Archive for May, 2014

Tax free gains

Thursday, May 29th, 2014

 There are a number of assets that you can sell at a profit without paying capital gains tax (CGT) on the sale. They include:

  • Any car that is owned personally, and not by a business.

  • Personal possessions worth up to £6,000 each. For example jewellery, paintings or antiques.

  • Stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs.

  • UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury.

  • Betting, lottery or pools winnings.

  • Personal injury compensation, and

  • Foreign currency you bought for your own or your family's personal use outside the UK.

 

Of course, if you make a loss selling any of the above, the losses would not be available to set off against other gains for CGT purposes.

There are also certain reliefs that you can claim to mitigate or defer CGT. These include:

  • Business Asset Roll-Over Relief – This applies when you dispose of some types of business asset, which you intend to replace. You may be able to 'roll-over' or postpone the payment of any CGT that would normally be due.

  • Incorporation Relief – If you incorporate your business, that is, you transfer your business to a company CGT may not be due at that time.

  • Gifts Hold-Over Relief – You may be able to get this relief if you give away a business asset. You can postpone all or part of your gain until the asset is sold or disposed of by the person you gave it to.

  • Disincorporation Relief – When a business is transferred from a limited company to the shareholders, it is known as disincorporation. The shareholders continue the business in an unincorporated form – as a partnership or sole trader.

If you are thinking of selling assets that you are concerned may result in a tax charge please contact us for an opinion. Often there are planning opportunities that can be legitimately employed. The key is to plan the transaction carefully to maximise use of reliefs available.

Charity based tax schemes quashed

Tuesday, May 27th, 2014

HMRC have had recent successes in the courts that have neutralised tax schemes utilising charity tax reliefs. Here’s what they have to say on the GOV.uk website:

HM Revenue and Customs (HMRC) successfully challenged the tax avoidance scheme used by Nicholas Green and designed by Afortis Limited as part of an ongoing crackdown on charitable tax relief abuse. The First-tier Tribunal ruling and its impact on similar schemes could make sure over £35 million of tax is paid.

Under the scheme, shares were listed on the Channel Islands Stock Exchange at a value significantly more than their real worth. The shares were then gifted to charity at the inflated value. The scheme was designed to allow Mr Green to claim tax relief on the amount that the shares had been listed for, rather than on the much lower amount that the shares were worth.

The tribunal ruled that the relief claimed should be reduced significantly from that claimed by those using the scheme.

This latest decision follows HMRC’s defeat of another scheme using charitable reliefs, promoted by NT Advisors, at a tax tribunal last week.

Nicky Morgan, Financial Secretary to the Treasury, said:

“The government wants to encourage more people to give to charity and has provided tax relief to incentivise this, but we will not tolerate abuse of the system. This case is further evidence of HMRC’s tough action to tackle tax avoidance schemes that seek to abuse charitable giving tax reliefs.

“Taxpayers entering into these arrangements are not only damaging their own reputations, they are harming the reputations of charities that may not be aware they are being used to avoid tax. Anyone thinking of getting involved in a tax avoidance scheme does so at their risk and should know that HMRC will pursue them in collecting the tax that is due.”

Tax anomalies

Thursday, May 22nd, 2014

Institute for Fiscal Studies director, Paul Johnson, recently spoke at the annual Chartered Tax Advisor Address. He pointed out a number of the unnecessary complications and policies that have left the UK tax system more complex and less efficient.

 “For example:

  • There is a basic rate of income tax of 20%, a higher rate of 40% and a top rate now of 45%. What is less well known is that the last government introduced a rate of 60% on a band of income starting at £100,000. This government has maintained it and effectively increased its range considerably. There is now a 60% rate of income tax on income between £100,000 and £121,000 (where it drops back to 40%). It’s hard to make much sense of that.
  • Several elements of the income tax system no longer adjust with inflation. The point at which the 45p rate becomes payable, and indeed the point at which the 60p rate becomes payable, is fixed in cash terms and has already fallen by more than 12% relative to the Consumer Prices Index since its introduction. More people will gradually be pulled into these higher rates. There is apparently no plan to stop this.
  • This government has accelerated a trend overseen by recent governments which has fundamentally altered the nature of our system of income tax, namely a continued increase in the number of higher rate taxpayers. Numbers have risen from less than 2 million in 1990 to nearly 4 million in 2007 and well over 5 million by 2015. The problem is not necessarily so much the fact of the change – there is a case for, and a case against, such a system – but the fact that this fundamental change to our tax system, which appears to have the support of the three main political parties, has never been announced or properly debated.
  • Governments of all stripes have continually cut income tax whilst increasing National Insurance Contributions (NICs) – a tax on earned income. The only reason for this is that income tax seems to be more salient and therefore increases to NIC rates are politically easier.
  • The last government and this one raised rates of Stamp Duty Land Tax time and time again. This is one of the worst designed and most damaging of all taxes, yet revenues from it are due to hit £15 billion within just a few years. At the extreme a £1 increase in sale price can now trigger an additional £40,000 tax bill. The tax helps to gum up the entire property market.”

Will any of these comments affect future tax policy? We shall have to wait and see.

Why it\’s important to plan

Tuesday, May 20th, 2014

Consider this case study:

Bill Smith, a self-employed electrician, purchased a brand new van 15 March 2014 for £18,000. Due to a downturn in the local economy his trading profits for the year to 31 March 2014 were just £9,400. Fortunately, he had secured a number of regular contracts for the following year that should net at least £30,000 in the trading year to 31 March 2015, however, he would be required to travel and hence the purchase of the new van.

Towards the end of June 2014 Bill took his books to his accountant to work out his tax position for 2013-14. In July 2014 Bill was called in for a meeting.

His accountant informed him that his adjusted taxable profits for 2013-14 were £10,400. His accountant also informed him that he could claim a reduced Annual Investment Allowance for the purchase of the van of £1,000 that would clear any tax liability for the year.

Bill was feeling good, no tax to pay. Then, the bad news…

As the initial claim for the van had been made in 2013-14 (due to purchase during March 2014) the balance not written off for tax purposes (£18,000 – £1,000) £17,000 would only be available in later tax years for an 18% writing down allowance. So for the tax year 2014-15 Bill could claim (£17,000 x 18%) £3,060 as a reduction of his profits for that year. Based on estimated profits of £30,000 this would produce a tax bill of approximately £3,400.

Then more bad news, Bill was advised that if he’d delayed the purchase of the van for three weeks, until after 5 April 2014, he could have written off the entire purchase price of the new van against his profits for 2014-15 and reduced his tax bill for that year to £400 instead of £3,400. With no claim for the van in the earlier tax year, his tax bill for 2013-14 would have been £200 and £400 for 2014-15. In total a cash flow saving of £2,800 (£3,400-£200-£400).

The moral of the story is – planning is important.

If you are considering any significant change in your business activities talk it over with us BEFORE you under take the change. The old cliché is supremely relevant: there really is no point in closing the stable door after the horse has bolted.

NIC employment allowance

Thursday, May 15th, 2014

HMRC have published further clarification regarding who can, or cannot, claim the new £2,000 a year NIC Employment Allowance. Extracts from the update are set out below:

Public authorities

Public authorities (such as local authorities, town councils and parish councils) are not eligible for the Employment Allowance unless they have charitable status.

Pharmacies

Independent pharmacies conducting a business, including over the counter sales as well as dispensing NHS prescriptions, are entitled to claim the Employment Allowance.

Educational Institutions

Schools, academies, further education colleges and universities are entitled to claim the Employment Allowance if they are private businesses or charities. This includes local authority or central government funded institutions provided they have charitable status.

If your charity is connected to another charity, then there will be entitlement to just one allowance for all of the connected charities. So, an education trust which controls several academies with charitable status will be entitled to just one allowance and it will be up to them to decide which academy makes the claim.

Domestic staff

Employers of domestic staff will be unable to claim the Employment Allowance as the employees are all being employed in a personal capacity to support the running of a household.

Franchises

Where a person operates a franchise, the employer (franchise holder) will be entitled to the Employment Allowance. However, if the franchise holder controls more than one franchise of a business, there will only be entitlement to one Employment Allowance for all of the franchises of the business controlled by that franchise holder.

Self employed

Can the self-employed claim the Employment Allowance? Yes, but only if you have employees and your business pays employer Class 1 NICs on your employees’ earnings.

Jamie Harrison update – 4th/5th May, Cadwell Park

Tuesday, May 13th, 2014

Jamie - 4th May - Side This latest update is from Jamie’s third meet of the season at Cadwell Park, the 1st round of the Derby Phoenix Championships. This meet had seven races over the weekend – which meant it was a very busy couple of days for Jamie!!

First up on the Sunday was qualifying for the allcomers races, and on a busy track Jamie struggled to get a clear lap in and finished 3rd fastest.

Race 1

The 1st race was the 1300 four stroke class where Jamie started from 8th position on the grid. The race went ok, and he did experience some bike handling problems but even with this he managed to finish in second place.

Race 2

The next race was the allcomers, where Jamie had finished 3rd fastest in qualifying. Jamie managed to get into 4th place, and was able to then get into 3rd position but couldn’t run the lap times of the front two riders and ended up finishing the race in 3rd place.

Race 2 had seen the team make a few small changes to the bikes suspension, which Jamie and the team felt had impacted on the performance so they decided the change the gearing for the next race which proved to be a good move.

Race 3

Race 3 was another 1300 race, and after the few changes to the bike Jamie had a better run overall. He was able to equal his personal best lap time around the Cadwell track, and although he finished the race in 3rd position he was a lot closer to the two front riders, so he ended the day a lot happier.

Jamie - 4th May - Front angleRace 4

Monday’s first race was the allcomers, but it was soon clear the handling issues that had come up on the Sunday were still there, which meant that Jamie finished in 3rd place.

Race 5

The next race was anther 1300’s and after a few minor tweaks the bike was handling well. By the third lap Jamie was in the lead and had a good gap back to 2nd, but then the red flags came out and as the racers hadn’t completed enough laps a re run was called.

The re run saw Jamie have another good start into 2nd place, but even with his new personal best lap time it still wasn’t enough for him to take the overall win – but he was getting closer.

Races 6 and 7

Race 6 was allcomers and Jamie finished in 3rd place again. The next, and final race of the meet, was another 1300 where he finished 3rd place.

Overall the weekend saw Jamie get on the podium for each race, and get some good solid championship points.

Small business VAT scheme

Tuesday, May 13th, 2014

If you are a registered VAT trader and your present turnover is below £150,000 you may be advised to take a look at the VAT Flat Rate Scheme (FRS).

FRS users pay VAT as a fixed percentage of their total sales including VAT. You still add 20% VAT to your invoices but you cannot reclaim VAT on purchases or expenses paid.

The flat rate that you apply depends on the business sector in which you trade. Rates vary from 5% to 14.5%.

Benefits of using the Flat Rate Scheme

Using the Flat Rate Scheme can save you time and smooth your cash flow. It offers these benefits:

  • You don't have to record the VAT that you charge on every sale and purchase, as you do with standard VAT accounting. This can mean you spending less time on the books, and more time on your business. You do need to show VAT separately on your invoices, just as you do for normal VAT accounting
  • If you are in your first year of VAT registration you get a one per cent reduction in your flat rate percentage until the day before the first anniversary you became VAT registered
  • You no longer have to work out what VAT on purchases you can and can't reclaim
  • With less chance of mistakes, you have fewer worries about getting your VAT right
  • You always know what percentage of your takings you will have to pay to HMRC

Potential disadvantages of using the Flat Rate Scheme

The flat rate percentages are calculated in a way that takes into account zero-rated and exempt sales. They also contain an allowance for the VAT you spend on your purchases. So the VAT Flat Rate Scheme might not be right for your business if:

  • You buy mostly standard-rated items, as you cannot generally reclaim any VAT on your purchases
  • You regularly receive a VAT repayment under standard VAT accounting
  • You make a lot of zero-rated or exempt sales

It is well worth crunching the numbers to see if a switch to FRS would be advantageous. It is possible that using the FRS would save you money as well as time.

International tax competitiveness

Friday, May 9th, 2014

David Gauke, the Exchequer Secretary to the Treasury, recently gave a speech to the Lord Mayor’s Taxation Forum. His presentation focussed on international tax competitiveness, and how the UK’s system fares compared to our overseas competitors.

Here’s an extract of his comments:

Competitiveness

“Since 2010 we’ve cut corporation tax from 28% to 21%. And this time next year it will fall again, to just 20%. To spur innovation, we’ve introduced the Patent Box and the ‘above the line’ tax credit for Research and Development.

  • we’ve modernised our Controlled Foreign Company (CFC) regime
  • we’ve cultivated a generous environment for oil and gas exploration
  • we’re supporting the creative sector through a number of targeted tax reliefs

And at the Budget last month, we announced further tax incentives to support business, by:

  • doubling the Annual Investment Allowance
  • increasing the R&D credit for innovative companies
  • overhauling the UK Export Finance direct lending programme

It is not just about the competitive tax rates, reliefs and allowances. How we make tax law is important. In 2010, we published a Corporate Tax Roadmap, setting out what we were going to do and also, perhaps more importantly, explaining what we were not going to do.

We have also established a new tax policy-making process, ensuring proper consultation and the early publication of draft legislation – enabling us to refine and improve our legislation. And the importance of tax administration can be under-estimated. We recognise that our tax administrators need to understand major taxpayers. We’ve made sure that the largest two thousand corporations in the UK have their own dedicated relationship managers at Her Majesty’s Revenue and Customs, who can support those organisations and help to ensure that they are paying the correct amount of tax.

And that system exists, because it’s in everyone’s interests to have a strong working relationship that will ensure revenues are paid fully, and that any disputes or queries can be played out quickly without expensive litigation.

This is not about being a soft touch. Tough action is taken wherever necessary. But a constructive relationship built on trust between the taxpayer and the tax collector continues to bring in the revenue for the UK exchequer and add to the attractiveness of the UK system.”

Be interesting to see how this “carrot and stick” approach works in the real world as the UK promotes itself as a low-tax jurisdiction, but beware if you don’t pay your dues…

Businesses in automotive supply chain to benefit from new grants

Wednesday, May 7th, 2014

Skills and Enterprise Minister Matthew Hancock unveiled £25 million of additional support for businesses to take the lead in improving training for new and current employees. Businesses can submit their proposals from 6 May 2014 and the offer will be open for 12 weeks.

Speaking at a UK Commission for Employment and Skills Investment Showcase, the Minister pledged to support businesses in the automotive sector supply chain with £20 million to fund training. This marks the next development in support of employer ownership, making sure skills support meets the needs of business. He also announced the successful bidders in the next phase of Employer Ownership Pilot (EOP) funding as well as unveiling the way in which previous winners have chosen to invest their funding.

The £20 million fund for the automotive sector supply chain will support the skills essential for the continued growth of the automotive sector. From next week, businesses in the sector will be able to submit proposals in order to access funding and address skills shortages.

Skills and Enterprise Minister Matthew Hancock said:

“Our goal is to bring employment and education closer together, to deliver the skills employers need. This straight forward, flexible employer ownership fund will allow employers in the supply chain to develop their skills so they can take advantage of significant growth opportunities in the sector. By having a highly skilled workforce, companies will be able to grow and meet the imminent and longer-term needs of automotive manufacturing companies.”

Jamie Harrison update – 26th April, Oulton Park

Tuesday, May 6th, 2014

Jamie - Alton Park 26th April Front Shot_cropped

Here is our latest update on Jamie Harrison, the local rider that we have chosen to sponsor this year.

This meet was on the 26th April at Oulton Park, and was a Wirral 100 meet.

Race day turned out to be another typical April day at Oulton with weather conditions being rain, wind and bright sunshine which made tyre choice crucial.

The practice and combined Qualifying went well, albeit on a damp track, and Jamie finshed the session in 2nd place overall but 1st in class.

Race 1

Race 1 was a heat race and Jamie started second on the grid.
However it was all a bit hectic at the front and while battling for positions Jamie and the rider in front out braked themselves at the chicane, which resulted in Jamie having to take to the slip road and the other rider taking the grass to avoid coming off, which meant he rejoined the race in 4th place, which is where he then finished.

Race 2

Race 2 was the Powerbike final and Jamie started 6th on a damp but drying track.

He had a great start and was up to 4th position by the second corner, and by lap two he was in the lead and after pulling away from the other riders started the last lap with just over 1 second lead.

Due to the conditions before the race Jamie had chosen to ride with wet front and intermediate rear tyres, which was the right choice at the start of the race, however as the race went on the track dried which meant the front tyre began to over heat slightly.

This resulted in Jamie being over taken at the last chicane, by a rider who’d chosen dry tyres, and with only a couple of corners left Jamie gave one last push to drive the other rider over the line but just missed out on the win by 0.05 of a second. Gutted!!!!

Jamie - Alton Park 26th April

Last race

The last race of the day was the senior open with a quality field of currant and ex BSB riders.

Jamie started on pole and got a good start into the lead but by the end of the lap was in 3rd and was unable to run the lap times of the front two. He held his place though against the rider in 4th pace, and crossed the line in 3rd place.

Overall another good day at Outlon Park. For this meet we were able to complete the new fairings on Jamie’s bike, and I hope you agree they look really good with the Slaters logo.

More information on the race can be found at the Wirral website – click here