This issue … Budget News, Business Journeys, RTI Penalties, Let Property Campaign, VAT on Books and Leaflets, March Question and Answer Section, March Key Tax Dates
2014 Budget News
Summary
This was a Budget for bingo-playing baby-boomers who have not started to draw their private pensions. George Osborne announced some sweeping reforms to the taxation of pensions and halved bingo duty.
The traditional “sin taxes” on booze and fuel have largely been frozen or even reduced, although tobacco suffers a 2% above inflation tax rise. The new “sins” appear to be; owning a valuable home through a company and operating a high-stakes gaming machine.
Most individuals aged under 67 will feel the benefit of an increase in personal allowance from £10,000 to £10,500 in 2015. A transferable married couples’ allowance of £1,050 will also help basic rate taxpayers from April 2015. Savers will enjoy higher tax-free limits for ISAs and premium bonds later this year, plus a cut in tax on savings income from 2015.
Businesses are encouraged to invest in equipment by an increase in the annual investment allowance to £500,000 from April 2014, and reliefs for investing in small trading companies and social enterprises are enhanced. Small and medium sized companies who undertake R&D are also given additional tax relief.
The losers are those who use tax avoidance schemes, as those sinners will have to pay the tax avoided up front. Several other tax loopholes used by groups of companies are blocked, and the rules for VCT schemes are tightened-up to deter abuse.
This newsletter is a summary of some of the key points form the Budget, based on the documents released on 19 March 2014. It is possible that a different position will be shown by the draft legislation which will be published on 27 March 2014. We will keep you informed of any significant developments.
Business Taxes
Capital Allowances
The rates and thresholds of the main capital allowances will apply as follows:
|
|
1 January 2013 to April 2014 |
1 or 6 April 2014 to 31 December 2015 |
From 1 January 2016 |
|
Main pool: writing down allowance |
18% |
18% |
18% |
|
Special rate pool: writing down allowance |
8% |
8% |
8% |
|
Annual Investment Allowance (AIA) cap: |
£250,000 |
£500,000 |
£25,000 |
Expenditure within the AIA qualifies for 100% allowance in the year of purchase. The AIA cap was increased to £250,000 on 1 January 2013, and is doubled to £500,000 on 1 April 2014 for companies (6 April 2014 for unincorporated businesses).
This increase in the AIA cap will help businesses invest in equipment and fixtures (cars and buildings don’t qualify), with 100% tax relief in the year of purchase. However, great care is needed to calculate the available AIA for accounting periods which straddle the various changes. The AIA cap is due to revert to £25,000 on 1 January 2016.
Corporation Tax
Rates
The corporation tax rates for small and large companies will be aligned at 20% from April 2015. This will remove the need for the associated companies rule and the marginal rate of corporation tax will disappear. The rates for the three financial to 31 March 2016 have been announced as:
|
|
2013 |
2014 |
2015 |
|
Small profits rate |
20% |
20% |
20% |
|
Marginal rate |
23.75% |
21.25% |
N/A |
|
Main rate for companies |
23% |
21% |
20% |
Different rates apply to profits from North Sea oil and gas.
Banks pay a special bank levy in addition to these rates of corporation tax.
Research and Development (R&D)
Companies can claim enhanced deductions for expenditure on R&D projects at rates broadly dependent on the size of the company as follows:
- Small and medium(SME): 225% of qualifying expenditure
- Large: 130% of qualifying expenditure
Where the SME deduction for R&D is claimed and the company makes a loss, it can claim a cash credit from HMRC of 11% of that loss. This rate is increased to 14.5% where the R&D expenditure is incurred from 1 April 2014.
Enterprise Zones
Around 46 enterprise zones have been formed around the country to encourage investment and job formation. Businesses in some of those zones can claim 100% capital allowances on the equipment they use within the zone. The period for which those 100% allowance are available has been extended by three years to 31 March 2020.
National Insurance
Employees
The rates and thresholds for National Insurance Contributions for 2014/15 are:
|
|
Weekly earnings |
Rate |
|
Employer’s class 1 above primary threshold |
Above £153 |
13.8% |
|
Employee’s class 1 not contracted out |
From £153 to £805 |
12% |
|
Employee’s additional class 1 |
Above £805 |
2% |
|
Married woman’s rate* |
From £153 to £805 |
5.85% |
|
Self-employed class 2(per week) |
– |
£2.75 |
|
Share fishermen class 2 (per week) |
– |
£3.40 |
|
Volunteer development workers class 2 |
– |
£5.55 |
|
Class 3 ( per week) |
– |
£13.90 |
|
Annual profit thresholds |
||
|
Small earnings exemption class 2 |
£5,885 |
– |
|
Self-employed class 4 |
From £7,956 to £41,865 |
9% |
|
Self-employed class 4 additional rate |
Above £41,865 |
2% |
*only available for women who made a valid married woman’s election before 11 May 1977.
Self-employed
From April 2016 class 2 NICs will be collected through self-assessment, rather than been paid as a separate direct debit on a monthly or six-monthly basis.
Individuals
Personal Allowances
The standard personal allowance will rise to £10,500 from 6 April 2015. The age-related allowances are gradually falling in line with age-related allowances given to taxpayers born since April 1948.
The transferrable allowance will apply from 6 April 2015 to couples (married or civil partners) where neither person pays tax at the 40% or 45% rates. The spouse who cannot use all their personal allowance against their own income will be able to opt to transfer 10% of their personal allowance to their spouse or civil partner.
The personal allowance is tapered away for individuals who have income over £100,000, at the rate of £1 for every £2 of income above that threshold.
The allowances have been announced as follows:
|
2013/14 |
2014/15 |
2015/16 |
|
|
£ |
£ |
||
|
Born after 5 April 1948 |
9,440 |
10,000 |
10,500 |
|
born after 5 April 1938 before 4 April 1948 |
10,500 |
10,500 |
10,500 |
|
Born before 6 April 1938 |
10,660 |
10,660 |
10,660 |
|
Minimum married couples allowance* |
3,040 |
3,140 |
TBA |
|
Maximum married couples allowance* |
7,915 |
8,165 |
TBA |
|
Transferable portion of allowance |
N/A |
N/A |
1,050 |
|
Blind person’s allowance |
2,160 |
3,140 |
TBA |
|
Income limit for allowances for age related allowances |
26,100 |
27,000 |
TBA |
|
Income limit for standard allowances |
100,000 |
100,000 |
100,000 |
|
Personal allowance removed completely at: |
118,880 |
120,000 |
121,000 |
* given as 10% reduction in tax liability, where one partner was born before 6 April 1935.
Income Tax Rates and Bands
Income tax rates are to remain the same to 5 April 2016, with the exception of the savings rate. This will be cut to 0% from 6 April 2015. However, the savings rate only applies if individual’s net non-savings taxable income does not exceed the savings rate limit.
The income tax rates and bands have been announced as:
|
2013/14 |
2014/15 |
2015/16 |
|
|
Savings rate: 10%, 0% from 2015/16 |
0 – £2,790 |
0 – £2,880 |
0 – £5,000 |
|
Basic rate: 20% |
0 – £32,010 |
0 – £31,865 |
0 – £31,785 |
|
Higher rate: 40% |
£32,011 – £150,000 |
£31,886- £150,000 |
£31,785 – £150,000 |
|
Additional rate: 45% |
Over 150,000 |
Over 150,000 |
Over £150,000 |
When the personal allowance is taken into account an individual will start to pay tax at 40% when their total income exceeds £41,865 in 2014/15 and £42,285 in 2015/16. This is compared to a 40% threshold of £41,450 in 2013/14. This threshold (and the 45% threshold) can be increased if the taxpayer pays personal pension contributions or makes gift aid donations.
Pensions
The following changes will be introduced from 27 March 2014:
- A person who wishes to take their pension as “draw-down” instead of buying an annuity will have to prove they have £12,000 of other income in retirement, rather than £20,000.
- The capped drawdown withdrawal limit will increase from 120% to 150% of an equivalent annuity.
- The total pension savings which can be taken as a lump sum will increase from £18,000 to £30,000.
- The maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) will increase from £2,000 to £10,000; and
- The number of personal pots that can be taken under these small pot rules will increase from two to three.
In addition the chancellor proposes to change the rules for defined contribution pension schemes from 2015 so that:
- individuals will have complete freedom in how they access their pension savings;
- buying an annuity will not be a requirement on retirement;
- the 55% tax charge on withdrawing too much from a pension fund will be removed; and
- everyone will be offered free and impartial advice on how to best use their pension savings.
Capital Taxes
Enveloped Dwellings
The annual tax on enveloped dwellings (ATED) applies where a residential property located in the UK is owned by a non-natural person such as; a company, partnership with a corporate member or a collective investment scheme. There are a large number of reliefs and exemptions from the charge, but where such a relief does not apply the ATED charge must be paid by 30 April within the year at the following rates:
|
Property value |
Annual charge |
Annual charge |
|
Up to 2,000,000 |
Nil |
Nil |
|
2,000,001-5,000,000 |
15,000 |
15,400 |
|
5,000,001-10,000,000 |
35,000 |
35,900 |
|
10,000,001-20,000,000 |
70,000 |
71,850 |
|
Over £20,000,000 |
140,000 |
143,750 |
From 1 April 2015 the ATED charge is to be extended to properties with value of £1m to £2m. Then from 1 April 2016 the ATED charge will be extended to properties worth £500,001 to £1 million. The 15% rate of Stamp Duty Land Tax on such properties worth over £500,000 comes into effect from 20 March 2014 -; see below.
Capital Gains Tax
The rates and annual exemption for capital gains tax are as follows:
|
2013/14 |
2014/15 |
|
|
Annual exemption |
£10,900 |
£11,000 |
|
Annual exemption for most trustees and personal representatives |
£5,450 |
£5,500 |
|
Rate for gains within the basic rate band |
18% |
18% |
|
Rate for gains above the basic rate band |
28% |
28% |
|
Rate for gains subject to entrepreneurs” relief |
10% |
10% |
|
Lifetime limit for gains subject to entrepreneurs” relief |
£10 million |
£10 million |
Private Residences
As announced in December 2013 the 36 month tax free period when a person’s main home is sold, is reduced to 18 months for most disposals made after 5 April 2014. Where the home owner or their spouse is disabled or has moved into a residential care-home, the 36 month tax free period will still apply.
The Government will consult on how to charge capital gains tax on disposal of UK homes by individuals who are not tax resident in this country.
Rollover Relief
Disposals of payment entitlements by farmers under the EU Basic Payment Scheme will qualify for business asset rollover relief with retrospective effect from 20 December 2013.
Inheritance Tax
The inheritance tax (IHT) nil rate band will remain frozen at £325,000 until 2017/18, and the rates of IHT payable on death remain unchanged at 40% or 36% where at least 10% of the net estate is left to charity.
The government will consult on extending the existing IHT exemption for the estates of members of the armed forces, whose death is caused or hastened by injury while on active service, to members of the emergency services.
Investments
Seed Enterprise Investment Scheme (SEIS)
The SEIS was introduced for a limited five year period from 1 April 2012. The SEIS has now been made permanent, with the income tax and capital gains tax reliefs applying as shown below for all future years.
|
|
2013/14 |
2014/15 |
|
Rate of income tax relief |
50% |
50% |
|
Maximum investment qualifying for income tax relief |
£100,000 |
£100,000 |
|
Gains exempt from CGT relief on investment in SEIS shares: |
50% |
50% |
Venture Capital Trusts (VCTs)
Investing in VCT shares gives the taxpayer 30% income tax relief on up to £200,000 invested per tax year, and the shares are generally exempt from capital gains tax when sold. However, the Government thinks that VCTs have been abused, so the following changes will be made from 6 April 2014:
- tax relief is withdrawn if the shares are disposed of within five years;
- the VCT will not be permitted to return capital to its members within three years of the shares being subscribed for; and
- VCT investments that are linked to share buy-backs will be denied tax relief.
ISAs
The ISA investment limits for 2014/15 were announced in December 2013 as:
|
2013/14 |
2014/15 |
|
|
Shares and cash ISA |
£11,280 |
£11,880 |
|
Cash only ISA |
£5,760 |
£5,940 |
|
Junior ISA and Child Trust Fund |
£3,720 |
£3,840 |
However, this Budget includes the announcement that from 1 July 2014 the ISA rules will be reformed to extend the investment limits to:
|
From |
1 July 2014 |
|
New ISA – for shares and/ or cash |
£15,000 |
|
Junior ISA and Child Trust Fund |
£4,000 |
ISAs will also be permitted to hold peer to peer loans as investments, and possibly other debt securities.
Premium Bonds
Individuals have been limited to the amount they hold in premium bonds to £30,000 per person since 2003. This cap will now be raised as follows:
- From 1 June 2014 : £40,000
- From 2015/16: £50,000
There will also be two tax free prizes at the maximum level of £1 million awarded each month from August 2014.
VAT
Rates
The VAT rates and thresholds are as follows:
|
From: |
1 April 2013 |
1 April 2014 |
|
Lower rate |
0% |
0% |
|
Reduced rate |
5% |
5% |
|
Standard rate |
20% |
20% |
|
Registration turnover |
£79,000 |
£81,000 |
|
Deregistration turnover |
£77,000 |
£79,000 |
|
Acquisitions from EU member states, registration and deregistration threshold |
£79,000 |
£81,000 |
Changes from 2014
- VAT treatment of prompt payment discounts given by suppliers
Changes from 2015
The Government will consult on changes to the VAT rules in the following areas:
- Zero-rating of work to adapt cars for use by disabled persons
- VAT avoidance scheme disclosures
- Reverse charge for buyers of gas and electricity – not domestic customers
Duties
Stamp Duty Land Tax (SDLT)
This duty applies to the sale of land or buildings in the UK as follows:
|
|
Residential property |
Non-residential or mixed property |
Rate |
|
From 22 March 2012 |
Up to £125,000 |
Up to £150,000 |
0 |
|
£125,001 to£250,000 |
£150,001to £250,000 |
1 |
|
|
£250,001to£500,000 |
£250,001 to £500,000 |
3 |
|
|
*£500,001 to £1m |
£500,001 and over |
4 |
|
|
*over £1m to £2m |
N/A |
5 |
|
|
* over £2m |
N/A |
7 |
From 20 March 2014 the residential properties in bands marked * are subject to SDLT at the rate of 15% where the property is acquired by a non-natural person such as a company, partnership or collective investment scheme. For sales in the period: 22 March 2012 to 19 March 2014 the 15% rate of SDLT only applied to properties sold for £2 million or more where the buyer was a non-natural person.
Bingo Duty
The percentage of bingo promotion profits paid in duty is cut from 20% to 10% with effect from 30 June 2014.
Machine Games Duty (MGD)
This duty was introduced from 1 February 2013, and must be collected by the owner of the premises where the game machine is provided for play.
MGD applies at two rates:
- 5% when the fee for playing a game is not more than 20p, and
- 20% for other machines.
From 1 March 2015 MGD will apply at 25% for games which may cost £5 or more to play.
Air Passenger Duty (APD)
This duty currently applies at three rates (reduced, standard and higher) over four bands (A, B, C & D), according to the distance travelled.
From 1 April 2015 the bands will be reduced to two:
- journeys up to 2000 miles
- journey over 2000 miles
The rates will also be reduced except for the higher rate which applies to aircraft with fewer than 19 seats – generally luxury jets.
Business Journeys
A number of self-employed businesses have been waiting for a tax case to be decided which turned on the question of “what is a business journey?” The test case concerned a doctor who was both employed by the NHS and self-employed as a private consultant.
The Upper Tax Tribunal decided that the doctor’s self-employed work started when he arrived at his private clinic, so the travel between his home and the clinic was not a business journey. This was in spite of the fact the doctor had an office at his home where he prepared his treatment plans.
So what does this mean for you as a self-employed person who travels to various sites to work? The taxman will argue that your work only starts when you reach your customer’s site and any business activity performed at your home-office is irrelevant. This would restrict your allowable travel costs to journeys between customers and deny a deduction for travelling from your home to the first customer of the day.
The key is determining where your “place of business” is located, and whether the activity undertaken at the home-office is wholly and exclusively undertaken for the purpose of your business. As ever it will come down to the evidence you can produce.
Can you show that the activities you perform at your home must be performed at that location? For example: contacting suppliers, drawing up quotes, or scrutinising plans. Also can you provide evidence of the time you spend working exclusively on your business at your home, perhaps by records in your business diary?
We can help you record the details the taxman will want to see in order to prove you do start work at home, and not when you reach your first customer of the day.
Real Time Information (RTI) Penalties
HMRC has experienced significant problems in reconciling amounts of PAYE due from employers, to the amounts reported under real-time information (RTI). As a result some of the automatic RTI penalties which were to apply from 6 April 2014, will now apply from:
- October 2014 for late filing of in-year RTI reports; and
- April 2015 for late payment of in-year PAYE due.
However, interest for late paid PAYE will still apply from 6 April 2014. To keep on top of what PAYE you have paid and what HMRC thinks is due, you should view the business tax dashboard facility on the HMRC website at regular intervals. Unfortunately we cannot access the business tax dashboard on your behalf.
If you are late with filing your last RTI report (known as the final submission for the year) for 2013/14, a £100 penalty will apply. This penalty continues to mount-up at £100 per month, or part month, for each batch of 50 employees on the payroll, until the final submission is received by HMRC.
The full payment summary (FPS) for the last tax month will normally be your final submission for the tax year. This FPS should be submitted on or before the last pay day in the tax year, or by 5 April 2014 where you take advantage of the concession for small businesses.
You should not submit forms P35 or P14 for 2013/14 as the information on those forms is included on the final FPS or EPS submitted for the tax year.
If no employees are paid in the final tax month of the year you should submit an employer payment summary (EPS) as the final submission for the year. This EPS should reach HMRC by 19 April 2014. The EPS can also be used as the final submission if the last FPS for the year was not marked as the final submission for the year.
We can help you with the end of year payroll procedures if you are uncertain about what you need to do.
Let Property Campaign
The taxman has launched another “confess your tax sins” campaign aimed at individuals who have failed to declare rental income they have received from residential properties. This let property campaign (LPC) can’t be used by companies that let property or by landlords who let commercial rather than residential properties.
Like other tax disclosure campaigns the taxman promises that you will pay a lower amount of penalties if you disclose under the LPC, but the tax due and interest on late paid tax will have to be paid in full.
If you want to use the LPC to declare income and gains from your let properties, you need to complete a notification form on the HMRC website, or phone the property campaign helpline on 03000 514 479. We can help you with this.
There is no set deadline for asking to use the LPC, but the Taxman is running a taskforce in parallel to the LPC which is targeting tax evasion by residential landlords. So it’s a case of “confess before we catch you.”
Once you have notified HMRC that you want to use the LPC, you will be given a reference number and be told to make a full disclosure of the previously un-declared income and gains within three months. You will also need to pay all the tax due within the same three month period. If you can’t pay all the tax in that time period you must ask HMRC for a “time to pay” arrangement before the deadline arrives. We can help you with this as well.
VAT on Books and Leaflets
There is no VAT on printed books, booklets, newspapers, and leaflets. Well there is – it’s zero-rate VAT, so the customer pays no VAT, but the supplier can reclaim the VAT it pays on purchases.
Printing businesses have to be very clear about which of their products they treat as zero-rated for VAT and which are standard-rated so 20% VAT applies. The VATman likes to come round and check. If you have classified your printed products incorrectly, VAT on the earlier sales (up to four years ago) will have to be paid. It’s unlikely that you will be able to recover this extra VAT from your customers.
In a recent case printed card document folders, which were designed to hold other leaflets, were judged to be standard rated for VAT, as was a laminated business card. However, personalised souvenir photo-books were determined to be zero-rated. We can help you decide which of your products should be zero or standard rated for VAT.
Beware; if the book, leaflet or newsletter is provided in an electronic form, standard rate VAT will apply. There is a special exemption for audio-books for the blind which are zero-rated.
March Question and Answer Section
Q. I’ve received a refund of the PPI premiums I paid on top of my mortgage. Do I need to declare this sum on my tax return?
A. The refund of payment protection insurance (PPI) premiums should not be included on your tax return as it is a repayment of a fee that you were incorrectly charged. However, the bank will have also paid you 8% interest on the PPI refund, and that interest should be declared on your tax return, just as if it was interest paid on a regular savings account. Some banks deducted 20% tax from the interest element of the refund, others did not, so you should check the documents you received with the refund to see if your payment had tax deducted from it or not.
Q. I’m self-employed. How do I work out what to claim for motoring expenses in my accounts?
A. You can calculate your business-related motoring costs by either:
a) Take the proportion of business miles to total mileage driven in your vehicle in the year and apply that proportion to your total motoring costs for the year; or
b) Use the fixed expense of 45p per business mile for the first 10,000 miles driven in the year and 25p per mile for additional business miles in the year.
If you use method a) you can also claim capital allowances on the cost of your vehicle, restricted for the private use of that vehicle. If you use method b) you can’t claim capital allowances for your vehicle but you can claim the interest amount of any finance lease used to purchase the vehicle. We can explain exactly what you can and cannot claim in your accounts for tax purposes.
Q. How do I go about claiming the £2,000 employment allowance?
A. From April 2014 most employers will be able to claim a £2,000 annual allowance to set against the employer’s class 1 NICs due on their employees’ wages. It will be easy to claim. All you need to do is tick a box on the first Employer Payment Summary (EPS) submitted for 2014/15. Your payroll software will show you how, or we can do that for you.
Once the claim is made it stays in place for all future tax years, until the PAYE scheme is closed or the Government withdraws the allowance. Only employers can claim the employment allowance. It can’t be set against class 2 or 4 NICs paid by the self-employed.
March Key Tax Dates
19/22 – PAYE/NIC and CIS deductions due for month to 5/3/2014
28 – Last minute tax planning for the 2013/14 tax year. Ensure you use up all exemptions to which you are entitled
To speak with a professional to discuss how any of the above affects your personal or business finances, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.