The importance of Receipts

Most business owners are aware that they need to keep receipts if they want to secure a deduction for expenditure for business tax purposes, assuming that the expenditure is allowable for tax purposes.

This is particularly important if you purchase an asset: a vehicle, equipment, computers and so on, as these can be high value items and the loss of tax relief would be significant.

Property owners, who would be subject to Capital Gains Tax (CGT) when the property is sold, are in a similar position.

Although they may keep the receipts for annual expenses that they write off against rents received they should also keep adequate records if they improve their property. Improvement costs are generally taken into account when the property is sold – they reduce any CGT payable.

Imagine, therefore, the consternation of Mr Tobias Ridpath who was denied CGT relief for expenditure on his properties for this reason. Here’s an abridged version of the comments made by the Judge in her summing up.

“We can see it is very likely the Appellant (Mr Ridpath) incurred some expenditure on the properties. The difficulty is that we have no idea how much was spent. We are invited to find that some or all of the bank withdrawals were used in this way. The appellant was unable to point to a single item and explain by way of illustration how the money leaving his account had been spent. [He was given] ample opportunity to provide evidence of expenditure. Indeed we can see that the Appellant was treated very tolerantly... We have no idea why the Appellant was so vague about the expenditure. It is impossible for us to conclude, ..., that he spent some reasonable figure on these works and then guess how much that is or accept what seems to us equally to be guess work by the Appellant about the expenditure.

It is very unfortunate that the Appellant was unable to provide some details of expenses but that was not the case and we have no alternative but to dismiss the appeal.”

Property owners should carefully document any improvements to their properties and keep the records to present to their advisors when the calculation of any capital gains on sale is being considered. In the absence of evidence, it is likely, as Mr Ridpath discovered, that tax relief for capital expenditure will be denied.

Comimg soon - the first year-end under RTI

This tax year has been one of transition; one in which the vast majority of employers began to successfully report information about their PAYE schemes in real time. 
  
With April approaching, you need to start thinking now about preparing to make your final submission for the 2013-14 tax year. 
  
It will be a different process to previous years and it's always best to get ahead of the game.
  
For most employers, the final submission will be their final Full Payment Submission (FPS)showing the very last employee payment for 2013-14.
  
Don't try to send forms P35 or P14 for 2013-14 or later tax years - if you do they'll be rejected !
  
The start of the new tax year will see a number of changes including new in-year penalties for late payment and late filing which were scheduled to be introduced from this April. However, having listened to customer feedback, HMRC has decided to stagger the start of these penalties to give everyone involved more time to adapt to reporting in real time.
  
Under the new extended timetable, employers who are late sending their submissions won’t be charged late filing penalties as long as they bring themselves fully up to date by 5 October 2014.

Fraudulent emails from HMRC

The problem of fraudulent emails continues. The emails are part of a 'phishing' exercise that uses bogus e-mails and websites to trick taxpayers into supplying confidential or personal information. These emails aren’t genuine HMRC messages and should be disregarded. The 'phishing' emails are being sent from inside the UK and around the world.

The emails often start with phrases which alert taxpayers to the fact that they are due a refund of tax with the emails containing links to fraudulent websites. Any email that appears to be fraudulent should not be opened before verifying the authenticity of the email.

Email addresses used for mailing these fraudulent emails include the following:

• services@hmrc.co.uk
• secure@hmrc.co.uk
• hmrc@gov.uk
• refund-help@hmrc.gov.uk
• service@online.com
• annual.tax@hmrc.gov.uk
• email@hmrc.gov.uk
• refund.alert@hmrc.gov.uk
• refunds@hmrc.gov.uk
• customs@hmrc.gov.uk
• srvcs@hmrc.gov.uk
• alertsonline@hmrc.co.uk
• info@hmrc.gov.uk
• noreply@hmrc.gov.uk
• rebate@hmrc.gov.uk


These are not valid HMRC email addresses.

Summary of Autumn Statement

Autumn Statement - 5 December 2013

George Osborne presented his Autumn Statement to Parliament amid mixed messages spilling from the Treasury, and promoted in the national press, about what he would, and would not give away.

The reported economic indicators were encouraging:

·         1.4% growth in the UK expected for 2013, 2.2% for 2014.

·         Increase in jobs this year of 400,000.

·         National debt: gradual decreases expected with a Budget surplus forecasted for 2018-19.

A number of incentives for small businesses and changes to personal and business taxation were also confirmed. In more detail they are:

Personal taxes and related matters

Personal Tax and National Insurance 2014-15

1.     The personal allowance for persons born after 5 April 1948 is confirmed as £10,000 from 6 April 2014. From 2015-16 the personal allowance will increase in line with the Consumer Price Index (CPI).

2.     The higher rate threshold (the basic personal allowance plus the basic rate limit) will be £41,865. With the basic personal allowance at £10,000 this means that the basic rate limit will be £31,865 from 6 April 2014.

3.     There will be no percentage increases in the rates of NIC (Class 1, Class 1A, Class 1B and Class 4) for 2014-15, but there will be changes to the various thresholds. The weekly rates for Class 2 and Class 3 NICs will be increased.

Tax Credit, Child Benefit and Guardian’s Allowance 2014-15

1.     The disability elements of Tax Credits will be increased in line with CPI at 2.7%. Other rates are increased by 1%. The family element of child tax credit remains at £545.

2.     Child Benefit will be increased by 1%.

3.     Guardian’s Allowance will be increased in line with CPI of 2.7%.

NEW – Married Person’s Allowance

From April 2015 a spouse or civil partner, who is not a tax payer, or who does not pay tax above the basic rate, will be entitled to transfer up to £1,000 of their personal allowance to their spouse or civil partner. This will not advantage higher rate tax payers as the recipient of the transfer cannot be subject to tax at higher than the basic rate.

In effect, the transferor’s personal allowance will be reduced by £1,000, and the recipient’s tax will be reduced by up to £200 (if the basic rate of tax stays at 20%).

In his speech George Osborne indicated that this was “a beginning”. Perhaps the amount of the transfer will be increased in future years?

NEW – National Insurance Contributions (NIC) opportunity

From October 2015 a Class 3A NIC will be introduced to give those who reach state pension age, before 6 April 2016, an opportunity to boost their Additional State Pension.

Capital Gains Tax (CGT) - Private Residence Relief change

At present, if a property has been occupied at any time as an individual’s private residence, the last three years of ownership are disregarded for CGT purposes – even if the individual is not living in the property when it is sold, and may possibly be claiming private residence relief on a different property at the same time.

From 6 April 2014 this final period exemption will be reduced to 18 months.

TIP: Those property owners considering the sale of a property that has been a private residence at some time should take this change into account – if they can sell before 6 April 2014 they will still exempt the last three years of ownership from CGT.

The Government have also announced plans to introduce CGT on future gains by non-residents who sell UK residential property from April 2015.

CGT Annual exemption

·         For 2014-15 this will be £11,000 (for most trustees £5,000)

·         For 2015-16 and subsequent years £11,100 (for most trustees £5,500)

NEW – Social Investment tax relief

This is a new relief for investment in social enterprise and will commence April 2014.

Investment in Social Impact Bonds will also be eligible for this new relief.

Other investment incentives 2014-15

·         ISAs: Subscription limits £11,880, of which £5,940 can be invested in cash.

·         Junior ISAs and Child Trust Funds: investment limits increased from £3,720 to £3,840.

·         SAYE schemes set up to help employees save for and apply for shares to be increased from £250 to £500 per month.

·         Share Incentive Plans (SIPs): individual limits on the free shares that companies can award will be increased from £3,000 to £3,600 per year. Individual limits on the partnership shares employees can purchase will be increased from £1,500 to £1,800 per year (or 10% of an employee’s annual salary).

Fuel Duty and tax discs

The planned September 2014 increase in fuel duty has been cancelled. No further increases will be made during the current Parliament.

A further administrative inconvenience for motorists is to be abolished: the paper tax disc. It will be replaced by an electronic system.

State Pension changes

The State Pension Age (SPa) will increase to 66 years in 2020. The Government has already indicated the SPa will rise to 67 years by 2028.

It is further proposed that the SPa will rise again: to 68 years in the mid 2030s, and to 69 years by the late 2040s.

The Government estimates that it could save around £500bn from pension expenditure over the next 50 years due to these changes in SPa.

The basic State Pension will rise by £2.95 a week from April 2014.

Fuel bills

The Government has committed to delivering an average saving of £50 in household expenditure by reducing the impact of government policy on energy bills. It will do this whilst maintaining support for poorest families and providing new home owners with an incentive worth up to £1,000 to undertake energy efficiency measures.

Train fares

Average increases in fares will be capped in 2014 in line with RPI, not at 1% above RPI as previously announced.

Business taxes

Film Tax Relief

·         From April 2014 the rate of film tax credit for surrenderable losses will be:
25% on the first £20m of qualifying core expenditure (QCE) (subject to maximum of 80% of QCE)

·         and 20% thereafter (to a maximum of 80% QCE)

·         the minimum UK expenditure qualification will change from 25% to 10%

These measures are subject to State Aid approval.

NEW - Theatre Relief

A consultation will be launched in spring 2014:

·         to introduce a limited Corporation Tax relief for commercial theatre productions, and

·         a targeted relief for theatres investing in new writings or touring productions to regional theatres.

These measures are expected to come into force from April 2015.

Tax avoidance and evasion – effective as from 5 December 2013

The following five measures have been introduced:

1.     Two changes to improve the effectiveness of the World Wide Debt Cap.

2.     Controlled Foreign Companies (CFC) profit shifting – the measure switches off the partial exemption rules for loan relationship credits of a CFC in certain circumstances.

3.     Partnership taxation – measures to restrict allocation of profits and losses between individual, and non-individual partners, where the motivation is minimising tax.

4.     Avoidance schemes using total return swaps.

5.     Double taxation relief revenue protection.

Charities established for tax avoidance purposes

The Finance Bill 2014 will contain provisions to prevent charitable tax reliefs to charities where one of the main purposes of establishing the charity was tax avoidance.

Accelerated tax payment in avoidance cases

There is evidence that tax-payers are entering into avoidance schemes in order to defer tax liabilities. To counter this activity provisions will be included in the Finance Bill 2014 to require payment of disputed tax when a formal avoidance follower penalty notice is issued at the beginning of an enquiry.

Business rates

·         A cap is to be introduced from April 2014 that will limit business rate increases in England to 2%.

·         The introduction of up to a £1,000 rates discount to help high street businesses. This includes pubs, cafes, restaurants, charity shops as well as other retailers who occupy retail premises with a rateable value of up to £50,000 in 2014-15 and 2015-16.

·         The introduction of a temporary reoccupation relief, granting a 50% discount from business rates for new occupants of previously empty retail premises for 18 months. The relief will be granted to businesses moving into long-term empty retail properties on or after 1 April 2014 and on or before 31 March 2016.

·         Extending the Small Business Rates Relief for a further 12 months from 1 April 2014.

NEW – Abolition of employers’ NICs for under 21s

From 6 April 2015 employers will not have to pay Class 1 secondary NICs on earnings paid to the under 21s up to the Upper Earnings Limit (UEL) – below £813 per week.

Investment in young people

1.     The cap on student numbers at publicly funded higher education institutions in England is to be removed by 2015-16. This should increase capacity to allow 60,000 more young people go to university every year. For 2014-15, the Government will increase the cap for HEFCE-funded institutions by 30,000.

2.     The Government will provide extra funding for science, technology and engineering students of £50m per academic year from 2015-16.

3.     The provision of £40m in additional support for people starting higher apprenticeships. This is expected to create 20,000 additional apprenticeships over the next two academic years.

Free school meals

Pupils attending state schools in England, in Reception, Year 1 and Year 2 are to get free school lunches from September 2014 at an estimated cost of £600m per year.

Capital funding will be made available to improve capacity in school kitchens. Additional funding will also be made available to enable Further Education and Sixth Form Colleges to offer free meals to disadvantaged students.

Christmas Entertaining

At this time of the year business owners and their employees are planning their Christmas celebrations; this may, or may not, include a party or meal out together.

The cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. Also, as long as the criteria below are followed, there will be no taxable benefit charged to employees:

1. The event must be open to all employees at a particular location.

2. The cost is only tax deductible for employees and their guests (which would include directors in the case of a company) but not sole traders and business partners in the case of unincorporated organisations.

3. An annual Christmas party or other annual events offered to staff, generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 (inc VAT) p.a. The guests of staff attending are included in the head count when computing the cost per head attending.

4. All costs must be taken into account, including the costs of transport to and from the event or accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring. No deduction will be allowed for the £150 exemption.

5. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution. If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

A final note on ‘Trivial’ gifts for employees

Employers may find the following Revenue concession useful - we have copied the note directly from the HMRC handbook:

"An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable. For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned."

One final cautionary note regarding VAT and staff gifts, VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are zero rated for VAT purposes!

Coding out debts

From April 2012 the coding threshold was increased from £2,000 to £3,000 allowing taxpayers to settle an underpayment of less than £3,000 via their tax code. This is subject to them being in employment or in receipt of a UK-based pension. The coding adjustment applies to self assessment liabilities and tax credit overpayments.

From April 2014 outstanding Class 2 NIC contributions can also be collected using PAYE tax codes. Class 2 National Insurance Contributions (NICs) are paid by all self-employed taxpayers unless they qualify for the small earnings exemption or other exemptions which remove the necessity to pay NICs.

The increase in the coding threshold has helped more people with small debts and underpayments to benefit from this collection method. Instead of paying off debts in a lump sum, money is collected in monthly instalments over a year.

Taxpayers with underpayments in the tax year 2012-13 will pay back the amount owed to HMRC (up to £2,999) in the tax year 2014-15.

Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) is designed to increase the level of investment in the early development of high growth potential businesses. The scheme is similar to the EIS but focuses on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The SEIS applies to shares issued on or after 6 April 2012 and will continue to offer Income Tax relief until at least 2017. Capital gains reinvestment relief was originally only available for 2012-13 but has been extended to 2013-14 at half the rate (£50,000).

The scheme provides Income Tax relief worth 50% of the amount invested to qualifying individual investors on a maximum annual investment of £100,000. This kind of tax relief is making the scheme very popular but investors should consider the importance of picking a good company to invest in and undertaking thorough due diligence. There are a number of conditions which must be met in order to invest in the scheme. For example, the scheme can only be used to invest in small companies, i.e. companies with gross assets of no more than £200,000 and with less than 25 employees.

To see if you can qulaify for SEIS relief or for further infomation, please call us.