Welcome to our Budget newsletter. This newsletter aims to summarise the main measures that affect our clients. If you need further assistance just let us know.
We were particularly pleased to see the announcement of corporation tax leveled to 20% in 2015 and the £2,000 employment allowance from next year.
Please contact us for advice in your own specific circumstances. We’re here to help!
Table Of Contents
- Cars, Vans & Fuel
- Business Taxes
- Capital Taxes
NI rates 2013/14
- Lower Earnings Limit (LEL) for Class 1 NICs – £109/week
- Employer’s class 1 above £148/week not contracted out – 13.8%
- Employee’s class 1 not contracted out from £149 to £797/week – 12%
- Employee’s additional class 1 above £797/week – 2%
- Self-employed small earnings exemption – £5,725 per annum
- Self-employed class 4 from £7,755 to £41,450 per annum – 9%
- Self-employed class 4 additional rate above £41,450 per annum – 2%
- Self-employed class 2 – £2.70 per week
- Voluntary contributions class 3 – £13.55 per week
Employee shareholder status.
A new type of share scheme will permit employees to take up shares offered by their employer, in return for giving up certain employment rights such as the right to statutory redundancy pay. Normally an employee is taxed on shares received, like salary, but the first £2,000 of shares awarded to the employee under this scheme will be tax and NI free. The employer will be able to give up to £50,000 of shares to each employee, but any value of shares above £2,000 will be immediately taxable and subject to NICs.
When the employee sells those shares any gains they make will be tax free, even if the employee has taken up the full quota of £50,000 of shares initially. The company will be able to claim tax relief on the value of shares given to employees. This new scheme is due to apply for shares provided on and after 1 September 2013.
The Enterprise Management Incentive scheme (EMI) is an existing share scheme that allows smaller companies to award up to £250,000 of share options to key employees. The shares are not tax free on disposal, but employees can now qualify for entrepreneurs’ relief which applies a tax rate of 10% on any taxable gains made on the EMI shares. The employee must still work for the company at the time he sells the EMI shares and must have held those shares for at least one year.
That last condition can cause a problem, as the employee usually holds the EMI share options and sells the actual EMI shares as soon as they are acquired. The law will now be changed to allow the period of holding EMI share options to count as a period of holding the EMI shares. Also, if the company is taken over or re-organises its shares, any shares acquired in exchange for EMI shares count as if they were EMI shares.
Other share schemes
Other tax advantaged share schemes normally have to be individually approved by HMRC, but the Government has proposed that employers will be able to self-certify share schemes from 2014. This will make it easier for companies to set up a share scheme for their employees.
Loans to Employees
The rules for loans made to company owners have been tightened up – see loans to participators below.
Cars, Vans & Fuel
Company Car Benefit
From 6 April 2015 cars with CO2 emissions in the band 0-50g/km will be taxed at 5% of list price, and those in the band 51-75g/km with be taxed at 9% of list price. Cars with CO2 emissions of 76g- 94g/km will be taxed at 13% of list price, with the percentage increasing in 1% steps for each additional 5g/km, up to a new maximum of 37%. Further increases in the percentages of list price have been published for the years 2016/17 to 2019/20.
The taxable benefit when fuel is provided for private use in a company van will rise from £550 for 2012/13 to £564 for 2013/14. In future years the fuel benefit multiplier for cars and the van fuel benefit will increase in line with the rate of inflation as measured by the RPI.
This cash basis will be compulsory for anyone who claims Universal Credit, but it can only be used by businesses whose turnover, when they start to use the cash basis, is under the VAT registration threshold. The business will be required to continue using the cash basis until it is no longer suitable for them, perhaps when the turnover exceeds a certain threshold. This will prevent businesses from opting in and out of the cash basis to gain a tax advantage. The cash basis can be applied from 6 April 2013.
Alongside this review the Government is considering changes to the self-employed status of the members of LLPs, and restrictions on the variation of profit allocations within the LLP. These changes may make the taxation of LLP members more like employees of companies for some members. Any changes to the taxation of partnerships or LLPs will not take effect until at least 2014. However, if your business operates as an LLP please talk to us about how the structure could be changed if the tax changes prove to be hostile to LLPs.
Corporation Tax Rates
The small companies rate is already at 20% and the main rate will be 23% for the year beginning 1 April 2013, 21% for the year beginning 1 April 2014 and then 20% for the year beginning 1 April 2015.
Loans to Participators
- loans channelled through third parties to shareholders will be included in these rules;
- transfers of assets from the company will be treated as loans; and
- the immediate replacement of a repaid loan will not count as a repayment of the first loan.
If you have taken a loan from your own company we need to discuss whether you will be caught be these new tax avoidance rules.
- Main pool: writing down allowance: 18%
- Special rate pool: writing down allowance: 8%
- Annual Investment Allowance (AIA) cap: £250,000
Expenditure within the AIA cap qualifies for 100% allowance in the year the asset is bought. The AIA cap was changed in April 2012 and January 2013, so great care is needed to calculate the available AIA for accounting periods which straddle the change. The AIA cap is due to revert to £25,000 on 1 January 2015.
- Personal allowance (born after 5 April 1948): £9,440
- Personal allowance (born between 6 April 1938 and 5 April 1948): £10,500
- Personal allowance (born before 6 April 1938): £10,660
- Minimum married couples allowance*: £3,040
- Maximum married couples allowance*: £7,915
- Blind person’s allowance: £2,160
- Income limit for allowances for age related allowances: £26,100
- Income limit for standard allowances: £100,000
* given where one partner was born before 6/4/1935, as 10% reduction in tax due.
Income Tax Bands and Rates
- Savings rate* (10%) – 0 to £2,790
- Basic rate (20%) – 0 to £32,010
- Higher rate (40%) – £32,011 to £150,000
- Additional rate (45%) – over £150,000
*The savings rate of 10% only applies if the individual’s net non-savings income does not exceed the savings rate limit.
The additional rate was reduced from 50% in 2012/13.
The higher rate and basic rate thresholds can be increased by paying personal pension contributions or gift aid donations.
The lifetime allowance limits the amount of tax advantaged funds a person can draw on at retirement. If the pension fund is greater than the lifetime allowance when the scheme member starts to take his benefits, the excess is taxed at 55%. Individuals with funds that already exceed the lifetime allowance can apply for fixed protection of the existing value of their fund.
- Annual allowance: 2012/13: £50,000, 2013/14: £50,000, 2014/15: £40,000
- Lifetime Allowance: 2012/13: £1,500,000, 2013/14: £1,500,000, 2014/15: £1,250,000
Capital Gains Tax
- Annual exemption: £10,900 (2012/13: £10,600)
- Annual exemption for most trustees and personal representatives: £5,450 (2012/13: £5,300)
- Rate for gains within the basic rate band: 18% (no change)
- Rate for gains above the basic rate band: 28% (no change)
- Rate for gains subject to entrepreneurs’ relief: 10% (no change)
- Lifetime limit for gains subject to entrepreneurs’ relief: £10 million (no change)
Selling to Employees
The Government is proposing a new capital gains relief to encourage business owners to sell a controlling interest in a business to the employees who have worked in the business. This new tax relief will not apply until April 2014.
Seed Enterprise Investment Scheme (SEIS)
If that investment is funded using a capital gain made in 2012/13, 100% of the reinvested gain is exempt from CGT. The CGT exemption was to be limited to investments made only in 2012/13, but it has been extended for two further years at the rate of 50% of the gain, not 100% of the gain. This is still a significant tax saving.
The original SEIS rules contained a serious trap for investors. A company acquired from a formation agent could not qualify; it had to be incorporated with individuals rather than another company as the original subscribers. This administrative niggle has been removed for shares issued from 6 April 2013, but not for companies formed earlier.
The estate value is arrived at after deducting any debts owed by the deceased, and the value of any assets that qualify as business property, agricultural property or woodlands. A number of tax schemes exist to make use of these deductions for debts to reduce the value of the deceased’s estate on death, and hence reduce the IHT payable. To block such tax avoidance schemes the deduction of debts from the value of an estate will be prevented where:
- the debt is not repaid to the creditor; or
- the loan was used to acquire property which is exempt from IHT.
These changes will apply from the date Finance Act 2013 is passed.
- Lower rate: 0%
- Reduced rate: 5%
- Standard rate: 20%
The registration and deregistration limits from 1 April 2013 are…
- Registration turnover: £79,000 (1 April 2012 – £77,000)
- Deregistration turnover: £77,000 (1 April 2012 – £75,000)