Autumn Budget – 29 October 2018

So, we already knew about some of the announcements before the chancellor, the Rt. Hon. Philip Hammond MP, spoke yesterday, so much so he even made a joke about toilets and leaks. As ever there was good news and bad news for taxpayers, a full summary is on our website but here are some good news/bad news highlights:

If you are a business…

Good news

  • Capital allowances – Annual Investment Allowance (AIA) increasing from £200,000 pa to £1million pa for 2 years from 1 January 2019
  • Capital allowances – a new Structures and Buildings Allowance (SBA) for non-residential buildings on eligible construction costs on or after 29 October 2018, this will enable business to claim 2% pa on cost
  • The corporation tax rate, as previously announced, will drop to 17% from 2020

Bad news

  • Capital allowances – the writing down allowance (WDA) on special rate pools, for things such as cars with CO2 emissions of over 130g/km, reducing from 8% to 6% pa
  • Capital allowances – discontinued 100% allowances for energy & water efficient equipment, although you will still be able to claim AIA’s
  • National Living Wage (previously National Minimum Wage) for over 25’s increasing from £7.83 per hour to £8.21 (which also has an effect on the auto-enrolment pension contribution cost)

And more bad news for larger companies

  • Digital Services Tax – for large digital companies (e.g. Amazon) – 2% on revenues linked to UK
  • Corporate capital loss restriction for large companies (from April 2020) – there is already a £5m cap on income losses, this is now extended to capital losses as well
  • Employment allowance restricted to businesses below £100,000 employers NIC
  • R&D tax credit (cashing in instead of reducing tax bill) capped at 3 times the PAYE & NIC liability
  • Off payroll working (IR35) currently in force for public companies will be introduced on private medium and large companies (although not until 2020) – PAYE and NIC will be deducted from the deemed employee and Employers National Insurance will be payable by the company.

If you are an Employee…

Good news

  • Personal allowance increasing from £11,850 to £12,500
  • Higher rate threshold increasing from £46,350 to £50,000 (these two increases will mean a basic rate tax payer will save £130 pa, a higher rate tax payer £860 pa and an additional rate taxpayer £600 pa)
  • National Living Wage for over 25’s increasing from £7.83 per hour to £8.21

Bad news

Other taxes…

Good news

  • Stamp Duty – First time buyers of a qualifying shared ownership in a property of £500,000 or less will get an exemption from SDLT and this is backdated to 22 November 2017 (i.e. you can claim a refund)
  • Stamp duty refunds – the time to make a claim for a refund on the 3% supplement on buying your new home before selling your old home, has been extended from 3 months to 12 months from the sale of your old home (although the filing deadline for SDLT returns is reduced to 14 days after the effective rate of transaction)
  • Capital Gains – annual exemption increased from £11,700 to £12,000 pa

Bad news

  • Rent a room relief – you will actually need to have shared the premises during part of the time you are claiming the relief, effectively excluding income from places like Airbnb
  • Entrepreneurs relief – to qualify, the minimum period is extended from 12 months to 24 months
  • Capital Gains – private residence relief final period exemption reduced from 18 months to 9 months
  • Capital Gains – lettings relief will only apply when the property is in shared ownership with a tenant, in reality this means very few people will qualify and therefore only get private residence relief on sale of their home, however this is subject to consultation and may well change

The above is only a brief summary of the proposed changes. For a more detailed breakdown please visit our website here.

If you have any questions about the budget, or how it will impact you or your business, please contact us on 0116 242 3400 and we will be happy to help.

Denise Burley

Have you taken advantage of the Marriage Allowance?

A married couple or civil partnership can apply to transfer 10% of the income tax personal allowance from one to the other. Although called the marriage ‘allowance’, it is a transfer rather than an additional allowance.

To qualify for the allowance, neither of the partners can be higher rate taxpayers and cannot be claiming the married couple’s allowance. To benefit as a couple, one person should be earning below the personal allowance (£11,850 for 2018/19).

The maximum tax saving in 2018/19 is £237.00 (10% of the £11,850 personal allowance at 20%).

 

How to apply

 The application for the transfer is made by the person who wants to transfer part of their allowance to their partner. It is absolutely fundamental that the recipient of the allowance does not make the claim.

If your income is predictable, you can apply during the tax year here. If you apply during the tax year, the claim is in place until withdrawn or through either death or divorce.

If your income is unpredictable, because you are self-employed for example, you can make an application after the tax year on your Self-Assessment Tax Return. This claim must be done each year – it does not remain in place for future years.

 

Backdated claims

 Currently, you can backdate marriage allowance claims to include any tax year since 5 April 2015 if you were eligible. This means you could claim back as much as £662 if you can claim for 15/16, 16/17 and the 17/18 tax year.

 The Married couple’s allowance

 If either you or your partner were born before 6 April 1935 you may benefit more from the Married Couple’s Allowance instead, which you can read more about here.

For further information or help on the above, please call the office on 0116 242 3400 or email us at info@torrwaterfield.co.uk

Aiden Hyett, Accounts & Tax 

14 Days left to submit your 2016/17 self assessment return

The following Tax Events are due on 31st January 2018:

Personal Tax Events

Deadline for submitting your 2016/17 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2016/17 liability together with the first payment on account for 2017/18 are also due.

This 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, Classes 2 and 4 NI, capital gains tax and High Income Child Benefit Charge liabilities. 

There is a penalty of £100 if your return is not submitted on time, even if there is no tax due or your return shows that you are due a tax refund.

The balance of any outstanding income tax, Classes 2 and 4 NI, capital gains tax and High Income Child Benefit Charge for the year ended 5th April 2017 is due for payment by 31st January 2018.  Where the payment is made late interest will be charged.

The first payment on account for 2017/18 in respect of income tax and any Class 4 NI or High Income Child Benefit Charge is also due for payment by 31st January 2018.

If we have already dealt with your self assessment return on your behalf you need take no action.

If you haven’t completed your self assessment return yet please contact us, we can help. 0116 2423400 or send us an email info@torrwaterfield.co.uk

HMRC’s Worldwide Disclosure Facility (WDF)

This is a facility that the Inland Revenue introduced in 2016 which allows the voluntary disclosure of any UK tax liabilities that relate to offshore income or assets, which have not previously been disclosed to the UK tax authorities, to be declared.

This includes:

  • Income arising from a source outside the UK
  • Assets situated or held outside the UK
  • Activities carried on wholly or mainly outside the UK
  • Where the funds connected to unpaid tax are transferred outside the UK

Which years?

  • The facility applies to all tax years up to and including 2015 to 2016.
  • If HMRC has sent you a tax return for that year, or any tax year from 2013 to 2014 which is still outstanding, you must complete the return and you must not include these tax years on this disclosure form.

 

By contacting the Inland Revenue, rather than the Inland Revenue contacting you, the penalty regime will be less harsh.

 

If you think that the above applies to you then please get in touch with us as soon as possible so that the Inland Revenue can be notified. 0116 2423400

Julia Harrison, Tax Manager 

Autumn Statement 2016

On Wednesday 23 November 2016 our new Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Autumn Statement. 4221396001_5220447677001_5220145961001-vs

“No other major economy makes hundreds of tax changes twice a year, and neither should we” – this is perhaps the most welcome measure announced in the Autumn Statement.  In recent years the Autumn Statement has been a mini-Budget, meaning that many, sometimes significant, tax changes were being announced twice a year.  This has been problematic in terms of giving taxpayers a reduced degree of certainty regarding planning their tax affairs (plus it means I have to write an extra blog each year) so for this announcement alone, Philip Hammond gets a ‘thumbs up’ from me!

Following the spring 2017 Budget, the Budget will be delivered each autumn – spring will be reserved for a statement from the Office of Budget Responsibility to respond to their previous forecast.  The odd tweak of fiscal policy may be made each spring, if economic circumstances require it – personally I think this option has been retained so the Government are able to be more flexible in response to the future impact of Brexit (you can infer from that what you will…I’m taking it as that they have no idea what the impact will be).  I’m also hoping that an autumn Budget will give more time for us all to absorb the changes before they come into force the following April.

Our full Autumn Statement roundup can be found on our website here, but below are the main points that I think are relevant to our clients and their businesses.  A lot of the announcements aren’t new, but are instead Philip Hammond confirming that he plans to keep some of his predecessor’s policies.

Personal Tax Rates and Allowances

The personal allowance is currently £11,000 and will increase to £11,500 from April 2017.  The reduction in personal allowance for those with higher income (‘adjusted net income’ over £100,000) remains so that, from April 2017, there will be no personal allowance available where ‘adjusted net income’ is over £123,000. 

The higher rate threshold will increase from £43,000 currently to £45,000 from April 2017, for those who are entitled to the full personal allowance.

Philip Hammond confirmed his intention to keep George Osborne’s policy to increase the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament.

Corporation Tax Rates and Allowances

The new corporation tax rates from April 2017 to March 2021 were announced at the Budget and have now been enacted – the rate will be reduced from 20% to 19% from April 2017 and a further 2% to 17% from April 2020, which will be welcomed by small and large businesses alike.

Again, this was announced in the Budget but has been kept by the new Chancellor – corporate losses (excluding capital losses) arising after 1 April 2017, when carried forward, will be able to be used against future profits from other streams.  Currently there are restrictions on how the losses can be relieved, which is restrictive for certain types of business.

National Insurance Contributions (NIC)

Previously payable by the self-employed, Class 2 NIC is being abolished from April 2018 – we knew this was coming, however what we didn’t know was how self-employed taxpayers would get entitlement to basic state pension and other contributory benefits and allowances, as payment of Class 4 NIC (also paid by the self-employed) has not in the past been ‘contributory’.  From April 2018, Class 4 NIC will become ‘contributory’ and those paying it will be entitled to state pension etc.  Those with income below the Small Profits Limit (£5,965 in 2016/17) will be able to pay Class 3 NIC, currently £14.10 per week to ‘top-up’ their entitlement.  There will no longer be the option for these individuals of voluntarily paying Class 2 NIC, for which the current rate is a mere £2.80 per week!

The Office for Tax Simplification are tasked with – you guessed it – making tax simpler.  One of their recommendations that is being implemented is the alignment of the thresholds at which employees and employers pay Class 1 NIC.

Other Payroll Matters

Having only been increased in October 2016, The National Living Wage is increasing from £7.20 to £7.50 from April 2017 and smaller increases to the National Minimum Wage are also coming in – full details on our website here

I mentioned in a blog post on 11 October 2016 that the Government have been consulting on the use of salary sacrifice schemes and on Wednesday, the Chancellor outlined the changes to be introduced from April 2017.  Salary sacrifice arrangements (other than relating to pensions, childcare, cycle to work and ultra-low emission cars) entered into after this date will no longer enjoy tax and national insurance savings – however agreements entered into before this date will remain tax and NI-free until April 2018, so subject to the administrative hurdles that have to be jumped for an effective salary sacrifice, there’s still some mileage left in them yet!

Philip Hammond continues George Osborne’s assault on company car drivers with a further 2% increase in the percentage applied to each band of company car from April 2018, and a further 3% from April 2019.  From April 2017, pure electric cars will be charged at 9%, rising to 13% in April 2018 and 16% in April 2019 – a huge increase from the 7% benefit in kind in the current year.  I can only assume this is a reaction to the amount of employers who have provided these cars to employees, and benefited from the low rate.  I do find it a little disappointing that tax incentives are introduced to encourage certain behaviours (such as the provision of electric cars) and then as soon as people actually take the Government up on their offer, it effectively gets withdrawn – this is especially harsh when it relates to company cars as many of these will be leased over a number of years and therefore the business and employees are stuck with the cars that no longer afford them the low tax charges that were in place when the vehicles were first provided.

VAT Flat Rate Scheme Anti-Avoidance

 Businesses registered for VAT under the flat rate scheme pay over VAT at a specific rate (currently between 4% and 14.5%) as determined by their type of business – it simplifies the accounting for VAT as these businesses pay VAT over to HMRC at a lower rate than the 20% they charge to customers, but do not reclaim VAT on most expenses.  For many small businesses, this can be both time-saving and money-saving.  From April 2017 a new 16.5% rate will apply to businesses with limited costs (i.e. labor-only businesses) using the flat rate scheme.  The details on which businesses will be affected by this are on our full Autumn Statement update here

Making Tax Digital

HM Revenue & Customs are consulting on various measures intended to bring the UK tax system into the digital age.  A major change is that from April 2018, most self-employed taxpayers and landlords will be required to keep their records digitally, update HMRC at least quarterly, plus submit a year end declaration.  While HMRC are keen to emphasis that this does not mean five tax returns per year, we eagerly await the details on how the proposals will work in practice when HMRC issue their response to the consultations in January 2017.

If you want to discuss any of this further then please get in touch here.

Katie Kettle, Chartered Certified Accountant

Technical Manager

 Katie Kettle Colour

Thinking of buying commercial property?

Before any purchase takes place you should always take advice as tax sacommercial-buildings-5-1508697.jpgvings are there to be made. In many cases the contract drawn up by solicitors will need to be worded carefully to ensure tax savings can be considered.

The Capital Allowances Act 2001 entitles a purchaser to claim tax relief in respect of the proportion of the expenditure that relates to eligible assets – known collectively as fixed “plant and machinery”.

Here are a few key points:

  • Capital allowances are available on second-hand property.
  • Optimising capital allowances improves cash flow.
  • Failure to comply with the rules can mean that qualifying expenditure is nil.

Capital allowances give tax relief for property owners. There are several types of allowances, applicable to different asset categories. The principal forms, found in all commercial properties are plant and machinery and integral features.

All too often, capital allowances are left unclaimed for several years. The reason for this may be a lack of awareness (by both clients and their advisers). This is not the case at Torr Waterfield, so whenever you are thinking about buying commercial property contact your account manager   before any purchase takes place so we can ensure you don’t miss out on potential tax savings.

If you would like to discuss this further please contact us. 

Mark Cunnold, Accountant & Client Manager Mark Cunnold 2 April 2012

What Changes in April 2016? (Part 1 – Personal Tax)

Now the Self Assessment season has passed, it seems a good time for a quick update on the changes coming up in April 2016.

None of this is new, but it comes from various Budgets and Autumn Statements (the Government like to keep us on our toes by announcing lots of changes at the same time that come into force at various points in the future!).

Along the way you will hopefully see a few areas where you can take action to reduce your tax bill, if you act quickly!

First up…. personal tax!

The Personal Allowance is going up to £11,000 on 6 April 2016 (i.e. for the 2016/17 tax year).  This means the first £11,000 of income is tax free, no matter what that income is made up of.  There remains, however, a claw-back of personal allowance for those with adjusted net income of over £100,000, with the personal allowance forfeit in full at income of over £122,000.  Broadly, “adjusted net income” is total income less gross personal pension and/or gift aid contributions.

The basic rate limit will be increasing from £31,785 to £32,000 from 6 April 2016, meaning that the higher rate threshold will be £43,000 for those entitled to the full personal allowance.

Tax planning tip: If your income is expected to be over £100,000, you can save a huge amount of tax (up to 60% depending on your income type) by making personal pension contributions or gift aid donations.  This applies in the current tax year too, so if you make your contributions by 5 April 2016 and your income is over £100,000 in the 2015/16 tax year, you will see the benefit a year sooner.  Always consult a financial advisor before making pension contributions, as there are further considerations to be made, including your annual allowance.

The current Pensions Annual Allowance, as alluded to above, is £40,000.  However from 6 April 2016 there will be a tapering of this Annual Allowance for those with income of over £150,000, down to a minimum of £10,000.  This applies to total pension contributions, both individual and employer.

Tax planning tip: consider making a pension contribution before 6 April 2016 to utilise a higher annual allowance than you may get in future – discuss this with your pension advisor.

The big change for small companies is the new Dividend Tax regime.  The Chancellor has done away with the status quo and introduced radical changes from 6 April 2016.  Historically, as long as income was kept below the higher rate threshold, there has been no tax to pay on dividends, and dividends over this up to £150k had an effective 25% tax rate (over £150k, the rate was 30.56%).  There used to be a strange “grossing up” and a “notional tax credit”, courtesy of Gordon Brown, both of which will disappear.  From 6 April 2016 there will be a £5,000 Dividend Tax Allowance – effectively this is a 0% tax rate band, so there is no tax to pay on the first £5,000 of dividend income.  After this, the rates are 7.5% in the basic rate band, 32.5% in the higher rate band, and 38.1% for additional rate taxpayers.  For individuals with small shareholdings that receive dividends of less than £5,000 there will be either no change or a tax saving (depending on their level of income) but for those with over £5,000 of dividends, it will cost more in tax.

Tax planning tip: It may be tax efficient for you, depending on your income level, to take additional dividends before 6 April 2016 rather than after this date.  While this will advance the date that the tax on the dividend will need to be paid, it may save tax overall.  If you think this affects you, please get in touch.

Did you know that when your bank pays you (that tiny amount of) bank interest, they are obliged by default to deduct 20% tax? From 6 April 2016, this will cease to happen, due to the new Personal Savings Allowance (PSA), whereby certain interest received will be TAX FREE (we like tax free!).  The PSA will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income – there is no allowance for additional rate taxpayers.  This represents a tax saving of up to £200 and will mean that most people will pay no tax at all on their interest income.  However those with interest received over the thresholds will have a tax bill, due in January 2018 via Self Assessment.  This doesn’t affect ISAs, where interest will remain tax free. If you wish to discuss any of this further please contact us. 

Coming soon…. Employment tax

Katie Kettle, Technical Manager 

Katie Kettle Colour

Summer Budget 2015

On 8 July 2015 George Obsorne presented his first Budget of this Parliament, and the first Conservative-only budget since 1996.

This Budget is aimed to not only balance the books, but remove some of the imbalances within the tax system.  Some of these changes were completely unexpected… The Chancellor has definitely thrown a few curve balls!

We will briefly cover the biggest and most radical changes here, plus the main tax proposals from the Summer Budget.  However if you would like a more detailed review of the Budget, including proposals already outlined in the March Budget such as the personal savings allowance, our full Budget summary can be found here.  While this blog covers the announcements made by the Chancellor, none of this is yet law so may be amended by the Finance Act.

Main Budget Tax Proposals

Brand new taxation system for dividends received by individuals

  • Restriction of relief for interest payments on buy to lets
  • Extension to the inheritance tax nil rate band for homes

Other Tax Changes

  • Changes in the Annual Investment Allowance for businesses
  • Removal of tax relief on the acquisition of certain intangible assets
  • Increase in the NIC Employment Allowance

Personal Tax

Personal Allowance

As part of the Government’s plan to bring the personal allowance up to £12,500 by the end of this Parliament, a small increase in the personal allowance was announced.  For the current year (2015/16) it is £10,600 but will be going up to £11,000 in 2016/17 and £11,200 is 2017/18.  The tapered reduction of the personal allowance for individuals with adjusted net income over £100,000 remains.

Dividend Tax Allowance

This was the major surprise of the budget for us as there had been no hint of any changes in this area!

Historically, dividends have attracted a notional tax credit which meant that for basic rate taxpayers, there was no tax to pay on these.  Higher rate tax payers would pay 25% on the net dividend and additional rate taxpayers would pay 30.56%.  This is in recent years…. if you go further back, the tax on dividends was more than 80% for some!

From 6 April 2016 the Government will abolish the dividend tax credit and replace it with a new Dividend Tax Allowance of £5,000 per year.  Dividends will then be taxed in the basic rate band at 7.5%, the higher rate band at 32.5% and in the additional rate at 38.1%.

This makes more sense through an example.  Say you operate through a limited company and normally take £8,000 salary and £30,000 dividends – under the current rules you would not pay any income tax (assuming this is your only income) – your “take home pay” would be £38,000.  Now contrast this to the new rules from April 2016…. the income tax would be £1,650 and your “take home pay” would be £36,350.  If you took an £8,000 salary with a £150,000 dividend, you would pay £8,000 more tax under the new rules!

There are a couple of saving graces to this…… firstly a cut in corporation tax and secondly an extension of the basic rate band so that higher rate tax only kicks in at £43,000, or £48,000 if you include the dividend allowance.  Equally, because there will be no grossing up of dividends like there was in the past so the amount being taxed (even though you have drawn the same amount) will be lower, even if the applied rate is higher.

The other bonus is that though these changes are coming, they aren’t effective until April.  Therefore we will be speaking to our affected clients so together we can plan around this as much as we can.  This may mean taking more dividends in the current year and less next year, but this needs to be reviewed on an individual basis as there are complex factors at play, such as cash flow, payments on account, differing tax rates and tapering away of personal allowances.

The idea with these changes is to remove the preferential tax treatment for this well-established method of profit extraction for small businesses through incorporation.  While it is an admirable idea to address imbalances in the system, a little warning would have been nice Mr Chancellor, as this is the go-to remuneration strategy for the majority of small companies!  The Treasury’s plan is to reduce “Tax motivated incorporation”.  Let’s not forget that it was tax policy that ‘forced’ (note the inverted commas) businesses to incorporate back in 2002 when the first £10,000 of profits were free of tax.  To be fair though, that was Gordon Brown, so it’s one thing we can’t blame on George Osborne.  Even though this rebalancing act reduces the tax savings from operating as an incorporated entity, it may still save a significant amount of tax, just not as much perhaps.  Of course there are more reasons to incorporate, outside of the tax treatment – if you would like to discuss the benefits and drawbacks of incorporation, get in touch.

Restricted Loan Interest Relief on Buy-to-Lets

The basic principles of calculating how much profit to tax, whether it be from a trade or property, has always been that you add up all the income, take off all the expenses, adjust for any tax jiggery-pokery (as required by tax law of course) and that’s the profit you pay tax on.  Well, when it comes to residential property, it’s being turned upside down!

From April 2017 higher and additional rate taxpayers will no longer be able to deduct all the finance costs they incur (mortgage interest and fees) against their rental income.  There will be gradual reduction over the next 4 years so that the finance costs are only a deduction at basic rate of tax, not higher or additional rate.

People are being taxed on income at one rate and getting relief on expenses at another (lower) rate.  In a budget that is supposedly about addressing imbalances, this doesn’t seem fair (I know… life’s not fair!) and seems to specifically insert an imbalance that wasn’t even there in the first place.

Wear and Tear Allowance

There is a bit of a sweetener in store for some property lessors though.  In the past, there has been no relief for expenses incurred on fixtures and fittings (including carpets and white goods) on properties that aren’t fully furnished.  While fully furnished properties were eligible for an allowance for wear and tear at 10% of rent income, this was not available for partly furnished properties.  Well the wear and tear allowance is disappearing and all properties, whether furnished or unfurnished (including partly) will benefit from relief for the actual costs incurred of replacing furnishings.

Pension Relief

Currently there is a £40,000 annual allowance for pension contributions (both personal and employer).  From April 2016 there will be a taper of this allowance for those with adjusted net income of over £150,000.  The allowance will be reduced by £1 for every £2 of income, down to a minimum of £10,000.  This is to pay for the increased inheritance tax nil rate band (see later) but the Government are in consultation about pensions in the longer term and are reviewing whether there is a case to be made for widespread changes to pensions relief, so watch this space!

Business Tax

Corporation Tax Rates

You would be forgiven for thinking “Hang on, didn’t corporation tax rates just go down?!”.  The reason you would be forgiven is that you would be totally correct!  The large company and small company rates were as recently as April 2015 aligned at 20% and yesterday the Chancellor announced a further reduction to 19% from April 2017 and 18% from April 2020.  For the next few years the rates will be in line with the small company rate from 10 years ago, although you may remember that the large company rate was 30% then, so there is a significant saving for larger companies.  This reduction in the rate is likely (call me cynical) a peace offering over the minimum wage changes which will be detailed later.

Annual Investment Allowance

You’re probably aware of the Annual Investment Allowance which was introduced in 2008 which allows businesses to write off the cost of most plant and machinery (not cars) against profits, up to a total annual limit.  Well since then we have been riding the AIA wave (figuratively, of course) as the rates have gone up and down, and up, and up, and then threatened to come crashing down… Currently it is set at £500,000 however it was originally planned to plummet (yes, it’s dramatic isn’t it!) down to £25,000 in January 2016.  Fear not! From January 2016 the level is set permanently at £200,000 p.a.  (I say permanently, is anything ever permanent in tax?!).  This will apply to all purchases after 1 January 2016 and as you would expect, the transition rules are pretty complicated!  If you are thinking of purchasing any large equipment, please do get in touch because the timing may be critical to how much accelerated tax relief you can get.

Corporation Tax Relief for Goodwill

George Osborne seems to have a thing about goodwill!  You might remember that in the Autumn Statement of 2014 he removed corporation tax relief on goodwill acquired from a related business, such as when a sole trader ore partnership incorporated into a limited company.  Well this time he’s gone one step further and withdrawn relief for all goodwill and customer related intangible asset purchases, being from a related party or a third party, even in an arm’s length transaction.  Previously, the write off the asset in accordance with the company’s accounting policy was deductible for tax purposes but no more!  Relief will continue to be allowed for historical purchases of these intangible assets, but the new rules will prohibit release for any acquired after 8 July 2015.

Capital Taxes

Capital Gains Tax

Despite widespread speculation, capital gains tax has escaped from the Budget unscathed!  There had been concerns about the possible withdrawal or reduction in Entrepreneur’s relief, whereby sale of business investments are taxed at the low rate of 10% but there was no announcement of this.  Perhaps the announcements on dividends and goodwill were enough for small, owner-managed businesses to cope with in one Budget!

Inheritance Tax Nil Rate Band

This was the shock of the Budget….. no actually, it wasn’t as it’s been circulating in the media for weeks.  An additional nil-rate band will be introduced where a residence is passed onto direct descendants, such as children or grandchildren.  This will be initially £100,000 (on top of the standard £325,000 nil-rate band) from April 2017, rising to £175,000 from April 2020.  This effectively means that an individual with over £175,000 of their estate value being their residence will have a nil-rate band of £500,000.  Subject to a technical consultation (which roughly translates to: ‘we haven’t quite thought this through yet’) the allowance will still be available when a person downsizes or ceases to own a home from 8 July 2015 and assets of the equivalent value (such as cash) are transferred to descendants instead.

As one of the key manifesto promises of the Conservatives, this was always going to be introduced pretty quickly.  While critics will complain that this benefits the super-rich, the measures are expected to keep the same amount of estates within inheritance tax at the same levels as in 2014/15 of around 37,000.  House price rises have meant that without the introduction of this additional allowance, 63,000 estates would be expected to fall into inheritance tax by 2020/21.  Plus, the extra allowance will be withdrawn on a sliding scale for all estates over £2m.

Non-Domiciles
A very political area of tax…. crackdowns are being made in this area to prevent the likes of Roman Abramovich avoiding (not evading, that would be illegal and we wouldn’t allege such a thing) tax.  Individuals who have been resident in the UK for 15 out of the last 20 years will not be able to use the “domicile” rules which affect capital gains tax, inheritance tax and income tax.  Historically, they have been able to pay tax on the “remittance basis” i.e. only pay UK tax on foreign income and gains, the proceeds of which are brought into the UK.  Going forward, worldwide income and gains for these people will be taxable in the UK, even if not remitted into the UK, and they will be subject the UK inheritance tax.

Other Matters

 

National Living Wage

This is not a new concept, as it has been reported in the media and by opposition politicians for a while.  It would appear the Government has accepted that the minimum wage isn’t really enough for most people to live on and for April 2016 there will be a National Living Wage (NLW), which will be 50p higher than the National Minimum Wage (NMW) at that point.  It will operate as a premium on top of the NMW and will only be applicable to those aged over 25.  Apparently, people over 25 working 35 hours a week will see their gross pay increase by around a third compared to 2015/16 (over £5,200 in cash terms).  While great news for employees, this will no doubt mean additional costs for employers, large and small, but there is a silver lining….

Employment Allowance

In order to absorb some of the additional costs that the NLW will be incurred by employers, the Employment Allowance will be increased from April 2016 to £3,000 per year.  You may remember the £2,000 allowance being introduced in April 2014 which can be used against Employers’ National Insurance (NI) contributions as due through the payroll.  It’s free money, so we’re not complaining!  Remember that related businesses may only be entitled to one allowance between them, so do get in touch if you think this might apply to you.  Also from April 2016 companies where the director is the sole employee will not be eligible to claim the allowance, however many probably aren’t anyway as they are likely taking a wage that is below the NI threshold, and topping up with dividends…. (if this is you, you may wish to read the “Dividend Tax Allowance” section above).

That’s a pretty thorough roundup of the key points of the budget, but if you want more detail, please head to our full summary here.

If you have any queries, please get in touch on 0116 242 3400

Katie Kettle – Technical Manger
Katie Kettle Colour

The Patent Box

The Patent Box is the most exciting new relief for innovation since the introduction of the Research & Development tax regime in 2000.  It is an elective regime that will reduce the corporation tax rate to 10% on a company’s profits relating to patents. It started on 1 April 2013 but will be phased in over 5 years, so that the relief is 60% of the maximum in FY 2013, 70% in FY 2014 and reaches 100% in FY 2017.

The Patent Box is a potentially very generous tax relief but the qualification conditions and the calculations of the relief are complex and highly prescribed by the legislation.  On top of that, the continued availability of the relief can be affected by group reorganisations, sales or mergers and a number of other factors.

We have already achieved successes in ensuring that clients will qualify or continue to qualify for the Patent Box relief. For example, we have worked with a trading company on the best structure for exploiting a patent they have developed, to ensure that the status of their trading company is not affected by a stream of licence income, so that the shareholders do not lose the potential benefits of entrepreneurs’ relief, if they were to sell the trading company, or of business property relief if any of them were to die as shareholders.

In another situation, we have advised on how best to preserve the availability of Patent Box relief if the client were to be sold to a much larger group.  The availability of the relief goes to the heart of the value of the client to the potential purchaser, and it was vital to demonstrate that value to get the best price.

Please call 0116 2423400 for a free consultation on how best we can help you save tax with the Patent Box.