The following announcements were posted to the GOV.UK website last month. They provide details of some of the compensation being offered to businesses affected by last month’s flooding across the UK:

 

Employers that provide a company car and pay for the employees’ private fuel create tax, NIC and administrative issues for both parties.

1. Employers will be liable for Class 1A National Insurance charges on the taxable benefit created by the provision of the car and payment of private fuel; unless the employee fully reimburses the private fuel costs, and
2. Employees will suffer a benefit in kind charge for the use of the car and the private fuel provided. The car fuel charge can be reduced, or eliminated, if the private fuel costs are reimbursed.

But what happens if the fuel provided by the employer for private use is electricity?

Electricity does not count as fuel for this purpose. So, for example, where an employer enables an employee to recharge his car at work, or at home, and the employer pays the bill, there is no taxable benefit even if the car is available for private use.

In a recent tax tribunal case a tax payer was denied Capital Gains Tax relief for the cost of improvements to a property as he could provide no evidence of his expenditure to the court.

The court came to the conclusion that the taxpayer had made improvements and were somewhat dismayed by his inability to provide evidence.

This is a timely reminder that it is not only trading businesses that need to keep documentary evidence. Property owners should also ensure that they keep records of property purchases and sales together with copy invoices or other evidence of expenditure to improve their property.

There is a situation where you might be advised to make an election to pay tax. It arises if you sell your company and accept payment in the form of shares (or certain types of loan notes) from the buying company.

Let’s say that you own all of the shares in your company X Ltd and the original cost of the shares five years ago was £1,000.

You are approached by Z Ltd who offers to purchase your shares for £1m and offers you shares in Z Ltd as consideration for the transaction.

What are the tax consequences?

Basically, the share swap is not a chargeable event for Capital Gains Tax purposes. Your holding in Z Ltd will be deemed to have a base cost of £1,000 (the original cost of the X Ltd shares). This tax treatment is automatic. No election needs to be made. No tax is payable.

Why might you want to elect to pay tax now?

The issue that might encourage you to elect to pay Capital Gains Tax when the share swap is completed is Entrepreneurs’ relief (ER). To qualify for ER certain criteria need to be met. For example:

• You will need to be a director or employee
• Hold at least 5% of the ordinary share capital and voting rights
• Have held the shares for at least a year, and
• The company must be a trading company or the holding company of a trading group

The possible benefit arises if you are uncertain that your new holding in Z ltd will qualify for ER when you dispose of the shares at some future date. Any gains that qualify for ER, either now or in the future, would be taxable at 10%; gains that do not qualify would be subject to tax at 28% (based on present rules).

In order to work out the best way forward you should consider your options before completing the sale.

If you are self-employed, as a sole trader or in partnership, and if we assume that your business year end is 31 March, then the profits you earn in the year to 31 March 2014 will form the basis of your tax payments on account for the tax year 2014-15 (unless the year to 31 March 2014 was your final year of trading).

Problems may arise if profits, year on year, fluctuate significantly; either up or down.

Your tax payments as a self-employed person consist of two payments on account and a final settlement on the 31 January following the end of the relevant tax year. For example you will make equal payments on account for the tax year 2013-14 in January and in July 2014. If this is insufficient to cover the total tax and Class 4 NIC due then you will have a top up payment to make in 31 January 2015.

Payments on account are initially based on your Self Assessment liability for the previous tax year – in the above example, the January and July 2014 payments will be based on your actual taxes due for 2012-13.

If your trading profits have not increased or reduced significantly, the payments on account will usually cover tax due and there will be perhaps a small difference, under or overpaid, that will need to be sorted out in the following January.

However, if your profits have significantly increased or reduced, then cash flow considerations need to be taken into account.

If your profits for the year to 31 March 2014 are likely to be higher than the previous year:

In this case any payments on account you make January and July 2014 are unlikely to cover taxes due for 2013-14 and a balancing payment will arise on 31 January 2015.

If your profits for the year to 31 March 2014 are likely to be lower than the previous year:

In this case any payments on account you make in January and in July 2014 are likely to be more than you need to make to cover taxes due for 2013-14 and a balancing overpayment will arise on 31 January 2015. This can be addressed by making an election to reduce the payments on account to a more appropriate amount.

If either of these scenarios is likely to apply to your self-employed business profits, we advise you to have your accounts drawn up as soon as possible after your year end. The tax advantages can be summarised as:

• If your profits have been increasing, you will have the maximum period to create a cash reserve to cover any shortfall in taxes due on 31 January 2015.

If your profits have been reducing, you can make an election to reduce the second payment on account for 2013-14, due on 31 July 2014.

HMRC do not send communications to tax payers by email. If you receive an email purporting to be from HMRC, it will be some sort of “scam” and should be ignored (deleted from your PC).

Do not under any circumstances open any attached files or disclose any personal information. Typically, the email will offer you a tax refund if you send your bank details, or some other inducement to part with similar information.

HMRC will either call you or send a letter if they need to communicate with you.

Where employees are provided with living accommodation, a car or a van, any private use is usually subject to specific scale charges or other rules. This article considers the provision of two further classes of assets provided for an employee’s or director’s personal use.

The cash equivalent of the asset provided is the annual value of the asset’s use, plus expenses (other than costs of acquisition) incurred in connection with the asset that would not have been incurred without the provision of the benefit.

1. Land: the annual value of the asset’s use is the greater of the gross rateable value when the property was last rated, and any rent paid by the provider.
2. Assets other than land: the annual value of the asset’s use is equal to 20% of the asset’s market value when it was first used to provide a benefit. If the provider paid rent for the asset that was more than the 20% calculation, then the higher figure is used.

If an asset is provided for part of a tax year the above cash equivalent figures would be adjusted accordingly.

For example:

A company buys a boat for a director’s private use on 6 April 2013 for £25,000. It takes out a loan to buy the boat and interest charges are £4,500 in the year to 5 April 2014.

Running costs paid by the employer in the year are £2,400 and the director makes a contribution of £1,500.

The benefit would be £5,900 (20% of £25,000 plus expenses £2,400, less £1,500 made good by the director).

The bank interest charges are disregarded as they are part of the cost of acquisition.

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.