Financial Bill update

1. 13.45 – 14.25 Financial Bill update Richard Curtis Editor, Financial Accountant Magazine www.ifa.org.uk

2. Business Tax Knowhow – a Budget and Finance Act 2013 update Reference Palette Copy and paste this palette to any slide to recall a specified colour when designing visual exhibits. Keep off the slide layout area and it will not display in slide show mode. October 2013 Richard Curtis Editor, Financial Accountant magazine 237/28/36 0/0/0 137/137/137

3. What we will cover • Personal tax for sole traders and partnerships • Corporate tax • Employment taxes • Anti-avoidance and other • …all in 45 minutes!

4. Income Tax 2013/14 – by numbers 8,105 >> 9,440 = £267 42,475 << 41,450 = £62 116,210 >> 118,880 = £(472)

5. Cap on income tax reliefs • From 1 April 2013 otherwise uncapped income tax reliefs will be restricted to maximum of higher of £50,000 or 25% x adjusted income • Adjusted income = taxable income minus grossed up pension and charitable payments if paid net • Charitable gifts will not be subject to the cap

6. Most important capped reliefs • Sideways trading loss relief • Sideways property loss relief • Qualifying loan Interest: • Loans to buy shares in or lend to a close trading company • Loans to invest in or lend to a trading partnership • Loans taken out by personal representatives to pay inheritance tax

7. Simplified taxation for small businesses • Voluntary cash basis opt in from 2013 where turnover is below £77,000 – the VAT registration limit • Must remain in scheme until circumstances are no longer suitable • It appears that the ability to opt in and out as trader wishes has been withdrawn • Note excluded persons • Losses only available for carry forward • No sideways or carry back claims

8. Simplified expenses • Expenses paid wholly and exclusively for the purposes of the trade, • but excluding business entertaining and purchase of property or other “investment” assets • Interest payments limited to £500pa • Other expense deductions: • Standard mileage rate • Business use of home • 25-50 hours per month £10; 51-100 hours per month £18; 101 hours or more per month £26 • Business and private use of property adjustments

9. Partnerships • Budget announced consultation on measures to: • remove the presumption of self-employment for limited liability partnership (LLP) partners • in order to tackle the disguising of employment relationships through LLPs; and • counter the manipulation of profit/loss allocations by partnerships including a company, trust or similar vehicle in order to secure tax advantages.

10. Corporation tax rates 2013/14 • Main rate reduced to 23% • Main rate of CT to fall to 21% from 1 April 2014 and to 20% from 1 April 2015 • At which point the small profits rate is abolished • No major announcements affecting profit extraction and incorporation planning for small businesses • Position now unlikely to change before 2015 • review remaining sole trades and partnerships for incorporation

11. Close company loans • Broadening of definition of loans to participators with effect from 20 March 2013 to include: • Loans to partnerships and trusts • Bring transfers of value other than loans into scope and; • Prevent “bed & breakfasting”

12. Close company loan bed & breakfasting • New 30-day rule • Relief from CTA 2010, s 455 to be withdrawn where more than £5,000 of the repayment is reversed within 30 days • Previously, only attack from HMRC was under Ramsay principles • Also, where loan exceeds £15,000 and there is an intention to withdraw the repayment then no s 455 relief will be given

13. Seed Enterprise Investment Scheme changes • SEIS capital gains tax exemption now reduced to just half of the reinvested gain • But extended to allow reinvestment in 2013/14 or 2014/15 • Off-the-shelf companies now eligible • Previous exclusion was a drafting error • Income tax relief is at 50% as long as there is tax capacity in year of investment or in the previous year

14. SEIS example – failure of business post Budget 2013 • Investment £100,000, tax relief £50,000 • CGT exemption 50% of gain at 28%, £14,000 • If business fails, claim loss under ITA 2007, s131 • Conversion of capital loss into an income loss • Loss £50,000 @ 45% = £22,500 • Net cost to investor is £13,500 • If a 40% taxpayer then net cost is only £16,000

15. Annual investment allowance

16. Calculate AIA for y/e 28 Feb 2013 • 1/12 x £100,000 £ 8,333 • 9/12 x £25,000 £18,750 • 2/12 x £250,000 £41,667 • Total £68.750 BUT overriding limits based on previous expectations: £8,333 + £22,917 (11/12 x £25,000) = £31,250 March 2012 £22,917 Apr – Dec 2012 £18,750 +£41,667 = £60,417 Jan – Feb 2013

17. Employment taxes • Employment allowance worth £2,000 available to all employers (well, almost all) from April 2014 • To be delivered through RTI • Replaces the failed Regional Employer’s NIC Holiday scheme • Less than 14,000 employers successfully claimed it • Employment-related loans exemption to double to £10,000 from 6 April 2014 • Very helpful given ongoing rise in cost of season tickets • Will also benefit OMBs and reduce the burden of P11D completion

18. Enterprise Management Incentives • 5% rule to be dis-applied for options granted on or after 6 April 2012 • Will apply where shares are sold on or after 6 April 2013 • The period over which the option is held continues to qualify towards the 12 months holding requirement • “Disposal” to be extended to cover shares exchanged as part of a reorganisation

19. Company car charges • FA 2013 increases company car CO2 percentages • From 2015/16 • the lowest % rate remains at 5% (currently 5%) for cars with emissions of 50g/km or lower • A 9% rate for cars with emission between 51 and 75g/km • 13% (was 11%) for cars between 76g/km and 94g/km • Then from 14% to 37% rising in 5g/km bands up to the new maximum rate of 37% (currently 35%) • The exemption for zero emission cars ends in April 2015 • The 3% increase for diesel cars ends in April 2016

20. Company car charges • Car fuel scale charge multiplier becomes £21,100 • An increase of £900 (4.5%) • Typical family car: Ford Mondeo 2.0 Diesel Zetec • Say average 40 mpg = 8.8 miles per litre (40 x 0.22) • Tax liability on fuel benefit: £21,100 x 19% = £4,009 • At 40% = £1,604 • At 20% = £802 • Private miles required to break even: • £1,604/£1.43 = 1,122 litres x 8.8 = 9,874 miles • £802/£1.43 = 561 litres x 8.8 = 4,937 miles

21. RTI penalties • No late filing penalties will apply to RTI returns in either 2012/13 or 2013/14 • Up to 50 employees, have until April 2014 to comply with ‘on or before’, can report monthly • Will this become more permanent?

22. Owner-employee shares • Plans for new kind of employment contract called an employee-owner contract • Exchange employment rights for rights of ownership in form of shares • Will be given £2,000 to £50,000 of shares exempt from capital gains tax • Liable to tax and NIC on issue • First £2,000 exempt – included in Finance Act 2013

23. Employment rights • Rights under Employment Rights Act 1996 are reduced: • Request for study & training • Request for flexible working arrangements • Receive a redundancy payment • Limited protection for unfair dismissal • Incorporated in the Growth & Infrastructure Bill • Originally blocked by the Lords on day of the Budget but subsequently made law

24. Promoting employee share ownership • Finance Act 2014 will include a CGT exemption for qualifying disposals of a controlling interest in a business to an employee-owned structure. • Sounds like it could be open to significant abuse • Employment-related securities version was the basis of successful schemes

25. Changes to car capital allowance thresholds from 1 April 2013 • Low emission cars (100% FYA) • the 110g/km reduces to 95g/km; • High emission cars (special rate pool, 8% p.a.) • the 160g/km reduces to 130g /km • Many cars have ≤ 110g/km, rather fewer have ≤ 95g/km but this will undoubtedly change

26. General Anti-Abuse Rule • The anti-abuse rule will took effect from Royal Assent and targets artificial & abusive arrangements • “Egregious” “very aggressive” “highly abusive contrived and artificial” • GAAR will remove the tax advantage on a just and reasonable basis • Intended to have narrower application than an anti-avoidance rule • Tax planning remains possible, provided it is in the “centre ground”

27. Tax relief for the creative sector • Plan is to extend current film reliefs to • Animation • ‘High end’ television • Video games • Must be ‘culturally British’ • Offers 100% increment for tax on 80% of ‘core expenditure’ • Requires state aid approval

28. Income Tax 2013/14 – by numbers 8,105 >> 9,440 = £267 42,475 << 41,450 = £62 116,210 >> 118,880 = £(472)

29. Employees - NICs • Upper earnings limit remains aligned with higher rate IT • More income in 2% rather than 12% bracket • Saving of about £102 for someone with earnings above £42,475 • Small increment in the primary threshold • £7,605 >>£7,755 • Saving £18 for everyone over threshold • So BR taxpayers save (267+18) £285 • HR taxpayers under 100k save (62+120) £185 • >£118k lose (472-120) £(352)

30. Income tax 2014/15 PA up to £10,000 Higher rate tax threshold up 1% to £41,865 Finally realising that the link to NI makes bringing it down pointless?