Archive for March, 2014

What has changed since the Budget?

Monday, March 31st, 2014
  • For those born after 5 April 1948 the personal tax allowance is £10,000. It was also announced that from 6 April 2015 this would increase to £10,500.
  • The much publicised change to the taxation of salaried members of Limited Liability Partnerships is confirmed. Ongoing vigilance is required to ensure that salaried members’ tax status does not change from self-employed to PAYE by default.
  • All partnerships will be affected by new rules that will allow HMRC, in certain circumstances, to reverse profit or loss sharing between partners if one or more of the partners is a “non-individual” – for example a limited company.
  • From April 2014 employers can claim the new £2,000 Employment Allowance that can be used to set off against their employers’ secondary National Insurance Contributions.
  • From 27 March 2014 and ongoing throughout the 2014-15 tax year, a number of relaxations are being introduced to make the withdrawal of benefits from pension funds more flexible. Any person who is eligible to draw from their pension funds should now take advice as a matter of urgency to determine their best course of action.
  • The Annual Investment Allowance is increased from 6 April 2014 (1 April if a company) to £500,000 (previously £250,000). The new ceiling will apply until 31 December 2015 when the limit could reduce to £25,000. Careful planning is required as, clearly, this measure is intended to encourage businesses to bring forward capital investment during this generous tax relief window. Again planning is required as transitional measures may reduce your entitlement to relief if your business year end date straddles the 6 April 2014 (1 April if a company).
  • Loans provided by an employer to an employee, that are interest free or low cost, did not generate taxable benefits if they were below £5,000. From April 2014 this limit is increased to £10,000.
  • Child care support is increased to 20% of costs capped at a maximum total cost per child of £10,000. All age groups will be brought into this scheme by autumn 2015.
  • From 6 April 2014 the Private Residence Relief final period exemption for Capital Gains Tax purposes is reduced to 18 months, previously it was three years.

Tax Diary April/May 2014

Monday, March 31st, 2014

 

  • 1 April 2014 – Due date for Corporation Tax due for the year ended 30 June 2013. 
  • 19 April 2014 – PAYE and NIC deductions due for month ended 5 April 2014. (If you pay your tax electronically the due date is 22 April 2014.)
  • 19 April 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2014. 
  • 19 April 2014 – CIS tax deducted for the month ended 5 April 2014 is payable by today.
  • 19 May 2014 – PAYE and NIC deductions due for month ended 5 May 2014. (If you pay your tax electronically the due date is 22 May 2014)
  • 19 May 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2014.
  • 19 May 2014 – CIS tax deducted for the month ended 5 May 2014 is payable by today.
  • 19 May 2014 – The payroll forms P35 and P14s must be filed by this date – employers late in filing these forms may receive a penalty.
  • 31 May 2014 – Ensure all employees have been given their P60s for the 2013-14 tax year.

State Pension and tax

Monday, March 31st, 2014

If you have recently started to receive your State Pension, you may, or may not, have noticed that it is paid without deduction of tax. This can have a number of unforeseen tax consequences:

  • If your total income including your State Pension is less than your personal tax allowance then there is no tax to pay and you can spend your pension, no problem.
  • If you are still in business and self-employed, and if your self-employed earnings exceed your personal allowance, then you will need to save part of your State Pension to cover tax due. The amount you will need to put by depends on your marginal rate of tax.
  • If you are employed, or if you receive private pension payments, HMRC may adjust your code number(s) to recover tax due on your State Pension. However, this process does not always recover the correct amount and you may receive a bill after the end of the tax year for any arrears. And occasionally, you may have overpaid and you will receive a rebate.

 If you are concerned that you may be overpaying tax, or should be reserving for future tax and are unsure how much to put by, please contact us.    

HMRC is changing the way they charge interest on late paid PAYE

Monday, March 31st, 2014

Employers should note that HMRC is changing the way they charge interest on unpaid PAYE from 6 April 2014. We have reproduced below HMRC’s recent Helpsheet:

 For the tax year 2014-15 onwards:

 HMRC will charge in-year, rather than annual, interest on all unpaid:

  • PAYE tax and Class 1 National Insurance, including specified charges (estimates HMRC makes in the absence of a PAYE submission)
  • Construction Industry Scheme charges
  • In-year late filing penalties, which start from October 2014
  • In-year late payment penalties, which will be charged automatically from April 2015

HMRC may also charge interest on underpayments that arise because of adjustments reported on Earlier Year Updates submitted in respect of tax year 2014-15 onwards.

For annual payments such as Class 1A and Class 1B National Insurance Contributions (NICs), HMRC will continue to charge interest on any amount which remains unpaid after the due date.

 Will HMRC also pay interest on overpayments in-year?

Yes. HMRC will apply repayment interest where an employer makes a payment and the charge is then reduced, and this results in an overpayment which is:

  • reallocated to a later charge
  • repaid

 How will interest be calculated?

 HMRC will charge interest from the date a payment is due and payable to the date it is paid in full.

 For 2013-14 HMRC will charge interest on any amount outstanding for month 12 starting from 19/22 April 2014. Interest will only be charged on any month 12 late payment amounts and not all outstanding late payment amounts for 2013-14.

 For 2014-15 HMRC will charge in-year interest each month on any late payment, starting from 19 May 2014.

What has and hasn’t changed since the Budget?

Monday, March 31st, 2014
  • For those born after 5 April 1948 the personal tax allowance is £10,000. It was also announced that from 6 April 2015 this would increase to £10,500.
  • The much publicised change to the taxation of salaried members of Limited Liability Partnerships is confirmed. Ongoing vigilance is required to ensure that salaried members’ tax status does not change from self-employed to PAYE by default.
  • All partnerships will be affected by new rules that will allow HMRC, in certain circumstances, to reverse profit or loss sharing between partners if one or more of the partners is a “non-individual” – for example a limited company.
  • From April 2014 employers can claim the new £2,000 Employment Allowance that can be used to set off against their employers’ secondary National Insurance Contributions.
  • From 27 March 2014 and ongoing throughout the 2014-15 tax year, a number of relaxations are being introduced to make the withdrawal of benefits from pension funds more flexible. Any person who is eligible to draw from their pension funds should now take advice as a matter of urgency to determine their best course of action.
  • The Annual Investment Allowance is increased from 6 April 2014 (1 April if a company) to £500,000 (previously £250,000). The new ceiling will apply until 31 December 2015 when the limit could reduce to £25,000. Careful planning is required as, clearly, this measure is intended to encourage businesses to bring forward capital investment during this generous tax relief window. Again planning is required as transitional measures may reduce your entitlement to relief if your business year end date straddles the 6 April 2014 (1 April if a company).
  • Loans provided by an employer to an employee, that are interest free or low cost, did not generate taxable benefits if they were below £5,000. From April 2014 this limit is increased to £10,000.
  • Child care support is increased to 20% of costs capped at a maximum total cost per child of £10,000. All age groups will be brought into this scheme by autumn 2015.
  • From 6 April 2014 the Private Residence Relief final period exemption for Capital Gains Tax purposes is reduced to 18 months, previously it was three years.

What hasn’t changed since the budget?

 

  • Entrepreneurs’ Relief 

As long as the ownership of your business is structured correctly, and for a minimum time period, then lifetime disposals not exceeding £10m will only be taxed at 10% for Capital Gains Tax purposes.

 

  • Cap on tax reliefs 

Don’t forget that certain tax reliefs are capped at £50,000 or 25% of your income. The reliefs affected are predominantly tax losses. There is no cap on charitable donations.

 

  • Loss of personal allowance 

Care should be taken if your taxable income is likely to exceed £100,000 in the current tax year. For every £2 your income exceeds £100,000 your Personal Allowance (PA) will be reduced by £1. For 2014-15, this means that your PA will be withdrawn completely if your income exceeds £120,000.

 

  • Carry back charitable donations 

It is possible to carry back charitable donations made in the tax year 2014-15 to the previous year, 2013-14. The claim to carry back must be made before or at the same time as you complete your tax return for the earlier year. The latest date you can make a claim is the statutory filing deadline. For the 2013-14 return this is 31 October 2014 if you file a paper return, or 31 January 2015 if you file your return electronically.

 

  • Inheritance Tax (IHT) lifetime gifts

It is still possible to make lifetime gifts of any amount to an individual as long as there are no strings attached. The amount of the gift that will be included in your estate for IHT purposes may gradually reduce over time. If you live for more than seven years after the gift was made, then it will be excluded completely from IHT. If the gift becomes taxable on your death, then any tax payable on it is reduced if you survive it by at least 3 years.

 

These are just a few of the existing planning matters that you could or should consider. However, everyone’s circumstances are different and if your financial affairs are complex you should consider a formal tax planning consultation, which we would be delighted to undertake for you.

Investing in plant and equipment?

Thursday, March 27th, 2014

If expenditure on plant and equipment qualifies for the Annual Investment Allowance (AIA) 100% of the cost can be written off against taxable profits.

The amount that can be written off as AIA expenditure has changed a number of times in the past few years.

  • Immediately before 31 December 2012 the (AIA) was set at a maximum spend of £25,000.
  • From 1 January 2013 the £25,000 limit was increased to £250,000 for a temporary period of two years to 31 December 2914.
  • The Budget 2014 has increased the limit again, to £500,000 from 6 April 2014 (for unincorporated businesses) and 1 April 2014 (for companies). This further, temporary increase will end 31 December 2015 when it is assumed the limit will return to £25,000.

According to the Office for Budget Responsibility the increase to £500,000 will bring forward business investment decisions amounting to £1bn, from 2016 and 2017 to 2014 and 2015.

Readers who are contemplating significant business investment in plant and machinery should seek tax advice before making any buy decisions. Depending on your accounts year end date, the amount of tax relief you may qualify for may be reduced if the date straddles the 1st or 6th April 2014.

Budget highlights

Tuesday, March 25th, 2014

We have reproduced two of the more surprising changes announced in the Budget notes published immediately following George Osborne’s presentation last week.

  1. HMRC to be given powers to raid bank accounts:

 “The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple times by HMRC to pay. A minimum of £5,000 will be left across debtors’ accounts. This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.”

 We hope that this does not include rights to recover unpaid tax on estimated assessments!

  1. A number of relaxations were announced that are intended to give tax-payers more control over their “pension pots”.
  • Increased Pension Flexibility – The government will legislate to allow those with a defined contribution pension to draw down after age 55- from April 2015, subject to their marginal rate of income tax.
  • Financial guidance – The government will ensure that, from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement and will make available up to £20 million in the next 2 years to develop this initiative.
  • Capped drawdown – From 27 March 2014, the government will allow people with defined contribution pension wealth more flexibility to access their savings by increasing the capped drawdown limit to 150% of an equivalent annuity.
  • Minimum income requirement change – From 27 March 2014, the government will allow people with defined contribution pension wealth more flexibility to access their savings by reducing the minimum income requirement for accessing flexible drawdown to £12,000, subject to their pension scheme rules.
  • Small pension pots – From 27 March 2014, the government will increase the amount for small individual pension pots that can be taken as a lump sum regardless of total pension wealth from £2,000 to £10,000.
  • Increase the number of small pots that can be taken as lump sums – The government will increase the number of small pension pots that can be taken as lump sums from 2 to 3.
  • Trivial commutation (small pension wealth) – From 27 March 2014, the government will allow people with defined contribution pension wealth more flexibility to access their savings by increasing the total pension wealth that people can have before they are no longer entitled to receive lump sums under trivial commutation rules to £30,000.

Clearly, these amount to significant changes in the way in which we can access our pension savings at retirement. Readers who are approaching pensionable age should consider their options carefully, and should certainly seek tax advice.

HMRC to use Mr Bean film makers

Wednesday, March 19th, 2014

In a bizarre attempt to create positive PR for HMRC, Channel 4 has been given unprecedented access to HM Revenue and Customs as they pursue tax evaders and collect unpaid tax.

Tiger Aspect Productions, the production company behind Mr Bean, will be filming HMRC staff as they target the so-called high risk sectors: the building trade, health sector, off-shore bank account holders and high net worth individuals.

 No doubt HMRC are keen to improve their public image. The production company and Channel 4 are keen to examine the role of our tax collectors as the, perhaps, “unsung heroes” who endeavour to provide the money that pays for our public services.

 Nick Mirsky, Channel 4’s Head of Documentaries, said:

 “Money from taxation funds everything we value most about society, yet the team who collect it have often been viewed with mistrust and suspicion. What is exciting about this commission is that it offers unique access to a group of public servants on whom we are more dependent than ever to help make the nation's books balance.”

Treasury hungry for ideas

Tuesday, March 18th, 2014

George Osborne is delivering his Budget speech Wednesday of this week. It will be interesting to see if his plea for ideas to help smaller businesses has received a sympathetic ear. Here’s what a number of organisations have requested:

British Chambers of Commerce

The BCC have made three recommendations:

  1. A £100m scheme to pay businesses £1,000 if they hire long term unemployed young people or take on an apprentice.
  2. A two-year extension to the Apprenticeship Grant for Employers Scheme.
  3. Increasing the tax relief available to investors using the Enterprise Investment Scheme, from 30% to 50%, for investors in businesses run by the under 24s.

Forum of Private Business

The FPB has appealed for help to support firms with rising costs. In particular:

  1. A fundamental review of business rates.
  2. Phasing out VAT on the fuel duty element of the pump price.
  3. Measures to speed up the movement of cash between businesses to counter late payment.
  4. The introduction of an export guarantee scheme.

Federation of Small Businesses

The FSB has requested a number of support projects to help smaller businesses:

  1. Set the Minimum Wage rates for a five year period and change the rate changes to the beginning of the tax year (April) rather than October. This would assist firms with formulating longer term planning objectives.
  2. The Chancellor is urged to fund new support schemes through the Community Development Finance Institutions – providing a source of funding when access to bank finance is not available.

Confederation of British Industry

The CBI has recommended:

  1. Incentives to invest in energy generation.
  2. Extending the Annual Investment Allowance for small firms beyond 2015. The present 100% tax allowance is due to end 31 December 2015.
  3. Introduce a new capital allowance for structures and buildings.
  4. A freeze on Air Passenger Duty.

Institute of Directors

The IoD has promoted the idea that no-one should pay more than 50% of their income in taxation. Their contention is that all direct taxes – income tax, employees’ National Insurance, and council tax – should be capped at 50% of income.

It will be interesting to see if any of these proposals are included in the Budget…

Reducing tax evasion and avoidance

Friday, March 14th, 2014

Just in case you have missed the news – that HMRC are stepping up their campaigns to stop tax avoidance and evasion – you may be interested to read the following quotes from HMRC and the Treasury: 

“Issue

The difference between the revenues that in HM Revenue & Customs’ (HMRC) view should come in, and the total actually collected by HMRC, is known as the ‘tax gap’. Tax evasion and tax avoidance by businesses and individuals contribute to the tax gap, along with error, failure to take reasonable care, non-payment, legal interpretation, the hidden economy and criminal attacks on the tax system.

The tax gap in the 2010 to 2011 financial year was estimated to be £32 billion – 6.7% of the total tax that HMRC estimates was due – and tax evasion and avoidance together accounted for £9 billion of this.

Actions

We are working to prevent evasion and avoidance, detecting it early where it arises, and counteracting it effectively through investigation and legal challenge.

We are investing in HMRC to prevent tax avoidance and evasion. In 2010 the government allocated HMRC £917 million from efficiency savings to reinvest in generating additional compliance revenues of £7 billion a year by 2015.

Prosecuting more people who break the law

HMRC is taking swifter legal action against those who don’t come forward and sort out their taxes. We are also allocating more resources to increase the pace and number of tax evasion cases being brought before the criminal and civil courts.

We are setting up local task forces to identify and deal with tax cheats, using criminal and civil powers.

We are prosecuting more people who break the law by evading tax. We have recruited an additional 200 criminal investigators to increase the number of people prosecuted for tax evasion from 165 in 2010 to 2011, to 565 in 2012 to 2013, and to 1,165 in 2014 to 2015.

Using data and new technology

We are investing in our ability to use data and new and advanced technology to identify fraud and evasion risks. We have already brought in an extra £1.4 billion of tax revenue by investing £45 million in these activities.

We are improving HMRC’s CONNECT analytical computer system, so that the department is better able to identify areas of compliance risk. This will allow HMRC to act swiftly in identifying and investigating fraudulent behaviour.”

In summary

For professionals advising clients about opportunities to minimise their tax payments and tax payers who are keen to take this advice HMRC’s activities in this area are creating problems. In many cases it is necessary to interpret the Government’s intention when it formulated tax legislation in order to counter the accusation that a particular tax claim is “artificial” and should be withdrawn.

 

We live in interesting times…