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News - 16 March 2015

Tax planning for 5 April 2015

We asked our resident Tax Gurus, Stuart Coleman and Peter Ham,  about the 2015 tax year


1/  Business Tax recent changes

Corporation tax rates
The main rate of corporation tax will reduce from 21% on 1 April 2014 to 20% on 1st April 2015. Smaller businesses will no longer need to use the associated companies’ rules to determine their tax rate from 1st April 2015.
 
Annual Investment Allowance
AIA was increased to £250,000 for a temporary period of two years starting on 1 January 2013. A further increase was announced in the Budget, which will run through until a year after the original expiry date of 31 December 2014.
The rates of AIA are therefore:

  • £250,000 from 1 January 2013 until 31 March 2014 for companies, and 5 April 2014 for income tax businesses, and
  • £500,000 from 1 April 2014 for companies and 6 April 2014 for income tax businesses until 31 December 2015.

It is presently the case that the limit will return to £25,000 on 1 January 2016, once again keeping the changes in limits over 12 months apart.

If you intend incurring significant capital expenditure, please contact us well beforehand to make calculations to optimise the timing and to maximise the transitional allowances.

Small and Medium Enterprises Research & Development relief scheme
The changes announced on Budget day enhance the payable tax credit which companies can claim when they have excess losses arising from R & D claims. Where losses cannot be relieved in the current period, companies can surrender the loss for a payment of tax credit.

Employment allowance
This new allowance provides relief for up to £2,000 from employer NIC from April 2014.It will apply to all businesses and charities, irrespective of size, and will be administered through RTI, reflecting in reduced liabilities showing on the Business Tax Dashboard. Businesses need to claim the allowance by making the relevant tick on their payroll software and submitting an EPS to claim the allowance. The allowance is not available to employers if they:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils
  • carry out functions either wholly or mainly of a public nature (unless they have charitable status).

The allowance does offer a choice to directors of Owner Managed Business to consider increasing their pay to the personal allowance at reduced NIC cost. However, if the director has other income he may be worse off.

Company donations to CASC’s
Tax relief is introduced for company donations to community amateur sports clubs (CASC’s), with a related anti-avoidance test.

Business premises renovation allowance (BPRA)
Changes have been made to ensure that the BPRA scheme is effectively targeted, and to reduce the period for balancing adjustments from seven to five years.

Capital expenditure must be incurred before the expiry date to qualify and must meet conditions A and B, and subject to exclusions.

Condition A
The expenditure is incurred on
(a) the conversion of a qualifying building into qualifying business premises
(b) the renovation of a qualifying building if it is or will be qualifying business premises
(c) repairs to a qualifying building, or where the building is part of a building, to the building of which the qualifying building forms part, to the extent that the repairs are incidental to the expenditure in (a) or (b)

Condition B
The expenditure is incurred on
(a) building works
(b) architectural or design services
(c) surveying or engineering services
(d) planning applications, or
(e) statutory fees or statutory permissions

There are further exclusions and conditions.

2. Personal Tax including benefits in kind

Table : rates and limits for tax 2013/14 to 2015/16
                                                                                          Note 2013/14               2014/15             2015/16
Personal allowance                                                      9,440                            10,000                10,500
Age related allowance : lower amount 1                  10,500                           10,500                N/A
Age related allowance : higher amount 2                10,660                           10,660                10,660
Transferable married allowance 3                             N/A                                 N/A                      1,050
Income limit for personal allowance                         100,000                         100,000             100,000
Income limit for age related allowances 4               26,100                           27,000                Not known
Starting rate for savings 5                                           10%                                10%                     0%
Starting rate band 5                                                      2,790                              2,880                  5,000
Basic rate band (20%)                                                32,010                            31,865                31,785
Higher rate limit (40%)                                               150,000                          150,000              150,000
Additional rate                                                              45%                                 45%                     45%

Notes
1. The lower amount of age related allowance is available to persons born between 6 April 1938 and 5 April 1948.
2. The higher amount of age related allowance is available to those born before 6 April 1938.
3. Available to married couples and civil partners only when neither is a higher or additional rate payer. Only beneficial if one spouse is unable to use all of their personal allowance, although tax timing differences may also be beneficial.
4. Only the excess over the basic personal allowance is tapered
5. The rate applies to savings income within the band, provided the taxable non savings income does not exceed the limit of the band.

Transferable allowance for married couples and civil partners

Transferable allowances are available when the other party to the marriage or civil partnership has elected for a reduced personal allowance.

The transferable amount for 2015/16 is set at £1,050, and thereafter at 10% of the personal allowance, rounded up to the next £10.

If an individual is entitled to a tax reduction, their partner’s personal allowance is accordingly reduced, unless the recipient dies during the year. In that event the benefit is received without the reduction affecting the other partner.

Fuel benefit – company cars and vans

The fuel benefit multiplier for 2014/15 was due to rise by 2% over inflation, which is likely to see it confirmed at £21,700 (not mentioned in the Budget pack). For 2015/16 both the car and van fuel benefits will rise by inflation, using the September 2014 RPI inflation rate. The amounts will be announced in time to include them in tax codes in January 2015 (although figures are not currently available). The falling price of fuel makes provision of free fuel as a benefit in kind less attractive.

Company vans
The fixed rate benefit in kind on company vans will rise by RPI inflation (using September 2014 figures) for 2015/16.

Taxation of company cars
The upward trend in company car tax rates has been maintained, with additional rises at the lowest levels of emissions announced in the Autumn statement through to April 2019.

Making good the private use of cars and vans
The legislation is to be amended so that where an employee makes good the private use of a car or van, this can only affect the benefit in kind if the payment is made during the tax year concerned. Payments after the end of the tax year cannot affect the benefit in kind for that year.

Beneficial loans limit
The limit on a cheap or interest free employer provided loan which does not attract a tax charge is currently £5,000. This limit increased to £10,000 with effect from April 2014. Provided the amount outstanding does not exceed the limit at any time in the tax year, there will be no benefit in kind charge on the employee. At the same time, the interest rate reduced to 3.25% for 2014/15.

Pensions reform – defined contribution schemes
Chapter 4 of Finance Act 2014 deals with the changes to the taxation of pensions from 27 March 2014. Obviously, these changes are part of a much wider reform of pension provision, and are unlikely to be urgent action before wholesale change on 6 April 2015.

Maximum drawdown pension
Section 41(1) increases the maximum drawdown pension to 150% of the Government Actuary’s annuity rates for pension drawdown years starting on or after 27 March 2014. Section 41(2) makes a similar change in respect of dependants’ drawdown pension on the death of the member.

Flexible drawdown
An individual may draw any amount from his pension drawdown fund provided he has a guaranteed amount of other income in retirement. Section 41(3) reduces the limit to £12,000 for declarations by those seeking flexible access to the fund from 27 March 2014.

Trivial commutation
The trivial commutation limit allows the member to take his pension fund as a lump sum if his total pension savings do not exceed the limit. Section 42(1) increase the limit to £30,000 for commutation periods commencing on or after 27 March 2014.

Small pension pots
Regardless of their total pension savings, where any pension pot is less than the small pot limit of £2,000 the whole amount can be taken as a lump sum. The limit is increased to £10,000 by section 42(5). The current maximum number of pension pots to which this rule can apply is also increased to three by section 42(6)(d). The changes apply to amounts paid out on or after 27 March 2014.

There are other changes in Schedule 5 to Finance Act 2014 which provide for the transition through 2014 to the changes proposed for 6 April 2015. These changes are of relevance to scheme administrators and pensions specialists.

New lifetime allowance 2014-15
You may need to advise clients to review their pension savings if they did not opt for protection in 2014. Individual protection is still available.

The transitional arrangements in relation to the reduced lifetime allowance from 6 April 2014, introduce new individual protection 2014, which is intended to be more flexible than fixed protection. Individual protection 2014 (IP14) is not available if the individual already benefits from:

  • Enhanced protection
  • Fixed protection 2012, or
  • Fixed protection 2014

In each case, the individual is already offered better protection from tax charges than is offered by IP14.

IP14 allows the lifetime allowance to be set as follows:

  • If the individual’s relevant amount is more than £1.5 million, the greater of the standard lifetime allowance and £1.5 million, or
  • Otherwise, the greater of the standard lifetime allowance and the individual’s relevant amount.

An election to benefit from IP14 must be made by 5 April 2017.

An individual’s relevant amount is the sum of A, B, C and D.
A – deals with the value of pensions in payment prior to 6 April 2006.
B – deals with the value of any pre 6 April 2014 benefit crystallisation events
C – deals with the value of uncrystallised amounts in registered pension schemes at 5 April 2014
D – deals with the value of uncrystallised amounts in relieved non-UK pensions schemes at 5 April 2014.

Social investment tax relief

Clients may wish to make investments in Social Investment schemes that attract tax relief before the end of the tax year.

A 30% income tax incentive will be provided on investments in qualifying social enterprises which provides 30% of the amount invested as a deduction from tax payable for the year, starting from 2014/15. The investment must be in shares or qualifying debt in a qualifying enterprise, which must be held for at least three years.

  • A social enterprise is defined as:
  • A community interest company
  • A community benefit society (as defined) that is not a charity
  • A charity
  • An accredited social impact contractor (as defined)
  • Any other body prescribed by Treasury Order.

In common with other tax incentivised investments, the investment itself will not carry any CGT liability on disposal after the qualifying period, and also provides for deferral of Capital Gains at the point of investment – the gains will be chargeable when the investment is disposed of. The qualifying conditions are largely based on EIS, with investment by employees or directors of the enterprise and linked companies not permitted, nor investment by those with at least 30% of the shares already. Under EU rules governing the initial introduction of the social investment tax.

ISA limit
The ISA limit for 2014/15 is £15,000, and will rise to £15,240 for 2015/16.

The Junior ISA limits are £4,000 and £4,080 respectively.

Clients who are keen to utilise their ISA limits should review before the end
of the tax year.

High Income Child Benefit Charge
It is worth reviewing income levels before the end of the fiscal year, as payment
of pension contributions and gift aid donations both reduce the income for this
purpose, and where the client has several children can produce a very high
rate of relief.

  • The limit below which there is no HICBC is £50,000, and this applies to the
  • higher income in a couple.
  • Effective rate of withdrawal :
  • One child 10.7%
  • Two children 17.7%
  • Three children 24.8%
  • Four children 31.8%
     

These rates are in addition to tax and NIC which would be at 42%, bringing the
effective tax rates to 52.7%; 59.7%; 66.8% and 73.8%.

Principal private residence changes
The plans to charge non residents will see a restriction on claiming PPR status to those who are present in the country for at least 90 days (midnights) in the year affected. So if non UK residents own a residential property in the UK they will not be able to claim that it is their PPR for any tax year in which they are not UK resident unless they spend at least 90 days here.

Clients who have left the UK and have rented out their former home will need to be advised about the change, but this is not a pressing issue for April 2015, as they will retain their right to the last 18 months exemption. The property only comes into charge in the UK from April 2015.

3./ Directors – profit extraction and close company loans

Extracting profits from a limited company – 2014/15

The current perspective Those extracting profits from a company at present will see a saving in tax by extracting by way of dividend, whatever rate of corporation tax applies, and
irrespective of the taxpayers’ marginal personal rate.

Small company – profits of £50,000
For a small company the decision as to how to extract profits is a relatively simple one – when the company is paying small company rates of corporation tax, the profit will be extracted in general by payment of a dividend as this produces the cheapest tax outcome for the owner manager.

Interest on loans – 2015/16
Where a director takes a low salary – say £10,000 and the remainder of his profits by way of dividend, the starting rate for savings is still available to him. From April 2015, when the starting rate band becomes £5,000 and the rate reduces to NIL, it is worth considering paying interest on loans made by directors to their companies. If interest is paid it will need to be subject to basic rate tax deduction, and the income tax accounted for to HMRC on form CT61, in a quarterly basis (calendar quarters, plus year end period if this does not coincide).
Obviously, you will wish to consider whether the interest will be an allowable expense in the company before committing to this course of action.

Director’s loans – treatment of a debit balance
Where directors have racked up adverse balance on loan accounts it is not unusual for the directors to vote through a dividend at some point, which when put to the credit of the loan account reduces the indebtedness. The common approach is to declare a dividend sufficient to clear the net balance on the loan account, either at the end of the financial period, or up to 9 months into the subsequent period, thus eliminating the liability to s 455 tax by the effect of s 458 CTA 2010. However, if there are insufficient profits from which to pay a dividend, other steps may be necessary.

Status of unpaid PAYE on bonus
Where a debit balance has arisen on a director's account and a net bonus is voted through in the accounts to clear the balance, practitioners should bear in mind the McVeigh case and amend their procedures accordingly, if necessary. In particular in the McVeigh case, no actual payment of salary (net pay) was made, as the director had already accumulated a substantial debit balance on his loan account, and the net salary was intended to clear this indebtedness.

Liability to NIC – personal liability notices
The Social Security Administration Act 1992 was amended in 1998 to introduce a concept of personal liability for directors of companies which failed to pay NIC due. HMRC may issue a “personal liability notice” (PLN) on any director of a company when the company has failed to pay contributions within the time allowed (so not necessarily under circumstances of insolvency) where that failure to pay appears to be due to the fraud or neglect of individuals who were at the time of the failure to pay, officers of the company. In such a case the
officer is referred to as a “culpable officer”.


Writing off loans to directors
If the company so chooses the principal of the loan may be written off or released, and the tax outcome may be viewed as preferable. The comments above relating to the timing of any write off and the timing of the credit under CTA 2010 Section 458 should be borne in mind when considering the cash flow implications.

Pensions – New lifetime allowance 2014-15
The new amount of the annual allowance is £40,000 for 2014/15 and all subsequent tax years. This amount may be increased by secondary legislation in the future.

4. Real Time Information

Potential problem areas
If you have any queries please do not hesitate to contact us.

The “on or before” requirement
The basic rule for Full Payment Submissions (FPS) is that a submission must be made on or before a payment of earnings is made to an employee. This presents a range of practical problems for employers where payment is made and the payroll records computed afterwards.

Small business easement
After much negotiation and lobbying, HMRC announced a relaxation to the on or before rule for very small employers. The current easement for employers with fewer than 50 employees will end on 5 April 2014 as planned, but a new easement for employers with fewer than 10 staff will commence at that point. From April 2014 until April 2016, existing employers with nine or fewer employees may report payments ‘on or before’ the last pay day of the month.
This additional easement will not be available to new employers who will have to comply with the on or before rule from the outset (subject to the 30 day initial period).

Mis-matched liabilities and payments
There have been a number of scenarios in which HMRC’s systems show amounts due in excess of the amount regarded as due by the employer. These are frequently due to duplicate employees on HMRC’s system for various reasons. There is currently a joint team of payroll specialists from the profession and HMRC staff working to resolve the worst of these problems. HMRC’s website includes an announcement regarding incorrect BTD entries for months 9 and 10, again due to duplicate employees.

Automatic scheme closure
Where no returns have been filed for a scheme for a period of three months, HMRC will treat a scheme as expired and automatically close the scheme. A generic notice to this effect will be sent to the employer.

RTI penalties
The penalty announcement made in February 2014 was welcome news. The commencement dates for RTI penalties is as follows:

  • From April 2014 late payment interest will apply to all in-year late payments in respect of 2014/15
  • From October 2014, automatic late filing penalties will apply to late FPS’s by reference to  the on or before rule
  • From April 2015, automatic late payment penalties will apply in respect of payments for 2015-16 tax year.


If you need any help and advice with your Tax compliance and planning, contact Lavinia Newman, Stuart Coleman or Liz Kennett to discuss how ABDS can help in all your financial planning and business advice.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

Brilliant with numbers   
Great with people  
Clear and precise with advice
Timely and cost effective 
In touch with issues that face our clients and
mindful of their long term strategic goals

Helping Your Business is Our Business

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