In his March 2014 Budget, the Chancellor announced that there would be significant changes to allow individuals to have greater access to their pension funds from 2015.

The proposed changes have been consulted on during the summer and the Treasury have now published the outcome, together with draft pensions legislation, enabling the new flexible regime to commence on 6 April 2015.

The flexibility will apply to Defined Contribution (DC) Schemes such as Self Invested Personal Pensions. However, it will continue to be possible to transfer funds from certain Defined Benefit (Final Salary) schemes into DC Schemes to allow access to the new flexible rules. An Independent Financial Adviser should be consulted to consider the full implications of this course of action.
From 6 April 2015 it will be possible to withdraw 25% of the pension fund tax free at age 55, but any additional amounts  will be taxed at the marginal tax rates of 20%, 40% and 45% (depending on level of income). This means that you will need to work closely with us and your pensions adviser so that we can estimate the taxation implications of the amount that you are planning to withdraw. As announced in the Budget, from April 2015 it will be possible to withdraw the whole of your pension fund if you wish. You may recall the Press suggesting that some individuals may decide to spend their pension pot on a Lamborgini!

The new pensions legislation will permit more innovative pension products, including the ability to draw lump sums from annuities and flexible annuities as well as flexible drawdown products.

Under the current rules, annuities lapse upon the death of the pensioner with no value passing to the children, whereas drawdown pensions can pass to the next generation upon death (subject to a 55% charge on the fund). The Government acknowledge that this 55% charge is too high and will announce the new lower rate in the Autumn Statement on 3 December.

Note that the new pensions legislation includes anti-avoidance rules to limit “recycling”.  In other words, someone over 55 might make contributions into their fund to obtain tax relief and then immediately withdraw 25% of the fund tax free. From 6 April 2015, where an individual’s fund is in drawdown, a maximum of £10,000 may be paid in each year for the purpose of obtaining tax relief.

New company car advisory fuel rates have been published which took effect from 1 September 2014. HMRC’s website states:

‘These rates apply to all journeys on or after 1 September 2014 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’

The advisory fuel rates for journeys undertaken on or after 1 September 2014 are:

Other points to be aware of about the advisory fuel rates:

Please note that not all of the rates have been amended, so care must be taken to apply the correct rate.

• Employers do not need a dispensation to use these rates.
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like to discuss your car policy, please contact us.

Internet link: HMRC advisory fuel rates

The National Minimum Wage (NMW) is a minimum amount per hour that most workers in the UK are entitled to be paid. NMW rates increases come into effect on 1 October 2014:

• the main rate for workers aged 21 and over will increase to £6.50 (currently £6.31)
• the 18-20 rate will increase to £5.13 from £5.03
• the 16-17 rate for workers above school leaving age but under 18 will increase to £3.79 from £3.72
• the apprentice rate will increase from £2.68 to £2.73 per hour.

It is important to note that these rates, which are in force from 1 October 2014, apply to pay reference periods beginning on or after that date.

Penalties

Penalties may be levied on employers where HMRC believe underpayments have occurred and HMRC now have the power to ‘name and shame’ non-compliant employers.

Most workers in the UK over school leaving age are entitled to be paid at least the NMW for details of exceptions see the Acas website.

If you have any queries on the NMW please do get in touch.

Internet link: Acas

The one-stop VAT service starts from 1 January 2015 for businesses supplying what are collectively known as ‘digital services’ in the EU. The effect of the measures are that a business will not have to account and pay VAT separately in each country where they do business which would otherwise be the case following a change in the place of supply rule.

Digital services essentially means broadcasting, telecoms and e-services including those selling apps, e-books, streaming services (e.g. sports/film/tv/music), dating services and journals, newspapers and magazines that are subscribed to electronically and smartphone games.

Change of place of supply

From 1 January 2015 the place of supply for VAT purposes for a EU business selling digital services will change. Currently, intra-EU supplies of digital services to non-business customers are subject to VAT in the member state where the supplier belongs.

From 1 January 2015 this changes, so that the VAT is due where the customer who receives the service lives or is located. This will ensure that UK consumers of these services will pay UK VAT no matter where the supplier of those services belongs.

In order that UK businesses supplying digital services do not have to register for VAT in every EU member state where they have customers, an optional VAT ‘Mini One Stop Shop’ (MOSS) online service has been set up by HMRC. Other EU member states will be building their own systems.

Sally Beggs, Deputy Director Indirect Tax, HMRC, said:

‘The VAT MOSS will save digital services suppliers from having to register for VAT in every Member State where they do business, removing a significant administrative burden. Businesses with their main operation or headquarters in the UK will register with HMRC to use the service.’

Businesses will be able to register for VAT MOSS from 20 October 2014. The service will be available to use from 1 January 2015.

If this affects your business and you would like more detailed information or guidance on the matter please do not hesitate to contact us.

Internet links: HMRC MOSS  News story

This month sees the launch of a new service that provides a personalised written estimate of what you can expect to receive under the new State Pension system. This will be based on your work history and National Insurance (NI) contributions to date.

Initially, the estimate will be available to the approximately 2.5 million people who reach State Pension age in the first 5 years of the new scheme – currently between April 2016 and August 2021 – the service will be expanded gradually over the next 18 months, eventually becoming available to all working age contributors.

Minister for Pensions, Steve Webb MP, said:

“The new statement service means that for the first time we can give those people closest to State Pension age personal information on how they will be affected by the reforms. Over the next 18 months, this will be rolled out further until eventually it is available to everyone of working age.

The introduction of the new State Pension marks the biggest reform of the State Pension in a generation. At its heart is the concept of a clearer, fairer, single-tier payment, the full rate of which is set above the basic means test, but which remains contributory in nature.

Over time, the various complexities which have built up in the present system will be swept away and replaced by a much more straightforward weekly payment. Those people with 35 qualifying years of National Insurance contributions will receive the full rate, which will be set above the basic level of means-tested support (currently £148.35 a week).

In future, the option for people to ‘contract out’ of paying full NI contributions will be removed, so that everyone pays a standard rate. Those who have contracted out in the past will have an appropriate deduction made to their starting amount.”

Farm animals are usually dealt with for tax purposes as trading stock: the costs of animals are deducted from monies received when the animals are sold and any resultant profit taxed as income.

However, farmers can elect to treat qualifying “herds” of animals in a more tax efficient way, they can apply the Herd Basis (HB).

HMRC advise:

“Some farm animals are kept by farmers not primarily for resale but for the sake of the products (for example, milk or eggs) or offspring (for example, lambs or piglets) which they produce. These are in many ways more like the farmer’s capital assets. Tax law recognises this by giving farmers the option of dealing with such `production animals' under the herd basis.”

From the farmer's point of view, the main benefits are likely to be that:

• the cost of maintaining the herd can be charged against tax, and
• any profit on its eventual disposal will be tax-free.

Once an election to adopt HB is applied it cannot be revoked and farmers who make an HB election cannot calculate profits using the cash basis.

If an election is made basic rules apply. In summary they are:

• The initial cost of the herd is not an allowable deduction, nor is the cost of any subsequent increase in herd size.
• The net cost of replacing animals in the herd is an allowable deduction.
• Where the odd animal, or just a few animals, are sold from the herd and not replaced, the resulting profit or loss is taken into account in arriving at the farming profits.
• Where the whole herd, or a substantial part of the herd, is sold and not replaced, the resulting profit or loss is not taken into account.

The last point covers the major tax advantage. Effectively, any profit made when a herd is sold is tax free. Without a HB election this profit would be taxable.

The legislation, although expressed in terms of farmers, applies to any person who keeps a production herd for the purposes of a trade even though that trade may not be farming. Accordingly, the herd basis also applies, with necessary adaptations, to animal or fish breeding.

Not all production herds are covered by this election. Farmers are advised to seek advice to see if this would be a strategy they could employ and, of course, we would be delighted to do this for you.

A move by the US Treasury to close loopholes that encourage US companies to merge with foreign firms and relocate their tax residences offshore could stifle takeovers announced this year worth hundreds of billions of dollars. In particular, it will probably throw into doubt the agreed £32bn takeover of UK listed Shire by AbbVie of the US and it is less likely that Pfizer will revive its interest in AstraZenica.

The Treasury said it was moving after Congress failed to act on the issue.

The measures aim to counter schemes that allow a company, after an inversion, to avoid US taxes on earnings accumulated and held by the US partner offshore. Currently many US companies retain substantial foreign earnings offshore to avoid taxes they would have to pay upon repatriating them into the United States.

The “Inversion” process allows the US company to re-domicile itself to the home of the other partner in the deal, ostensibly allowing the new "foreign" firm to take control of those earnings and use them, even in the United States, without paying taxes on them.

The new rules aim to block this process. The new foreign parent of the company will be deemed as owning shares in the former US parent, making it liable for taxes on the old offshore earnings.