Financial Bill update Richard Curtis Editor, Financial Accountant Magazine – 14.25

LN Confidential Business Tax Knowhow – a Budget and Finance Act 2013 update October 2013 Richard Curtis Editor, Financial Accountant magazine 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. 237/28/360/0/0137/137/137

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

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

LN Confidential 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 5

LN Confidential Most important capped reliefs 1.Sideways trading loss relief 2.Sideways property loss relief 3.Qualifying loan Interest: 1.Loans to buy shares in or lend to a close trading company 2.Loans to invest in or lend to a trading partnership 3.Loans taken out by personal representatives to pay inheritance tax 6

LN Confidential 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until circumstances are no longer suitable It appears that the ability to opt in and out as trader wishes has been withdrawn Note excluded persons Losses only available for carry forward No sideways or carry back claims 7

LN Confidential 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 hours per month £10; hours per month £18; 101 hours or more per month £26 Business and private use of property adjustments

LN Confidential 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. 9

LN Confidential 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

LN Confidential 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” 11

LN Confidential 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 12

LN Confidential 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 13

LN Confidential 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 45% = £22,500 Net cost to investor is £13,500 If a 40% taxpayer then net cost is only £16,000 14

LN Confidential Annual investment allowance 15

LN Confidential Calculate AIA for y/e 28 Feb /12 x £100,000£ 8,333 9/12 x £25,000£18,750 2/12 x £250,000£41,667 Total£ 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

LN Confidential 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 17

LN Confidential 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 18

LN Confidential 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

LN Confidential 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 20

LN Confidential 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? 21

LN Confidential 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

LN Confidential 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 23

LN Confidential 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 24

LN Confidential 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 25

LN Confidential 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” 26

LN Confidential 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

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

LN Confidential 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 ( ) £(352)

LN Confidential 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?