Although we are now at the beginning of a new calendar year we are in the last quarter of the current tax year.

Whether you are a business person, property landlord or pay significant amounts of tax as an employed or retired person there is now a short window of opportunity to examine your likely earnings for the 2013-14 tax year and, more importantly, see what can be done to minimise those liabilities.

It is impossible to outline all of the possible tax planning issues that could be of benefit. We have listed below a few and would suggest that you give us a call to discuss your individual circumstances.

• Have you maximised your ISA investments this year?
• Have you maximised your pension contributions?
• If possible have you utilised your Capital Gains Tax personal exemption? Currently £10,900 for 2013-14.
• If your employer still pays for the private fuel used in your company car you can effectively avoid the car fuel benefit charge if you repay your employer for the private fuel before the end of the tax year. It may be worth crunching the numbers as the tax on the benefit in kind is expensive and the private fuel refund may be less.
• For Inheritance Tax purposes each person can give £250 a year to any number of recipients, as well as £3,000 annually over and above that amount. They can also make regular gifts out of their income (not capital) that should fall to be exempt.
• If you are married or in a Civil Partnership and one partner/spouse has a much lower level of earned income, consider transferring income producing assets to the lower income earner. With Income Tax rates at a maximum 45% this current tax year, savings could be significant.
• If you or your partner/spouse are affected by the Child Benefit claw back for high income earners, have you considered equalising your income (if possible) to avoid the charge, or have you considered your obligation to file a Self Assessment tax return to disclose your liability?
• If your income is likely to exceed £100,000 this tax year have you considered the potential reduction or loss of your personal tax allowance?
• If you are a high income earner paying tax at the 45% additional rate could you take advantage of charitable donations reliefs or other planning opportunities to defer, reduce or eliminate the impact the 45% rate?
• Is it likely you will have business tax losses for 2013-14?

As indicated above every person’s circumstances are different and the above list is by no means exhaustive. Please call if you would like to organise a review of your tax planning opportunities for 2013-14.

According to HMRC the highest rate of Income Tax is 45%. This will apply to anyone with income over £150,000. Income below this amount is taxed at 40%, or a combination of 20% and 40%.

However, if your income marginally exceeds £100,000, for every £2 your income exceeds this amount you will lose £1 of your personal tax allowance. For a person under 65 years the personal allowance for 2013-14 is £9,440. Consequently, if your income rises to £118,880 you will lose your personal allowance.

The tax payable on this marginal amount of £18,880 is £18,880 x 40% plus £9440 x 40% – in total £11,328, or 60% (11,328/18,880 x100) of your income earned between £100,000 and £118,880.

If you estimate that your income will marginally exceed £100,000 in this tax year you may be advised to consider your options. There are two strategies you could employ:

1. Reduce your income, or
2. Increase your tax allowable deductions

Reduce your income:

• You could discuss a salary sacrifice arrangement with your employer: exchange salary for unpaid leave or a combination of tax free benefits.
• Defer bonuses and/or dividends payable towards the end of the tax year until after 5 April 2014. Depending on the numbers, this may defer the problem to the next tax year, or produce a permanent tax saving – don’t forget, gift aid payments can be carried back a year in many cases.
• Take a close look at the taxable benefits you receive. For instance if your employer pays the fuel costs to cover private use of a company car consider reimbursing the private fuel cost.

Increase your tax allowable deductions:

• Increase charitable donations.
• Increase pension payments.
• If you are self-employed consider investment in plant or equipment and take advantage of the £250,000 Annual Investment Allowance.

It’s worth giving the matter serious thought as you will potentially save 60% of any cost in reduced Income Tax payments. The above suggestions are not the only strategies you could employ. If you would like to organise a meeting to discuss your planning options in more detail please call.

Autumn Statement – 5 December 2013

George Osborne presented his Autumn Statement to Parliament amid mixed messages spilling from the Treasury, and promoted in the national press, about what he would, and would not give away.

The reported economic indicators were encouraging:

• 1.4% growth in the UK expected for 2013, 2.2% for 2014.
• Increase in jobs this year of 400,000.
• National debt: gradual decreases expected with a Budget surplus forecasted for 2018-19.

A number of incentives for small businesses and changes to personal and business taxation were also confirmed. In more detail they are:

 

Personal taxes and related matters

Personal Tax and National Insurance 2014-15

1. The personal allowance for persons born after 5 April 1948 is confirmed as £10,000 from 6 April 2014. From 2015-16 the personal allowance will increase in line with the Consumer Price Index (CPI).
2. The higher rate threshold (the basic personal allowance plus the basic rate limit) will be £41,865. With the basic personal allowance at £10,000 this means that the basic rate limit will be £31,865 from 6 April 2014.
3. There will be no percentage increases in the rates of NIC (Class 1, Class 1A, Class 1B and Class 4) for 2014-15, but there will be changes to the various thresholds. The weekly rates for Class 2 and Class 3 NICs will be increased.

Tax Credit, Child Benefit and Guardian’s Allowance 2014-15

1. The disability elements of Tax Credits will be increased in line with CPI at 2.7%. Other rates are increased by 1%. The family element of child tax credit remains at £545.
2. Child Benefit will be increased by 1%.
3. Guardian’s Allowance will be increased in line with CPI of 2.7%.

NEW – Married Person’s Allowance

From April 2015 a spouse or civil partner, who is not a tax payer, or who does not pay tax above the basic rate, will be entitled to transfer up to £1,000 of their personal allowance to their spouse or civil partner. This will not advantage higher rate tax payers as the recipient of the transfer cannot be subject to tax at higher than the basic rate.

In effect, the transferor’s personal allowance will be reduced by £1,000, and the recipient’s tax will be reduced by up to £200 (if the basic rate of tax stays at 20%).

In his speech George Osborne indicated that this was “a beginning”. Perhaps the amount of the transfer will be increased in future years?

NEW – National Insurance Contributions (NIC) opportunity

From October 2015 a Class 3A NIC will be introduced to give those who reach state pension age, before 6 April 2016, an opportunity to boost their Additional State Pension.

Capital Gains Tax (CGT) – Private Residence Relief change

At present, if a property has been occupied at any time as an individual’s private residence, the last three years of ownership are disregarded for CGT purposes – even if the individual is not living in the property when it is sold, and may possibly be claiming private residence relief on a different property at the same time.

From 6 April 2014 this final period exemption will be reduced to 18 months.

TIP: Those property owners considering the sale of a property that has been a private residence at some time should take this change into account – if they can sell before 6 April 2014 they will still exempt the last three years of ownership from CGT.

The Government have also announced plans to introduce CGT on future gains by non-residents who sell UK residential property from April 2015.

CGT Annual exemption

• For 2014-15 this will be £11,000 (for most trustees £5,000)
• For 2015-16 and subsequent years £11,100 (for most trustees £5,500)

NEW – Social Investment tax relief

This is a new relief for investment in social enterprise and will commence April 2014.

Investment in Social Impact Bonds will also be eligible for this new relief.

Other investment incentives 2014-15

• ISAs: Subscription limits £11,880, of which £5,940 can be invested in cash.
• Junior ISAs and Child Trust Funds: investment limits increased from £3,720 to £3,840.
• SAYE schemes set up to help employees save for and apply for shares to be increased from £250 to £500 per month.
• Share Incentive Plans (SIPs): individual limits on the free shares that companies can award will be increased from £3,000 to £3,600 per year. Individual limits on the partnership shares employees can purchase will be increased from £1,500 to £1,800 per year (or 10% of an employee’s annual salary).

Fuel Duty and tax discs

The planned September 2014 increase in fuel duty has been cancelled. No further increases will be made during the current Parliament.

A further administrative inconvenience for motorists is to be abolished: the paper tax disc. It will be replaced by an electronic system.

State Pension changes

The State Pension Age (SPa) will increase to 66 years in 2020. The Government has already indicated the SPa will rise to 67 years by 2028.

It is further proposed that the SPa will rise again: to 68 years in the mid 2030s, and to 69 years by the late 2040s.

The Government estimates that it could save around £500bn from pension expenditure over the next 50 years due to these changes in SPa.

The basic State Pension will rise by £2.95 a week from April 2014.

Fuel bills

The Government has committed to delivering an average saving of £50 in household expenditure by reducing the impact of government policy on energy bills. It will do this whilst maintaining support for poorest families and providing new home owners with an incentive worth up to £1,000 to undertake energy efficiency measures.

Train fares

Average increases in fares will be capped in 2014 in line with RPI, not at 1% above RPI as previously announced.

 

Business taxes

Film Tax Relief

• From April 2014 the rate of film tax credit for surrenderable losses will be:
  25% on the first £20m of qualifying core expenditure (QCE) (subject to maximum of 80% of QCE)
• and 20% thereafter (to a maximum of 80% QCE)
• the minimum UK expenditure qualification will change from 25% to 10%

These measures are subject to State Aid approval.

NEW – Theatre Relief

A consultation will be launched in spring 2014:

• to introduce a limited Corporation Tax relief for commercial theatre productions, and
• a targeted relief for theatres investing in new writings or touring productions to regional theatres.

These measures are expected to come into force from April 2015.

Tax avoidance and evasion – effective as from 5 December 2013

The following five measures have been introduced:

1. Two changes to improve the effectiveness of the World Wide Debt Cap.
2. Controlled Foreign Companies (CFC) profit shifting – the measure switches off the partial exemption rules for loan relationship credits of a CFC in certain circumstances.
3. Partnership taxation – measures to restrict allocation of profits and losses between individual, and non-individual partners, where the motivation is minimising tax.
4. Avoidance schemes using total return swaps.
5. Double taxation relief revenue protection.

Charities established for tax avoidance purposes

The Finance Bill 2014 will contain provisions to prevent charitable tax reliefs to charities where one of the main purposes of establishing the charity was tax avoidance.

Accelerated tax payment in avoidance cases

There is evidence that tax-payers are entering into avoidance schemes in order to defer tax liabilities. To counter this activity provisions will be included in the Finance Bill 2014 to require payment of disputed tax when a formal avoidance follower penalty notice is issued at the beginning of an enquiry.

Business rates

• A cap is to be introduced from April 2014 that will limit business rate increases in England to 2%.
• The introduction of up to a £1,000 rates discount to help high street businesses. This includes pubs, cafes, restaurants, charity shops as well as other retailers who occupy retail premises with a rateable value of up to £50,000 in 2014-15 and 2015-16.
• The introduction of a temporary reoccupation relief, granting a 50% discount from business rates for new occupants of previously empty retail premises for 18 months. The relief will be granted to businesses moving into long-term empty retail properties on or after 1 April 2014 and on or before 31 March 2016.
• Extending the Small Business Rates Relief for a further 12 months from 1 April 2014.

NEW – Abolition of employers’ NICs for under 21s

From 6 April 2015 employers will not have to pay Class 1 secondary NICs on earnings paid to the under 21s up to the Upper Earnings Limit (UEL) – below £813 per week.

Investment in young people

1. The cap on student numbers at publicly funded higher education institutions in England is to be removed by 2015-16. This should increase capacity to allow 60,000 more young people go to university every year. For 2014-15, the Government will increase the cap for HEFCE-funded institutions by 30,000.
2. The Government will provide extra funding for science, technology and engineering students of £50m per academic year from 2015-16.
3. The provision of £40m in additional support for people starting higher apprenticeships. This is expected to create 20,000 additional apprenticeships over the next two academic years.

Free school meals

Pupils attending state schools in England, in Reception, Year 1 and Year 2 are to get free school lunches from September 2014 at an estimated cost of £600m per year.

Capital funding will be made available to improve capacity in school kitchens. Additional funding will also be made available to enable Further Education and Sixth Form Colleges to offer free meals to disadvantaged students.

Cast your mind back when Members of Parliament were accused of “flipping” properties to avoid Capital Gains Tax on the sale of a second property?

Theoretically, it should be possible to buy a second home, live in it for a short period, and as long as certain procedures are followed, have the last three years of ownership ignored for CGT purposes. By implication, if you buy and sell the property within a three year period you will pay no tax on the sale. This process is described in some circles as “flipping”.

Recent court cases seem to be challenging this type of arrangement and making it more difficult for property owners to avail themselves of the CGT, Principal Private Residence Relief (PPR). The decisions may also have an effect where there is only one home which is occupied on a temporary basis.

It a nut shell the Courts are using the issue of “permanence” to deny relief.

P Moore v HMRC

In this case Mr Moore decided he wanted to live apart from his wife of many years and he moved into a house that he had previously rented out. He lived in this house from November 2006 to July 2007. Although he was careful to have his Council Tax bills sent to his new house, all of his other bills were forwarded to his lady friend, who he subsequently married.

The Court decided that Mr Moore had never intended that his residence in the second home be more than a temporary arrangement, and that his true intention was to purchase a larger property with his future wife that would accommodate her children.

The arrangement lacked permanence.

Dr Eghbal-Omidi v HMRC

In this case a doctor agreed to purchase a house in December 2006 and the sale was completed in March 2007. In May 2007 the doctor sold the house making a profit of £550,000.

Again the doctor contended that he had occupied the house and therefore no tax should be payable.

The Court disagreed. His occupation lacked any permanence and relief was denied.

Decided cases on this issue now conflict as earlier judgements did not place such significance on the matter of permanence. Readers who find themselves in a similar situation should take stock. Until the Courts provide a definitive ruling, or HMRC clear guidelines, we are placed in an awkward position when deciding on an appropriate approach to tax planning.

A new tax campaign was launched by HMRC on 7 October 2013. The campaign targets: physiotherapists, occupational therapists, chiropractors, osteopaths, chiropodists and podiatrists; homeopaths, dieticians, nutritional therapists, reflexologists, acupuncturists, psychologists, speech, language and art therapists, and other health professionals are also covered.

Health professionals have until 31 December 2013 to advise HMRC that they would like to take part in the campaign, and until 6 April 2014 to disclose and pay any tax owed.

As usual with these campaigns HMRC offer favourable settlement terms. Health professionals affected who do not meet the 31 December deadline run the risk that their affairs may be subject to an investigation.

UK residents, whose Swiss banking arrangements have been disclosed to HMRC under the UK/Swiss tax agreement, have started to receive follow up letters from HMRC.

Earlier this year account holders were given a choice:

• To pay over a fixed percentage of their account balance to compensate for tax previously unpaid.
• Or, to authorise their Swiss Bank to disclose their account details to HMRC. This did not apply to non-UK domiciled individuals.

HMRC have been writing to this second group. Recipients of these letters were required to act quickly. HMRC set a deadline of 1 November 2013 to complete and return one of three certificates. If you have received such a letter, and have not responded, you should take advice quickly. The certificate you should have submitted is one of the following three options:

1. Certificate A: a declaration that they have no outstanding UK tax liabilities (either in relation to the Swiss accounts or other sources).
2. Certificate B: a declaration that they will be disclosing any outstanding liabilities using the Liechtenstein Disclosure Facility (LDF), or
3. Certificate C: a declaration that they will be disclosing their outstanding liabilities outside the LDF.

Failure to respond to the HMRC letter may result in a formal investigation being mounted by HMRC and the risk that criminal proceeding may be taken. Account holders should consider their options carefully and respond without further delay. Completing Certificate B would avail you of certain concessions regarding penalties chargeable, and in particular, immunity from prosecution.

Readers affected would be wise to take professional advice before responding to HMRC.

Planning to sell your business is not a process for the faint hearted. You have likely spent many years building your business and the last thing you want to face is losing a large proportion of the sales proceeds to tax or worse, being unable to enforce payment of what is due to you because of contractual difficulties.

This is a complex subject. There are many ways to structure a sale and this article outlines a few of the issues you will need to deal with:

• Are you selling all your business or just part of it?
• Are you selling the shares in the company or the underlying business?
• Are you retaining ownership of property that forms part of the business assets?
• Is your company considered to be a “trading” company for tax purposes?
• Should key staff benefit from the sale?

The forth item on this list is particularly important if shareholders want to benefit from Entrepreneurs’ Relief for Capital Gains Tax (CGT) purposes. A successful claim would limit any CGT to 10% of the taxable gain up to a lifetime allowance of £10m.

To be considered a trading concern, a company needs to comply with HMRC’s 80:20 rule. This looks at three criteria:

1. Are at least 80% of the assets used for the purposes of a trade?
2. Is more than 80% of turnover derived from trading activities?
3. Do officers and employees of the company spend 80% or more of their time on trading activities?

Assets can include cash reserves so it may be prudent to extract surplus cash from the company at least a year before a sale is anticipated. However, HMRC tend to take a more relaxed view if the cash arises from accumulated trading profits and it is not actively managed.

Another issue you should consider at an early date is due diligence. Your purchaser will no doubt send in their advisors to check over certain aspects of the business tax affairs prior to the completion of the sale. You should conduct your own review into PAYE, VAT and Corporation Tax compliance matters before any due diligence takes place to ensure there are no skeletons in the cupboard.

Also, it is important to consider shareholdings etc, and whether the shareholders themselves meet the requirements for Entrepreneurs’ Relief.

The key to maximising the value locked up in your business is to take planning seriously, and start the process at least a year before you intend to sell.

If you own the property that you trade from, for example a hotel or guest house, the purchase price of the property may have included the cost of certain integral features that it may be possible to submit a claim for capital allowances.

The Finance Act 2012 included provisions that affect the ability to make such a claim and we are now in a transition period ending in April 2014. Accordingly, we recommend that if you think you may be affected to contact us to discuss how the change in rules will affect you and whether a “late” claim for capital allowances can be made if you have not already made a claim.

What sort of integral features can you claim for?

The rules that define what can be claimed vary from business to business. Usually, it should be possible to claim for items that are used in the running of the business. For example: heating systems, security systems, general power, and fire alarms.

HMRC defines integral features, eligible for plant and machinery allowances, as:

1. An electrical system (including a lighting system),
2. A cold water system,
3. A space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
4. A lift, an escalator or a moving walkway,
5. External solar shading

HMRC’s guidance goes on to say that:

“…the new definition does not extend to any asset whose principal purpose is to insulate or enclose the interior of a building, or to provide interior walls, floors or ceilings which are intended to remain permanently in place.”

What are the advantages of making a claim?

A back dated claim for capital allowances will reduce your tax bills, possibly for a number of years, and if tax has already been paid for those years then you should receive refunds.

Further, if you fail to make this type of claim it may affect the valuation of your business in the event of a future sale since the ability of a purchaser to claim allowances may be restricted.

If you have never explored the possibility that tax allowances may be locked away in the cost of the building you own, and trade from, we would be happy to take a look on your behalf. Time is running out. As mentioned above, you should consider this before April 2014.

From 6 April 2014 the pensions’ lifetime allowance will be reduced to £1.25 million from the present level of £1.5 million. If you have already built up pension savings of more than £1.25 million or have planned to do so in the expectation that the lifetime allowance would not reduce from the 2013-14 level, there is a new form of protection called “Fixed Protection 2014” (FP2014).

The legislation for FP2014 applies from 6 April 2014 and broadly follows that for the existing fixed protection which was introduced when the lifetime allowance was reduced from £1.8 million to £1.5 million in 2012-13.

If you expect your pension savings to be more than £1.25 million (including taking into account past benefits crystallised) when you come to take any benefits on or after 6 April 2014 you can use FP2014 to help reduce or mitigate the lifetime allowance charge. FP2014 will allow you to crystallise benefits worth up to £1.5 million without paying the lifetime allowance charge, although the ability to accrue future benefits is very limited.

The application form for FP2014 has been available since 12 August 2013 and must be submitted electronically or in paper form by 5 April 2014. However, HMRC will not send out any FP2014 certificates before November 2013.

We will be happy to speak with any pension savers who may be affected: those who have, or intend to have, pension savings in excess of £1.25m.

The acronym stands for Annual Tax on Enveloped Dwellings. The tax was introduced in April 2013 to discourage ownership of property in an “envelope” that could avoid payment of Stamp Duty Land Tax on a subsequent sale.

ATED is a tax on companies and so-called Non-Natural Persons (NNPs) who have an interest in a residential property in the UK that was valued at £2m or more on 1 April 2012, or with a purchase price over £2m if acquired on or after 1 April 2012.

A Non-Natural Person is an owner who is not an individual and includes certain partnerships and collective investment schemes.

The ATED tax due for 2013-14 depends on the property value:

• £2,000,001 to £5m – £15,000
• £5,000,001 to £10m – £35,000
• £10,000,001 to £20m – £70,000
• Over £20m – £140,000

For the first year, 2013-14, the ATED return was due by 1 October 2013 and the tax is due to be paid by 31 October 2013. For subsequent years the ATED return and payment is due by 30 April in the year of assessment. Thus, for 2014-15 the return and payment will need to be made by 30 April 2014.

The tax is only due for the period of ownership in a tax year.

A dwelling might get relief from ATED if it is:

• Let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
• Open to the public for at least 28 days per annum. If part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property.
• Part of a property trading business and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
• Part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner.
• For the use of employees of the company, for the company’s commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10 per cent. The employee’s duties must not include services for any present or future occupation of the property by someone connected with the company. The relief is also available where a partner in a partnership does not have an interest of more than 10 per cent in the partnership.
• A farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner.
• A dwelling acquired by a financial institution in the course of lending.
• Owned by a provider of social housing.

There are also a number of exemptions from the tax, most significantly, charitable companies using the dwelling for charitable purposes.