Financial Bill update

www.ifa.org.uk

Richard CurtisEditor, Financial Accountant Magazine

13.45 – 14.25

LN Confidential

Business Tax Knowhow – a Budget and

Finance Act 2013 update

October 2013

Richard Curtis

Editor, Financial Accountant magazine

LN Confidential

What we will cover

• Personal tax for sole traders and partnerships• Corporate tax• Employment taxes• Anti-avoidance and other• …all in 45 minutes!

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Income Tax 2013/14 – by numbers

8,105 >> 9,440 = £267

42,475 << 41,450 = £62

116,210 >> 118,880 = £(472)

LN Confidential

Cap on income tax reliefs

• From 1 April 2013 otherwise uncapped income tax reliefs will be restricted to maximum of higher of £50,000 or 25% x adjusted income

• Adjusted income = taxable income minus grossed up pension and charitable payments if paid net

• Charitable gifts will not be subject to the cap

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Most important capped reliefs

1. Sideways trading loss relief

2. Sideways property loss relief

3. Qualifying loan Interest:1. Loans to buy shares in or lend to a close trading company2. Loans to invest in or lend to a trading partnership3. Loans taken out by personal representatives to pay

inheritance tax

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Simplified taxation for small businesses

• Voluntary cash basis opt in from 2013 where turnover is below £77,000 – the VAT registration limit• Must remain in scheme until circumstances are no longer

suitable

• It appears that the ability to opt in and out as trader wishes has been withdrawn

• Note excluded persons

• Losses only available for carry forward• No sideways or carry back claims

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Simplified expenses

• Expenses paid wholly and exclusively for the purposes of the trade, • but excluding business entertaining and purchase of property or

other “investment” assets

• Interest payments limited to £500pa

• Other expense deductions:• Standard mileage rate• Business use of home

• 25-50 hours per month £10; 51-100 hours per month £18; 101 hours or more per month £26

• Business and private use of property adjustments

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Partnerships

• Budget announced consultation on measures to:– remove the presumption of self-employment for limited liability

partnership (LLP) partners• in order to tackle the disguising of employment relationships

through LLPs; and

– counter the manipulation of profit/loss allocations by partnerships including a company, trust or similar vehicle in order to secure tax advantages.

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Corporation tax rates 2013/14

• Main rate reduced to 23%• Main rate of CT to fall to 21% from 1 April 2014 and

to 20% from 1 April 2015• At which point the small profits rate is abolished• No major announcements affecting profit extraction

and incorporation planning for small businesses• Position now unlikely to change before 2015

• review remaining sole trades and partnerships for incorporation

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Close company loans

• Broadening of definition of loans to participators with effect from 20 March 2013 to include:– Loans to partnerships and trusts– Bring transfers of value other than loans into scope

and;– Prevent “bed & breakfasting”

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Close company loan bed & breakfasting

• New 30-day rule• Relief from CTA 2010, s 455 to be withdrawn where

more than £5,000 of the repayment is reversed within 30 days– Previously, only attack from HMRC was under Ramsay

principles

• Also, where loan exceeds £15,000 and there is an intention to withdraw the repayment then no s 455 relief will be given

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Seed Enterprise Investment Scheme changes

• SEIS capital gains tax exemption now reduced to just half of the reinvested gain– But extended to allow reinvestment in 2013/14 or 2014/15

• Off-the-shelf companies now eligible– Previous exclusion was a drafting error

• Income tax relief is at 50% as long as there is tax capacity in year of investment or in the previous year

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SEIS example – failure of business post Budget 2013

• Investment £100,000, tax relief £50,000• CGT exemption 50% of gain at 28%, £14,000• If business fails, claim loss under ITA 2007, s131

– Conversion of capital loss into an income loss

• Loss £50,000 @ 45% = £22,500• Net cost to investor is £13,500• If a 40% taxpayer then net cost is only £16,000

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Annual investment allowance

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Calculate AIA for y/e 28 Feb 2013

• 1/12 x £100,000 £ 8,333• 9/12 x £25,000 £18,750• 2/12 x £250,000 £41,667• Total £68.750

BUT overriding limits based on previous expectations:

£8,333 + £22,917 (11/12 x £25,000) = £31,250 March 2012

£22,917 Apr – Dec 2012

£18,750 +£41,667 = £60,417 Jan – Feb 2013

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Employment taxes

• Employment allowance worth £2,000 available to all employers (well, almost all) from April 2014– To be delivered through RTI

• Replaces the failed Regional Employer’s NIC Holiday scheme– Less than 14,000 employers successfully claimed it

• Employment-related loans exemption to double to £10,000 from 6 April 2014– Very helpful given ongoing rise in cost of season tickets– Will also benefit OMBs and reduce the burden of P11D

completion

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Enterprise Management Incentives

• 5% rule to be dis-applied for options granted on or after 6 April 2012

• Will apply where shares are sold on or after 6 April 2013• The period over which the option is held continues to

qualify towards the 12 months holding requirement• “Disposal” to be extended to cover shares exchanged as

part of a reorganisation

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Company car charges

• FA 2013 increases company car CO2 percentages– From 2015/16 – the lowest % rate remains at 5% (currently 5%) for cars

with emissions of 50g/km or lower– A 9% rate for cars with emission between 51 and 75g/km– 13% (was 11%) for cars between 76g/km and 94g/km– Then from 14% to 37% rising in 5g/km bands up to the

new maximum rate of 37% (currently 35%)– The exemption for zero emission cars ends in April 2015– The 3% increase for diesel cars ends in April 2016

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Company car charges

• Car fuel scale charge multiplier becomes £21,100– An increase of £900 (4.5%)

• Typical family car: Ford Mondeo 2.0 Diesel Zetec– Say average 40 mpg = 8.8 miles per litre (40 x 0.22)

• Tax liability on fuel benefit: £21,100 x 19% = £4,009– At 40% = £1,604– At 20% = £802

• Private miles required to break even:– £1,604/£1.43 = 1,122 litres x 8.8 = 9,874 miles– £802/£1.43 = 561 litres x 8.8 = 4,937 miles

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RTI penalties

• No late filing penalties will apply to RTI returns in either 2012/13 or 2013/14

• Up to 50 employees, have until April 2014 to comply with ‘on or before’, can report monthly

• Will this become more permanent?

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Owner-employee shares

• Plans for new kind of employment contract called an employee-owner contract

• Exchange employment rights for rights of ownership in form of shares

• Will be given £2,000 to £50,000 of shares exempt from capital gains tax

• Liable to tax and NIC on issue• First £2,000 exempt – included in Finance Act 2013

LN Confidential

Employment rights

• Rights under Employment Rights Act 1996 are reduced:– Request for study & training– Request for flexible working arrangements– Receive a redundancy payment– Limited protection for unfair dismissal

• Incorporated in the Growth & Infrastructure Bill– Originally blocked by the Lords on day of the Budget but

subsequently made law

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Promoting employee share ownership

• Finance Act 2014 will include a CGT exemption for qualifying disposals of a controlling interest in a business to an employee-owned structure.

• Sounds like it could be open to significant abuse• Employment-related securities version was the basis of

successful schemes

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Changes to car capital allowance thresholds from 1 April 2013

• Low emission cars (100% FYA)– the 110g/km reduces to 95g/km;

• High emission cars (special rate pool, 8% p.a.) – the 160g/km reduces to 130g /km

• Many cars have ≤ 110g/km, rather fewer have ≤ 95g/km but this will undoubtedly change

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General Anti-Abuse Rule

• The anti-abuse rule will took effect from Royal Assent and targets artificial & abusive arrangements

• “Egregious” “very aggressive” “highly abusive contrived and artificial”

• GAAR will remove the tax advantage on a just and reasonable basis

• Intended to have narrower application than an anti-avoidance rule

• Tax planning remains possible, provided it is in the “centre ground”

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Tax relief for the creative sector

• Plan is to extend current film reliefs to– Animation– ‘High end’ television– Video games

• Must be ‘culturally British’• Offers 100% increment for tax on 80% of ‘core

expenditure’– Requires state aid approval

LN Confidential

Income Tax 2013/14 – by numbers

8,105 >> 9,440 = £267

42,475 << 41,450 = £62

116,210 >> 118,880 = £(472)

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Employees - NICs

• Upper earnings limit remains aligned with higher rate IT– More income in 2% rather than 12% bracket– Saving of about £102 for someone with earnings above £42,475

• Small increment in the primary threshold– £7,605 >>£7,755– Saving £18 for everyone over threshold

• So BR taxpayers save (267+18) £285• HR taxpayers under 100k save (62+120) £185• >£118k lose (472-120) £(352)

LN Confidential

Income tax 2014/15

• PA up to £10,000

• Higher rate tax threshold up 1% to £41,865

• Finally realising that the link to NI makes bringing it down pointless?