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Newsletter December 2013

Welcome to this month's newsletter,

This month we have added articles covering: pension Auto-Enrolment, the 60% Income Tax rate, have a tax free Christmas party and notice from HMRC that they will be closing down certain unused PAYE schemes.

Our next newsletter will be published Thursday 9th January 2014.

May we take this opportunity to wish all our readers a well deserved break this Christmas and all the very best for 2014...

Chancellor's Autumn Statement 2013

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. 1.4% growth in the UK expected for 2013, 2.2% for 2014.
  2. Increase in jobs this year of 400,000.
  3. 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

  1. For 2014-15 this will be £11,000 (for most trustees £5,000)
  2. 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

  1. ISAs: Subscription limits £11,880, of which £5,940 can be invested in cash.
  2. Junior ISAs and Child Trust Funds: investment limits increased from £3,720 to £3,840.
  3. SAYE schemes set up to help employees save for and apply for shares to be increased from £250 to £500 per month.
  4. 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

  1. 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)
  2. and 20% thereafter (to a maximum of 80% QCE)
  3. 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:

  1. to introduce a limited Corporation Tax relief for commercial theatre productions, and
  2. 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

  1. A cap is to be introduced from April 2014 that will limit business rate increases in England to 2%.
  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.
  3. 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.
  4. 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.

The 60% Income Tax band

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:

  1. You could discuss a salary sacrifice arrangement with your employer: exchange salary for unpaid leave or a combination of tax free benefits.
  2. 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.
  3. 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:

  1. Increase charitable donations.
  2. Increase pension payments.
  3. 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.

Tax-free Xmas party

This month gives us an excuse to let our hair down and enjoy a well earned celebration with our work colleagues and partners. This article is a reminder of the tax concessions that apply to the costs of providing the Christmas bash.

The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.

Also, as long as the criteria below are followed there will be no taxable benefit charged to employees:

  1. The event must be open to all employees at a particular location.
  2. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

A final note on 'Trivial' gifts for employees.

Employers may find the following Revenue concession useful - we have copied the note directly from the HMRC handbook:

"An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned."

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are zero rated for VAT purposes!

Unused PAYE schemes

From October 2013, PAYE schemes will automatically be closed where:

  1. No real time PAYE submissions have been made
  2. No payments have been made to HMRC
  3. The employer is not an annual payer
  4. There is no evidence that the employer wants to claim Construction Industry Scheme deductions
  5. The employer has not received an advance from HMRC
  6. There have been no periods of Construction Industry liability
  7. There is no evidence that the employer has any employees
  8. There is no evidence that Class 1A NIC is due.

HMRC's Director General for Personal Tax, Ruth Owen, said:

"Closing schemes that are no longer needed is really important for businesses and for HMRC as it means that HMRC won't waste employers' or taxpayers' time and money by needlessly pursuing returns or debts when in fact none are due.

Since April, employers or agents (acting on behalf of their clients) who have set up PAYE schemes that are no longer needed can easily close the scheme by reporting this on their final submission. This new process helps further as it means we can identify and remove unnecessary schemes earlier."

Pension Auto-Enrolment

The Pension Regulator issued a press release 17 October 2013 alerting medium sized businesses of their obligation to set up and automatically enrol employees in a pension scheme. They said:

"The clock is ticking for thousands of medium sized employers across the UK who have six months to go before their duty to automatically enrol workers into a work-based pension is switched on. Over the past few weeks, The Pensions Regulator has sent around 6,000 letters to employers alerting them to begin finalising their preparations to meet their duties under automatic enrolment legislation. Thousands more letters calling employers to action will follow between now and Christmas.

Figures released today by The Pensions Regulator show that more than 1.7 million workers have already been automatically enrolled by their employers. More than 2,000 large employers have complied with their automatic enrolment duties and the regulator is stressing that by now medium sized employers should have plans in place to do the same. Leaving preparations too late can risk non compliance and this can come at a cost."

Small employers, those with less than 50 staff when the scheme started 1 April 2012, still have some time to go before they need to implement Auto-Enrolment. However, all businesses affected should be starting to consider their options now.

If you want to know when you will be required to set up and enrol your staff into a pension scheme you can enter your PAYE reference number in a simple tool on the Pensions Regulator website at: http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx this will advise you of your official "staging date".

More general advice regarding your responsibilities can be accessed at http://www.thepensionsregulator.gov.uk/employers.aspx Finally, if you need help with implementation planning, please call us to organise a fact-find appointment.

Tax Diary December 2013/January 2014

1 December 2013
Due date for Corporation Tax due for the year ended 28 February 2013.

19 December 2013
PAYE and NIC deductions due for month ended 5 December 2013. (If you pay your tax electronically the due date is 22 December 2013.)

19 December 2013
Filing deadline for the CIS300 monthly return for the month ended 5 December 2013.

19 December 2013
CCIS tax deducted for the month ended 5 December 2013 is payable by today.

30 December 2013
Deadline for filing 2012-13 Self Assessment online to include a claim for under payments (under ?3,000) be collected via tax code in 2014-15.

1 January 2014
Due date for Corporation Tax due for the year ended 31 March 2013.

19 January 2014
PAYE and NIC deductions due for month ended 5 January 2014. (If you pay your tax electronically the due date is 22 January 2014.)

19 January 2014
Filing deadline for the CIS300 monthly return for the month ended 5 January 2014.

19 January 2014
CIS tax deducted for the month ended 5 January 2014 is payable by today.

31 January 2014
Last day to file 2013 Self Assessment tax returns online.

31 January 2014
Balance of Self Assessment tax owing for 2012-13 due to be settled today. Also first payment on account for 2013-14 due today.

Rates & Allowances

Rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and the pension scheme earnings cap are set out below.

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