. Employers will only be asked to ensure that employees are undertaking qualifying travel
  • the government also announced that employers will no longer be required to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. This will have effect from April 2019 and will not apply to amounts agreed under bespoke scale rates or industry wide rates
  • HMRC will work with external stakeholders to explore improvements to the guidance on employee expenses, particularly on travel and subsistence and the claims process for tax relief.

Self-funded work-related training

The government had previously announced that it would consult on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs. A call for evidence consultation has now been issued. Under current rules:

  • an employee only receives tax relief on self-funded training if it is both ‘wholly exclusively and necessarily’ and an intrinsic contractual duty of their existing employment and
  • a self-employed person can only deduct training costs incurred wholly and exclusively for their business where it maintains or updates existing skills.

The purpose of the consultation is to gain an understanding as to how an extension to the existing tax relief can be designed to upskill or retrain those who want or need to change their career. This will include taking into account lessons from previous initiatives and ensuring that tax relief on work-related training is not obtained on recreational activities.

Changes to termination payments

The government previously announced changes to align the rules for tax and employer NICs by making an employer liable to pay Class 1A NICs on any part of a termination payment that exceeds the £30,000 threshold that currently applies for income tax. In November 2017 the government decided to implement a one year delay for the Class 1A NICs measure so the change will take effect from April 2019.

‘Non-contractual’ payments in lieu of notice (PILONs) will be treated as earnings rather than as termination payments and will therefore be subject to income tax and Class 1 NICs. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their full notice period. This takes effect from April 2018.

The government will legislate to ensure that employees who are UK resident in the tax year in which their employment is terminated will not be eligible for foreign service relief on their termination payments. Reductions in the case of foreign service are retained for seafarers. Broadly the changes will have effect from 6 April 2018 and apply to all those who have their employment contract terminated on or after 6 April 2018.

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief (ER). This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have had newly-subscribed shares.

ER – relief after dilution of holdings

The government will consult on how access to ER might be given to those whose holding in their company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power) as a result of raising funds for commercial purposes by means of an issue of new shares. The proposal would allow shareholders to elect to crystallise a gain on their shares before the dilution occurs. This would be achieved by treating the shareholding as having been sold and immediately re-purchased at the prevailing market value. The election will have to be made in their tax return for the year in which the dilution takes place. The shareholder may also elect to defer the accrued gain until their shares are actually disposed of.

Inheritance tax (IHT) nil rate band

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

From 6 April 2017, a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.

The RNRB is being phased in. For deaths in 2017/18 it is £100,000, rising to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.

Downsizing

The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.

Office of Tax Simplification (OTS) review of inheritance tax

The Chancellor has requested the OTS to carry out a review of the inheritance tax regime to ensure that the system is fit for purpose. The review should include a focus on administrative issues such as the submission process, as well as practical issues concerning routine estate planning.

Property transaction taxes

In the Autumn Budget, the Chancellor announced an exemption from Stamp Duty Land Tax (SDLT) for first-time home buyers. From 22 November 2017, there is an exemption from SDLT on the first £300,000 when buying a home, where the total price of the property is not more than £500,000. 5% is payable on purchases between £300,000 and £500,000.

However, with devolved taxes, buying a property in Scotland and Wales can bring different tax consequences.

In Scotland Land and Buildings Transaction Tax (LBTT) applies instead of SDLT. Therefore an LBTT relief for first-time buyers of properties up to £175,000 has been proposed in the Scottish Draft Budget 2018/19. This is subject to a government consultation before the relief launches in 2018/19.

Welsh first-time buyers benefit from the Budget SDLT relief until 31 March 2018. Land Transaction Tax (LTT) replaces SDLT in Wales from 1 April 2018. The starting rate for LTT will be £180,000, benefiting not just first-time buyers but other home buyers in Wales. A higher rate, of 3% over standard rates for additional residential properties, applies to purchases throughout the UK whether SDLT, LBTT or LTT applies.

Extension of offshore time limits

HMRC is asking for views on the design principles for legislation to implement a new minimum tax assessment time limit of 12 years for HMRC to make assessments or notices of determination in cases involving offshore income, gains or chargeable transfers.

The current assessment time limits are ordinarily four years (six years in the case of carelessness by the taxpayer). HMRC wants to extend the time limit because it can take much longer to establish the facts about offshore transactions, particularly if they involve complex offshore structures.

Making Tax Digital – sanctions for late submission and late payment

Following significant support on consultation, the government intends to take forward points based late submission penalties. There will be further consultation on the draft legislation to be published in summer 2018.

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The business rates revaluation in England currently takes place every five years. In the Autumn Budget, the government announced an increase in the frequency of valuations to every three years following the next revaluation. The Chancellor has now announced that the next revaluation will be brought forward by one year to 2021. It will be based on market value rentals at 1 April 2019.

Tackling the plastic problem

The government will call for evidence as to how changes to the tax system could be used to reduce the amount of single-use plastics that are wasted by reducing unnecessary production, increasing re-use and improving recycling. The government would also like to explore how to drive innovation in this area to achieve the same outcomes.

Other consultations to be issued

In his speech, the Chancellor announced consultations would be issued on:

  • how to help the UK’s least productive businesses to learn from, and catch-up with, the most productive
  • how to eliminate late payments particularly to benefit small business
  • whether the use of non-agricultural red diesel tax relief contributes to poor air quality in urban areas
  • consultation on reduced Vehicle Excise Duty rates for the cleanest vans.
Disclaimer

This publication is published for the information of clients. It provides only an overview of the regulations in force at the date of publication and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.

For more information

For more information on anything discussed in this article or if you would like some tax planning advice please contact your usual Hawsons contact. Alternatively, please contact your nearest office to arrange your free initial meeting.

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Employing the Millennial generation

Employing the Millennial generation

Employing the Millennial generation 

They appear to be gaining a notorious reputation for being flighty, demanding and difficult in the workplace. How accurate is this reputation of the millennial, and how do employers retain this “problem” generation?

Millennials (the generation born between 1988 and 2000) are quickly joining the workforce, and unlike the Gen-Xers or Baby Boomers, they have grown up under a style of parenting that supported individual empowerment, had more structured lives, and more contact with diversity in their early-late schooling and workplaces.

But these employees are often getting a bad rap for coming into the workforce with an immediate sense of entitlement, a want of quick progression, and a tendency to be unreliable. While that’s a gross overgeneralization, it’s fair to say that millennials are looking for a feeling that they’re more than a cog in a massive machine. They are searching for a workplace that is close to their own ethical beliefs – one of equal pay, diversity in management, and integrity in company goals.

Millennials also may expect a timetable for career advancement that comes off as unrealistic to their managers; The most successful response to this is a simple one: compromise. Make it clear that advancement isn’t possible on the millennial’s idealized schedule, but that if they make a commitment to their current position and department that may seem long to them (yet is shorter than the previous norm in your company), they will be rewarded with additional opportunities for growth and responsibility on a timetable that they can depend on.

However, this generation comes with a deeply engrained and intuitive understanding of how technology can drive your business forward. They take initiative to reach their seemingly-ambitious goals, and if you don’t provide them with enough of a challenge, the most connected generation in history will network themselves right out of your firm. If their work, and their workplace is not diverse enough, they are a click away from somewhere that fulfils their needs.

So, what changes could firms be considering to ease the transition from baby boomers into millennial management?

  • Provide structure.
    Reports need due dates, meetings have agendas and minutes and goals are clearly stated and progress is assessed. Be careful not to box in the younger generation with inflexible work hours, millennials are notorious for tracking progress, and their overarching ambition.
  • Encourage their positive self-assuredness, and their enthusiasm for equality.
    They are ready to take on the world. They’ve grown up in an environment which strives for equality between women and men, where your background should not have an impact on your career trajectory. Encourage their battle for a fairer and more diverse workplace. It will only make your business more dynamic.
  • Millennial employees are multi-taskers on a scale you’ve never seen before.
    Multiple tasks don’t phase them. Talk on the phone while doing email and answering multiple instant messages—yes! This is a way of life. In fact, without many different tasks and goals to pursue within the week, the millennials will likely experience distraction.
  • Capitalize on the millennial’s affinity for networking.
    Not just comfortable with teams and group activities, your millennial employee likes to network around the world electronically. Keep this in mind because they are able to post their CV electronically as well on web job boards viewed by millions of employers. They intermingle on sites such as Facebook and LinkedIn and rate your company at Glassdoor.com. Sought after employees, they are loyal, but they keep their options open—always. If not happy, they will network right out of your workplace…
  • Provide a dynamic, employee-centred workplace.
    Millennials want to enjoy their work. They want to enjoy their workplace. They want to make friends in their workplace. Worry if your millennial employees aren’t laughing, going out with workplace friends for lunch, and helping plan the next company event or committee. Help your long-term employees make room for the millennials.

As this generation will inevitably overtake as the majority of your workforce, there will be changes that need to be made. Change can be both good and bad, and making sure you are prepared before undertaking such big developments in your business is essential. Whatever the generation you simply cannot allow your best talent to leave your firm and, in the worst scenario, go and work for a competitor.

Simon Bladen

Partner, Sheffield

0114 266 7141

Free initial meeting