Steven Mugglestone

The more I learn, the less I know

Forget the spin for 2014, here are some of the key tax changes for 2013:

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Tax and spending changes get announced well in advance of their impact dates and all governments prefer to point to key favoured changes for the future.  To bring us all back to reality, here are some of the key changes that will affect businesses, their owners and individuals alike coming into effect in 2013:

Personal allowances

There is a target to get the personal income tax allowance increased to £10,000 by April 2015.  The April 2013 rise to £8,015 has already been announced but if there is any scope to show a continuing upward path it will help provide some comfort to those on lower income levels and a little comfort for those who are due to lose their child benefit from January 2013

Entrepreneurs’ relief and negative tax

Employee share option schemes through the Enterprise Management Incentives (EMI) were a tax favoured share option, initially very efficient.  Following the introduction of Entrepreneur’s Relief most people who had EMIs could not benefit from the 10% tax rate as they did not have the required 5% of the company’s shares nor they did not own the shares for a year prior to sale.

From April 2013 both of these requirements have been relaxed meaning the individual can access a 10% tax rate whilst the company gets tax relief at 20%…….. This gives a negative tax rate.

Patent tax relief

This will reduce the tax rate for those who have income from patented products or processes down to 10% on qualifying profits.

Changes will be phased in starting from April 2013 and will apply to pre-existing patents as well. The impact of this is that it may encourage those working in research and development to patent their products or technology.

Tax relief capped

From April 2013, there will be a cap on income tax reliefs to ensure that those on higher incomes cannot use income tax reliefs excessively.

This will mean that anyone seeking to claim more than £50,000 of relief, a cap will be set at 25% of earnings of income.  This new cap does not extend to charitable donations as previously suggested it might but it does, however, limit relief from trading losses against general income and interest on certain loans, including loans to buy an interest in a company or invest in a partnership.

Corporation tax

The tax rate for large organisations will be reduced to 23% in April 2013 and will then go down to 21% in 2014. This will mean that businesses will get to keep more of the money they make and will so have more to invest – they can also take the lower tax rate into account when structuring group operations and the number of companies owned. 

Residential property

A new annual charge will be introduced for high value properties (valued over £2m) owned by non-natural persons to further discourage ownership of property through envelope structures. Various reliefs have been introduced for the annual property charge and the 15% SDLT charge for property developers and those exploiting property as a source.

Statutory residency test

This has been delayed for a year but the SRT will come into force on 6 April 2013. This is an historic landmark for tax in the UK, as for the first time we have clear and definitive legislation on this critical area. Historically whether someone has been resident or not has been decided by application of practice and an evolution of tax cases that have been interpreted in different ways.

As expected, there will be matters of interpretation that will evolve but it represents a significant advance from the current position.  The anti-avoidance clauses around this are quite large and complex.

Annual Investment Allowance

The big surprise announcement of the Autumn Statement – the AIA increased tenfold from 1 January 2013 to £250,000 for the next two years. Companies considering investing in capital equipment over the next couple of years should review the timing of that expenditure in the light of this additional relief now available.

Share Incentive Scheme

There will be a new share incentive scheme, under which the recipient gives up employment rights, to get tax efficient gains on a final disposal.  However, reservations regarding the income tax and NI treatment seem to have fallen on deaf ears and all are left wondering just how attractive this scheme will be.

Steven Mugglestone BA FCA
FD Services

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Written by Steven Mugglestone

January 9, 2013 at 12:24 pm

Posted in HMRC, Tax

Tagged with , ,

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