Tax End of Year Planning 2014/15
Tax End of Year Planning 2014/15 Tax planning is a very complex area covering many forms of tax. The most common forms of tax are income tax (payable by individuals, partnerships and sole traders on income), corporation tax (payable by companies on profit and gains), capital gains tax (tax due on gains made on investment assets such as property and shares), inheritance tax (tax paid by the estate on death or during lifetime on certain transfers of capital), VAT and stamp duty. Think of it this way, every event or transaction is likely to have a tax issue. Our job is to help structure your investments, wealth or business in order to minimise tax. We advise on a very wide range of tax matters and each can to an extent be grouped together depending on your needs.
For the individual Income Tax The starting point in tax planning is to understand where your income is likely to fall relative to the tax thresholds. For 2014/15, the tax free personal allowance is 10,000 and the next 31,865 is taxed at 20%. Higher rate tax of 40% is charged on income above 41,865 and additional rate tax of 45% is charged on income above 150,000. The personal allowance is reduced by 1 for every 2 of income above 100,000. There is therefore no personal allowance at all where income exceeds 120,000. This also means that, over the income band 100,000 to 120,000, the effective rate of income tax is 60%. Or to put it another way, tax relief at 60% is available on pension contributions and gift aid payments in this income band. To make the best use of tax allowances, sufficient income should be generated where possible to fully utilise the personal allowance and basic rate band. This may be done by careful planning of the timing of dividends from a private company or distributions from a family trust. Married couples and civil partners have further opportunities for using their allowances and it should not be forgotten that children also have tax free allowances. It is also important to remember that child benefit gets effectively withdrawn by 1% for every 100 of income earned over 50,000 (taking the highest earner in a household for these purposes) being reduced to nil once your income reaches 60,000. The effective rate of income tax within the band of 50,000 to 60,000 will depend: the greater the number of eligible children, the higher the effective tax rate. Where income falls within this band, mitigation by pension contributions or gift aid is again in point. Action Point Understand your income levels and the relevant bands during the year so you can have the choice to ensure your income does not fall within the bands if possible or to make pension contributions or gift aid payments to obtain better tax relief. Seeking advice once preparing your tax return papers post the year end can usually be too late for the year already finished. 4 Capital Gains Tax Use your Annual Exemption The annual exemption for 2014/15 is 11,000. This is a use it or lose it allowance; it cannot be carried forward to future years. It therefore makes sense to crystallise gains each year to the extent of the annual allowance, if possible. Note that under the bed and breakfasting rule, a gain does not crystallise for tax purposes if you sell shares and repurchase the same shares within 30 days. However, it is possible to repurchase the same shares through an ISA. Alternatively, a married couple can arrange for one partner to sell shares in the open market, and the other partner to buy the same number of shares. Rates of Tax The rate of Capital Gains Tax (CGT) is 18% where taxable gains plus taxable income are less than 31,865. Any excess gains are taxed at 28%. Where Entrepreneurs Relief applies, the rate is 10% (see below). Crystallise and Use Capital Losses Capital losses may be offset against capital gains in the same year. Unused losses may then be carried forward indefinitely and offset against future gains. A formal claim is required. The claim must be submitted to HMRC within four years of the end of the tax year of the loss, otherwise it will be time-barred. Hence, claims must be made by 5 April 2015 in respect of 2010/11 losses, if claims have not already been filed. When an asset has become valueless or worth next to nothing, it may be possible to make a negligible value claim in order to crystallise a capital loss. The claim can be related back up to two tax years in certain circumstances, allowing the loss to be offset against gains made in earlier years. Can your capital gains qualify for Entrepreneurs Relief (ER)? CGT is charged at 10% where ER applies, subject to a lifetime limit of gains totalling 10m. ER applies to the sale of a business carried on as a sole trader or partnership, or to the sale of shares in an unquoted company and in certain circumstances to personally held assets that have been used by a partnership that you are a member of or
a company that you control. Entitlement to ER requires a number of conditions being met for a continuous period of twelve months up to the date when the disposal is made, so early advice should be taken to ensure that the gain qualifies for relief. With effect from 4 December 2014, ER does not apply to the sale of internally generated goodwill on the incorporation of a sole trader or partnership. Action Point ER rules can easily be broken so if you are disposing of an asset and ER may apply, please seek advice as soon as possible. Some of the conditions need to be met for twelve months prior to the disposal so the earlier you seek advice, the more chance of ER being available. Determine your Main Residence The gain on your principal private residence is exempt from CGT. If you have more than one private residence, your main residence will normally be, by default, the one in which you spend the greatest time. But it is also possible to determine that matter by nominating one of them as your main residence. This requires careful planning, since the flip side of a gain on one residence being treated as exempt is that a gain on the other residence will become chargeable. Written nominations must be submitted to HMRC within 24 months of any change in residences becoming available. The main residence exemption is not available on development projects, where a property is acquired with the overriding motive of selling at a profit, particularly where improvement works are carried out. From April 2015, further restrictions will apply to the ability to nominate your main residence. These mainly affect non-residents with a UK property, and UK residents with a property abroad. Tax favoured Investments Utilise Individual Savings Accounts (ISAs) ISAs are an excellent investment for higher rate taxpayers and the maximum allowance for 2014/15 is 15,000. From 2015/16, the income tax exemptions on ISAs will be preserved on death, where one spouse or civil partner leaves it to the other. They remain chargeable to Inheritance Tax (IHT), however. The overall ISA limit rose to 11,880 from April 2014. Consider investing in Enterprise Investment Scheme (EIS) and Seed EIS (SEIS) shares Tax relief is available where you subscribe for shares qualifying for EIS or SEIS relief. Under the EIS scheme, your tax liability for the year may be reduced by up to 30% of the sum invested (up to a maximum of 1m invested in the year). In addition, capital gains from disposals in the previous 36 months or following 12 months may be reinvested into EIS shares, resulting in a deferral of the gain. The Seed EIS scheme offers another form of reinvestment relief for investors who subscribe for shares in small startup companies. For 2014/15, the maximum qualifying investment is 100,000. Income tax relief is given at the rate of 50% of the sum invested, and relief may be given against tax in 2014/15 or 2013/14. For investments made in 2014/15, the amount invested may be set against up to half of the gains made in 2013/14, but no offset against 2014/15 gains is available. Both EIS and Seed EIS shares are normally exempt from CGT and IHT, subject to detailed conditions being met. A number of professionally managed EIS and SEIS investment funds exist which invest in a broad range of EIS and SEIS companies on behalf of investors. Whilst such funds should allow for risk management through the spreading of your investment between different companies, it must be remembered that EIS and SEIS investments will more likely than not be viewed as carrying with them a high degree of risk. Venture Capital Trusts (VCT) VCTs are specialist tax incentivised investments that enable individuals to invest indirectly in a range of small higher risk trading companies and securities. VCTs are companies in their own right and, like investment trusts, their shares trade on the London Stock Exchange. Shares in qualifying VCTs offer the following tax incentives: Up front income tax relief at 30% of the amount subscribed, subject to a maximum investment of 200,000 per tax year. The investment must be held for a minimum of 5 years in order to retain the income 5
For the individual tax relief. Note that income tax relief on the purchase of VCTs is available only where new shares are subscribed, and not to shares acquired from another shareholder. Dividends received on VCT shares are income tax free (including shares acquired from another holder). CGT exemption on the VCT shares (including shares acquired from another holder). Note that gains from other assets cannot be rolled into purchases of VCT shares. Inheritance Tax Plan for the freeze in Inheritance Tax (IHT) thresholds The IHT nil rate band is currently frozen at 325,000 until 5 April 2018. As part of a person s on-going Inheritance Tax planning, full use should be made of available exemptions. The exemptions are relatively small, but, over time the effect can be substantial: Annual Exemption An amount of up to 3,000 can be given away each tax year and, if unused in a year, that amount can be carried forward for one year and utilised in that later year. Small Gifts Exemption You can give up to 250 to as many people as you wish each tax year. Gifts out of Income If your income regularly exceeds your expenditure, you can give away the excess. To gain this relief, the gifts must be part of a settled pattern of giving or there must be evidence of the intention to make these gifts. It may be necessary to ensure that you have evidence that demonstrates that the gifts have been made out of your post tax income. Lifetime Giving A person may also consider making lifetime gifts in excess of the above exemptions. A person must survive such a gift by seven years for it to fall out of their estates entirely, and the donor must not benefit from the assets once they are gifted. The gifts might be absolute gifts to family members, or they could be gifts into trust. Gifts into trust can give rise to an immediate charge to inheritance tax at the rate of 20% and therefore generally transfers to trust should be limited to the available nil rate band. Trusts can be very beneficial, but specialist advice is needed. IHT Efficient Investments Another alternative can be to place funds into IHT efficient investments, for example, shares in qualifying AIM listed companies. Such investments benefit from business property relief and as such are relieved from Inheritance Tax after they have been owned for two years. Appropriate investment advice would be needed when considering such planning as the commercial risk needs to be considered as well as the tax benefits. Action Point There are possibilities to ensure estates are reduced during one s lifetime to prevent a large IHT liability on death. As part of the planning, your advisor would need to consider all sources of wealth and take into account many other factors. The building up of a personal balance sheet and establishing income receipts and living cost requirements can bring planning possibilities into focus. Early action can often lead to a large part of one s estate being shielded from IHT. Charitable Giving If a higher rate or additional rate taxpayer makes a Gift Aid donation, further tax relief is available to the donor over and above the tax relief claimed by the charity. A Gift Aid donation of 80 is worth 100 to the charity. A higher rate taxpayer will qualify for further tax relief of 20 so that the net cost of the donation is only 60. For an additional rate taxpayer, the further tax relief is worth 25, so that the net cost of the donation is only 55. You should keep a record of Gift Aid donations made in the year. Finally please remember that if you are not a UK taxpayer, you cannot make Gift Aid donations. As an alternative to or in combination with gift aid donations, if you are in a position to leave at least 10% of your estate on death to charity, the rate of inheritance tax charged on the balance of your estate is reduced from 40% to 36%. Whilst this appears quite modest, the savings can be significant: if one takes 1M on which inheritance tax is due at 40%, the inheritance net of tax is 600,000. If 100,000 was given to charity, only 900K is left but after tax at 36%, 576,000 is left. Thus 100,000 is passed to charity at a cost to the family of 24,000. 6
Pensions Pensions April 2014 saw changes to both the annual and lifetime allowances that apply in respect to your retirement planning. While at first glance, and for various reasons, you may not see this as something that applies to you think again. The allowances apply to everyone regardless of the type of arrangements you have, experience to date tells us that the bigger issues lie with members of final salary pension schemes. Annual Allowance The total you can invest in a suitable pension arrangement each year was reduced by 10,000 on 6 April 2014. If you are planning to maximise payments that you make to your pension payments by carrying forward unused annual allowances from up to 3 previous years, this will also reduce by: 10,000 in 2014/15 20,000 in 2015/16 30,000 in 2016/17 The above figures are subject to your pension input period being aligned to the tax year but this may not be the case. If you leave it until the last minute, it may be too late. Should you breach the rules you will be subject to an annual allowance charge. Payment of this charge is the individual plan holder s responsibility and will be charged at your marginal tax rate. Lifetime Allowance The amount you can accumulate during your lifetime within your pension plans, without being subject to an additional tax charge, reduced by 250,000 to 1.25 million on 6 April 2014. Where the value of your accumulated funds is above this amount, the lifetime allowance tax charge currently 55% will apply. The rules of your final salary pension scheme dictate its value when calculating both the annual and lifetime allowances. If you plan using a company sponsored money purchase or personal arrangement, the end value is influenced by the growth of your fund as a result of sound investment decisions. In both cases your control is limited. There are ways to manage the effect that both the annual and lifetime allowance charges may have, however you need to act early Freedom & Choice Pensions are changing Radical Changes What do the new rules mean for you? In his March 2014 Budget, Chancellor George Osborne introduced the most radical changes to pensions in almost a century. The new measures come with extensive implications for an estimated 18 million people in the UK who have pension plans. It has been estimated that as many as one in eight pensioners may seek to withdraw all the funds in their pension. In his speech, George Osborne clearly underlined the need for expert advice whatever your stage of life in order to benefit from the changes and ultimately enjoy a comfortable retirement. It should be noted that as the median pension pot is around 12,500, the advice which will be freely available to the average person will be necessarily limited. Background Traditionally, those retiring with their own pension funds purchased annuities. However, returns had been falling dramatically over the last few years. This was due partly to the rise in life expectancy but more recently because of the lowering of interest rates during the recession. Those with larger pension funds had more options, such as flexible drawdown, but restrictions still applied. The common belief was that change was overdue. Some things have not changed in that there are still restrictions on how much you can save both in each year and over your lifetime this rule must never be forgotten! Changes Some changes have already come into effect. The limits on how much people can draw each year have been relaxed since March 2014. To access flexible drawdown, you need to have a secured annual income of 12,000 (previously 20,000). This requirement will be abolished altogether from April 2015. From April 2015, the following changes will come into effect 7
For the individual Flexible access from age 55 Pension investors aged at least 55 (rising to 57 from 2028) will be able to access their pension fund as a lump sum if they wish. The first 25% will be tax free and the rest will be treated as taxable income and will be subject to income tax at their marginal income tax rate. Basic-rate tax payers need to be aware that any income drawn from their pension will be added to any other income received, which could result in them paying tax at 40% or even 45%. You can also choose to take your pension in smaller lump sums, spread over time, to help manage your tax liability. Action Point: If you are in a Defined Contribution scheme ( DC or Money Purchase), you should consider your options now. Income Drawdown Restrictions to be Relaxed Those with larger pension pots have the ability to draw an income directly from their fund. Using income drawdown means you can choose how much income to take and when, which, leaves your options open. The rest of the fund remains invested and gives your money the opportunity for further growth. From April 2015, some current restrictions will be removed. Fully flexible drawdown will offer considerable freedom but highlights the need for expert planning advice. Capped drawdown arrangements will continue, though are currently limited to 150% of a benchmark annuity rate. It should be noted that adopting these new flexibilities will restrict your future ability to invest more into your pension scheme care is necessary! Action Point: If you are already in flexible drawdown prior to 6 April 2015, you can move to the new unlimited regime and draw more income than the current maximum. Transferring a final salary scheme If you have a final salary (e.g. Defined Benefit ( DB )) pension fund, you may still be able to take advantage of the new rules to make unlimited withdrawals. However to do so, you would have to transfer some or all of your pension into a DC pension, such as a Self Invested Personal Pension (SIPP). You should seek financial advice before transferring benefits, as you could lose valuable benefits which need to be weighed against the new flexibilities. Unfortunately, members of unfunded public sector DB schemes, such as the NHS Superannuation scheme won t be able to transfer to DC schemes. Action Point: Speaking to an adviser before transferring benefits out of a DB scheme will ensure you are aware of the full implications. Reviewing your Retirement Plans The new rules give considerable freedom of choice. Under the new rules, whilst nobody will be forced to buy an annuity at any age, those who wish to can do so at present and this may prove to remain the best answer for some people. Clearly, it has never been more important to make the right choices about your pension fund both about how should you carry on saving as much as how you should take the benefits. These decisions will affect you for the rest of your life. It is essential, especially for those nearing retirement, to seek professional advice. Not only will an expert look at your pension fund, but they will consider your wider financial goals. They will also consider another aspect of the new freedoms outlined below. Your Pension Pot A tax efficient way of keeping it in the family Important changes are also taking place with regards to how pensions are treated in the event of your death. Retaining pension wealth within the pension fund and passing it to future generations is now an extremely tax 8
efficient estate planning solution, as it combines IHT free inheritance with tax free investment returns and potential tax free withdrawals. Indeed it may even change the way we utilise our capital in retirement possibly leading us to spend other funds before our pensions. From April 2015, You can nominate who inherits your pension fund it can be anyone of any age and is no longer restricted to your dependents. If death occurs before age 75, the nominated beneficiary can access the funds at any time tax free. If the original policy holder dies after age 75, defined contribution pension funds can be taken in instalments and will be taxed at the beneficiary s marginal rate as they draw income from it. Alternatively, they ll be able to take it as a lump sum less a 45% tax charge (this will become their marginal rate from 2016/17). Additionally, the nominated beneficiary can appoint their own successor, allowing the accumulated pension wealth to cascade down generations, whilst continuing to enjoy the tax freedoms that the pension wrapper will provide. Each time a pension fund is inherited, the new owner has control over the eventual destination of those funds. Summary Flexible access to pensions from age 55 (57 from 2028 and set to remain at 10 years below State Pension age) Pension drawdown restrictions relaxed Some final salary pensions can be switched to DC, but some transfers from public sector schemes are no longer allowed Death benefits paid to beneficiaries before age 75 will be completely tax free Death benefits after death over 75 will be subject to 45% income tax in 2015-16 and beneficiary s marginal rate thereafter The 25% tax-free amount will no longer have to be taken at once on retirement. It will be possible to take smaller amounts over time, each with 25% tax free 9
For the business owner As the economy recovers, what is your financial strategy for growth? Whilst the UK economy continues to recover, the strength of the recovery may be relatively uncertain, especially given the indications of some other economies faltering. Businesses and companies which have a strategy in place to maximise growth will be well placed to benefit from any upward trend in sales and asset values but it continues to be important to maximise any reliefs and claims that are available to companies. The Government are, however, clear about challenging any tax planning which they deem abusive. Our year end guide summarises some key tax and financial planning tips which should be considered prior to the end of the tax year on 5 April 2015 or for companies prior to their accounting period end. The planning tips set out in this guide are all statutory reliefs which can be used as Parliament intended to assist businesses and companies to improve cashflow for growth. Corporation Tax Rates Corporation tax rates are currently Main rate = 21% Small profits rate = 20% The main rate will drop further from April 2015, aligning the main and small company rates at 20%. This alignment makes the concept of associated companies less important, however, the linking of associated companies will still be relevant for the purposes of establishing the timing of corporation tax liabilities: whether a company should make quarterly payments of its corporation tax liability and also when considering the availability of the 2,000 employment allowance. This is only given once to two or more associated companies. Income Income is reflected for tax purposes in accordance with what is termed generally accepted accounting principles (GAAP). The general principle is that income arises when the work is done or the goods are supplied and not when you are paid. The approach that is taken will be very much specific to the business in which you are involved. It may be possible for income to be deferred into a later accounting period. In certain situations, a change in policy can defer income to later periods. However, the accounting policies must be applied on a consistent basis from one year to the next and must be consistent with GAAP. Expenditure There are several ways in which a company can maximise deductions for expenses in an accounting period. Planned expenditure, for example on repairs, could be brought forward, or, in some instances, a provision could be made in the accounts for future costs. In general, tax relief is allowed for provisions made in accordance with GAAP. The following items merit particular review. Bad Debts The debtors ledger should be reviewed in detail so that provisions and/or impairments can be made for bad debtors. It is important that evidence is available where provision is to be made that the circumstances under which the debt have proven to be bad were in existence as at the balance sheet date. Stock The company can make a specific provision against slow-moving, damaged or obsolete stock, but a general provision is not allowed against tax. The company might be able to change the way it values stock, but great care needs to be taken. Income and Expenditure The general tax planning strategy should normally be to defer income and make full use of all available allowances and deductions. The reduction in the main rate of corporation tax from 23% to 21% from 1 April 2014, and then to 20% from 1 April 2015 will increase the value of this strategy. 10
Bonuses It might be possible to make provision for bonuses and or other remuneration to be paid in the following year, thus advancing tax relief. For such a provision to be allowable, it must be possible to establish that the liability to make the payment existed at the balance sheet date and that the payments must then be paid within nine months of the end of the period, otherwise they will be deductible only in the accounting period in which they are paid. Pension Contributions If the company has a registered occupational pension scheme, tax relief is given for contributions actually paid in the year, rather than the amounts provided for in the accounts. Action Point As with all tax advice and specific opportunities, there has to be a balance met between the commercial objectives of the company and any implementation of the issues mentioned above. This should be spoken through with the tax department who specialise in ensuring advice is technically sound and commercially savvy. Capital Allowances The 100% Annual Investment Allowance (AIA) increased to 500,000 from April 2014 for a temporary period ending on 31st December 2015. Where your accounting year straddles either April 2014 or December 2015 the AIA is time apportioned but care must be taken over the timing of expenditure as the amount of relief depends on this timing. The increase gives businesses a time limited incentive to invest in plant and machinery with a benefit of tax relief to offset the cost of investment. It is important to consider investment strategies now as the AIA may revert to 25,000 with effect from 1 January 2016. Energy efficient plant and equipment and water technology Low emission (currently less than 95g/km of CO2) or electronically propelled cars (see Green Cars, below) Zero emission goods vehicles Capital Allowances and Buildings When buying or selling a commercial property, whether for use in your own business or for letting to a third party for use in their business, it is now more important than ever to consider capital allowances in advance of the transaction. All properties will contain items eligible for capital allowances, for example the electrical, plumbing and heating systems, air conditioning and lifts. Especially with the current increased levels of AIA available it is imperative that allowances on such items are maximised. Legislation in this area has changed in recent years and since April 2014 allowances for the purchaser can be lost forever if appropriate steps are not taken prior to the sale/purchase. If planning any such sales or acquisitions, talk to us to ensure that the best tax treatment is obtained. Action Point Both for capital allowances generally and purchase/sale of a property, the earlier capital allowance advice is sought, the more planning that can take place to ensure the best treatment is obtained. Especially when dealing with the purchase or sale of a commercial property, advice should be obtained at the onset of any discussions to ensure the new rules are considered. If you are planning any capital expenditure in the near future, especially on or around the straddling dates for AIA, talk to us to see how you can gain the maximum benefit from this relief. Remember that certain new plant items can qualify for an immediate 100% deduction, in addition to the AIA available. In general these items need to be included on government lists of approved plant or technology items and they would include: 11
For the business owner Provide Green Company Cars To encourage the use of green company cars, there are tax incentives for company cars which produce low amounts of CO₂/km. These incentives allow cars to be provided which can give little or no benefit in kind for the employee and give the company a full first year tax deduction for the cost of buying the car. Many employers will opt for cash alternatives to company cars as an allowance is typically easier to administer. In addition, from 2014/15 the employer will be able to provide loans to employees of us to 10,000 without interest or a Benefit in Kind. Claim Enhanced Tax Reliefs Available Only to Companies A company may be able to claim enhanced tax reliefs which give a tax deduction of more that 100% for a range of expenditure which HMRC are seeking to encourage, including; Research & Development Tax Relief where relief can be up to 225% (230% from April 2015) Creative Sector Tax Reliefs were relief can be up to 200% Land Remediation Reliefs where relief can be up to 150% For loss making companies, the losses created by these reliefs can often also be surrendered to HMRC for a cash tax credit. Research and Development Companies should review their activities and consider whether any of these undertakings includes elements of Research & Development (R&D). Please talk to us in this regard; the R&D net can fall wider than you might think and the reliefs available can be extremely advantageous. Small and medium sized companies (SMEs) are given an enhanced deduction against tax of 225% of the actual eligible costs incurred, with the chance of actual cash refunds in loss making situations. For large companies, the basic tax relief is on 130% of the costs. R&D means activities treated as such under normal UK accounting practice effectively if work is being carried out to overcome scientific or technical uncertainty a claim may well be possible. The eligible expenditure covers staffing costs, consumable stores, certain other costs such as power, fuel, water and software, or subcontracted work. It must be related to a trade carried on by the company or be expenditure from which it is intended that such a trade will be derived. From April 2013, large companies may alternatively claim the R&D relief as a taxable Above the Line credit (effectively a grant) at 10% of their eligible costs. Furthermore where companies are loss making, a large part of this can be taken as a cash payment from HMRC. From April 2016 the old system will cease and all large claims will be under this new scheme. In the Autumn Statement, the Chancellor announced that he intends to increase the tax deduction for R&D expenditure for SME s from 225% to 230% and increase the Above the line credit for large companies from 10% to 11% from 1 April 2015. Patent Box Regime In addition to R&D tax credits, the Patent Box provisions introduced in 2012 can also currently be utilised to reduce tax following R&D activities that culminate in patented innovations. The Patent Box regime allows qualifying companies to elect to effectively apply a 10% tax rate to all profits attributable to products, processes or royalties that carry or include a qualifying patent. The rules are being phased in from 2013 with the low 10% tax rate intended to apply from the 2017 Financial Year. Discussions, however, are taking place as the regime is seen internationally as giving UK eligible companies an unfair advantage. It has been agreed that the patent box regime, as currently drafted, will be closed to new applicants from June 2016 and will stop operating from June 2021. If your company could benefit from the current patent box provisions it is therefore important to act now to secure the reliefs. Patent box 2 will replace the Patent box and although the finer details have not been announced yet, 12
it will likely be only available for R&D that has taken place in the UK. The two schemes will run in parallel with each other until 2021 when the original scheme will end. Action Point There are lots of companies who are partaking in R&D but not claiming any relief, simply because they are unaware of what they are doing is R&D. If you are doing anything bespoke, please come to speak to one of our R&D specialists who will usually be able to give you a quick answer if it is worth pursuing or not! Auto Enrolment New workplace pension regulations came into force in October 2012, heralding the most significant changes to the pension sector in many years. There are still a lot of employers who do not think that the new pension rules apply to them. However, whether you operate as a limited company, partnership or sole trader, if you have one or more employees then you will have to comply with the new regulations. Failure to do so will mean financial penalties, and persistent offenders can be fined on a daily basis for ignoring the new regulations. You will be required to establish a qualifying pension arrangement with effect from your staging date and automatically enrol eligible employees. Have you received notification of when your auto enrolment staging date is for the new pension legislation? Have you had any discussions about this to date? New Financial Reporting Standard - FRS 102 For accounting periods ending on or after 1 January 2015, the new FRS 102 will need to be implemented by large and medium companies. Some of the changes to reporting requirements are major and given that comparative figures may need restating it is something that needs to be considered straight away and you should be discussing the requirements with your accountant. FRS 102 will, however, not only have an impact on your accounts, there will be knock on effects for your corporation tax which you will need to be aware of. Some of the main changes for corporation tax are:- Investment properties. These will need to be included in the accounts at a fair value. Additionally the deferred tax on any increase in value will need to be provided for within the P & L statement, rather than through reserves. This could well give rise to practical difficulties, particularly in respect of ascertaining the base cost of properties held for many years. Goodwill and other intangibles. These will need to be included at fair value which may give scope for revaluation. In addition, the useful economic life of these will now be presumed to be a maximum of 5 years, rather than the current 20 years. This may well increase the amortisation charged in the accounts, which will then increase the tax allowance that may be available. Whilst FRS 102 itself applies only to large and medium companies, the major changes are likely to be reflected in amended reporting requirements for smaller companies too, although the details have yet to be clarified. Please talk to us for further information or if you have any concerns. Let us know when your staging date is and how many employees you have, and we can start to help with planning your pension scheme, in terms of set up and managing the extra costs involved. Our Wealth Management team have already been talking to clients, at no cost, to make sure that they are aware of the options. The feedback tells us that 12 months prior to the staging date is the right time to plan the process and to start to put plans into motion, because at the moment pension providers won t look at anything with less than 6 months to the staging date. 13
For the business owner Annual Tax on Enveloped Dwellings (ATED) From 1 April 2015, any residential property with a value of around 1m held in an envelope will need to be considered to see whether it falls within the remit of ATED. Broadly speaking, an envelope is considered to be for these purposes a limited company, an LLP with a corporate partner or a collective investment scheme. ATED is already applicable for properties over 2m. Unless the envelope is a charity, a return will need to filed with HMRC by 30 April 2015 to avoid any penalties. If there are any mid year acquisitions, a separate return will need to be filed with HMRC within 30 days of the property purchase. If one of the reliefs are not met (such as the property development or buy to let relief), there will also be an ATED charge that needs to be paid. This is calculated based on the property price. It is important to remember, even if you do not have to pay the ATED charge, a nil return still needs to be made to claim the relief or penalties will be raised! Action Point If you hold a residential property within an envelope, advice needs to be sought to understand whether it falls within ATED. If you file a return 6 months late, the penalties HMRC will impose will be at least 1,000 and with the bands going down to properties worth over 500,000 in April 2016, more and more companies will need to consider their position under ATED. 14
Broomfield & Alexander : End of Year Tax Planning 15
Cardiff Ty Derw, Lime Tree Court Cardiff Gate Business Park Cardiff, CF23 8AB Tel: 02920 549939 Fax: 02920 739430 Newport Waters Lane Chambers 1-3 Waters Lane Newport NP20 1LA Tel: 01633 265828 Fax: 01633 221457 Swansea Charter Court Phoenix Way Enterprise Park Swansea SA7 9FS Tel: 01792 790444 Fax: 01792 791212 @broomfieldwales Broomfield & Alexander www.broomfield.co.uk tax@broomfield.co.uk 16