Tag: tax

On the 8th day of Christmas the VAT man gave to me – EC registrations that are truly easy…..

On the 8th day of Christmas the VAT man gave to me – EC registrations that are truly easy…..

 

VAT was introduced to the UK on April 1st  1973 (at one minute past midnight, I’m reliably informed), which can sum up why this European tax is sometimes viewed, well humorously?!

 

The more important calendar day for VAT on services over the last five years has been the 1st January’s – giving all businesses relevant to each change a very happy New Year!

 

As HMRC have tried to get to grips with the technological age (no, let us not mention their recent website changes) the rules for digital services being supplied to end users are set to change with effect from 1st January 2015.

 

These B2C supplies, as HMRC like to describe them, are currently subject to UK VAT however from the New Year, they will be subject to VAT where the consumer belongs.

 

Reign in that reindeer just one minute and consider….. what is a digital service?….are you supplying the portal or the end user?…..can you identify the end user by county code on the SIM?…….could your services exempt?…..Are you making bundled or single supplies?……

 

Depending on the answers, you might be liable to register for VAT in all the EU countries in which your customers belong.

 

Some people might view that as fascinating, exciting even, but if we kindly suggest they go back to their dark room and lie down until that feeling passes, we should consider the level of administration that would impose on those businesses.

 

To help with this, there is a return which can be made to the UK HMRC which will list all the countries sold to in each quarter, the value of the sales and the relevant VAT and HMRC will collate all of those details and pass on the VAT your business collects to the various EU countries.

 

A helping hand from HMRC that could actually help….(surely not)? YES! The only drawback is the name – Mini One Stop Shop – MOSS.

 

But hey, would you rather have a useful scheme or a snappy name for it?

 

Rolling Stones gather none (or get any satisfaction, but that’s a whole other blog).

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On the seventh day of Christmas the taxman gave to me – a reduced corporation tax bill – yippee!

When this seemingly never ending flow of work ceases, when the last nail bitingly close delivery arrives, when the Queen’s speech has finished and just before you tuck into your Christmas lunch ….. and you are offered the end of a Christmas cracker – think of the potential corporation tax savings you could generate on your patented products!

 

No, seriously!!

 

In 1857 a sweet maker and retailer from London, Tom Smith, created the ubiquitous Christmas Cracker.  Inspired by a bon bon he had in Paris in 1870 he returned to London brimming with ideas and created his own bon bons, sweets he wrapped in tissue paper developing these to include with a love motto to sustain the popularity of the bon bons year round, they gained in popularity but he wanted something more.  The story goes that he was inspired by the cracking of logs on his fire to put together two small thin pieces of card that were treated with chemicals such that when they were pulled against each other they “cracked” and Eureka – a cracker (Cosaque) was born!

 

The clever cracker was used at many occasions not just Christmas and the popularity meant that there was, of course, competition.  At this stage Mr Smith patented his invention.

 

The taxman introduced a tax relief that Tom Smith and his fellow inventors would think of as a real Christmas treat:  The Patent Box.  This relief is commonly thought of as sitting alongside the Research and Development tax credit and is aimed at UK companies with the aim of incentivising them to invest in the development of new products.

 

It is a relief that is applicable to UK companies generating worldwide profits from products that incorporate European patented products and processes.  The relief is provided by a reduced rate of corporation tax rate, (10%), for income generated from these products and similar Intellectual Property (IP).  The definition of qualifying income is very generous for example incorporating a patented item into a product can qualify the income generated from the whole product for Patent Box, for example a patented gearbox in a car will qualify the income generated from the car.

 

This rate of 10% for the Patent Box is being phased in from April 2013 and will reach this full rate of relief by 2017.

 

The relief is provided by an additional elective deduction in the company’s corporation tax computation, the effect of which is to reduce the rate of tax on relevant Patent Box profits to 10%.

 

As with any relief there are a number conditions that need to be met including that the company must fall within the UK corporation tax regime and is actively involved in the exploitation of the patent and will be applicable to both new and existing IP, although this is relaxed for particular intra group arrangements and if the company licenses its patent rights it must have exclusivity which is at least country wide.  Trademarks or copyrights do not fall within Patent Box.

 

A variety of different types of income will attract this lower rate of tax including:

  • Income from the sale of patents;
  • Infringement income
  • Income from sales of products with patents and
  • Patent royalties.

 

In order to benefit from this relief companies need to actively elect to be within the Patent Box and this needs to be made within 2 years from the end of the accounting period.  Recent news indicates that the Patent Box regime will be closed to new entrants after 31 March 2016.  So you need to act now to ensure your accounting records are suitable to capture the relevant information to allow the complex calculations to be made.   It should also be considered that companies with patents pending also need to be aware of the new rules as the relief is aggregated and given in the year the patent is granted, therefore information needs to be collated whilst the patent application is being processed.

 

Finally as the relief is only available to companies if you are a sole trader or partner in a partnership and hold qualifying patents you should contact us to consider whether your business could be restructured in order to benefit from the relief.

 

If you have any queries or would like to chat this through further please contact [email protected] or give me a ring on 01772 821021.

 

Come back tomorrow for another Christmas treat!!

On the 6th Day of Christmas the Taxman gave to me… money for putting on a festive panto part-ee!

Christmas is the season for taking your children to a pantomime, for work’s Christmas outings to see a show, or a trip to the theatre with your significant other. It is often a real Christmas treat, but what do the theatre producers get? Well for the first time this year, they can get a Christmas treat too, in the form of a tax credit from HM Revenue & Customs.

 

This is a corporation tax relief, and even though many theatre production companies don’t pay corporation tax, they are generally within the charge to corporation tax and so qualify for the relief.

 

Who qualifies for Theatre Tax Relief?

It is the production company which qualifies for the tax relief. This is the company responsible producing and running the theatre production, not the theatre itself (though sometimes these can be the same company in the case of small local theatres putting on their own plays etc). The company must be actively engaged in decision making during the production, making an effective creative, technical and artistic contribution to the production, and it must be directly paying and negotiating contracts for goods and services related to the production.

 

A whole variety of types of production qualify, but it must be a live dramatic production, where the cast are mainly acting out roles (thus ruling out shows where the cast play themselves, such as is generally the case with stand up comedians). It can include plays, opera, musical, ballet or other dramatic performances. It must be for either paying guests or put on for educational purposes, and there’s a few other conditions, but most dramatic performances should be able to qualify for the relief.

 

What do the production company get?

The production company can generally get up to 20% of their qualifying costs on the production as either a deduction from their corporation tax bill if they are tax paying, or as a payable tax credit if they aren’t. For touring productions the relief is even more generous, as they can get up to a 25% tax credit.

 

This is a really generous new tax break, so if you think you might qualify, then get in touch today. Even if you don’t pay corporation tax or haven’t needed to submit a tax return for years, you may still be able to claim a tax credit. The sooner you start thinking about this the better, as you will need to start separately identifying income and expenditure for each qualifying production.

 

If theatre tax tax isn’t enough for you, the Chancellor announced in his Autumn statement earlier in the month that he is introducing an Orchestra tax relief from 2016. In the meantime however, enjoy the Christmas pantomime if you are going this Christmas, and just think that maybe this year HMRC aren’t quite the villain you always thought they were!

 

Come back tomorrow for another Christmas tax break.

On the fifth day of Christmas, the taxman gave to me……a five kilo turkey (tax free)!

On the fifth day of Christmas, the taxman gave to me……a five kilo turkey (tax free).

 

It used to be such a great Lancashire (and elsewhere) tradition that employers gave their staff turkeys at Christmas. Of course back in the day, the tax man was a true gentleman and wasn’t usually minded to charge tax and NIC on such gifts.

 

As time passed, Inspectors of Taxes became much more strict about anything provided to employees by employers, and even bunches of flowers given on marriages or births were all taken into account for tax purposes.

 

Slowly but surely the powers that be recognised the commercial importance of using Revenue staff to track down the larger amounts of tax due rather than having them check the tax due on bottles of wine gifted to staff and Her Majesties Revenue and Customs (HMRC) introduced an unofficial exemption for those small gifts which could be considered “trivial”.

 

So even where employers added a bottle of Bucks Fizz to go with the turkey, they had achieved such fabulous discounts for both that the total cost to them for this Christmas gift was below the HMRC triviality threshold.

 

With a brief letter to HMRC triviality was confirmed and so neither tax nor NIC would be due.

 

The employer is able to claim the VAT back on the Fizz, corporation tax relief is available on the total costs of the gifts and employees are very happy to have received such an unexpected seasonally related gift.

 

Rock on Tiny Tim

On the Fourth Day of Christmas my tax adviser gave to me …. A tax relief for donating to Charit-ee!

The combination of the Christmas spirit and the ongoing humanitarian crises, such as the spread of the Ebola virus and the civil war in Syria, will encourage many of us to donate our hard earned cash to charity, but what are the tax implications of doing so?

 

When making a donation you will notice an option to ‘Gift Aid’ the donation – but what does this mean?

 

By ticking this box the individual is declaring that they will pay sufficient Income Tax for the charity to reclaim an additional 25% of the donation made from HM Revenue & Customs (HMRC). So for example if an individual donates £80 to charity and ticks the Gift Aid box, the donation is worth £100 to the charity. The reason for this is that a taxpayer makes the donation out of their net (after tax) income, and this allows the charity to reclaim the tax suffered by the individual. As this only provides relief for Basic Rate (20%) tax, let’s look at three examples to see what tax relief is available for different taxpayers:

 

1)     Stephen earns an annual salary of £60,000, with part of this income being taxable at the higher rate of 40%. Stephen decides to donate £800 to charity. He ticks the Gift Aid box and the charity can reclaim an additional £200. As he is a Higher Rate taxpayer Stephen can also claim additional relief via his annual Tax Return (or through his tax code if he is not in Self Assessment). The donation reduces the amount of income taxable at the higher rate of 40%, and in this case it will reduce Stephen’s tax liability by £200. If Stephen was an Additional Rate taxpayer (taxable income over £150,000) the donation would reduce his tax liability by £250.

 

2)     John earns an annual salary of £20,000 and is therefore a Basic Rate taxpayer. He donates £400 to charity. He ticks the Gift Aid box and the charity can reclaim an additional £100 from HMRC. As John is a Basic Rate taxpayer no additional tax relief is available to John personally.

 

3)     Mrs Smith receives an annual state pension of £6,000 and bank interest of £2,500 (received gross). As all of her income is covered by the tax free personal allowance she does not pay any Income Tax. As Mrs Smith has significant savings she likes to donate some money to charity each year, and this year she decides to donate £500 to the RSPCA. Mrs Smith is unsure as to whether she should tick the Gift Aid box. She understands that by ticking this box the charity will receive additional money and decides to go ahead. So what are the implications of this? By ticking the box the charity will receive an additional £125, reclaimed from HMRC. As Mrs Smith has not paid any Income Tax during the year she has made a false declaration, and this amount should be repaid to HMRC (usually via an annual Tax Return).

 

There are also other situations where making a payment to charity through Gift Aid will be of financial benefit to taxpayers, for example when calculating an individual’s assessable income for tax credits purposes. In this situation the payment to charity reduces the claimant’s assessable income (and could therefore increase the level of tax credits received).  If a taxpayer receives child benefit payments and their income is over £50,000 it may reduce any amount which is repayable to HMRC under the ‘High Income Child Benefit Tax Charge’, but this will depend on individual circumstances.

 

Companies can also get tax relief for making charitable donations, although they are not eligible to make donations under the Gift Aid regime.

On the third day of Christmas the Taxman gave to me … A tax rebate for assets that save energ-ee!

At this festive time of year I thought I would remind you about another form of tax relief that is on offer from HM Revenue & Customs.  This comes in the form of an enhanced capital allowance and is particularly relevant if you are thinking of purchasing, say, a new Combined Heat and Power system to keep your employees warm and also power your fairy lights!

 

By way of background Capital Allowances (CA) are a little known, but highly valuable property-related tax relief which can result in significant tax savings for commercial property owners and many leaseholders on items bought for use within the business.  It is deductible tax relief available when a taxpayer incurs capital expenditure on qualifying assets within a commercial property typically when constructing or refurbishing a building.  CA’s are the tax equivalent of accounting depreciation and reduce the taxable profits, thereby lowering your tax liability.

 

In property you will find two categories of qualifying assets:

Integral Features (known as “special rate pool” items) qualify for an 8% allowance on a reducing balance basis allowance this includes electrical systems, cold water systems, heating, ventilation & air-conditioning, lifts, external solar shading and thermal insulation in existing buildings

 

General plant (known as “main pool” items) qualify for an 18% allowance on a reducing balance basis typically including items such as sanitary fittings, kitchens, carpets, signage, security systems, racking, Christmas decorations, furniture and fittings

 

The government introduced Enhanced Capital Allowances (ECA) in 2001 to encourage expenditure on greener technologies to help manage climate change. There are two government approved lists scheduling what energy and water products qualify for ECAs.  To qualify the asset acquired must be new and unused and on the list at the date of acquisition you are then entitled to a 100% allowance of the cost of the asset (or claim value where applicable) in the year of acquisition.  This is deducted from your taxable profits, resulting in a lower tax charge or in some cases a cash rebate.

 

To illustrate let’s say if a business invests £10,000 on a new air conditioning system.  This is an integral feature therefore will obtain an 8% deduction as a capital allowances and the cash saving in year one will be £360 at the 20% corporation tax rate.  The remaining £1,640 of tax relief will be deducted over the next 55 years.

 

If instead the business had installed an air conditioning system that was listed on the Energy Technology List (ETL) at the date of acquisition the cash saving would have been £2,000 in the year of acquisition.

 

Indeed our clients who invest in ECA qualifying technologies have commented on the longer term benefits of installing green technology such as lower energy bills, reduction in Climate Change Levy, CRC payments and also an improved BREEAM status.

 

Please note that there are four non- listed technologies including lighting, automatic monitoring and targeting equipment (AMT), combined heat and power (CHP) and pipe work insulation. For these technologies your supplier will be able to advise whether their product qualifies for ECAs and certification will be required to support your claim.  This certification varies from a statement from the supplier (lighting) to an official form (CHP).

 

An additional relief through ECAs is available to limited companies.  If you have incurred expenditure on ECA compliant assets and have a tax loss in the year you can surrender the ECAs claimed for a tax repayment at a rate of 19%, a real Christmas treat!  This claim can be made up to two years after the end of your accounting period.

 

ECAs offer taxpayers a great opportunity to accelerate relief on your capital expenditure and reduce your tax bill especially if this is incorporated into the decision making before a project commences you can achieve significant tax saving.  Unfortunately this is an area that is frequently overlooked and not considered until it is too late to influence the outcome which means businesses are unable to make a valid claim for these up-front tax breaks.  Let us help you!

 

Please come back tomorrow for another Christmas tax break.

On the First Day of Christmas the Taxman gave to me… R&D tax credits for free!

You might not get an actual present from the taxman to open on Christmas morning this year, but that doesn’t mean you won’t get anything from HMRC either. There are many tax reliefs and credits available for taxpayers to take advantage of, and not just at Christmas. So read on over the next couple of weeks for the Moore & Smalley Twelve Tax Breaks of Christmas.

 

This Christmas the shops will be bursting with new toys and gadgets to amaze and delight children and adults alike. These new innovations don’t come from nowhere but are the result of often extensive Research & Development work by the companies involved. The good news for any companies involved in R&D work is that there are very generous tax reliefs on offer for this work. Small and medium sized businesses (SMEs) can claim up to 230% of their qualifying R&D spend as relief against their tax bill or up to 33% of their qualifying costs paid back to them as a tax credit if they are loss making.

 

R&D arises when a company is seeking to make a scientific or technological advance through the resolution of scientific or technological uncertainties. The work must not be routine, and should not be readily deducible by a competent professional working in the field.

 

Research & Development can arise as part of the creation of a new product or process, or the appreciable improvement of an existing one. Here are some Christmassy examples of the sort of activities that might be R&D:

  • Research into developing and growing Christmas trees which grow quicker, look better and last longer without the pine needles falling off.
  • Researching and testing new materials to cut the cost of Christmas decorations and accessories
  • Developing crackers with a louder ‘bang’
  • Online retailers developing increasingly sophisticated software for tracking and delivering customer orders quicker and more efficiently than ever
  • Research into cheap, environmentally friendly packaging

For more information on the sectors and types of business activities where you might find R&D, read this recent article from our

 

So while you are doing your Christmas shopping this year, think about the Research & Development that is behind your purchases. More importantly though, think about your own business. Are you developing new products or making improvements to old ones? Are you upgrading your existing processes by incorporating new technologies? If so, then get in touch to see if you can make a claim. You may be getting a Christmas present from the taxman after all this year.

 

Come back tomorrow for another Christmas tax break.

Close your eyes and think hard

Close your eyes and think hard. Perhaps a dark room would help? Step away from those twinkly lights and mince pies and consider all the things you provide for your staff at this time of year…

 

Should they learn a new Carol this year?

 

On the first day of Christmas my employer gave to me….mince pies to have with my tea.

 

Reasonable food when available to staff generally is an exempt supply for tax and so no need to report on either P11D or via your PSA. (NOT when part of a salary sacrifice scheme!).  Claim any VAT back and claim a corporation tax deduction.

 

On the second day of Chrismas my employer gave to me … a parking space that was totally “free”.

 

Car parking spaces near their place of work – again top marks for you the employer. Exempt from tax and NIC as above.  Claim your VAT back and a corporation tax deduction.

 

On the third day of Christmas my employer gave to me … a bouquet that was flowery.

 

A bouquet of flowers well, we are now possibly edging into tax unless the cost is trivial and you obtain clearance for it to be ignored for tax purposes. Otherwise they should be reported to HMRC on either the P11D’s (bah humbug) or within your PSA (Hurrah the Grinch is dead).

Claim the VAT back and a corporation tax deduction.

 

On the fourth day of Christmas my employer gave to me …. Office facilities.

 

You allow your staff to work late or start early and use office facilities for their online Christmas shopping and spreadsheeting their Christmas cash flow. Again, magnificently exempt!

VAT claimable as private use is incidental.

 

On the fifth day of Christmas my employer gave to me … screening to see if I’m healthy.

 

Health screening to ensure they are all blooming and ready for the rigours of the festive season. You are sitting very high now on the tax efficiency Christmas tree!

Any VAT is recoverable and the costs are deductible for corporation tax.

 

On the sixth day of Christmas my employer gave to me … gifts from another company.

 

Gifts received from business contacts are distributed to the staff – no cost to you and so no tax to the employee. No VAT to claim.

 

On the seventh day of Christmas my employer gave to me .. a bottle of wine and a turkey.

 

You provide a bottle of wine and a turkey to staff – again depending on what else has been provided to them through the year these might be agreed by HMRC as trivial and so free of tax. Otherwise they should be included in the PSA. The costs are deductible for corporation tax purposes.

 

On the eighth day of Christmas my employer gave to me …. Another turkey.

 

A hamper given to staff, even if only including a turkey and bottle of wine cannot usually be agreed as trivial and so PSA, unless you describe it as a turkey and a bottle of wine….?

Again any VAT can be recovered and a corporation tax deduction can be claimed.

 

On the ninth day of Christmas my employer gave to me … a wonderful party.

 

For the annual party you will need to add up all the costs of transport, perhaps overnight accommodation, free bar, meal, entertainer. If offered to all staff and if the price per attendees (including partners/spouses) is less than £150 VAT inc then it is tax free.

The input VAT for the employees costs is recoverable, and where you have charged a nominal amount for their partners/spouses attendance and accounted for output VAT on those amounts, you can recover the input VAT for them too!

Staff entertaining is deductible for corporation tax.

 

On the tenth day of Christmas my employer gave to me … a test of whether I can see.

 

Another tax free offer….you can pay towards an eyesight test, and the cost of spectacles or contact lenses required solely for VDU use that an eyesight test shows they are necessary.

 

An employer can also pay a proportion towards the cost of a prescription for an employee who is required to use a visual display unit (VDU) as part of their normal duties, and where their spectacles/lenses are for general use but include a special prescription for VDU use.

The cost of the eye test is deductible for corporation tax purposes.

 

On the eleventh day of Christmas my employer gave to me … a sparkly tee (shirt).

 

Clothing provided by the employer can be tax free where it has a fixed and prominent logo (– free advertising for your business too!). No logo would be loco! (for tax purposes).

 

The cost of clothing provided to staff is deductible for corporation tax purposes if wholly and exclusively for the purposes of the trade.

 

On the twelfth day of Christmas my employer gave to me … a session of therapy.

 

Once the New Year is looming, you could also offer welfare counselling to all staff – tax free although the counsellor won’t unfortunately be available to assist with any financial or legal issues which might have arisen over the festive season!!

 

Motto in your cracker should perhaps be…..CHRISTMAS NEEDN’T BE TAXING!!

 

So many options to cheer up your staff and many of them very tax efficient.

 

Please always check the tax implications for your business with a quick festive phone call to Christmas Carol in our specialist tax department.

 

For more information, please contact Carol Watters.

Autumn Statement 2014 Review: Stamp duty land tax on residential property

Here we have summarised all the changes announced today by the Chancellor in the Autumn Statement relating to stamp duty in relation to residential property.

 

The way stamp duty land tax (SDLT) is charged on residential property will change from 4 December 2014.

The first £125,000 will be tax free, as now.

The next £125,000 will be charged at 2%, so a house of £250,000 will bear SDLT of £2,500

The next £675,000 will be charged at 5%, so a house of £925,000 will bear SDLT of £36,250

The next £575,000 will be charged at 10%, so a house of £1.5m will bear SDLT of £93,750

The excess over £1.5m will be charged at 12%.

 

 

Purchasers who have exchanged contracts before 4 December but not yet completed can use the old rates and thresholds if they choose.

 

The changes do not affect commercial property.

Autumn Statement 2014 Review: Attack on goodwill tax breaks

If anyone was expecting a giveaway Budget before the General Election, they will be disappointed. The chancellor’s Autumn Statement represents a fiscal tightening over the next five years, with the objective of achieving a budget surplus by the end of the next parliamentary term.

 

Sole traders and partnerships who transfer their business to limited companies will no longer benefit from a valuable “tax break.” In the past, it has been possible to create goodwill on incorporation, and benefit from entrepreneur’s relief. The capital gains tax on the goodwill has therefore been charged at 10%.

 

From 3 December, these capital gains will be taxed at 28%. Alternatively, tax payers should still be able to use the existing claim hold over relief to avoid the tax charge.

 

In a separate measure, the government has also abolished the corporation tax relief available for companies on the amortisation of goodwill, where the goodwill is created on incorporation.  This will apply only to goodwill acquired on or after 3 December 2014. Companies already obtaining tax relief on goodwill recognised on incorporation will not be affected.

Autumn Statement 2014 series: Lower business rates and employment costs

With this Autumn Statement the chancellor has a real opportunity to help lift a major burden on small businesses by lowering business rates.

 

The prospect of lower business rates was raised in October by business secretary Vince Cable and I sincerely hope the government follows through on this measure.

 

Business rates are a real constraint for those businesses that are considering a move to larger premises and I’m aware of businesses that have actually downsized to save on business rates.

 

Of course, business rates are an essential element in funding local government services. However, over recent years I have seen more small businesses put under significant financial pressure from escalating business rates. This must be putting a brake on the economic recovery.

 

Business rates have become merely a tax collection exercise where it’s hard to see what businesses get back in return. I would like to see an overhaul of the system so each authority is required to devise a system of rating which is mindful of business needs and has the promotion of enterprise as a key component. The system needs to be flexible so it can react to changing fortunes in the local economy.

 

The other area where I would like to see the chancellor take strong action is on employer National Insurance contributions (NICs). Businesses have already found their employment costs going up substantially with the advent of auto-enrolment pension legislation. While the £2,000 employment allowance has provided some support, for me, the rate of 13.8 per cent on employer NICs is just too high.

 

I dare say that many businesses would prefer to see a cut in employer NICs than a cut in the rate of corporation tax because with the latter, you’re only really getting taxed if you’re making money, whereas employer NICs remain the same whether you’re struggling or being successful.

 

Rachel Marsdin is a tax partner at Chiks.

Autumn Statement 2014 series: Ease the pensions and tax burden on GPs

In my previous pre-Autumn Statement and pre-Budget wish-lists I have expressed concern at the increasing financial pressures on GPs and their practices, but we are still to see any meaningful action taken to stem the mass move towards early retirement and the recruitment crisis facing the profession.

 

General practice urgently requires additional funding to maintain quality, efficiency, premises and to retain key staff and doctors.

 

In my opinion we need to see incentives to encourage doctors to train for general practice and to retain senior doctors in the profession.

 

To do this the chancellor should look at the possibility of allowing members of the NHS pension scheme not to have to pension all of their earnings. He should also consider widening the 20 per cent rate tax band to give middle income professionals the incentive to reinvest in their practices to ensure they are sustainable for the future.

 

More generally, Mr Osborne could look to increase the share of the NHS budget allocated into primary care to help fund innovation and appropriate care at a local level. Meanwhile, if the private sector is to be encouraged to provide services commissioned by the NHS the costs incurred via the procurement process need to be less prohibitive.

 

I also wonder if there is an opportunity for prescription charges to be removed in England to match other parts of the UK. This might be prompted by a review into the level of service that the NHS can afford to continue to provide free at the point of delivery.

 

Debbie Wood is a partner and head of the healthcare services team at Chiks

 

Research & Development – not just men in white coats!

You may have heard of Research & Development tax credits but thought it wouldn’t apply to your company. Indeed Research & Development conjures up images of workers in white coats, running tests in a laboratory. The majority of companies which claim Research & Development tax relief are nothing like this however.

 

To be eligible for a Research & Development claim, a company must be working to achieve a scientific or technological advance through the resolution of scientific/technological uncertainties, and the work must not be readily deducible by a competent professional in the field.

 

This is a really wide definition of Research & Development and can apply to a really wide variety of companies in many different industry sectors. Here are just a few of the types of businesses that would qualify.

 

Manufacturing is probably the biggest area of R&D activity in the economy. If you are developing new and innovative products, or making technical modifications and improvements to existing products, then there is a good chance of being able to put in an R&D claim, whether it is for products to sell to the public, equipment for the building sector, creating parts to sell to other manufacturing businesses or perhaps making improvements to your manufacturing process.

 

Software design is another area where there is a lot of potential for R&D claims for companies developing bespoke software and in the process seeking to achieve a technological advance. With the fast pace of advance in software and associated computer hardware most companies developing software solutions, whether for in-house use or for sale to customers, will need to be innovative to compete.

 

Even if you aren’t developing something radically new, if you are using new technologies to make significant improvements, for instance in running speed, cost or security, then you are probably involved in R&D.

 

Market gardening is an area where you might not expect there to be Research & Development work going on, but this is an area where many companies are innovating and therefore potentially undertaking R&D. This could be related to developing new varieties of plants,  working on plant feed and fertilisers, or researching new growing techniques.

 

The food industry is another sector where you wouldn’t automatically expect R&D to be present, however modern food production is a very scientific process.

 

Any work on developing a new product or modifying an existing product could be R&D, whether that is to meet specialist nutrition requirements, to improve the shelf life, or even something as seemingly trivial as making changes to a biscuit so it doesn’t disintegrate when you dunk it in your cup of tea!

 

Architecture & Building – UK architects are amongst the most innovative in the world, and the architectural industry has been slow to take up Research & Development tax reliefs. Architecture work may well qualify for R&D reliefs if it is coming up with new building designs, incorporating new materials or building techniques.

 

This could be with a particular aim in mind, such as reducing costs or construction time or making a building more energy saving or environmentally friendly. It could also arise through the need to resolve a problem, perhaps because a stunning new visual design just won’t work without developing new building techniques.

 

 

These are just a few of the areas where there would be opportunities for claiming Research & Development reliefs which can result in a tax deduction of up to 225% of the qualifying expenditure, either to offset against your corporation tax liabilities or if you are making losses to surrender for a payable tax credit from HMRC.

 

So if you are a company which is liable to UK corporation tax and have been developing new products, services or processes or making appreciable improvements to existing ones, it could be extremely worthwhile considering whether you can make a claim.

 

Autumn Statement 2013 Review: Income Tax and Capital Gains Tax

 

The tax free personal allowance will reach £10,000 with effect from 5 April 2014, but the threshold for paying higher rate tax will stay fixed at £41,865. There will be no changes to the rates of income tax or NIC.

 

From 6 April 2015, it will be possible to transfer up to £1,000 of any unused personal allowance from one spouse or civil partner to the other. This will only apply where neither partner pays higher rate tax.

 

On the sale of a private residence, CGT may now apply if it is unoccupied for a period of more than 18 months immediately before the date of sale.  Currently, a period of 36 months is allowed. The change will take effect for sales on or after 6 April 2014.

 

Non UK resident individuals who own a private residence in the UK may soon be chargeable to capital gains tax. Any changes will take effect from 6 April 2015. Currently, only high value properties held by non-resident companies are liable to CGT.

 

Autumn Statement 2013: Tax Avoidance

 

As part of our preview of Autumn Statement 2013, David Bennett, tax partner at Chiks offers his thoughts on what government will do to combat tax avoidance.

 

An Autumn Statement would not be complete without further measures to combat tax avoidance. The only difference these days is that tax avoidance is now at the top of the agenda, rather than being buried in the detail.

 

It seems likely that foreign owned property will be Mr Osborne’s first target. Currently, there is generally no capital gains tax payable on UK properties where they are owned offshore. In March 2013, a CGT charge was introduced on residential properties valued at £2m+ when held in offshore companies. This might well turn out be the thin end of a long wedge, with the next stage being the extension of CGT to properties held by non UK resident individuals, and a lowering of the £2m threshold.

 

HMRC has signalled possible changes in the rules for loans to director/shareholders. Currently, these attract a tax charge of 25% of the loan, although the tax can be reclaimed when the loan is repaid. HMRC believes this is too generous, and has tabled proposals increasing the tax payable, and making part of it a permanent charge. I expect these to be firmed up in Thursday’s announcement.

 

Limited liability partnerships (LLPs) will also be the focus of new legislation. In particular, LLP structures involving corporate members will be hit, and the self employed status of salaried partners will be put in doubt. HMRC issued some poorly thought out proposals earlier in the year, and it is hoped that they will study carefully the feedback from the consultation process  before embarking on new legislation.

 

Many people have called for a crackdown on tax avoidance schemes. In fact, the number of registered schemes has fallen to an all time low, while the number of tax prosecutions has doubled. There has been a distinct redeployment of resources within HMRC, away from taxpayer support and into tax investigations. The trend is likely to continue.

 

Osborne will also be addressing the question of where the global profits of multinationals are taxed. This will involve a fundamental shake up of the rules governing international taxation, and will take years rather than months to implement.  Margaret Hodge is therefore unlikely to abandon her boycott of Amazon this Christmas.

 

Autumn Statement 2013: Does good news for George spell good news for the rest of us?

 

As part of our preview of Autumn Statement 2013, David Bennett, tax partner at Chiks offers his thoughts on what Mr Osborne will announce on Thursday this week.

 

It has been a long time since a Chancellor has been able to report some good news for the economy. We can rest assured that he will use the Autumn Statement to remind us of the recently announced growth figures. Annualised GDP growth of 3.1% for the last quarter puts us at the top of the G7 table. Added to that, the working population is now 30 million, its highest ever. Income tax receipts are rising; Job Seekers Allowance payments are falling. It should all help towards reducing the deficit.

 

But if anyone is hoping for tax cuts or a boost to public spending, they are likely to be disappointed. We are less than half way through the Chancellor’s austerity programme, so unless growth figures exceed his expectations, our expectation should be for more of the same.

 

A closer look at the growth figures shows that the latest spurt is fuelled by consumer spending. Mortgage applications and credit card lending are both up, despite wages being more or less the same. Exports, on the other hand, actually fell, and although there was an increase in business investment, it was mainly attributable to the build up of inventories.

 

Mr Osborne will therefore need some innovative policies to drive investment and growth, without increasing spending. He also needs to address the issue of why bank lending to businesses is falling while home loans are up.

 

Removing some of the administrative burden from businesses so that they can focus on their main activity would also help. Would an Autumn Statement that contained no tax changes at all be too much to hope for? Probably. I will use my next three blogs to outline some of the changes we can expect.

Do your staff ever complain about how much tax and NIC they pay?

You can help reduce your employees’ tax bills by introducing a Flexible Benefits scheme. Also known as sacrifice schemes, these arrangements are completely legal and are endorsed by HMRC. With new rules on the way for pensions and child care, it is a good time to consider how Flexible Benefits could benefit you.

 

What is a Flexible Benefits Scheme?

 

Flexible Benefits schemes give employees the freedom to structure their pay package in the way that suits them, choosing from a range of benefits. This can result in a tax and/or NIC saving, where the benefit is non taxable. The classic example is pensions, but they can also be used for child care vouchers, cycle to work schemes and other benefits.

 

Pensions and Auto Enrolment

 

Under the auto enrolment rules, employers and employees will be required to make minimum contributions to employee pension plans, unless the employee opts out. These will start at a 2% total contribution, increasing over time to 8%, including a 5% employee contribution.

 

A flexible benefits scheme will give NIC savings to the employee and the employer. This works by the employee giving up some of their taxable salary in exchange for the employer paying an enhanced contribution. Both employer’s and employee’s NIC contributions are saved on the salary sacrifice. Further savings can be made if the employee chooses to make pension contributions above the auto enrolment limits.

 

Child Care

 

Employers can currently provide tax free child care vouchers to basic rate tax payers at up to £55 per week. Higher rate tax payers also benefit from tax savings, and child care vouchers can be provided through a salary sacrifice system.

 

Relatively few employers provide this benefit, which is why the government is seeking to replace it with a new scheme called Tax Free Child Care, from 2015. The details of this are still being worked out, but the idea is that parents will be given the option to buy subsidised child care vouchers worth up to £6,000 a year per child, with a discount of 20% of their face value. This will initially be available for children under five, and will later be extended to under 12s. The current child care voucher system is open to children under 16.

 

There will be winners and losers under the new scheme. The old scheme will be continue to be available to employees who are already in it, but will be closed to new entrants once the new voucher scheme is launched. You can therefore give your staff the best of both worlds by including child care vouchers in your Flexible Benefits scheme, provided they are receiving child care vouchers in August 2015, when the new scheme commences.

RTI Update: Reconciling PAYE

 

Reconciliation of PAYE is causing concerns.  Underpayment notices are being issued when no fault has arisen.  HMRC have recently published a message on their website:

 

‘We have received feedback that some PAYE schemes have experienced difficulties in reconciling the difference between:

 

– the tax we say is due, and

 

– the tax they think is due

 

We have set up a dedicated team to identify the cause of these discrepancies. The team is working with a number of PAYE schemes to work through their examples to examine what is causing these discrepancies, and then to resolve them.

 

This will also enable us to understand the issue in greater depth, and take the steps necessary to prevent them arising in the first place

 

Each time we identify a root cause we will update our guidance, where appropriate, as soon as possible. We have already updated the section of our guidance for employers using HMRC’s PAYE Online, to make it clearer when we update this information, and what information will be available at any given time.’

 

It seems that HMRC are having problems settling RTI in.  In some circumstance employers are being hounded for payments and threatened with fines and penalties even though this first year, employers were assured, no penalty situation should arise.

 

Margaret Merrifield

Is an unresolved EBT a potentially expensive bet?

 

HMRC’s current stance on what they regard as “abusive” tax avoidance is very well understood and publicised nowadays. HMRC are pro-actively challenging what they believe to be abusive tax avoidance arrangements and are achieving a high success rate in their use of the judicial system to overturn planning arrangements which were previously marketed widely.

 

HMRC have sought to use a series of court cases to encourage companies who have used Employee Benefit Trusts to accept that tax is due on amounts provided to beneficiaries in forms which case law had previously suggested were not subject to PAYE and NIC, such as loans.  HMRC have now intimated that they will also challenge any arrangements using Employee Funded Retirement Benefits (EFRBs) on similar grounds.

 

HMRC’s approach to securing tax from the users of EBTs includes two main elements:

 

– They have previously offered the “EBT Settlement Opportunity” which does have some limited benefits for companies who wish to settle (in particular for EBTs that were set up some years ago)

 

– HMRC have made it clear that failure to settle via the EBTSO will then leave the companies subject to upcoming court decisions which may produce an outcome which is more favourable to HMRC.

 

Despite a series of decided cases (including Sempra Metals and Scotts Atlantic) which confirmed that loans provided to beneficiaries of EBT’s should be treated as not taxable (because the loans were legally still loans, meaning no amounts had been provided to the beneficiaries which could be classed as earnings), HMRC have pursued the Murray Group Holdings case (also known as the Rangers case) to try and put beyond doubt their argument that amounts provided to beneficiaries by way of loans are taxable as earnings.

 

The original decision in the Rangers case was expected to be a decided in favour of HMRC, but it went in favour of the taxpayer.   However the dissenting judge in the Rangers case has delivered a detailed argument in favour of HMRC’s approach, meaning there is a reasonable probability that the argument will be followed in the appeal and HMRC will be successful, although the appeal will not be heard until January 2014 at the earliest.

 

This twin track approach of the EBTSO and concurrent litigation is essentially encouraging tax paying companies with unresolved EBTs to consider what is akin to the strategies seen in a high stakes game of cards. HMRC is asking the taxpayer company if they wish to settle on the basis of a technical analysis which the current decided case law does not support, but which may shortly change substantially in favour of HMRC.  Of course, it is also possible that the appeal could be found in favour of the taxpayer.  At this point the company has two choices:

 

– “fold” using EBTSO and settle any tax which HMRC are seeking under the EBTSO

 

– “stick” and await a decision in court which may produce a better result for the tax payer, but with the risk the if HMRC wins then the cost to the company is likely to be higher

 

The impact of EBTs is not confined to tax liabilities alone, if the company is subject to a sales process or a refinancing, the purchaser or lender might be put off by the risk of unsettled tax liabilities which may crystallise with the outcome of a court decision.  Seeking a settlement can help to quantify and ring-fence a potential liability, or it can open up the opportunity to settle any liabilities using the disguised remuneration rules which can provide a simpler solution.

 

Companies with unresolved enquiries into their EBT’s may want to consider how strong they consider their hands are before deciding their next moves for their EBTs.

 

If you would like more information on this topic, please contact Rachel Marsdin on 01524 62801.

 

Wake up and smell the coffee

Not so long ago, tax only made the headlines on Budget day. These days, nothing excites the media more than the whiff of tax avoidance – especially when it involves a household name that sells Britain’s favourite cup of coffee. Yet no-one seems particularly clear on what tax avoidance is, nor on what the government is doing about it.

What’s the difference?

The first thing to be clear about is that tax avoidance is quite different from tax evasion. Evasion occurs when a taxpayer deliberately misstates profits, income or gains. In reality, there is a tax liability, but the taxpayer conceals the fact from HMRC. This is, of course, an offence which can result in prosecution. At the other end of the spectrum is tax planning. It is a long-standing principle that everyone is entitled to arrange their affairs in a way that minimises the amount of tax they have to pay. If there are two ways of doing something, there is no reason why you should not do it in the way that incurs the smaller tax liability. Somewhere in the middle is tax avoidance. Generally, this involves doing something artificial, or with no real economic substance, to reduce a tax liability. Until now, the only response of successive governments has been to plug specific loopholes, only to find at least as many new ones appearing to take their place.

HMRC’s new weapon

From this summer, HMRC will have a new weapon: the General Anti-Abuse Rule (GAAR) is intended to be the net that will catch at least some of the cases that slipped past the old rules. So how widely cast is it? The GAAR catches several types of arrangements. Predictably, these include schemes that involve contrived or abnormal steps. But they also extend to arrangements that are considered to be contrary to the principles of the relevant tax legislation – whether or not those principles are actually spelled out in the statute. More worryingly, they also include arrangements that simply exploit so-called ‘shortcomings’ in the legislation. A cynic might be tempted to think that this will be used to catch anything that doesn’t suit HMRC’s view of the legislation, but fortunately, an independent panel of experts will decide what is caught.

Don’t get caught

HMRC will undoubtedly use GAAR to target packaged tax avoidance schemes. In particular, any scheme that purportedly creates a tax loss greater than the participant’s cash outlay is likely to be attacked. But the tax authorities have also made clear that they will apply it to some of the more popular inheritance tax (IHT) planning techniques, such as those involving IOUs on the family home. Anyone who has undertaken this type of planning should urgently review their arrangements, as they may well be caught by GAAR. This is highly advisable, even if the planning has been carried out before GAAR becomes law as there is a risk that you may be caught. GAAR does not make tax avoidance illegal. It simply enables HMRC to take counteractive measures, to put the taxpayer and HMRC, back in the position that would have existed but for the planning. And it is certainly not the end of tax planning. We now have the world’s longest tax code, and navigating through it to find the most tax efficient route requires an expert hand on the tiller. Whether this will put an end to multinational tax planning is another matter entirely.

For more information, please do not hesitate to contact me on 01772 821021.

Wealth Management: Top five personal tax tips

 

In the third blog in our Wealth Management series, Chiks’s David Bennett offers his top five personal tax tips.

 

1. Benefiting from business asset ownership

 

Business assets can be used to access substantial inheritance tax breaks, including business property relief. This effectively removes the value of specific business assets from your estate, or reduces the value of the assets for inheritance tax purposes. As a result, it is essential to put the ownership of property in the most appropriate location – inside the business; outside the business; or in the pension fund. The latter has been a popular investment vehicle for wealthy individuals who have pensions with business interests, but the tax charges on undrawn pensions should not be overlooked.

 

2. Planning tax-efficiently

 

Entrepreneur’s relief is an extremely generous tax break if used effectively. It means the first £10m of capital gains on specified business assets are taxed at a rate of just 10 per cent, compared with 28 per cent for higher-rate taxpayers. Maximising your annual capital gains tax (CGT) allowances is also crucially important. Failing to do this can have the equivalent effect of paying tax on an extra £40,000 of gross income.

 

3. Holiday lets can create tax advantages

 

Unlike property letting in general, furnished holiday lets can qualify for tax breaks – although certain conditions must be met. If they qualify, your holiday lets will be treated as a trade for tax purposes and you will benefit from Entrepreneur’s Relief as well as capital allowances.

 

4. Harnessing the advantages of EIS and VCT investments

 

Investing in enterprise investment scheme (EIS) companies and venture capital trusts (VCTs) can create substantial tax advantages. You can invest up to £1,000,000 in an EIS company in a single tax year and receive income tax relief at 30 per cent. Seed EIS relief offers income tax relief at 50% on investments of up to £100,000 in start-up businesses. The maximum amount you can invest in a VCT to attract income tax relief at 30 per cent is currently £200,000 per tax year.

 

5. Making the most of university accommodation

 

Providing accommodation for children at university is usually more tax-efficient if the child owns the property. Alternatively, the house may be held in trust for the child. Provided the correct form of trust is used, the gain will be exempt under main residence relief.

 

David Bennett is a tax partner at Chiks

Budget 2013: Encouragement for manufacturing sector

 

Before the chancellor rose to his feet at the dispatch box yesterday, my wish list blog had called on him to the ease the burden on manufacturers.

 

It seems that my wishes have, in part, been answered as I think most manufacturers would regard the 2013 Budget as being another step in the right direction.

 

The message coming loud and clear from George Osborne was that he wants Britain to be seen by UK plc, and the wider international community, as a place to invest. And despite being a fiscally neutral budget, new measures were announced that will provide encouragement to manufacturing firms.

 

Breaking down barriers to recruitment

 

While the cut in corporation tax to 20 per cent from 2015 was widely expected, the chancellor also addressed one of the biggest burdens to recruitment for manufacturing businesses by offering to pay the first £2,000 of an employer’s NICs, regardless of business size.

 

The corporation tax cut places the UK at the top of the league for mainstream tax rates within the G7 countries and will help manufacturers compete more evenly with established low tax countries.

 

For new companies, the 2013 Budget confirmed the partial extension of the ‘CGT holiday’ within the Seed Enterprise Investment Scheme, which has been a catalyst for investment start-ups.

 

Further tax reliefs announced

 

The Budget also confirmed some minor changes to the final proposed forms of a number of tax reliefs which go live from 1 April 2013 including the ‘Above the Line’ R&D tax relief and the Creative Sector Tax Reliefs.

 

It’s worth taking another look at the generous range of tax reliefs the UK now has which can substantially reduce the cost of new product development:

 

– A Patent Box which reduces the tax rate charged on a broad range of income derived from patents to 10 per cent.

 

– R&D Tax Reliefs on qualifying expenditure incurred for SMEs at 225 per cent and large companies at 130 per cent.

 

– R&D Tax Credits for both loss making SMEs and also loss making large companies who can now receive a credit based equivalent to 10 per cent of their “above the line” R&D expenditure.

 

The Budget also confirmed the short term increase in the Annual Investment Allowance to £250,000 for each of the 2013 and 2014 calendar years.

 

Welcome commitments were also made to increase the access to funding for SMEs through the UK’s new Business Bank and an additional £300m investment funding programme. The Business Bank was one of the things I really wanted to see move forward because, so far, it would be hard to argue that the Funding for Lending scheme has delivered any tangible funding benefits to manufacturers.

 

Ginni Cooper is head of Chiks’s manufacturing team

Budget 2013: Reduce stamp duty to help property sector

 

As part of a series of blogs previewing Budget 2013, Chiks’s head of professional practices, Karen Hain, offers her thoughts on what the chancellor can do to help the economy.

 

The two main things I would really like to see in the Budget are more deregulation for smaller firms and strong action to address the continuing stagnation in the housing market.

 

Working closely with architects and surveyors, I’m acutely aware of the difficulties faced in getting housing developments and commercial schemes through the planning process.

 

The government continues to consult on measures to streamline planning, but we need urgent action to boost the construction sector and this includes greater encouragement for the banks to boost lending. It’s unlikely to happen, but a reduction in stamp duty would also help to stimulate the housing market, making it that bit easier financially for first time buyers to get on the housing ladder.

 

While there has been some progress by government on deregulation, there hasn’t been any fundamental change to really encourage growth. Something like reducing Employer National Insurance Contributions to help smaller firms with the cost of recruiting new staff would be beneficial.

 

Politically, we’re likely to see several measures that look to generate more tax revenue from the wealthy and multi-national organisations with UK operations. While it’s right that we should all be in this together, my fear is that we could end with a Budget that punishes the wealth and job creators in society and comes at the expense of business growth and investment.

Budget 2013: Make Britain an easier place to do business

 

As part of a series of blogs previewing Budget 2013, Chiks tax partner David Bennett outlines his expectations.

 

The chancellor has not left himself much room for manoeuvre. There are unlikely to be any significant boosts in capital spending, or tax giveaways, although many will press for both of these as a way to get the economy moving.

 

The chancellor will no doubt make great play about clamping down on tax avoidance as a way of generating extra tax revenue. In reality, this is easier said than done, but we are likely to see more and more targeted campaigns by HMRC, such as the recent targeting of owners of buy-to-let property.

 

Every Budget sees another raft of complicated changes to tax legislation, few of which make any real difference to the wider economy.

 

It would be a blessing to business owners if the chancellor resisted the urge to tinker, and strove for a stable and consistent tax code. It would make Britain an easier place in which to do business, and that should be Mr Osborne’s number one objective.

 

Budget 2013: Reduce Capital Gains Tax to encourage investment

 

As part of a series of blogs previewing Budget 2013, Chiks financial planning director Laurence Kelly outlines his expectations.

 

The budget will be meagre in terms of any giveaways due to the ongoing austerity measures, but I would like to see the chancellor take strong action to attempt to stimulate growth.

 

The recent downgrading of the UK economy by Moody’s, and the resulting loss of our AAA rating, will only increase the political pressure on the chancellor to announce measures that are capable of getting the economy growing again.

 

As the chancellor has already intimated, I would expect Inheritance Tax to be left alone in the short to medium term to pay for the huge investment in social care the government is planning. However, I would like to see a reduction in the headline rate of Capital Gains Tax to, say, 25 per cent as the current system only discourages saving and investment.

 

This is backed up by research from the Adam Smith Institute that showed the government’s decision to increase CGT in 2010 actually cost the Treasury income due to people deciding to hold onto assets, rather than sell them, to avoid the higher rate.

 

Despite recent moves to boost the housing market it remains in the doldrums, especially for first time buyers. Reintroducing MIRAS (mortgage interest relief at source) or another stamp duty holiday for first time buyers is something that could really help and, I dare say, would provide more substantial support than some of the measures already announced, such as the First Buy scheme.

 

Elsewhere, the very public cases of large scale corporate tax evasion are likely to have spurred the government into increased action in tightening up tax loopholes. I expect this to be a continuing theme throughout the rest of this parliament.

 

Budget 2013: Make healthcare services zero-rated for VAT

 

As part of a series of blogs previewing Budget 2013, Debbie Wood, head of Chiks’s specialist healthcare team, offers her thoughts on what the chancellor can do to help the sector.

 

As a sector that provides VAT exempt services, it is a continuing bone of contention for healthcare businesses that they are unable to recover the VAT they are charged on direct business expenses.

 

Make healthcare services zero-rated instead of exempt and then the twenty percent VAT charged on direct expenses will be recoverable. I’m not holding my breath, but I’d like to see government give some consideration as to how this issue could be addressed.

 

I am concerned about the forthcoming reduction to the annual allowance threshold for pension tax charges from £50,000 to £40,000 as that will put even more GPs into the position of having to pay this tax charge in respect of growth in their NHS pension benefits. At the very least the proposed protection schemes must be flexible enough to work for the NHS Practitioners scheme.

 

Benefit reform is essential for a number of reasons, but the main one is reducing the welfare spend to enable employer and employee national insurance to be cut to 10 per cent each.

 

I’d like to see the chancellor take more lower paid workers out of the tax and NIC system altogether by increasing the relevant lower band thresholds. The removal of personal allowances for higher rate earners provides a marginal rate scale that goes 0 per cent, 20 per cent, 40 per cent, 60 per cent, 40 per cent, 45 per cent.

 

Let’s see some real simplification by scrapping the personal allowance (PA) and introducing a 0 per cent tax band at the rate of the PA (or better £10,000). Basic rate payers would pay no more tax, but all higher rate payers would. Then we could look at scrapping the 45 per cent top tax bracket altogether and encourage entrepreneurs and the captains of industry to earn more and spend more to boost the economy, rather than planning to earn less than the top rate tax threshold and spend less.

 

Stability and consistency in the tax system are essential, but sadly absent at present.

Budget 2013: Further tax cuts the ticket to growth for SMEs

I would like to hear the chancellor make announcements to help owner managed businesses in a more straightforward manner, such as a cut in the lower corporation tax rate, or tax rates on unincorporated business profits.

 

Measures to make it easier for smaller firms to employ new staff would be welcome – including a cut in employer’s national insurance contributions.

 

The much-talked-about £10,000 personal allowance will probably be announced for tax year 2014/15 and I wouldn’t be surprised to hear of the top rate of corporation tax being reduced to 20 per cent.

 

There will no doubt be yet more rhetoric on clamping down on tax avoidance, but how effective the measures are will remain to be seen. There will be the usual attacks on alcohol and cigarettes, but fuel duty could escape again, which would be good news for owner managers with motor fleets and company vehicles.

 

Overall, there won’t be any wholesale changes to the chancellor’s austerity programme, but expect some further commitment to spend on big infrastructure projects.

 

While these don’t directly affect SMEs, they do tend to stimulate the wider economy – for example the long-awaited Heysham-M6 bypass is expected to create a significant number of local jobs.

 

Budget 2013: More support for tourism sector needed

 

As part of a series of blogs previewing Budget 2013, Judith Dugdale, head of Chiks’s leisure and tourism team, calls for more support for the sector.

 

Many in the tourism and leisure sector have been pushing for a lower VAT rate for tourism-based businesses. Unfortunately, though, the government doesn’t accept that this could be a tax-neutral policy and therefore any drop is extremely unlikely.

 

I would actually like to see an uplift in the VAT registration limit. Increasing the limit to, say £250,000, would give a boost to micro-businesses facing a difficult decision when they get to turnover of around £77,000. To tip over this level would lead to VAT on all supplies so they would instantly lose around £9,000 from the bottom line. So they have to increase sales by a huge amount to make this back. Many feel it is just not worth the hard work and this stifles growth and job creation.

 

Worse still is that some traders, through poor advice or ignorance, don’t realise they are over the limit and therefore HMRC are missing out anyway.

 

Another welcome measure would be simplifying the enhanced capital allowance scheme. This would be a great way to reduce a business’s tax bill, while creating business benefits from future energy savings. Currently the system is stiflingly bureaucratic – for smaller businesses, professional fees in the checking items and processing claims would be almost as much as the tax saving in year one.

 

Given the tourism sector contributes a huge amount to the economy in both jobs and tax collected, you would think it would receive more government money to promote what the UK has to offer. I would like to see a bit more funding given to Visit Britain, Visit England and the local destination management organisations.

 

Recent years have seen under investment in the leisure offering – particularly among smaller businesses and a grant for specific upgrades in the hardest hit areas would help. Smaller operators will use local tradespeople to do the repairs which would boost the local economy. This is a key area at the moment as banks are not as keen to lend to the sector as they once were.

Budget 2013: Ease the burden on manufacturers

 

As part of a series of blogs previewing Budget 2013, Ginni Cooper, head of Chiks’s manufacturing team, gives her opinion on what should be done to help manufacturers.

 

Manufacturers shouldn’t expect any major surprises in the budget because one of the main issues affecting businesses and stifling investment for growth was addressed in the autumn statement.

 

This was the raising of the annual investment allowance to £250,000, with effect from January 1, which was effectively an admission that the previous decrease to £25,000 was a big mistake. Obviously it would be nice if this allowance was still available after 2014, but it is too early to make an informed prediction.

 

PAYE real time information is another hugely important item on the agenda for many businesses and any simplification of this scheme – due to be introduced in April – would be welcome. Manufacturing companies employing numerous operatives on a weekly basis face a massive increase in their administrative burden and there will be little scope to move employees onto a monthly paid basis.

 

The chancellor also needs to get a move on with the government-backed business bank as it appears that the Funding for Lending Scheme isn’t working. Manufacturing companies need access to finance from banks who understand their client’s commercial DNA and recognise that asset based lending often doesn’t work.

 

In a broader political context, the government should do more to promote manufacturing and engineering as worthy career choices. Manufacturers themselves have a role to play and the chancellor could perhaps offer some form of incentive scheme to stimulate productive dialogue between them and local schools and colleges.

Will your company pay less tax from April 2013?

Does your company hold patents? Or use exclusive licenses over patented products/processes? If so, from 1 April 2013 your company could make considerable Corporation Tax savings from the new Patent Box regime.

 

Patent Box will enable companies to pay tax at 10% rather than at least 20% on qualifying profits.

 

The profits which potentially qualify if you hold a patent are extensive. HMRC give the example of a patented printer cartridge. If the patented cartridge is sold as part of a single package with a non-patented printer, profits from the whole package (as calculated using the Patent Box rules) will qualify for the lower tax rate even though the printer itself is not patented!

 

To qualify for the regime your company must firstly own or hold an exclusive licence over a patent granted by the UK Intellectual Property Office, the European Patent Office or one of the other HMRC approved countries. Note that US patents do not qualify!

 

Secondly your company or another group company must have undertaken qualifying development work in respect of the IP covered by the patent.

 

Things to consider before 1 April 2013:

 

– Identify patents held by your company (if you are unsure to whether your company holds patents you can run a search at by typing the company name in the “applicant” box)

 

– Identify any patents pending which could deliver a benefit when granted

– Are all existing patents still valid

– Identify any patented products/processes used by your company, but for which the intellectual property is owned by another entity (for example the patent might be held by another group company). Would it be possible to put an exclusive licence in place over the patented product/process?

 

– Should your company be making patent applications for new IP?

– Can you track qualifying income and costs accurately?

If you would like to discuss the types of income/profits which qualify. Or have any other Patent Box queries please don’t hesitate to contact me.

R&D tax relief for large companies – the old and new rules

 

From 1 April 2013 a major change is being introduced to the R&D tax relief for large companies and SMEs which fall under the large company scheme. Rather than claiming a super-deduction as part of their tax computations, these companies will now be entitled to an R&D expenditure credit in respect of their R&D projects. This credit will be accounted for ‘above the line’, most likely as other income, in the profit and loss account meaning that the value of the R&D relief will be easily quantified and visible rather than being reflected in the tax line.

 

An R&D expenditure credit will also be available to loss making companies meaning that they can now receive a tangible cash benefit from their R&D projects whereas previously only additional losses could be created.

 

As a bit of background, there are two R&D tax relief schemes – one for small and medium sized companies and one for large companies. A large company is one with more than 500 employees or turnover and balance sheet in excess of €100m and €86m respectively. However, the large company scheme can also apply to SMEs if their R&D projects are subsidised or carried out under a subcontract arrangement.

 

The R&D tax relief for companies which fall under the large scheme is not as generous as that for SMEs in that the old super-deduction against taxable profits was an additional 30% of the qualifying expenditure rather than the extra 125% given to SMEs but the scheme can still offer significant tax savings, especially under the new rules, for those businesses to which it applies. The value of the new R&D expenditure credit is roughly equivalent to the tax savings available under the old super-deduction rules but the ‘above the line’ accounting treatment and the availability of cash repayments will make the new rules considerably more attractive.

 

The definition of what constitutes R&D under the large company scheme is the same as for an SME business so if a company transitions from one to another either through growth or, for example, the receipt of grant funding, its R&D projects will still qualify for relief, only at a different rate. There are some technical differences between the two schemes in terms of the types of expenditure which can be claimed but this is something that the Moore and Smalley R&D team routinely advise on as part of the R&D claims process. If you would like any further information please contact Tony Medcalf on 01772 821021.

Taxation of Intellectual Property

 

The Chiks Tax Team are recognised as leading advisors in the North West and beyond in the provision of advice on the taxation of intellectual property.  Our specialist knowledge on research and development (R&D) tax relief, patent box and creative sector tax reliefs as well as general taxation enables us to advise on the tax implications of complex intellectual property transactions.

 

Over the course of this week we will be posting brief daily blogs covering the following areas related to the taxation of intellectual property:

 

Tuesday: Research and development tax relief for small and medium sized businesses – A brief summary of the tax relief which is available to SMEs that carry out R&D as part of their business, the broad range of sectors to which the R&D rules can apply, and ways of maximising the benefit from R&D tax relief in an owner managed business.

 

Wednesday: Research and development tax relief for large companies and SME subcontractors or those in receipt of grant funding – details of the major changes taking in place in 2013 that will affect R&D claims made under the large company scheme, how companies that could not previously benefit will be able to receive cash repayments from HMRC under the new rules.

 

Thursday: Patent Box – how the complex new rules on the taxation of profits derived from patented technologies can be harnessed to significantly reduce corporation tax liabilities from April 2013

 

Friday: Creative sector tax reliefs – how to maximise tax relief for the costs associated with computer games development under the new rules for the creative sector, the interaction of research and development tax relief with the new regime.

 

The intention of this series is to raise awareness of the tax based opportunities surrounding the creation and exploitation of intellectual property and the high value services which the team can offer.  If you would like any information in connection with any of the postings please get in touch.

Charities Online makes Gift Aid repayment claims easier

 

HM Revenue & Customs (HMRC) have announced that an online Gift Aid filing system will be introduced on 22 April 2013.

 

The new system, called Charities Online, will enable charities and community amateur sports clubs to make Gift Aid repayment claims electronically.

 

HMRC state that some of the key benefits of Charities Online will be faster repayments and more accurate claims. Their aim is to process and pay online repayment claims within 15 days.

 

The current R68(i) paper claim form will be replaced by the following three options:

 

1.     claim using an online form available through the HMRC website. This will be most suitable for charities who normally file Gift Aid claims for fewer than 1,000 donors;

 

2.     claim through the charities own database, which will be suitable for charities claiming for more than 1,000 donors at a time. Charities will need to ensure their software is compatible with HMRC’s system; or

 

3.     claim using a new paper form, called a ChR1. This option is for charities that do not have access to the internet. Form ChR1 will be available to order from HMRC’s Charities Helpline from 25 March 2013.

 

In order to give charities sufficient time to prepare for Charities Online, HMRC will continue to accept forms R68(i) until 30 September 2013.

 

Charities need to act now to ensure they are ready for the new system. In particular, they will need to ensure their databases include the following minimum donor information that will be required to make a claim:

 

– donor initials or first name;

 

– donor surname;

 

– donor’s address;

 

– date of donation; and

 

– value of donation.

 

From April 2013, top-up payments under the new Gift Aid Small Donations Scheme must also be claimed using the Charities Online service.

 

Further guidance is available on HMRC’s websiteat or you can contact David Hackett on 01772 821021.