Turn back to 1835 when Alfred Lord Tennyson wrote his poem, Locksley Hall. In it he said “In the Spring a young man’s fancy lightly turns to thoughts of love”.
Apparently, they didn’t have a Spring Budget and Finance Bill back in the 1830s so young men didn’t have enough to think about. Further to our Budget Review 2014 issued the day after the Budget this Square Circular reflects on one or two specific items in the Budget as well as other tax matters.
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.
EASY TO MISS
Certain things in a Budget stand out. “The most far reaching reform of pensions” since who knows when, stands out. The doubling, not just increasing but, yes, doubling (wow!) of Annual Investment Allowance stands out. ISAs becoming NISAs stands out. The accelerated payments proposals where you have to pay what HMRC fancy claiming with no right of appeal regardless of whether that amount is due or not, stand out.
And then there are changes which slip into legislation largely unnoticed, sometimes because they are announced at a different time. These can quite often be in the very practical area of employer/employee. For example:
• Did you know that the beneficial loans to employee limit is increased from £5,000 to £10,000?
• Did you realise changes in CO² emission level limits can increase your car benefit?
• Did you realise that, in future, if an employee makes a payment for private use of a car in order to reduce the tax liability on a car benefit, he must do so before the end of the relevant tax year? Hitherto, it was possible to do so after the end of the tax year.
If you ever get that funny sort of feeling that maybe you’re missing something but don’t quite know what, it’s worth contacting your usual Alexander & Co adviser and having a general chat which could well lead to action points.
And here’s something else that’s easily missed………………..
RESEARCH & DEVELOPMENT (R&D)
You may not, perhaps, have noticed that in the Budget 2014 the payable tax credit for loss-making small and medium enterprises (SMEs) was increased from 11% to 14.5% as from 1 April 2014. You probably thought it’s got nothing to do with you and your limited company, and figures like 11% and 14.5% look a bit too weird to get involved with.
Let’s just take a moment to put this into context. The Government is keen to encourage companies to carry out R & D so they’ll give “goodies” for R & D investment. One of these goodies is a 225% profit reduction. For example, spend £20,000 on R & D and you’ll get a deduction of £45,000 in your corporation tax computation. Fat lot of use that is if your company is making losses and can’t immediately set off those losses against some form of profit. A typical scenario in a start up situation. So, to make things better they’ll actually give you money back. In our example it used to be 11% of £45,000 i.e. £4,950. That’s the figure that’s just gone up to 14.5%.
Why are we telling you all of this? R & D is all about science and technology. It’s for the men or women in white lab coats isn’t it? Well, yes, but you don’t necessarily need a white lab coat to be involved in an R & D project. Any project which seeks an advance in overall scientific or technological knowledge or capability through the resolution of scientific or technological uncertainties will get off the starting block. This can include developing a new product or process which makes an appreciable improvement to existing knowledge. You don’t even need to succeed. You only need to seek a technological advance. But it must be a general improvement; not just one relevant only to your company.
A company might incur R & D expenditure without being conscious of the fact. And if you’re not conscious of it you won’t think to tell us to be on the lookout for R & D tax relief. That’s why we give you reminders like this from time to time. So, be aware of the possibility and remember the number 0161 832 4841 if you need further information.
DID YOU ENJOY THE HOLIDAY?
What holiday is that then? Of course it’s the National Insurance Holiday Scheme for regional employers which finished on 5 September 2013. Square Circular told you all about it in Autumn 2010 (Issue 31) when it started. Bookings for the holiday fell well short of expectation.
The latest National Insurance star attraction is the Employment Allowance. From April 2014 you can knock up to £2,000 off your annual employer NIC bill. Many, but not all, employers qualify for the Employment Allowance. The information letter comes on 10 Downing Street headed notepaper. The cynical might call it vote buying. But £2000 is better than a poke in the eye, any day of the week.
Our payroll department has quite a few of these letters from David Cameron. If you run your own payroll, hopefully, you know all about the Employment Allowance and you ticked the easy to miss box to claim the entitlement. But, if any of this is news and you think you’re missing out on something, please do get in touch.
SOMETHING ELSE THAT’S EASY TO MISS
You may be aware that the UK intends to levy Capital Gains Tax (CGT) on gains made by non-residents on the disposal of UK residential property after April 2015. We’ve not given this much publicity. First, the overwhelming majority of our clients are UK resident. Secondly, we don’t know yet what the rules will be. It’s still at consultation stage. More will be revealed later in the year.
You may also be aware of Principal Private Residence (PPR) elections. Suppose for the sake of illustration you have two residences, one in Manchester and one in Llanfairpwllgwyngyllgogerychwyrndrobwillantysiliogogogoch (got to fill the space, somehow). You may live in Manchester 6 days a week and in Wales (running short of space) 1 day a week. As a question of fact, Manchester is your main residence. But if you comply with all the rules for making PPR elections you can, if you want, choose LlanfairPG (don’t you just love abbreviations) to be your main residence whether it is in fact so or not.
Now let’s imagine a Finnish resident in Ateritsiputeritsipuolilautatsijanka (yes, it’s for real) and a cottage in (you’ve guessed it) Llanfair………………………. The only UK tax liability will be on a sale of the Welsh cottage. So if the PPR election conditions can be met, why doesn’t our Finnish resident just elect for the Welsh cottage to be his PPR for UK tax purposes. Problem solved. Job done.
Can’t have that, obviously. So, the suggestion in the consultation document is to do away with the PPR election. Full stop. Not just for non-residents but for all. It’s not law yet and it may never happen. But if it does it could cause problems for some.
Just one recommendation. If you want to explain this to your friends and want to use examples of place names we suggest you use Ede (in Holland) and Ely (Cambridgeshire).
TAKEN DOWN AND USED AS EVIDENCE
Everyone knows that if you’re in business and want to claim a deduction for business expenses incurred, you need to keep evidence such as an invoice. And, of course, you need an invoice in order to claim the VAT input tax. All this isn’t quite so obvious if you’re not in business or if the expenditure is capital expenditure.
In a case before the tax tribunal a few months ago a claim for capital gains tax expenditure on a property was disallowed for want of evidence of the expenditure. For sure expenditure had been incurred but the taxpayer could not provide any details of what had been paid out. Keeping evidence is important not just of original cost but also enhancement expenditure. Supposing you sell a second property that you bought 20 years ago. You may be smart enough to have kept the original completion statement on purchase but what evidence is there of improvements and enhancements over the years.
Don’t forget to keep a note of what you spend backed up by the evidence.
From time to time we tell you about HMRC’s latest “campaign”. We’ve told you about plumbers, health workers, residential landlords and much more in the past. The latest is the Second Incomes Campaign which gives you the opportunity to bring your tax affairs up to date if you’re employed and have additional income that isn’t taxed. If you make voluntary disclosure of undeclared income you can settle your tax liability on reasonably favourable terms.
Obviously you personally don’t have undisclosed income but if you know anyone who does they’re welcome to get in touch. Oh, by the way, can you guess the name of the plumber in HMRC’s example of someone who works for a plumbing company but does private work in the evenings and at weekends.
It has to be, and can only be, Rod the plumber.
Church notice board:
“The ladies of the church have cast off clothing of every kind. They may be seen in the basement on Friday afternoon”.