Making the most of it B E T 2 1 4 Lesley Sutton & Rhona - - PowerPoint PPT Presentation

E T

B

2 1 4

Lesley Sutton & Rhona Graham

Making the most of it

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E T

B

2 1 4

Lesley Sutton & Rhona Graham

Making the most of it

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Do you remember Mr Hall?

Last year we introduced you to Mr Hall, Mr Hall is the majority shareholder in Hall Street Ltd, a family engineering business. At this years planning meeting Mr Hall told me: “ I’m not really interested in the Budget this year I don’t think there will be anything in it for me ! The Chancellor will be saving any good news for next years pre-election Budget. “

Setting the Scene

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I individuals Mr Hall & Other

Mr Hall & Other Individuals

LARGE RED BOX FOR TEXT Thoughts of a business owner

Mr Hall’s thoughts

“ I want to know that I am not paying more than my fair share of income tax. When I speak to

• thers I always seem to be paying more

than them ! “ Yes this sounds familiar Lets look at the changes coming into effect and the tax saving opportunities available to Mr Hall

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LARGE RED BOX FOR TEXT Key Changes

Key Changes

Basic personal allowance will increase to £10,500 by 2015/16 Married couples – transfer of personal allowance Restrictions on pension tax relief but increased access to pension pot Beneficial changes for savers New social investment tax relief

LARGE RED BOX FOR TEXT Rates and Allowances – 2014/15

Rates and Allowances – 2014/15

2014/15 2013/14 Change Personal allowance: Age 65 and under £10,000 £9,440 £560 Aged 65-74 £10,500 £10,500 Nil Aged 75 & over £10,660 £10,660 Nil 2014/15 2013/14 Tax bands: Basic rate 20% 0 – £31,865 0 – £32,010 Higher rate 40% £31,866 – £150,000 £32,011 – £150,000 Additional rate 45% Over £150,000 Over £150,000 Higher rate threshold £41,865 £41,450

LARGE RED BOX FOR TEXT Rates and Allowances – 2015/16

Rates and Allowances – 2015/16

2015/16 2014/15 Change Personal allowance: Age 65 and under £10,500 £10,000 £500 Aged 65-74 £10,500 £10,500 Nil Aged 75 & over £10,660 £10,660 Nil 2015/16 2014/15 Tax bands: Basic rate 20% 0 – £31,785 0 – £31,865 Higher rate 40% £31,786 – £150,000 £31,866 – £150,000 Additional rate 45% Over £150,000 Over £150,000 Higher rate threshold £42,285 £41,865

LARGE RED BOX FOR TEXT Married couples

Married Couples

From April 2015, transfer personal allowance to spouse or civil partner Entitled to transfer £1,050 of personal allowance Basic rate taxpayers only Maximum benefit is an income tax reduction of £210 ! How do you claim if not under self assessment – more details to follow?

LARGE RED BOX FOR TEXT Watch out for the cliff edges! 2013/14

Watch out for the cliff edges! 2014/15

Bands Income Rate of tax Notes (Dividends) Basic rate £10,000 - £41,865 20% (10%) Higher rate 1 £41,866 - £50,000 40% (32.5%) Higher rate 2 £50,001 - £60,000 40% (32.5%)

1

Higher rate 3 £100,001 - £120,000 60% (52.5%)

2

Higher rate 4 £120,001 - £150,000 40% (32.5%) Additional rate £150,000 + 45% (37.5%)

Notes:

• 1. Claw back of child benefit payments kicks in – 1% of child benefit received for every

£100 of income between £50,000 and £60,000.

• 2. Claw back of personal allowance – restricted by £1 for every £2 of income above

£100,000 – actual will vary depending on level of income

LARGE RED BOX FOR TEXT Yet more pension changes

Yet more pension changes

From April 2014: Annual allowance for tax relief on pension contributions reduces from £50,000 to £40,000 Lifetime allowance also reduces from £1.5m to £1.25m Proposed from April 2015 to those aged 55 and over: Removal of requirement to buy an annuity - can take all pension in cash – 25% tax free balance taxed as income Subject to consultation ! Speak to your pensions advisor for further details

LARGE RED BOX FOR TEXT Benefits for savers

Benefits for savers

From July 2014: Massive reforms to ISAs, which now become NISAs Limit increases to £15,000 , junior ISA increased to £4,000 Simplified – stocks, shares and cash merged together, no lower limit on cash invested From January 2015 - Pensioner bond for >65s launched by NS&I paying leading market fixed rates – further info to follow From 6 April 2015 - £5,000 of savings income taxed at 0% if earnings less than £15,500

LARGE RED BOX FOR TEXT Social investment tax relief

Social Investment tax relief

Individuals who make qualifying investments into social enterprises – new shares or loans Social enterprises – social objectives at core, variety of sectors. Limits on size of business and number of employees Income tax relief at 30% on up to £1 million per tax year (TBC) with carry back facility Capital gains tax deferral relief available After three year holding period sale of investment capital gains tax free.

LARGE RED BOX FOR TEXT Tax saving opportunities

Further tax saving ideas discussed with Mr Hall

Review remuneration structure – dividends still preferable to salary for an OMB – fall in corporation tax rate increase in NIC Consider making pension contributions or charitable donations to manage ‘cliff edges’ Transfer income producing assets to use up lower rate tax bands E.g. Shares in limited company, rental properties

LARGE RED BOX FOR TEXT Tax saving opportunities

Further tax saving ideas discussed with Mr Hall

Consider tax advantaged investments such as enterprise investment scheme ‘EIS’, Seed EIS and new social investment tax relief Children over 18 – consider tax efficient funding of university studies via gift of shares If children are under 18 – grandparents only

LARGE RED BOX FOR TEXT Dividend v Bonus

Dividends v Bonus

2014/15 Small Co Marginal Co Large Co 45% Dividend 44.4% 45.31% 45.14% Bonus 53.4% 53.4% 53.4% 40% Dividend 40% 40.94% 40.75% Bonus 49% 49% 49% By paying a dividend savings of up to 9% can be achieved Remember: A basic rate taxpayer has no additional tax to pay on the receipt of a dividend

LARGE RED BOX FOR TEXT Tax efficient investments

Tax efficient investments

SEIS EIS SIR Income tax 50% on investments of up to £100,000 30% on investments

• f up to £1 million

30% on investments

• f up to £1 million

(TBC) Dividends paid Taxable Taxable

N/A

Capital gains tax Shares exempt on sale if held for 3 years Shares exempt on sale if held for 3 years Shares exempt on sale if held for 3 years Capital gains tax deferral Yes Yes Yes Reinvestment of gains made 12/13 & 13/14 are exempt CGT Deferral only Deferral only Connection 30% including associates 30% including associates 30% including associates IHT 100% BPR 10% BPR

TBC

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Mr Hall & Other Individuals

Hall Street Limited usiness Taxes Company &

LARGE RED BOX FOR TEXT Thoughts of a business owner

Mr Hall’s thoughts

“ Companies / LLPs / sole traders I don’t understand the difference – but I want to know that I have the most tax efficient structure, and that I am getting all the reliefs that my company is entitled to “ Ah yes a common concern Lets consider the latest on business structures and the reliefs that are still available to mitigate business taxes.

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LARGE RED BOX FOR TEXT Key changes

Continued reduction in rates of corporation tax Annual Investment allowance increase to £500,000 Loans to shareholders and directors Review of business structures - partnerships only Improvements to research and development tax credits

Key Changes

LARGE RED BOX FOR TEXT Rates of Corporation Tax

Rates of Corporation Tax

Financial Year Main Rate Small Profits Rate Marginal Rate From 1 April Profits in excess

• f £1.5 million

Profits up to £300,000 Profits £300,000 - £1.5 million 2013 23% 20% 23.75% 2014 21% 20% 21.25% 2015 20% 20% 20% NB: No marginal relief calculation and no complex rules to establish number of associated companies

LARGE RED BOX FOR TEXT Annual Investment Allowance

Annual Investment Allowance

Annual Investment Allowance From 1 January 2013 to 31 March 2014 £250,000 From 1 April 2014 until 31 December 2015 £500,000 From 1 January 2016 £25,000

LARGE RED BOX FOR TEXT Capital Allowances – other

Other Capital Allowances

Type 2014/15 2013/14 Details Enhanced 100% 100% Energy saving / efficient plant & machinery Business Premises renovation 100% 100% Bringing unused commercial property back into use before 31.3.17 Selected ECA sites in enterprise zones 100% 100% Extended to 31 March 2020 Landlords energy saving £1,500 per dwelling £1,500 per dwelling Installing certain energy saving items before 1.4.15 Standard capital allowances 18% 18% Plant and machinery / fixtures and fittings Integral features and / or long life assets 8% 8% Specific items installed in building E.g. lifts

LARGE RED BOX FOR TEXT Loans to shareholders and directors

Loans to shareholders and directors – watch out!

Standard rule – loans attract charge to corporation tax at 25% if not repaid within nine months of company year end Rules changed for loans made after 20 March 2013 to prevent bed and breakfasting - ability to clear loan account and redraw the cash a week later If loan cleared by taxable dividend or salary new rules do not apply

LARGE RED BOX FOR TEXT Review of business structures

Review business structures

HMRC review into partnerships and LLPs – response to their use for tax avoidance Outcome is that if partners fail three conditions they will be treated as employees for tax purposes and not as self employed This will result in an additional employers NIC cost at 13.8% as well as potential cash flow issues – PAYE on a monthly basis – and taxation on all benefits in kind Also anti-avoidance aimed at profit sharing in mixed partnerships - companies and individuals as partners

LARGE RED BOX FOR TEXT Review of business structures

Review business structures

Review partnership arrangements asap – pre 5 April 2014 Partnerships can still be used but need to ensure that these have commercial substance Operating as a limited company is still advantageous, overall tax position is usually lower if business profits exceed £20,000 Tax savings come form lower rates of corporation tax and NIC saved if remuneration from dividends. Needs to fit commercially, take advice

LARGE RED BOX FOR TEXT Research & Development Tax Relief

Research & Development Tax Relief

Still available and still generous ! 225% tax relief on expenditure from 1 April 2012 Loss making companies can cash in losses in return for a tax repayment at a rate of 11% (14.5% from 1 April 2014) Work to resolve a scientific or technical uncertainty aimed at achieving an advance in science or technology Can be part of a larger project or required to resolve uncertainties for customers.

LARGE RED BOX FOR TEXT Research & Development Tax Relief

Research & Development Tax Relief

Work to resolve a scientific or technical uncertainty aimed at achieving an advance in science or technology Can be part of a larger project or required to resolve uncertainties for customers Applies to all businesses, bit just those who employ scientists etc. Claims very much encouraged by HMRC

LARGE RED BOX FOR TEXT Further help

Further help free of charge

HMRC are offering free workshops to high tech SME companies The sessions will focus on a range of tax incentives, grants and

• ther support available (both in the UK and through the EU)

The topics to be covered include R&D tax credits, Workshops are scheduled to run between March and June

• 2014. Closest workshop Sheffield on 14 May from 8 - 11.30am

see link below https://www.business-events.org.uk/bookbasketitem/12027

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E mployees Hall Street Limited

Hall Street Limited - Employees

LARGE RED BOX FOR TEXT Thoughts of a business owner

Mr Hall’s thoughts

“ My employees are my biggest asset but also my greatest cost. Ongoing salaries and employers NIC are a significant expense, to say nothing of recruiting and retaining the best staff” Yes we understand The Government identified that OMBs like Hall Street Ltd will be the main source of growth and hence employment in the future. So what is out there to help with the costs?

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LARGE RED BOX FOR TEXT Key Changes

Key Changes

NIC reduction - £2,000 employment allowance NIC abolished – under 21 s Tax-free childcare scheme Company car benefits

LARGE RED BOX FOR TEXT NIC changes

NIC changes

6 April 2014 - Employment Allowance £2,000 allowance per year against employers NIC Available to all business and charities DONT FORGET - Give notice of intention to claim yes box in payroll software or HMRC basic tools package 6 April 2015 - Abolition of NIC for under 21s No employers NIC on earning paid up to the UEL of £41,860

LARGE RED BOX FOR TEXT Tax-free childcare scheme

Tax-free childcare scheme

New scheme phased in from Autumn 2015 - detail subject to further consultation Families with all parents in work, including self employed, with each earning less than £150,000 per year Tax relief 20% of yearly childcare costs up to £10,000 per child - £2,000 Online account paid into by parents, tax relief added Phased introduction to include all children under age 12

LARGE RED BOX FOR TEXT Company Car Benefits

Company Car Benefits

Rates set through to 2016/17 - benefit continues to be based on CO2 emissions Changes each year increase the benefit in kind charge at all levels of CO2 emission Electric cars Benefit in kind charge Nil to 2014/15 then 9% of list price Cost of recharging at employers premises remains tax free See the Revell Ward tax app for rates and BIK calculator

LARGE RED BOX FOR TEXT Tax saving opportunities

Further tax saving ideas discussed with Mr Hall

Look at the possibility of using tax efficient incentives such as EMI to incentivise and retain key staff – long term and no initial cash outlay Don’t forget employee shareholder shares Review provision of other benefits to ensure these are tax

• efficient. There are still a number of tax free perks, see slide.

LARGE RED BOX FOR TEXT Enterprise management incentives

Enterprise Management Incentives

Employees are given options to acquire shares in future for market value at date of grant Typically exercised when main shareholder exits - giving employees tax efficient share in capital growth All shares acquired through EMI qualify for entrepreneurs relief Can still be of benefit even if no sale is anticipated:

• Tax efficient bonus payments using dividends
• Market for shares via an employee benefit trust

LARGE RED BOX FOR TEXT Employee Shareholder Shares

Employee Shareholder Shares

New employment status – workers will receive shares in exchange for giving up certain employment rights Individuals can receive between £2,000 and £50,000 worth of

• shares. No restriction on type of shares that can be used

Gains made on the disposal of up to £50,000 of shareholder shares exempt from capital gains tax £2,000 of share value received will be free from income tax and NIC

LARGE RED BOX FOR TEXT Tax Free Incentives

Tax Free Incentives

Here are some ideas...

Mobile Phone Tablet or laptop Employer pension contributions Childcare Vouchers Medical and optical check ups Very low emission cars Free car parking at work Refreshments Interest free loans up to £10,000 per employee

Taxes

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Hall Street Limited – Indirect Taxes

ndirect

LARGE RED BOX FOR TEXT State of the nation

Mr Hall’s thoughts

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“We always submit our returns and payment

• n time – but ‘the wrath of the VAT man’

scares us. How can we reduce the fear factor?”

LARGE RED BOX FOR TEXT VAT

VAT

Overview of key Budget indirect tax changes HMRC activity Current ‘hot topics’ “Making the most of it”: the VAT angle

LARGE RED BOX FOR TEXT Key Budget Changes

Key Budget Changes

Registration limit £79k -> £81k [Deregistration £77k -> £79k] Relief for Air Ambulance fuel Welcome – but is it legal? Place of supply changes – E-services

LARGE RED BOX FOR TEXT Place of supply

Place of supply – important change

Applies from 1 January 2015 Affects electronically supplied services (B2C) For EU sales, VAT due in customer’s location at local rate Need to register in each EUMS where customers located, or use ‘MOSS’ facility Key Issues – Pricing, Systems, Compliance cost

LARGE RED BOX FOR TEXT Curveballs

Curveballs – Prompt Payment Discounts

Historic: If discount offered -> VAT due on discounted amount Proposed: VAT due on amount customer actually pays WEF: 1 April 2015 (1 May 2014 for telecoms services) Compliance costs/hassle could be significant

LARGE RED BOX FOR TEXT Curveballs

Curveballs – Data Sharing

Proposal for: “controlled release” of VAT registration data to (eg) credit reference agencies Plans to: “explore options” to release “limited subset of VAT registration data as open data”

LARGE RED BOX FOR TEXT Curveballs

Curveballs – VADR

“VAT Avoidance Disclosure Regime”

• Proposed alignment with DOTAS
• No detail, but badged as “improvements”
• Fascinating fact: 65,000 “legacy” cases

LARGE RED BOX FOR TEXT Curveballs

Curveballs – Help for HMRC

Proposed:

• Increase to Budget
• Expansion of powers

LARGE RED BOX FOR TEXT HMRC activity

HMRC activity

Negatives Positives

• More visits
• More queries
• More assessments
• More disputes
• Success with clearance

applications

• Faster registration process
• Education/information
• ADR

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What’s new?

What’s new?

On the horizon… Hot topics…

• “Sugar tax”?

Could this become ‘son

• f jaffa cakes’?
• Rate reduction?

Welcome – but practical problems

• New technology: new

challenges – E.g. Bitcoins

• IFAs

The goalposts keep moving

• Property

Threats and opportunities

• TOMS

Minefield crossed with nightmare

LARGE RED BOX FOR TEXT Making the most of it

Making the most of it

Reduced rate campaigns

• Property refurbs
• Catering

Property planning

• Remains a key area

Pension fund costs

• Opportunity for reclaims

LARGE RED BOX FOR TEXT Making the most of it

Making the most of it

ADR

• Trial programme now made permanent
• Initial signs extremely positive

“Be careful out there”

• New activities -> Check it out
• Existing business -> Protect your position

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Mr Hall & His Family

Capital Gain Tax & Inheritance Tax

Mr Hall & His Family

LARGE RED BOX FOR TEXT Thoughts of a business owner

Mr Hall’s thoughts

“Most of my wealth is in my business, I’m told tax is

• nly 10% if I sell up, but I am not sure I can afford to

sell up yet or even if I want to. Overall, I’ve worked hard for the wealth I have. I have paid tax on it all once already and so I don’t want my family to have to pay more when I am gone....but I am not ready to give it all away yet !” Yes, an all too familiar problem

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LARGE RED BOX FOR TEXT Changes

Changes

No significant changes, most notable: Principal Private Residence Relief – from 6 April 2014 Restriction in relief CGT payable when you sell your former home - falls from 3 years to 18 months Don’t forget private lettings relief if former home is rented out £40,000 per person Can still choose PPR if more than one dwelling - if no election made based on facts

LARGE RED BOX FOR TEXT Changes

Further Changes

Consultation on changes to inheritance tax on-going IHT exemption for armed forces and emergency service workers – subject to consultation Changes for non-residents – CGT will be payable on sale of UK residential property from 6 April 2015, giving time for planning Extension of tax charges for residential properties valued at £500,000 (previously £2 million) and more held within a company, held other than as genuine commercial business – further detail on request

LARGE RED BOX FOR TEXT Key Rates and Allowances

Key Rates and Allowances

2013/14 2014/15 Capital Gains tax Annual exemption £10,900 £11,000 Rates: 18% 18% 28% 28% With Entrepreneurs Relief 10% 10% Inheritance tax Threshold £325,000 £325,000 Rates: Lifetime 20% 20% Death 40% 40%

LARGE RED BOX FOR TEXT Business strategy

Review business strategy

LARGE RED BOX FOR TEXT Capital Gains Tax

Entrepreneurs relief - CGT

Generous 10% rate of capital gains tax on £10 million of gains per person – make sure you qualify ! Trading company or group, more than 5% of ordinary shares and employee or director Watch out for:

• Shareholders who are not employees or directors, particularly
• n approach to retirement
• Share capital – need 5% of ordinary shares and also voting

rights

• Activities – trading companies only
• 12 month qualifying period

LARGE RED BOX FOR TEXT Inheritance tax

Business Property Relief - IHT

100% relief for shares in unquoted companies – removes value from estate Review shares to make sure that these will qualify Investments, surplus property and surplus cash can restrict the relief Property investment or rental businesses will not qualify – considering separating these from main trade to maximise relief

LARGE RED BOX FOR TEXT Inheritance tax

Other IHT saving ideas discussed with the Hall family

Building blocks – small steps to mitigate liability Quantify value of estate and hence likely IHT liability Consider opportunities to reduce that fit with current situation – not always necessary (or possible) to give it all away now !

LARGE RED BOX FOR TEXT Inheritance tax

Other IHT saving ideas discussed with the Hall family

Make optimum use of annual exemptions:

• £3,000 per annum can be carried forward one year if unused
• £250 small gifts to individuals are exempt
• Exemptions for gifts made in contemplation of marriage –

monetary limits

• Don’t forget possibility of making habitual gifts from surplus

income

Consider IHT efficient investments – qualify for BPR and so fall

• utside your estate after only two years, but give you continual

access to your cash

LARGE RED BOX FOR TEXT Inheritance tax

IHT saving ideas discussed with the Hall family

IHT threshold (£325,000) is renewed every seven years therefore make gifts if you can while you are in good health – don’t have to give away cash Consider using trusts to protect your family wealth – particularly to protect against family divorce Watch out trading company shares in trust can loose ability to claim entrepreneurs relief

LARGE RED BOX FOR TEXT The final word

The final word from the man in the pub!

“I always seem to be paying more than others” Tax planning or tax avoidance....the debate rages on Government continue to attack tax avoidance schemes and aggressive tax planning Remember that there is no law to stop you structuring your affairs in a tax efficient manner, provided that there is commercial substance to your choice

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Q uestions?

Questions

Any