Steven Mugglestone

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Posts Tagged ‘income tax

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
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Written by Steven Mugglestone

January 9, 2013 at 12:24 pm

Posted in HMRC, Tax

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Consider The Green Car or Bike Options to Save Tax

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Consider The Green Car or Bike Options to Save Tax

In the current economic environment, the focus of most employers is increasingly on reducing costs and to provide maximum value to their employees for minimum spend.

As a consequence, Green Cars and the associated tax breaks remain firmly on the reward agenda and companies are reconsidering the way that they make purchasing/leasing decisions, how they provide cars and what categories of worker will have the opportunity to have a company car and in recent years the provision of a company bike.

Since the company car tax rules were changed in April 2009, the tax relief available to businesses has been based on CO2 emissions.  This means that cars with emissions that do not exceed 110g/km or are electric can currently qualify for a 100% first-year allowance and those with less than 160g/km emissions attract a 20% capital allowance rate.

Car manufacturers are increasingly introducing vehicles including hybrid cars with lower CO2 emissions as demand for Green Cars increases and now there is are a variety of executive and even prestige cars which have emissions under 110g/km.

In addition to these savings, there is a growing trend towards the introduction of salary sacrifice for company cars, with many businesses not restricting take-up to the traditional ‘perk’ or ‘essential user’ categories.  Instead, there is a move towards offering cars to the wider workforce with the following advantages:

Employees: make tax savings by sacrificing salary taxed at 32% (tax and NIC for a basic rate payer) in return for a car with emissions below 110g/km and pay tax on only 10% of the list price.  This makes driving a new car affordable for all staff who are able to sacrifice salary and the option is there for employees to take a 2nd or even a 3rd car for their spouse or university aged and over children, where the Employer’s scheme permits.  In addition, cars with lower CO2 emissions generally use less fuel which means less fuel cost, thus generating further savings.

Employers: benefit from volume discounts, can recover some VAT and save on NIC costs.  There is also the corporate responsibility benefit of knowing that your employees are driving roadworthy vehicles and that your own Green Agenda is being met.

It is, however, worth keeping a note on the VAT issues in respect of salary sacrifice, including the recent announcements made by HMRC at:

http://www.hmrc.gov.uk/briefs/vat/brief3611.htm

Use of bikes

The provision of tax free company pool bicycles or loans of bikes is also proving to be popular. Full details of the HMRC rules for bikes can be found at:

http://www.hmrc.gov.uk/manuals/eimanual/eim21664.htm

Organisations such as Cyclescheme, http://www.cyclescheme.co.uk/ have also become more and more popular in the provision of individual bikes to employees and administering this for businesses and employees.  Savings of around 40% are common, utilising this scheme.  To check the easiest way to do this, go to:  http://www.cyclescheme.co.uk/get-a-bike

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
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Written by Steven Mugglestone

December 5, 2011 at 11:06 am

Budget 2011 – The best of the leaks and predictions

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Budget 2011 – The Best of the Leaks and Predictions

Business tax

Enterprise zones
Unable to resist the temptation of leaking his own Budget announcements, the Chancellor has already stated that he will create new enterprise zones across the UK. Enterprise zones are a long-standing Conservative creation to aid regional development, that have virtually been phased out and only loosely replaced by Labour’s ‘disadvantaged areas’ (with very different tax rules). Whether or not the new enterprise zones will operate in the same way as the old ones (with 100% up front capital allowances on the cost of building business premises) remains to be seen but they may provide some useful options for expanding or new businesses and investors.

Small businesses
The Chancellor has tasked the Office of Tax Simplification (OTS) with making recommendations on the simplification of the tax rules for small businesses and in particular, ways in which the IR35 legislation could be simplified or removed. The OTS is due to report on 10 March and, in his response in the Budget, it is likely that the Chancellor will issue a consultation document or at least outline which of the OTS suggestions are to be pursued in more depth: however, any legislative changes are unlikely to take place until April 2012.

Even so, it is understood that the OTS is considering some radical solutions to level the playing field between sole traders and small companies: removing the current tax incentive to incorporate a business is seen as the most effective way to tackle the IR35 issue. Such simplification is likely to lead to owners of small companies paying more tax. Whether or not the OTS can come up with a similar method of dealing with income splitting remains to be seen.

On the positive side, the Chancellor may allow some more administrative short cuts and opt-outs for small businesses – e.g. ‘payrolling’ employee benefits rather than completing forms P11D, or an opt-out for payroll year end returns where the business takes part in the proposed real time information system.

R&D tax credits
The Government has consulted on ways to refocus the current R&D tax credit schemes on high tech companies, small businesses and new start-ups as well as making the credit easier to claim. It is likely that some technical amendments will be announced in the Budget although a major extension of the credits seems unlikely on the grounds of affordability.

Green investment bank
Although the Government has committed to base level funding for its proposed green investment bank, there will be a considerable funding gap to be filled if it is to achieve the Government’s green objectives. It is possible that the Chancellor will offer tax incentives for private and corporate investors to help raise the additional funds required. Whether these will be for direct investment into the new bank or will be triggered by the bank launching it own funds and investments that qualify for the existing Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) reliefs remains to be seen. As the bank could be a key part of the Government’s overall growth plan, significant proposals may well be announced.

The Chancellor has publicly spoken of making the UK an attractive location for green energy generation projects so there may be some comment on support for such projects from the new bank. There may also be some comment on the Department of Environment and Climate Change’s impending review of the current solar feed-in tariff system which has cast a long shadow over large scale investment in such projects since it was announced.

Enterprise Investment Scheme
It already appears that much of the Government’s growth plan will focus on ‘freeing’ entrepreneurs so it may well appeal to the Chancellor to enhance the current EIS, either by increasing the tax reliefs available or by simplifying the qualifying criteria (as suggested by the OTS) – for example, raising the ceiling on permitted fund raising beyond the current £2m in any 12 month period limit. Softening certain EIS criteria for green businesses may also be a tempting option although any changes may require EU state aid approval so could take some time to become law.

NIC holiday
The twelve month ‘holiday’ for new business that was announced in the Emergency Budget in June 2010 is only available in limited parts of the country. It is conceivable that, as part of a wider growth plan, the scheme could be extended to the whole country and also perhaps to Class 4 NIC that would otherwise be paid by sole traders starting up in self employment in affected areas. It is unlikely that the scheme will be made any more generous for employing companies.

Capital allowances
Cuts to the rates of capital allowances and the amount of the annual investment allowance (AIA)(reducing from £100,000 to £25,000) are due to take effect from April 2012. It is possible that these changes will be put back a year if business investment is still in the doldrums. Alternatively, some support on the timing of investment may be forthcoming so that small companies do not miss out on the AIA. Many companies do not invest in expensive plant and machinery every year, so a rule allowing the carry forward of the AIA limit for up to four years would be very welcome for those businesses investing in new machinery sporadically every few years.

Fuel duty
Increasing fuel prices will be filling the treasury coffers nicely but are also building up considerable political pressure for action on the rate of duty. The Chancellor has already indicated that he is listening to public opinion on this issue and it is likely that the duty rise scheduled for April will be deferred, although the introduction of a fuel duty stabiliser mechanism is perhaps less likely on technical and practical grounds.

Controlled foreign companies
With interim improvements to the CFC rules already published in the draft Finance Bill 2011, the Chancellor is likely to focus on the longer term improvements suggested at the time of the Autumn Statement. Therefore, we can expect to see further consultation on the suggested partial exemption for group finance companies and ways to target the CFC rules at high risk areas – specifically involving intellectual property held offshore.

Personal taxes

Income tax rates
As the whole focus of the Budget is expected to be on growth and supporting entrepreneurs, the Chancellor may wish to make some conciliatory noises about the one tax that is most widely seen as making the UK an unattractive location – the 50% top rate of income tax. Although cutting the rate now may not be affordable, or politically astute, with spending cuts about to have an effect on those on low incomes, he may confirm his intention to cut it in the future and may even set a date (with the proviso that the economy recovers as planned).

Tax allowances
Having already announced increased personal tax allowances for 2011/12 it is unlikely that there will significant further changes in the Budget unless the Chancellor decided get his teeth into the ‘spaghetti’ of tax allowances and reliefs identified by the OTS. It has recommended the abolition of a number of redundant and minor reliefs and allowances. Perhaps the most controversial item on the hit list is the OTS’s suggestion that the blind persons allowance should go – although the OTS recommends that it is only cut once more practical financial support is put in place for blind people (presumably in the form a tax credit or enhancement to the forthcoming universal credit).

Announcing a long term objective of merging income tax and NIC would be another significant move towards simplification. Unfortunately, this is likely to be a very long term project, partly because it is highly politically sensitive and partly because of a number of administrative obstacles. Interestingly, some of the obstacles to unification are already scheduled to be removed. For example, auto-enrolment to pensions for employees and the creation of NEST will abolish contracting out of the state second pension; the proposals to introduce a flat rate state pension and proposals to introduce a universal credit for state benefits that is not dependent on past NIC contributions.

Tax residence and domicile
The Government’s original Coalition Agreement stated that there would be a further review of the tax treatment of non-UK domiciled individuals living in the UK. Given the current economic climate, it is perhaps no surprise that this review has yet to materialise so the Chancellor may announce that a review will take place during 2011. A task that has been outstanding for even longer, is to write clear rules on personal tax residence in the UK into primary legislation, it is hoped that draft clauses for Finance Bill 2011 will be published with the Budget.

More controversially, the Chancellor may decide to look at the capital gains tax rules for non-UK residents. Currently, most states impose CGT on sales of real property (land, houses, etc) in the jurisdiction, irrespective of whether the vendor is tax resident there. The UK currently does not do this and there is an argument that this contributes to the inflation of residential prices at the top end of the market, which has a knock-on effect down the range. The Chancellor may regard this as an easy and popular way of raising cash in the coming months.

The future of inheritance tax
The OTS’s comments on the plethora of IHT reliefs has led some to speculate that the Chancellor may announce that a full review of IHT will start in 2011 with changes in future years. The Conservatives have previously stated that creating an IHT nil band (effectively an exemption) for the first £1m of an individual’s estate was one of their policy objectives. This may not be affordable at the moment but, as part of an overall review that removes many of the complex IHT reliefs that now exist, it is perhaps possible for the nil band to be increased to £500,000 per person (effectively £1m per married couple or civil partnership) in a tax-neutral way. Therefore, it seems quite likely that a review will be announced now although concrete changes should not be expected for several years.

Tax Avoidance

Disguised remuneration
New rules to tackle disguised remuneration were announced with the 2010 Autumn Statement and amended legislative clauses are expected to be published that incorporate most of the exemptions and clarifications consulted on since then. This should finally clarify the tax treatment of employee benefit trusts and EFRBS from 9 December 2010 although the tax treatment for earlier years is likely to remain in dispute.

These new rules also affect the tax treatment of the image rights arrangements often set up for high profile sports people although it is understood that HMRC is negotiating directly with employers in a many cases.

Close or personal companies
Much anti-avoidance legislation in the past few years has been created in response to tax legislation being used creatively, particularly where people take advantage of the differences in tax treatment between individuals and companies. From personal service companies (IR35) to image rights planning or simply the pragmatic payment of dividends within a family company, the differences in treatment have led to many tax planning arrangements that HMRC has disapproved of. Rather than continue to tackle the symptoms, the Government may finally choose to tackle the root cause with general provisions attacking close companies and single owner companies. These may be combined with the simplification proposals of the OTS (see above).

Tax amnesties
HMRC has recently announced a fifth tax amnesty, the Plumbers Tax Safe Plan (PTSP), but these remain confusing for taxpayers. Despite its name, the PTSP is actually open for virtually any UK resident to use (unless they previously had the chance to use one of the other amnesties) – on “very similar terms” according to HMRC’s own published guidance. Strangely, HMRC seems keen to play this down in its press comments. When the Government is in such dire need of tax revenue it would seem more sensible for the Chancellor to confirm in the Budget that the amnesty is to apply to everyone, to extend the registration deadline a little and to encourage everyone who needs to put their tax affairs straight to do so now.

Steven Mugglestone BA FCA, McGregors Corporate, More than just Accountants!

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Written by Steven Mugglestone

March 21, 2011 at 10:14 am