December 2013 Newsletter

Higher tax allowances confirmed

In his Autumn Statement, the Chancellor confirmed that the income tax personal allowance, which is £9,440 for the current tax year (2013/14), will rise to £10,000 for 2014/15. The saving for basic rate taxpayers will be (£560— 20%) £112.

The higher rate threshold will also be increased, from £41,450 to £41,865 (including the personal allowance and basic rate band), so that higher rate taxpayers will keep the full benefit of the increased personal allowance and enjoy a reduction of £83 in their higher rate liability.

From April 2015, the standard personal allowance will be increased each year in line with CPI inflation. However, the higher personal allowances for people born before 6 April 1948 or 6 April 1938 will remain frozen at £10,500 and £10,660 respectively, until they are overtaken by the index-linked standard allowance.

New tax relief for married couples

Moreover, it will not be an additional allowance, but a facility for one spouse (or civil partner) to transfer up to £1,000 of his or her personal allowance to the other, provided neither spouse is a higher rate taxpayer. Accordingly, there will be no point in making a transfer unless the transferring spouse has insufficient income to use all of his or her personal allowance, and the recipient spouse is a basic rate taxpayer.

Capital gains tax main residence exemption

Generally speaking, an individuals sole or main residence is exempt from capital gains tax. If a house, etc, was the individuals sole or main residence for only part of his or her period of ownership, then a time-apportionment calculation is made. However, under a rule dating back to the introduction of the tax nearly fifty years ago, the last three years of ownership qualify for exemption, whether or not the owner was in residence for that period, as long as the property was their sole or main residence at some point. This is designed to prevent a tax charge arising if, for example, the old house proves difficult to sell or the new requires renovation before the owner can move in.

In his Autumn Statement, the Chancellor announced that, from 6 April 2014, this three-year period of grace will be shortened to eighteen months to make the tax system fairer by reducing the incentive for those with more than one property to exploit the rules. The eighteen month rule will apply wherever contracts for the sale of the house, etc, are exchanged on or after 6 April 2014, except that the three year rule will continue to apply, subject to stringent conditions, where the homeowner is disabled or has moved into long-term residential care.

Employers National Insurance Contributions

The National Insurance Employment Allowance, originally announced in the Chancellors Spring 2013 Budget, will be launched in April 2014. Essentially it means that a business (or a charity or other voluntary organisation) will be excused payment of the first £2,000 of employers National Insurance contributions otherwise due each tax year. This will not affect the contributions payable by employees, or the benefits accruing to them.

The reduction is called the Employment Allowance because the Government hopes that it will encourage small firms, especially, to take on more staff. However, a firm will be entitled to the allowance whether or not it takes on new staff. Moreover, even a one-man company will be able to claim the allowance against employers contributions due on remuneration paid to the proprietor-director (unless the relevant earnings are caught by the IR 35 legislation).

A planning point for a small family company is that the shareholder-directors currently often choose to pay themselves salaries under the point at which employers National Insurance contributions become payable (£7,696 for 2013/14). However, for 2014/15 it may be better to take a salary equal to the income tax personal allowance (£10,000 for 2014/15) the point being that every extra pound taken will cost 12p in employees National Insurance contributions but save 20p in corporation tax.  If there is other income, apart from dividend income, the most beneficial level of salary may differ and an individual calculation will need to be done.

The Employment Allowance will not be available for domestic staff, such as a nanny or a personal carer. There will also be some anti-avoidance provisions to prevent, for example, doubling up relief by transferring the business to a new company.

The employer will make his claim as part of his usual PAYE Real Time Information (RTI) submission. He will be able to use HMRCs Basic PAYE Tools to do this, and the formal claim will be by way of ticking a box on his EPS submission.

NIC exemption for under-21 year olds

In his Autumn Statement the Chancellor also announced that, from April 2015, no employer National Insurance contributions will be payable on the earnings of under-21 year olds (unless, exceptionally, their earnings exceed the National Insurance Upper Earnings Limit, estimated to be £813 a week for 2015/16).

This new exemption means, for example, that if a 20-year old is paid £12,000 a year, his or her employer will save over £500 a year in employer National Insurance contributions. If he or she is paid £16,000, the employer will save over £1,000. The employees entitlement to Social Security benefits will not be affected.

The new relief will not be time-limited and will be separate from, and additional to, the £2,000 a year Employment Allowance described above.

Tax credits and universal credit

Under the Governments original plans, from April 2014 no new claims to Tax Credits would have been accepted people, whether employed or self-employed, would have had to claim the new Universal Credit instead. Also, from April 2014 there would have been a phased transfer of existing Tax Credit claimants to Universal Credit.

Claimants would have noticed significant changes, because Universal Credit is designed to work in a very different way to Tax Credits for example, self-employed people would have had to report their earnings on a monthly basis.

However, the Department for Work and Pensions (DWP) has experienced enormous difficulties in developing the computer systems needed to administer Universal Credit. So far there has been only a very limited programme of pilot schemes in local Jobcentre areas and the latest news is that even that programme is now slipping behind schedule.

The most recent DWP statement is that there will be no significant migration to Universal Credit before 2016/17. Accordingly, for 2014/15 and 2015/16, claimants outside the pilot scheme areas will continue to receive Tax Credits in accordance with the current rules and procedures.

Capital allowances for machinery and vehicles

Broadly speaking, Annual Investment Allowances (AIAs) allow the whole cost of machinery and vehicles (other than cars) to be written off, for tax purposes, in the year of purchase. A year ago, in his December 2012 Autumn Statement, the Chancellor of the Exchequer announced that the annual ceiling on expenditure qualifying for these Allowances would be increased from £25,000 to £250,000, but only for the two years beginning 1 January 2013.

Logically, the directors of a company might suppose (a) that this means they have until the end of 2014 to make a major purchase which will qualify for the full £250,000 Allowance and (b) that up to £25,000 spent in any accounting year will still qualify for an immediate write-off. Unfortunately, neither assumption would be correct unless the company has a 31 December accounting date. This is because, if it has any other accounting date, the maximum qualifying expenditure for the companys accounting year is calculated on a time-apportionment basis for example:

Company accounting date 31 March 2015

Nine of the twelve months fall in 2014, for which an allowance of £250,000 is due, and three in 2015, for which the allowance is £25,000. Accordingly, the allowance for the year to 31 March 2015 is:9/12 (months) — £250,000, £187,500, 3/12 (months) — £25,000, £6,250 totalling £ 193,750.

Much worse, there is a second transitional rule that only £6,250 of any purchases made in the three months January to March 2015 will qualify for an immediate write-off. Accordingly, if that company invested (say) £10,000 in machinery in February 2015, its AIA would be capped at £6,250 even if it had bought nothing else that accounting year.

Company accounting date 30 June 2015

Here six of the twelve months fall in 2014, for which an allowance of £250,000 is due, and six in 2015, for which the allowance is £25,000. Accordingly, the allowance for the year to 30 June 2015 is:6/12 (months) — £250,000, £ 125,000, 6/12 (months) — £25,000, £12,500 totalling £ 137,500.

It follows that the cap on qualifying expenditure for the six months January to June 2015 is £12,500.

Company accounting date 30 September 2015

Three of the twelve months fall in 2014, for which an allowance of £250,000 is due, and nine in 2015, for which the allowance is £25,000. Accordingly, the allowance for the year to 30 September 2015 is: 3/12 (months) — £250,000, £ 62,500,9/12 (months) — £25,000, £18,750, totalling £81,250.

Here the cap on qualifying expenditure for the nine months January to September 2015 is £18,750.

The same rules apply to partnerships and sole traders whose accounting date is other than 31 December.

It will be seen from the above examples that, in many cases, entitlement to an Annual Investment Allowance may be increased by bringing an investment forward, and in some cases even by putting it back, so that it is not made in the accounting year which straddles 31 December 2014.

To add further difficulty, there are some complicated rules for determining when a purchase is treated, for Annual Investment Allowance purposes, as being made it is not usually either the day you place the order or the day you sign the cheque. Accordingly, if you are planning investment in machinery or vehicles, and wish to be able to claim the Annual Investment Allowance on some or all of the expenditure, we strongly recommend you to contact us as soon as possible, for individual advice on timing your purchases.

Workplace pensions

The Pensions Regulator have added a useful tool on their website so that employers can check the date by which they have to arrange auto enrolment of their staff.  The PAYE reference is entered and then the links will lead to confirmation of this date.

Clearly, it would be sensible to ensure that you have taken steps to arrange the appropriate pension provision for employees well before that date and we would recommend that you talk to an independent financial advisor who is competent to advise in this area well before your actual staging date.

If you are unsure of your PAYE reference this can be found on form P35 or forms P60 issued by the company.  Employees who are considering their pension provision will also be able to find out this staging date and it is possible that they may be asking their employers about this aspect.  In these circumstances, we hope that the independent financial advisor would be able to give some advice to the employees also.

The link to access the staging date tool is as follows:

http://www.thepensionsregulator.gov.uk/employers/tools/staging-date.aspx.

Email footers and disclaimers

What are the mandatory legal requirements for an email footer in the UK?

If your company is a limited company (Ltd), public limited company (PLC) or a limited partnership (LLP), legally you are required to put the following in your business emails:

  • Company name (as it appears on the companys certificate of incorporation, so beware of any symbols and/or punctuation);
  • Company registration number;
  • Your place of registration (England & Wales or Scotland);
  • Your registered office address;
  • There is also an obligation to ensure the characters used can be read with the naked eye and, therefore, links to website with the information or small print will not apply,
  • The information must also be included in the legally required information in any email auto-responders.

Monitoring traffic data

If your organisation monitors email traffic data and/or the content of an email this should be stated clearly.

Example:

X Company may monitor the contents of this email and traffic data for the purposes of security and staff training.

Website

Our Website has recently gone live and can be accessed at www.rogercbloomer.co.uk.  We hope that you might find this of interest and would welcome any comments, either good or bad.

Fuel rates from 1 December 2013

Where an employer provides a company car, but the employee pays for the fuel, the employer may pay a mileage allowance for business journeys.  HMRC accepts that payments not exceeding the advisory fuel rates are reimbursements of expenses, not subject to income tax or Class 1 National Insurance contributions.

The advisory fuel rates (AFRs) are now reviewed quarterly and the AFRs for journeys taking place on or after 1 December 2013 can be found at the link below.

These rates may be used to reclaim input VAT in respect of fuel used for business journeys (remembering that VAT receipts to cover the amount claimed are required).These rates are scheduled to change quarterly and the current rates can be found at http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

Real Time Information update – stricter requirements from April 2014

As many clients will be aware the real time information system for payroll was introduced in April 2013. During the initial soft landing period, no penalties have been charged for late or missed submissions and a relaxation of the on or before requirement was allowed, provided submission was made before the end of the tax month (the 5th).

From 6 April 2014 these relaxations will be removed. Therefore if any submission is made after the payment has been made to employees, penalties will be charged by HM Revenue and Customs. We shall be contacting all payroll clients nearer the time to confirm intended payment dates for their payroll to allow us to make the submission in good time to avoid any penalties.

It is also worth noting that HM Revenue and Customs will begin to charge penalties and interest in the year for any PAYE payments that are made late from 6 April 2014. They already have provision for late payment penalties, but only send these after the end of the year. Therefore it is important that all clients ensure that their PAYE payments are made in time to avoid additional charges.