Posts Tagged ‘Tax planning’
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:
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.
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.
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
Leicester 0116 233 8500
Nottingham 0115 941 5193
Birmingham 0121 236 3317
EMI share options awarded at market value are a tax-efficient way to incentive employees of a small or medium sized businesses as there is no tax or national insurance due on the grant or exercise of the options, with employees only paying capital gains tax (CGT) when they come to dispose of their EMI shares.
The first proposed change will increase the amount of EMI options an individual can hold from £120,000 to £250,000. Therefore, an amount of up to £250,000 of share options can be granted to an employee with effect from 16 June 2012.
It was also announced (again subject to state aid approval but expected to be introduced in Finance Bill 2013) that an individual who sells shares acquired from the exercise of an EMI option will be entitled to Entrepreneurs’ Relief (ER).
At the present time, an individual benefits from ER when he meets the following three conditions throughout an ownership period of at least one year.
- The company must be the individual’s ‘personal company’ (i.e. he holds at least 5% of the ordinary shares and voting rights.)
- The company must be a trading company or the holding company of a trading group.
- The individual must be an officer or employee of the company or a group company.
The proposed change for those holding EMI shares will remove the first condition so that an individual will not need to meet the ‘personal company’ test to qualify for ER on an eventual sale. (Therefore, he will not need to hold 5% of the ordinary shares and voting rights although the other conditions will still apply.)
In order to qualify for ER, the EMI option will need to be exercised after 6 April 2012. The EMI shares themselves must held for at least one year and so cannot be disposed of until 6 April 2013 at the earliest.
For those employees who are in a position to hold the shares for a period of 12 months rather than disposing of them on or around the time of exercise, such shares will qualify for ER and be subject to CGT at the rate of 10% (rather than the highest rate of CGT of 28%) on the first £10 million of qualifying lifetime gains.
At the present time, these proposals are at consultation stage with more details to follow. As with all such transactions, advice should also be sought before proceeding.
Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
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