- From taper relief to possible retirement relief
- HMRC apologise to Child Benefit customers
- Changes ahead for capital allowances
- PAYE penalties
- Northern Rock ISA savers
- 2008/09 allowances announced
- Staff parties
In last month’s enews we reported on the shock announcement in the Pre- Budget Report that capital gains tax taper relief and indexation allowance would be scrapped for disposals on or after 6 April 2008. Since then business leaders have been making representations to the Chancellor, Alistair Darling, to change his mind or to delay the introduction of the proposals which have significant implications for many taxpayers.
There have been rumours of the introduction of some form of retirement relief, with the figure of £100,000 being mentioned by several sources. Unfortunately as yet there are no concrete proposals. Chancellor Alistair Darling, speaking at the CBI conference on 27 November 2007, said:
“Simplification of the tax system is important because complexity brings increased costs.
I know that my proposals to introduce a single rate of capital gains tax have been controversial. That was inevitable.
We are working with the CBI and other business organisations to listen to what you have to say. I expect to publish final proposals in the next three weeks.”
What were the Pre-Budget proposals?
The changes announced in the Pre-Budget Report were that taper relief for capital gains tax (CGT) will be abolished for disposals on or after 6 April 2008. HMRC have issued several examples of how they envisage the rules working. At the same time as abolishing taper relief the government propose to change the rate of CGT to a flat rate of 18%.
Taper relief was introduced in 1998 and can significantly reduce the amount of any gain chargeable to CGT by as much as 75%. The percentage of the relief available depends on whether the asset is classed as a ‘business’ or ‘non-business’ asset and also the period of ownership of the asset since 1998.
To give a straightforward example, if today you sold some shares that you have owned for two years that have always been a business asset, then you would pay tax on the chargeable gain (basically, proceeds less cost less 75% taper relief). The remaining gain would be taxed at your top rate of tax of say 40%.
If you sell the same shares on or after 6 April 2008 taper relief will no longer be available to reduce the amount of the chargeable gain. The rate of tax applicable to chargeable gains will be changed from 6 April 2008 to 18%.
Another complication in current CGT computations is that if you have assets which you acquired before April 1998 you are currently allowed to include an element of inflation in your CGT computation. This inflation allowance, known as indexation, increases the cost of your asset and therefore reduces the amount of the chargeable gain for periods of ownership prior to April 1998. This relief will also no longer be available in computations for disposals on or after 6 April 2008.
These rules will generally increase the amount of tax payable by individuals who own assets that currently qualify for full business asset taper relief but everyone has different costs and entitlements to reliefs, so it is difficult to speak in generalities.
If the government does introduce a form of retirement relief then it may be beneficial to retain business assets and dispose of them on or after 6 April 2008 depending on the amount of the relief, the conditions which have to be met and how it is calculated.
We will continue to keep you informed of developments. However if you have any concerns please do get in touch.
Following the announcement that HMRC disks, containing an estimated 25 million Child Benefit recipients’ personal and banking information, have gone missing, HMRC have put a letter on their website apologising to all those potentially affected. The following is an extract from the letter from Dave Hartnett, acting Chairman of HMRC:
“I am writing to make a personal apology. A copy of some HM Revenue and Customs (HMRC) data about families, including yours, who have received Child Benefit has been lost. The copy of the data is likely to still be on government property. The police are now conducting a search……
…..this data includes your and your children’s names and dates of birth, your address, your National Insurance number and, where relevant, the details of the bank or building society account into which your Child Benefit is or was paid.
If you are paid through a bank or building society, they are aware of this matter. They are acting on this information, and assure us that they have appropriate safeguards in place to protect you.
As is usual in these circumstances, if you are the innocent victim of banking fraud you will not have to pay, but you may want to take some precautionary steps to protect yourself. If you receive bills, invoices or receipts or see entries in your statements for goods or services which you have not ordered you should contact your bank or building society immediately. In addition, do not give out personal or account details if anyone contacts you unexpectedly. Instead take a note of their name and number, and if you are at all suspicious contact your bank or building society. If your password uses any of your personal data, for example your child’s name or date of birth, you may also wish to consider changing any passwords you use.
The advice of banks is there is no need for customers to ask for a new account or to contact their bank or building society……
I would like to offer my personal apologies for any worry or concern this data loss may cause you. And I can assure you that all efforts are being made to ensure that such a loss can never happen again.”
For those individuals who are concerned about the loss of personal data, HMRC have put some frequently asked questions on their website.
As you are no doubt aware the system of tax reliefs on expenditure on equipment in your business is a complex one. Broadly when you buy a piece of equipment to use in your business you normally cannot set the full cost against that year’s profits, unless the value of the item is quite small, or a special tax relief applies. The cost of more expensive items is written off against profits over a number of years, using the capital allowances system.
For expenditure incurred on or after 1 April 2008 for companies or 6 April 2008 for unincorporated businesses, it is proposed that up to £50,000 spent on equipment in one year by any business will be set-off in full against the profits for that year. This allowance should cover most items of equipment purchased by smaller businesses, although cars will not be included in this total. Where the expenditure on equipment exceeds £50,000 in one year, the excess will be written off at a rate of 20% per year rather than the current 25%.
Up until April 2008 the old system of capital allowances largely remains in place, and small businesses can claim a 50% first year allowance (40% for medium sized businesses) for the cost of new equipment purchased before 1 April 2008 by companies or before 6 April 2008 by unincorporated businesses.
Currently where equipment fixed in a building is used for your business, after the initial claim of first year allowances at either 50% or 40% depending on the size of your business, you may be able to claim 25% of the remaining costs in subsequent years against profits. This will be reduced to 10% per year on new expenditure from 1 or 6 April 2008 where the expenditure is not covered by the £50,000 annual allowance.
The tax savings which can be made by reducing your business’ profits are potentially high. Timing is important so please contact us if you are planning additional expenditure on equipment or premises. This is a summary of the proposals and the transitional rules can be complex.
HMRC had previously issued a significant number of incorrect late filing penalty notices to employers in respect of their 2006/07 PAYE end of year forms P35 and P14. These forms are used to report details of employees pay, tax, national insurance contributions, etc.
HMRC have now advised that they have sent letters to all those employers who they believe submitted their 2006/07 Employer Annual Return on time, but who received an incorrect penalty notice, explaining that the incorrect penalty has been cancelled.
Please do get in touch if you have not received a letter and believe that the penalty notice you received is incorrect.
Internet Link: HMRC penalties update
Following the problems at Northern Rock earlier this year, the government has announced that it will allow the people affected to re-invest their money into any cash ISA, including Northern Rock’s, and so restore their tax advantages. This announcement applies to funds withdrawn from Northern Rock ISAs between the 13 and 19 September 2007 inclusive.
By 5 April 2008 savers who wish to restore their cash ISA must either:
- return their funds to a Northern Rock ISA or
- obtain from Northern Rock a certificate for the amount of cash ISA savings withdrawn between 13 and 19 September 2007 and present this to a new cash ISA provider when depositing the money.
Internet Link: Treasury press release
The government has published the 2008/09 rates and allowances for income tax, national insurance contributions (NI), the state retirement pension as well as other benefits and allowances. To view a full list of the allowances please use the link below.
The amount of the personal allowance for 2008/09 has been confirmed at £5,435, an increase of £210 on the current personal allowance of £5,225.
The government had previously announced that it is to radically change the income tax rates for 2008/09 onwards. The 10% starting rate is to be abolished for earned and pensions’ income and the 22% basic rate of tax will be reduced to 20%. The higher rate of tax is set to continue at 40%. The starting rate will continue to be available for savings and investment income. There are no changes to the tax rates applicable to dividends.
Lower paid earners lose out
As the NI limits have also been announced it appears that those taxpayers who earn less than approximately £15,000 a year will be worse off in the new tax year. For an employee earning £10,000 they will be approximately £100 worse off a year. This is because the benefit of the reduction in the basic rate of tax from 22% to 20% is outweighed by the unavailability of the 10% band.
What about those on higher salaries?
HMRC had previously announced increases in the earnings on which employees pay 11% NI. The press release confirms that 11% NI will be due on pay between £105 and £770 a week. Until the income tax higher rate limit (the amount of taxable income an individual can receive before paying tax at 40%) is announced, it is impossible to fully calculate the affect on higher earners.
Internet Link: Treasury rates and allowances
Are you planning a party for your employees? Are you aware of the tax implications?
The good news is that unlike entertaining customers, reasonable levels of employee entertainment are an allowable cost against the profits of the business.
What about the employees themselves? Is it a perk of their jobs and will they be subject to tax?
Generally as long as the total costs of employee annual functions in a tax year are less than £150 per head there will be no tax implications for the employees themselves. In considering this limit make sure you have included all the costs, which may comprise not only the meal but also any drinks plus any transport you provide.
If the costs are above the £150 per head limit then do get in touch so we can advise you how best to deal with them.
Internet Link: HMRC guidance