“Later on, we’ll conspire as we dream by the fire,
To face unafraid the plans that we’ve made,
Walking in a winter wonderland.”
Yes, we know a previous winter Square Circular has started off with Winter Wonderland but given the Chancellor’s Autumn Statement on 29 November and the publication of draft clauses for the 2012 Finance Bill on 6 December, Winter Wonderland seems just so appropriate. Small wonder that a good part of this Square Circular looks at what will or won’t be in this year’s Finance Bill.
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.
Nurture. Nourish. Grow. Flourish. That’s what it says on the website of The Greenhouse, Media City UK. We’re pleased to announce the opening of our office there, in addition to our headquarters in St Ann’s Square.
Our financial planning partner, Pareto Alexander, will be sharing our office. Combining our experience in advising media and creative companies, we will be able to offer a one-stop shop for accountancy, tax and financial planning advice to companies and individuals.
Budget Day has been fixed for Wednesday 21 March. Of course, we already know much of what’s likely to be in the Budget following the publication of draft legislation for consultation.
So what can we expect for 2012/13? We’re not going to bore you by telling you everything. After all, not everyone’s interested in Manufactured Overseas Dividends or Controlled Foreign Companies; or, for that matter a new CT regime for Life Insurance Companies or even Climate Change Levy. Let’s just stick to a few ordinary every day matters such as:
• change in rates, allowances and thresholds for income tax, national insurance and tax credits;
• no increase in the annual exempt amount for capital gains tax;
• changes in the remittance basis charge for non-domiciled individuals;
• rules allowing non-domiciles to remit income or gains tax free where they do so for the purposes of making a qualifying investment;
• no statutory definition of residence to be introduced until 2013;
• changes in the rules about capital gains or losses on fund withdrawals from foreign currency bank accounts;
• Seed Enterprise Investment Scheme to be introduced and increases in thresholds for qualification for EIS and VCTs;
• no increase in the Inheritance Tax nil rate band;
• reduction to 36% (from 40%) in the rate of Inheritance Tax where 10% of the estate is left to charity – but make sure you don’t die before 6 April 2012;
• reduction in the main rate of Corporation Tax;
• changes to capital allowances rules including preferential rates for companies in certain designated areas investing in plant and machinery.
We are also likely to see the abolition of a number of tax reliefs arising from the initiative of the Office of Tax Simplification. It would also not be surprising to see anti-avoidance legislation as HMRC gets wise to the latest effective solutions for tax mitigation.
There may yet be changes before 21 March but if you have a burning desire to find out more about any of the above, please feel free to call our tax partner, Simon Topperman.
GOING TO SEED
One of the things mentioned above is the Seed Enterprise Investment Scheme (SEIS).
Of course, you’ve heard of the Enterprise Investment Scheme (EIS). By coincidence, it had a mention in our Issue 35. Enter in 2012/13 the new SEIS. It will offer income tax relief at up to 50% of the sum invested instead of the 30% ordinary EIS relief. It will also offer capital gains tax exemption on gains made in 2012/13 where the gains are re-invested in SEIS companies. In theory, this could represent up to 78% tax relief. Not bad.
Whenever we’ve mentioned EIS we’ve also said that there are various conditions to be met by the individual investor and the company in which the investment is made. The same is true of SEIS. We won’t weary you with the details just yet; there may, anyway, be changes before it all actually happens. Essentially, the SEIS is like a baby EIS. Smaller figures all round.
The capital gains tax deferral for EIS investors often attracts interest and the proposed exemption for SEIS investors is also likely to do so. If you’re trying to raise capital from private investors or you’re an investor seeking to shelter a capital gain please feel free to contact us for more details.
WE’RE ALL GOIN’ ON A SUMMER HOLIDAY
Any dinosaurs out there, who used to sing along with Cliff Richard?
If you’re going on a summer holiday when do you book – the airline, the hotel, the hire car? Sure, there may be some good last minute deals around but if you want to ensure you have the choice you want, it’s best not to leave things until the last minute.
So why should tax planning be any different? Why go for a last minute deal on 4 April and be disappointed? Are you and your spouse making best use of both your personal income tax allowances and tax rates? Are you both using your annual CGT allowance and Inheritance Tax annual exempt amount? What about ISAs, VCTs and EISs? Have you reviewed your pension provision and paid the optimum premium? If you’re affected by the maximum pension benefit reduction on 6 April 2012 are you going to apply for Fixed Protection before the 5 April deadline? And if you’re a company and can predict your likely annual profit are you going to wait until after the end of the accounting period before you start planning, when it may already be too late or will you plan in advance of the year end.
The message is always the same. Whether it’s general financial planning or specific tax planning don’t delay planning until it’s too late. Ask us for early advice, not last minute deals.
INHERITANCE TAX (IH.T) PLANNING
Talking of last minute planning there are things you can do to mitigate Ih.T in a matter of weeks which is not quite deathbed planning but isn’t far off it. We know of a solution which mitigates Ih.T without the wealth actually leaving your estate apart from implementation costs. But it’s not for everyone. Don’t even go there if your estate is not at least £1 million.
Taking a longer view you can always put your money in assets which will get you Business Property Relief. But there is a two year qualifying period for that to work and if your investment is not in a business that you control you may well have doubts about the quality of the investment. Again the wealth does not leave your estate; it reduces it for Ih.T purposes.
Taking a longer view still, you can always make potentially exempt gifts and hope to survive 7 years. You can also make lifetime gifts which are not potentially exempt, for example to a nil rate band discretionary trust and further save tax by setting up pilot trusts each with its nil rate band. On a smaller scale there are other exemptions and reliefs, small in themselves but which add up over a lifetime. But it does mean that the wealth leaves your estate.
In short there are planning opportunities both long term and short term.
CAPITAL GAINS TAX ENTREPRENEURS RELIEF (ER)
Everyone knows about ER. Or do they? We all know it is potentially a very valuable relief which allows you to pay CGT at 10% rather than 28%. But you’d be surprised at how many anomalies there are in the rules. So much so that just a few weeks ago the Institute of Chartered Accountants Tax Faculty published guidance notes.
What can you do if there’s an imminent sale of a company and one shareholder qualifies for ER and other doesn’t? Does it matter if that shareholder is a spouse or some other relation? What if it’s a sale of a sole trader business from premises owned by the trader and his or her spouse? Don’t’ just focus on the proceeds. Take advice and focus on what you’ll be left with a year later after HMRC have taken their share of the booty.
And, as we’ve said before, plan ahead!
AND NOW FOR SOMETHING COMPLETELY DIFFERENT
This is nothing to do with tax, or accounts, or pensions or any of the things we usually talk about. It may be of interest to employers who provide group scheme private medical cover for employees. Our Pareto colleagues tell us that by shopping around, in one case, they were able to reduce the cost of premiums for a client by about 60% and the benefits were just as good as before, if not better. It wouldn’t necessarily be the same in every case but if you think it’s worth a try, give us a call.
VAT FROM 1st APRIL
With effect from quarters commencing 1 April (this isn’t an April Fool’s joke) all businesses, except for very exclusive exceptions will have to not only file returns electronically but will also have to make payments electronically. If your business is still submitting paper returns you will soon be receiving letters from HMRC explaining what you should do.
Whatever you do, don’t consign those letters to the bin. They will include your (very hard to find otherwise) registration date which is needed for the online application.
The weeks leading up to a Budget are rife with rumours. Quite often the rumours are to do with pensions.
This year, not for the first time, there is a rumour that tax relief on pension contributions will be restricted to basic rate. There is even talk of “them doing something” to the sacred tax free lump sum, either restricting the quantum of the lump sum or making it no longer tax free.
There is a view that those wishing to seriously building up a pension pot have been battered enough already and these are only rumours but……………
“Tax loopholes are like parking meters. As soon as you see one they’re gone”.