Autumn Statement

Summary

The Autumn Statement traditionally focuses on government spending rather than taxes, but George Osborne used this occasion to announce some tax changes which will take effect in 2014 and 2015. In particular, changes to capital gains tax on sales of homes, and NICs. There is also relief for small businesses in the form of capped or reduced business rates.

The tax law is being changed in some areas of employee benefits and stamp duties where tax cases have shown that the legal position is unclear. Tax avoidance schemes and those who sell them also come in for more scrutiny. HMRC is to be exempt from the 1.1% cap on spending by government departments to give it the flexibility and funding necessary to deal with tax evasion.

This newsletter is based on the documents released on 5th December 2013. It is possible that a different position will be shown by the draft legislation which will be published on 10th December 2013. We will keep you informed of any significant developments.

Employment

NIC Exemption for Young Employees
From 6 April 2015 employers will not pay class 1 employer's NICs on the wages of employees aged under 21, where the employee earns less than the upper earnings limit (£813 per week in 2015/16). The employee will pay NICs on their wages as normal, and both employers' and employee's NI will be due on any wages above the upper earnings limit.

Employee Ownership
The government wants to encourage employees to become part-owners of the organisations they work for, and this apparently improves productivity and happiness in the workforce. The following tax reliefs will be introduced in 2014 to smooth transfers of businesses to employee-ownership trusts:

- No CGT will apply on shares transferred which give rise to a controlling interest in the business passing to the employee ownership trust;
- No IHT will apply on shares or assets transferred to the employee-ownership trust; and
- Bonuses of up to £3,600 per employee per year will be tax free where the business is controlled by an employee-ownership trust.

NICs
The primary (employees') and secondary (employers') threshold for class 1 NICs have been aligned at £153 per week from 6 April 2014.

For 2014/15 the main rates and thresholds for NI contributions are:

Employer's class 1 above £153/week not contracted out - 13.8%
Employee's class 1 not contracted out from £153 to £805/week - 12%
Employee's additional class 1 above £805/week - 2%
Self-employed small earnings exemption - £5,885 per annum
Self-employed class 4 from £7,956 to £41,865 per annum - 9%
Self-employed class 4 additional rate above £41,865 per annum - 2%
Self-employed class 2 - £2.75 per week
Voluntary contributions class 3 - £13.90 per week

Sick Support
Currently employers can recover statutory sick pay (SSP) paid to their employees, where the total paid exceeds 13% of the class 1 NICs paid by the employer in the same tax month. This is called the percentage threshold scheme (PTS). Employers cannot reclaim SSP which does not reach the 13% threshold.

The PTS will be abolished from 6 April 2014, so SSP paid on and after that date will be an unrecoverable cost for all employers. However, employers will be able to reclaim SSP paid for periods up to 5 April 2014, if a claim is submitted by 6 April 2016.

The money saved by abolishing PTS will be invested in a new Health and Work Service, which will help sick employees get back to work by providing them with a return to work plan. Where the Heath and Work Service recommend a medical treatment for the sick employee, the employer can pay up to £500 towards this treatment with no tax charges for the employee. This tax exemption can also apply to medical treatments recommended by an occupational health service arranged by the employer.

Company Cars
Where a company car driver receives free fuel, the taxable benefit is calculated as the percentage of the list price for the car applied to the fuel charge multiplier set at £21,700 for 2014/15 (£21,100 for 2013/14) . The maximum taxable benefit of receiving free road fuel for private use will increase to £7,595 for 2014/15 from £7,385 for 2013/14.

From 6 April 2014 the employee will be taxed on the provision of a car as a benefit when the employer leases a car to the employee. Also from that date if the employee wishes to make payments for the private use of the company car or van to reduce the taxable benefit those payments must be made in the same tax year in which the vehicle is provided for private use.

Vans
The taxable benefit for the private use of a company van has been fixed at £3000 per year for many years, but from 6 April 2014, this increases to £3,090. The taxable benefit when fuel is provided for private use in a company van will rise from £564 for 2013/14 to £581 in 2014/15.

Share Schemes
HMRC approved share schemes have strict limits on the value of shares which can be transferred to employees each year, and these limits have not been changed for some time. From 6 April 2014 the following limits are increased:
- monthly limit for employees who save to acquire shares through a SAYE scheme increases from £250 to £500;
- annual value of free shares given to employees in a Share Incentive Plan (SIP) increases from £3,000 to £3,600;
- annual value of partnership shares granted under a SIP increases from £1,500 to £1,800.

Business Taxes

Business Rates
From April 2014 businesses will be able to spread the payment of their business rates over 12 months instead of 10. The increase in business rates for the year to 31 March 2015 will be capped at 2%.

The high level of small business rates relief (SBRR) will be extended to 31 March 2015, and the SBRR rules will be relaxed to allow businesses to expand into an additional property and retain the SBRR for one year.

If a business moves into a retail premises which has been empty for 1 year or more, the business rates on that property will be charged at 50% of the full rate for the first 18 months. This relief will apply where the empty property is re-occupied between 1 April 2014 and 31 March 2016.

Associated Companies
The complicated rules for deciding which companies are 'associated companies' for corporation tax purposes will be scrapped from April 2015 when the corporation tax rates for all companies (excluding oil and gas sectors) are aligned at 20%.

Private Landlords
The government is desperate to increase the energy efficiency of homes, and has proposed two ways to encourage home-owners to make the investments required:
- £1,000 to £4,000 for each homebuyer to spend on energy-saving measures; and
- New scheme for private landlords to improve the energy efficiency of their properties.

Further details are expected to be announced later.

Corporate Losses
When a loss making company is taken over, tax relief for those losses may disappear because of the strict rules about changes in ownership. These rules will be changed from April 2014 to allow a holding company to be inserted at the top of a group of companies, and to allow more flexibility in the capital held in investment companies.

Individuals

Income Tax Allowances
The standard personal allowance will increase to £10,000 from 6 April 2014, but the age allowances for those born before 6 April 1948 are frozen.

Allowances for 2014/15 are...

Personal allowance (born after 5 April 1948): £10,000
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*: £3,140
Maximum married couples allowance*: £8,165
Blind person's allowance: £2,230
Income limit for allowances for age related allowances: £27,000
Income limit for standard allowances: £100,000

* given where one partner was born before 6 /4/1935, as 10% reduction in tax due.

Transferable Married Couples Allowance
From 6 April 2015 married couples and civil partners will be able to transfer up to £1,000 of their personal allowance to their spouse. This amount will increase if the total personal allowance increases year on year. However, the transfer can only take effect if both members of the couple are basic rate taxpayers or pay no income tax for the year.

Tax Rates and Thresholds
The income tax bands for 2014/15 are:

Savings rate* (10%) - 0 to £2,880
Basic rate (20%) - 0 to £31,865
Higher rate (40%) - £31,866 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 higher rate and basic rate thresholds can be increased by paying personal pension contributions or gift aid donations.

Interest Relief
Currently individuals can claim tax relief on interest paid on loans which are used to invest in UK companies in which they have a significant interest, employee-controlled companies and partnerships in which the individual is a partner. From 6 April 2014 this tax relief will also be available if the company is resident outside the UK, but within the European Economic Area. The interest relief will still be capped at the greater of £50,000 and 25% of the taxpayer's income for the year.

State Pension Age
The State Pension Age (SPA) is currently being aligned at 65 for men and women who are reaching that age in the next few years. The SPA will then rise for both men and women to 66, and increase to 67 for those that reach that age between 2034 and 2036. The government is reviewing how quickly the state pension age should be changed. It is likely to accelerate the SPA to age 67, 68 and then to 69 for people who are currently in their early 30's.

NI Contributions Over SPA
Individuals who retire today must have an NI contributions record showing 30 full years of contributions in order to receive the full state pension. However, once a person reaches state pension age (SPA) they are barred from making further NI contributions, even voluntarily.

From October 2015 the government will permit people who have reached SPA to make voluntary NICs to top up their NI contributions record for state pension purposes. This will apply to people who reach SPA before 6 April 2016.

ISAs
The tax free ISA investment limits for 2014/15 are as follows:

Shares and cash ISA - £11,880
Cash only ISA - £5,940
Junior ISA and Child Trust Fund - £3,840

Capital Taxes

Selling Your Home
When you sell your home, any gain you make is tax free if you have lived there for the entire period you owned it. If you occupied the property as your main home (or elected for it to be treated as your main home) for just part of the time you owned it, the gain made for that period is tax free, as is the gain made for the last 36 months of ownership. The Government believes this 36 month rule has been abused, so is cutting this tax free period to 18 months for disposals made after 5 April 2014.

Gains Made by Non-residents
If you are not resident in the UK for tax purposes, any gains you make on selling property located in the UK is not taxed in the UK, although the gain may well be taxed in the country where you are tax-resident.

From 6 April 2015, gains accruing from that point on homes located in the UK, will be taxed in the UK, where the owner is not resident in the UK. Anyone who emigrates and then sells their former UK home (or investment properties) after living abroad for a while needs to watch out for this.

Social Enterprise Investment
From April 2014 individuals who provide funds for investment in social enterprises will receive some income tax and capital gains tax relief. Further details will be announced later.

Tax Avoidance

Duel Employment Contracts
Where a person has an overseas domicile (usually because he was not born in the UK), and works overseas for part of their employment, it has been common practice to set up two parallel employment contracts for that person (duel contracts). One contract would deal with earnings taxable in the UK, the other contract would deal with overseas earnings. From 6 April 2014 HMRC will apply UK tax on earnings under both contracts, unless a higher amount of tax has been paid on the overseas earnings than would be paid in the UK.

Employment Intermediaries
Fresh anti-avoidance rules are to apply from April 2014 to organisations (often referred to as 'umbrella companies'), who manage contractors in a number of industries. The intermediary company may be based in an off-shore tax haven, and 'pay' the contractor by means of a loan. These loan-based schemes have been outlawed for employees, so now HMRC is to go after contracts which purport to supply the contractor as a 'self-employed' person.

Loans to Reduce IHT

Have you used a loan to reduce the inheritance tax (IHT) which may be due when you die? A common IHT planning technique has been to take out a mortgage on the family home and use those borrowed funds to invest in assets that qualify for 100% exemption from IHT, such as farmland or shares quoted on the AIM stock market. The loan reduces the value of home subject to IHT, and the assets acquired don't attract an IHT charge.

However, this plan has been undermined by a change in the law from 6 April 2013. If the mortgage was taken out, or replaced, on or after that date, the amount of the loan is first deducted from the value of the assets it was used to acquire, not the property it is secured on. This means the loan and the IHT-exempt assets cancel-out each other in the IHT calculation, and no tax is saved.

You need to be aware of this when changing the mortgage on your home. We should talk about inheritance tax planning if the net value of your assets is likely to exceed £325,000. Married couples and those in civil partnerships can hold twice that amount before IHT bites. There are still ways to reduce the potential IHT due, but any plan needs to be tailored to your specific circumstances.

RTI Penalties Around The Corner

This tax year (2013/14) is the first year in which the majority of employers have submitted their PAYE data using real time information (RTI). HMRC has not yet imposed penalties for late RTI submissions made within the tax year, but that is about to change.

From 6 April 2014 penalties will start to accrue after the first failure in each of these situations:

- filing a full payment submission (FPS) after the date of payment stated in that report;
- failure to file an employer payment summary (EPS) showing a nil payment when required; and
- failure to pay the PAYE due in full, and on time for a particular tax month.

Note that currently there is a concession for employers with fewer than 50 employees. If all the conditions apply they can file just one FPS by the end of the tax month, irrespective of the number of times they have paid employees in that month. This concession is due to end on 5 April 2014.

The penalties for late submissions will vary according to the number of employees on the payroll. The smallest payroll with up to 9 employees will suffer a £100 penalty for every month for which the FPS is filed late. Larger payrolls will be charged £200, £300 or £400 per month for the same failure, for up to 11 months per tax year. If the employees are paid more frequently than monthly, only one fixed penalty will be applied per month.

Where no payment has been made to employees in the month HMRC expect to receive an EPS reporting a nil payment, unless the PAYE scheme has been registered as 'annual'. If no nil EPS is received this will give rise to a penalty.

Penalties for late paid PAYE already apply, but such penalties have not been imposed so far. Late payment penalties are charged at 1% to 4% of the amount that is paid late for the tax month, with the penalty percentage increasing as the number of months of late payment mounts up in the tax year.

You will be informed that a penalty is potentially due by an automatic electronic message from HMRC. These messages are already being sent for late FPS, but they are just warnings at this stage. Other types of warning messages will commence in the next few weeks. Where a penalty is due for a tax month it will be imposed at the end of the tax quarter.

Please talk to us if you get any warning messages from HMRC, as we need to sort out why there is an apparent fault in submitting RTI reports or paying the right amount of PAYE.

VAT Due Payment Date

When must your VAT payment reach HMRC? The correct answer is: seven days after the end of the month following the end of your VAT quarter. Not seven working days, seven calendar days.

If you get this wrong and pay your VAT late, you will receive one or two warnings from HMRC (two where the penalty would be under £400). If you pay late again within 12 months you will be charged a penalty of 2% of the late paid VAT. This percentage penalty increases every time you pay late, from 5% to 10% to 15% of the VAT due. Even paying one day late, counts as late for calculating those penalties.

Make sure you know exactly how long it will take your electronic payment to reach HMRC's bank account. Using the faster payment service (FPS) normally means the payment arrives within two hours, but there are monetary limits for FPS which vary between banks and for different types of bank accounts (corporate or retail). If the payment is too large to be sent by FPS, the bank will generally send it by BACS - which takes three working days.

If you have a direct debit set up to pay your VAT, HMRC will deduct the correct amount from your bank account three days after the due date for that VAT return, or three days after you submit your VAT return if that is later. So if you are late with filing your VAT return, the direct debit will be collected late, and you will have made a late payment of VAT, leading to a potential penalty.