In this month’s e-news we report on some key issues from the Autumn Statement and subsequent publication of draft Finance Bill legislation. The Autumn Statement has sparked much debate with the biggest surprise being the tenfold increase in the AIA only months after it was reduced.
We also report that HMRC are urging those who have not yet filed their self assessment tax return to do so now and experience ‘inner peace’.
Please contact us if you would like any further details on any of the issues covered.
With all best wishes for the festive season and the New Year.
TENFOLD INCREASE IN ANNUAL INVESTMENT ALLOWANCE
PERSONAL ALLOWANCE FOR 2013/14
A SIMPLER TAX SYSTEM FOR SMALLER BUSINESSES
STATUTORY RESIDENCE TEST
GOVERNMENT MUST TACKLE RED TAPE
REMINDER TO THOSE WITH HIGH INCOME AND CHILD BENEFIT
ADVISORY FUEL RATES FOR COMPANY CARS
2013/14 STATUTORY PAYMENTS
CHARITIES AND GIFT AID
FILE YOUR SELF ASSESSMENT RETURN
The shock announcement of the Autumn Statement was the tenfold increase in the amount of the Annual Investment Allowance (AIA).
The AIA provides a 100% deduction for the cost of plant and machinery purchased by a business up to an annual limit which is currently £25,000 for expenditure incurred from April 2012. The Chancellor announced that this limit will rise to £250,000 for a period of two years for expenditure incurred from 1 January 2013.
Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis.
Where a company has a 12 month accounting period ending on 30 June 2013 the AIA will be £137,500 (£25,000 x 6/12 + £250,000 x 6/12).
However for expenditure incurred before the 1 January 2013, rules will limit the maximum figure available. The maximum allowance will be the AIA that would have been due for the whole of the accounting period to 30 June 2013 if the increase in AIA had not taken place. This would have meant that the company would have been entitled to £25,000 for the 12 months and so this is the limit for the six months to 31 December.
The rules for accounting periods straddling 1 January are complicated and this is without the additional complications that arise if part of the accounting period commences prior to April 2012 (as yet another AIA limit needs to be factored in).
The main point to appreciate is that expenditure incurred after 31 December 2012 may give a full tax write off but expenditure incurred before the 1 January 2013 may not give this result.
Please contact us before capital expenditure is incurred for your business in a current accounting period, so that we can help you to maximise the AIA available.
Internet link: HMRC TIIN
For those aged under 65 the personal allowance will be increased from the current £8,105 to £9,440. This increase in the personal allowance is greater than the amount previously announced and is part of the plan of the Coalition Government to ultimately raise the allowance to £10,000.
For basic rate taxpayers this increase in the personal allowance should result in a tax saving next year of £267.
The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. Next year the allowance ceases when net adjusted income exceeds £118,880.
Tax band and rates 2013/14
The basic rate of tax is currently 20%. The band of income taxable at this rate is being reduced from £34,370 to £32,010 so that the threshold at which the 40% band applies will fall from £42,475 to £41,450.
Additional rate tax payers
The 50% band currently applies where taxable income exceeds £150,000 but the rate will fall to 45% next year.
Tax bands for 2014/15 and 2015/16
For 2014/15 and 2015/16 the increase in the higher rate threshold will be capped at 1%. Over the last few years the value of the higher rate threshold has fallen so a small increase should be welcome.
Internet link: HMRC autumn statement personal
It was announced in the Autumn Statement that for tax year 2014/15 onwards:
• the annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000
• the standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25
• a transitional ‘fixed protection’ regime will be introduced for those who believe they may be affected by the
reduction in the lifetime allowance.
Legislation will be introduced in Finance Bill 2013 to make these changes.
The Government considers that these measures are expected to affect only the wealthiest pension savers as 98% of individuals currently approaching retirement have a pension pot worth less than £1.25 million which is the revised level of the lifetime limit. Annual contributions made by 99% of pension savers are below £40,000, the average annual contribution being around £6,000 per annum.
Please contact us if you would like any pensions advice.
Internet link: HMRC pensions tax relief
The Chancellor is to proceed with proposals to make the tax system simpler for small unincorporated businesses from April 2013. Where a business has a turnover up to £77,000 it will be able to calculate its profits on a simplified cash basis. In addition it will not have to distinguish between revenue expenditure and capital expenditure. A business will be able to continue to use this basis until its turnover reaches £154,000.
Flat rate expenses will be available for some types of expense including:
Cars, vans and motorcycles
For cars or vans the rate for the first 10,000 business miles is 45p, after which the rate reduces to 25p. For motorcycles the rate is 24p
Business use of a home
Provided certain conditions are satisfied, the following monthly rates will be allowed:
Business use in a month Deduction
25 hours or more £10
51 hours or more £18
101 hours or more £26
The new rules are not quite as simple as the Government would have us believe. Whilst the actual accounting treatment may be simpler it will still be necessary to have regard to tax rules for the deductibility of some expenses. There will also be transitional rules for existing businesses wishing to opt into the new system.
Please do get in touch if you think this may be of interest to you.
Internet link: HMRC update
HMRC have announced that legislation will be introduced in Finance Bill 2013 to put the rules which determine an individual’s tax residence on a statutory basis. The new statutory residence test will come into force from the start of the 2013/14 tax year.
The new legislation includes circumstances such as the situation where a tax year is split into a UK part and an overseas part. The rules also cover the taxation of certain income and gains arising during a period of temporary non-residence.
HMRC has published draft guidance to assist individuals on the application of the statutory residence test and on eligibility for overseas workday relief.
Please do contact us if you would like any assistance in this complex area.
Internet link: HMRC finance bill draft
The CBI is calling on the Government to tackle ‘red tape’. The CBI is warning that economic growth faces being held back because of tens of millions of pounds in extra business red tape coming from the UK Government and Europe.
It has published a report ‘Changing the rules – eight steps to a better regulatory regime’, which calls on ministers to tackle the red tape and bureaucracy created in Whitehall.
According to the report the net added cost of regulation on UK businesses will increase by £177.7m as a result of policies created in 2011 alone, when for every £3 of costs removed, another £5 was added.
Katja Hall, CBI Chief Policy Director, said:
‘Regulation has an essential role to play in a thriving market economy, promoting competition and protecting consumers, but we know it can be a major barrier to growth.’
‘The Autumn Statement contained some really welcome proposals to improve the accessibility and accountability of the regulators that enforce many of the rules, but the facts speak for themselves. Small and medium-sized businesses are the engines of growth, but they’re telling us they are drowning under the weight of extra regulation coming out of Whitehall, layered on top of outdated red tape which has not been repealed.’
‘We’re calling on the Government to back up its words with action. We want to toughen up the law so there is a presumption that every piece of regulation has a sunset clause, so it expires after a set date unless it is actively renewed.’
Internet link: Press release
HMRC are reminding Child Benefit recipients with higher incomes that they have a month to decide whether to stop receiving the benefit or to pay a charge on it through self assessment.
Lin Homer, HMRC’s Chief Executive, said:
‘Over 680,000 people have already looked at information on HMRC’s website that explains the changes and what steps those affected can take. It is really easy to use and will help families come to a decision.’
The High Income Child Benefit Charge (HICBC) is being introduced from 7 January 2013. It will mainly apply to a taxpayer who has ‘adjusted net income’ in excess of £50,000, where either they or their partner is in receipt of Child Benefit. The effect of the charge is to claw back some or all of the Child Benefit paid. Where both partners have income in excess of £50,000 the charge will apply to the partner with the higher income.
Adjusted net income, which is broadly gross income less pension payments and gift aid payments, has the same meaning as for the withdrawal of the personal allowance for taxpayers with income above £100,000.
Where a taxpayer has adjusted net income of £60,000 or more then the charge has the effect of cancelling out the Child Benefit paid. A sliding scale charge operates where income is between £50,000 and £60,000.
The charge will apply to the Child Benefit paid from 7 January to the end of the tax year. However, the income taken into account will be the full income for 2012/13.
Child Benefit claimants will be able to elect not to receive Child Benefit if they or their partner do not wish to pay the new charge.
If Child Benefit recipients want to stop receiving the benefit, they should contact HMRC before 7 January 2013. Please visit the HMRC Child Benefit guidance link below for more details.
New company car advisory fuel rates took effect from 1 December 2012. HMRC’s website states:
‘These rates apply to all journeys on or after 1 December 2012 until further notice. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’
The advisory fuel rates for journeys undertaken on or after 1 December 2012 are:
Engine size Petrol LPG
1400cc or less 15p 11p
1401cc – 2000cc 18p 13p
Over 2000cc 26p 18p
Engine size Diesel
1600cc or less 12p
1601cc – 2000cc 15p
Over 2000cc 18p
Please note that not all of the rates have been increased, so care must be taken to apply the correct rate.
Other points to be aware of about the advisory fuel rates:
• Employers do not need a dispensation to use these rates.
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers
reimburse them at lower rates. Such claims should be based on the actual costs incurred.
• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in
employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed
with HMRC under a dispensation.
If you would like to discuss your car policy, please contact us.
Internet link: HMRC advisory fuel rates
HMRC have announced the following statutory payment rates for 2013/14. These rates are still subject to Parliamentary approval and will be confirmed by HMRC before the start of the new tax year.
Statutory Maternity Pay (SMP) £136.78 per week
Ordinary Statutory Paternity Pay (OSPP) £136.78 per week
Additional Statutory Paternity Pay (ASPP) £136.78 per week
Statutory Adoption Pay (SAP) £136.78 per week
Statutory Sick Pay (SSP) £ 86.70 per week
Please contact us if you would like any help with payroll issues.
Internet link: Proposed benefit rates
HMRC will introduce a new online service which will enable Charities and Community Amateur Sports Clubs (CASCs) to submit repayment claims electronically, Charities Online, in April 2013.
It will replace the current R68(i) Gift Aid and tax repayments claims form and will be a way for charities and CASCs to claim Gift Aid, tax repayments on other income and Gift Aid Small Donations Scheme top-up payments by using an online form.
Internet link: HMRC charities online
A HMRC advertising campaign is urging anyone who hasn’t sent in their 2011/12 self assessment tax return to do it now and find ‘inner peace’.
The new advertising campaign highlights the imminent 31 January 2013 deadline for online returns, and the automatic £100 penalty for missing the deadline. The adverts will encourage people who still haven’t sent their return to ‘do it today, pay what you owe and take a load off your mind’, so they can experience ‘inner peace’.
According to HMRC, the campaign has been developed to touch on the emotions that HMRC found people typically experience after they have filled in their tax return, often described ‘as a real sense of relief or peace of mind, like a weight being lifted from their shoulders’. The new adverts will feature individuals from different professions experiencing this feeling of post return wellbeing.
The 31 January 2013 deadline is relevant to individuals who need to complete a self assessment tax return and make direct payments to HMRC in respect of their income tax, Class 4 National Insurance and any capital gains tax liabilities. There is an automatic penalty of £100 if the return is not submitted on time, even if there is not tax due or the return shows that a refund is due.
The balance of any outstanding income tax, Class 4 NI and capital gains tax for 2011/12 is also due for payment by 31 January 2013. Where the payment is made late interest will be charged.
The first payment on account for 2012/13 is also due for payment by 31 January 2013.
If we have already dealt with your self assessment return on your behalf and advised you what you need to pay you need take no additional action.