We always enjoy doing a summer issue of the Square Circular. We just know it brings an extra bit of sunshine into your life. This issue is extra long just in case you’re short of sunshine.
On the menu this time is cars, kids, families, seeds, tax amnesties and pension provisions, all matters close to the heart – well some hearts anyway.
If you want more details about any of the matters we’ve mentioned in this Issue, or indeed, about any of the matters we haven’t mentioned please do contact us on 0161 832 4841.
THE MOTHER OF ALL TAX AMNESTIES?
Over the last few years HMRC have embarked on campaigns designed to encourage people with undeclared tax liabilities to come forward. As a sweetener for coming forward you get favourable penalty terms. If you don’t come forward they chase you up and you can even run the risk of criminal prosecution.
If you look back through old issues of the Square Circular you’ll see from time to time mention of the ODF, then the NDO, then the LDF and the “Swiss agreement”. You’ll see mention of special initiatives to do with medics (the THP), plumbers (the PTSP) and electricians (the ETSP). Now comes another which, we think, has the acronym TRI. Before reading further, just stop for a minute and try to guess what that stands for.
OK. We’ll put you out of your misery. On 3 July HMRC said that if you’re a higher rate taxpayer and you should have completed Tax Returns for tax years 2009/10 or earlier and you haven’t done so, now is your time to come clean using the Tax Return Initiative (TRI). The campaign runs until 2 October 2012 for you to take advantage of better terms and a lower penalty than would apply if HMRC had got to you first.
This initiative doesn’t apply to you, personally. Of course, it doesn’t. But if you have any friends or acquaintances who are just waiting to confess to past tax misdeeds and omissions by all means tell them to give us a call.
BUY A QUALEC NOW!
Before you dash off to buy one, it’s helpful to know what a QUALEC is. We won’t keep you guessing; it’s a Qualifying Low Emission Car.
You probably know that you can get tax concessions on a “green car”. Just in case you’re a bit hazy on the precise details, if a business buys a car with emissions of no more than 110g/km it can claim 100% capital allowances as opposed to 18% reducing balance basis for ordinary cars and 8% for gas guzzlers. You can get a pretty decent car under 110g/km. For example a BMW 320d Efficient Dynamics just sneaks in at 109.
What, maybe, you didn’t know is that the goal posts move next April and the 110g/km becomes 95g/km. That cuts down your choice of QUALECs quite considerably. If you’re thinking about a new car next spring and its g/km is between 95 and 110 perhaps make sure the purchase is made in March rather than later in the year. Stocks will last but the tax costs will go up.
A BIT MORE ABOUT CARS
The CO2 emissions of a car affect more than how soon you can get capital allowances on the cost. If the car is provided to an employee, the CO2 emissions are a factor in determining the level of the benefit in kind. In fact we’ve told you before what a whizzo wheeze it is for a company controlling director/shareholder to have the company provide low emission cars for adult sons or daughters.
But, just as the level of emissions for capital allowances purposes can change, so can the levels for benefit in kind purposes. Someone with the same car this year as last year can have a higher benefit. And next year can be higher still. All because the goal posts are moving.
Just be aware.
A U-TURN ON CAPS
As you probably know there’s been a bit of a furore about the Government’s plans to put a “cap” on income tax reliefs that can be claimed from April 2013 against general income other than “approved” reliefs such as EIS investments. The plan was to restrict reliefs up to the greater of £50,000 or 25% of your income. Since charitable gift aid donations stood to be capped there were howls of indignation from charities and wealthy donors. The Government backtracked early in July.
You’d be forgiven for thinking that no caps means no caps. That’s not quite the case. The backtracking is only in respect of charitable donations. It will still apply to trade loss relief claims, property loss relief arising from capital allowances, share loss relief and qualifying loan interest, to mention the more typical claims.
There may yet be changes because the issue has now gone for consultation. Assuming no changes, there is still action you can take before next April if, for example, you’ve taken out a large loan to invest in or lend to a trading company or partnership or if you’ve started a business which you know will make a substantial loss this year.
Call us to find out more.
A U-TURN ON KIDS?
Talking about u-turns there are many hoping that there will be a change of heart on the High Income Child Benefit Tax Charge (HICBC) scheduled to start in January 2013. Our own professional body, the ICAEW, has called the proposals seriously flawed in principle and in practice.
Although the ICAEW raised a dozen or so points the two main issues are workability and fairness. The proposals could create hundreds and thousands more people in self-assessment, would increase the admin burden for HMRC and could raise all kinds of confidentiality issues. It could be an operational disaster.
And fairness? A couple each earning £50,000 would suffer no tax charge despite the household income being £100,000. A couple where one partner works earning £60,000 while the other stays at home to look after the kids would face the full HICBC and would effectively lose all their child benefit.
So much for family life.
AND TALKING OF FAMILIES…………………
Over the last few years the use of trusts to pass on investment assets to the next generation has become less popular. Legislation in 2006 acted as a disincentive to the use of trusts and the introduction of the 50% additional rate of income tax in 2010 added to the misery.
Don’t get us wrong; there may still be a place for trusts in certain circumstances. But in recent times two new animals, the lesser known FLP and the lesser known FIC have become more popular. The FLP is the Family Limited Partnership and the FIC is the Family Investment Company. The latter can work efficiently with trust shareholdings in the FIC.
Obviously, we’re not talking about moderate sums where a couple of Inheritance Tax nil rate bands will do just as well. We’re talking about investment assets in excess of say £2 million.
To find out more please feel free to give us a call.
♫ DUM DE DUM DE DUM DE DUM ♫
Aficionados of The Archers don’t need reminding when it’s harvest season. But what about harvesting the seeds of the Seed Enterprise Investment Scheme, the SEIS.
We mentioned the SEIS in our Winter 2012 Issue 36 (see Going to Seed). It’s for people who want 50% income tax relief and possibly 28% CGT relief for investments of up to £100,000 in the right kind of company. A total of 78% tax relief sounds too good to be true but it is good and it is true so seriously think about harvesting these seeds.
The Square Circular is not the place to go into more detail but we do have a Factsheet on the exceptional SEIS relief which gives you a little more detail. Please get in touch if you want to find out more.
BEG, STEAL OR……………..BORROW
You may remember that the additional rate tax of 50% was signalled well in advance. It was introduced in April 2010 but we knew about it well in advance and you may recall that company directors/shareholders accelerated their bonus or dividends to get them in before the 2010/11 tax year started.
George Osborne has very kindly signalled the reduction from 50% to 45% well in advance. He’s told us about it already but it won’t happen until April 2013. Perhaps, try the reverse and postpone taking bonuses or dividends after 5 April 2013.
Fat lot of good that does you if you need cash now! Your company has cash; you haven’t; you need it now and can’t really wait another seven or eight months to have the pleasure of getting your money out at a reduced rate of tax.
One solution could be to borrow temporarily from your company and then clear your overdraft with a dividend next April. But, shareholders borrowing from their companies is bad news. Our usual advice is to avoid it like the plague. But depending on the circumstances it can be a possible solution, although extreme caution is needed.
If this scenario applies to you please feel free to call us to discuss further.
You’ve probably noticed that since Pareto Alexander started firing on all cylinders we usually like to include something to do with pensions, life assurance, investment, mortgages and the like. There’s usually something of interest for everybody in that line but if you’re not an employer or employee please feel free to skip this bit about auto-enrolment (let’s call it A-E for short).
So, what is A-E? Briefly, employers will have to make pension arrangements for employees aged between 22 and state pension age who earn more than the personal allowance unless the employee expressly opts out. When the rules come into force depends on how many employees you have. The biggest employers (120,000 or more) start October 2012, the smaller employers (fewer than 30 employees) start some time in 2015, 2016 or 2017. As an example of an “in-between”, if you have 250-349 employees you start in February 2014.
Assuming you don’t come into the category of a major employer and you still have a couple of years to go, why worry about it now? Because, quite likely, it’ll cost you and you‘ll probably need plenty of time to think about and choose the best alternative. For sure, you ‘ll need advice sooner or later so please feel free to call Paul Stones (832 4841) for help.
With all the recent bad press about tax avoidance we couldn’t resist this quote from an American Democratic politician who was a Senator from Louisiana from 1948 to 1967:
“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform”.
(Russell B Long)