Tuesday 23 September 2014

Your Home and Capital Gains Tax



The Government seems to have a policy of whittling away at the traditional capital gains tax exemption for a homeowner’s own ‘principal private residence’. In April 2014, the rule that the last three years of ownership qualified for exemption, even if the homeowner no longer lived in the property, was amended to halve the qualifying period to eighteen months. And from April next year, the homeowner’s right to elect which, of two (or more) properties he owns, shall be treated as his ‘principal private residence’ is to be abolished. Instead, there will be a factual test - which property really was his main home? - but quite how this will work is not yet clear.

A homeowner should therefore bear in mind that circumstances may arise in which there will be a chargeable gain on what he now considers to be his main, or indeed only, home. That gain may be minimised by ensuring that records are kept of all allowable expenditure. For example, the base cost for capital gains tax purposes includes not only the price paid for the house, etc, but also the stamp duty, legal costs and survey fee. If the house was bought in a dilapidated condition, the cost of putting it right will also qualify, as ‘improvement expenditure’. Building an extension or a conservatory would also be an ‘improvement’; refreshing a tired kitchen or bathroom can be a grey area, but it doesn’t cost anything to keep the invoices in case they come in useful later.

Expenditure which enhances the owner’s legal interest in his home also qualifies - the most common example is where a leaseholder pays a capital sum to extend his lease.

Finally, additional relief from capital gains tax may be due if the house, etc, was at any time let to a tenant, so a record should be kept of the dates of any letting(s). This relief may seem paradoxical, but was originally introduced to encourage homeowners to rent out their properties, rather than let them stand empty.

Thursday 18 September 2014

Pension Planning Update

On Budget Day, the Chancellor announced that, from April 2015, ‘pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, any-time they want. No caps. No draw-down limits. No one will have to buy an annuity.’ 

So far, so good, but in some cases pension savers will need to take care to protect their new-found right not to buy an annuity. For example, some pension plans provide that, if the plan holder does not give alternative instructions by a fixed date (usually the default retirement date specified in the pension plan documentation), his or her savings will automatically be used to buy an annuity. Cases have been reported of companies ignoring telephone conversations with plan holders and then, citing the lack of written instructions, using their money to buy unwanted annuities. There is a 30-day ‘cooling off’ period, but after that it can be difficult or impossible to unscramble the situation, so we would recommend all pension savers to check what their plans actually say.

Another point is that although pensioners will by statute be given ‘complete freedom to draw down as much or as little of their pension pot as they want, any-time they want’, individual pension plan providers will not be required to provide this facility (on the grounds that they may find it expensive and burdensome to set up the necessary systems to do so). So if your existing pension plan provider is unwilling to offer ‘flexible draw-down’, you will have to transfer your funds to one that will. No doubt a charge will be levied. And it appears that the transfer will have to be made before you reach the normal retirement age set by your existing scheme.

Final details of the new regime will not be available for another few months, but once they are, most people should probably be reviewing their pension planning arrangements.

Increasing your National Insurance Retirement Pension

It is possible to defer your State Pension, and in return receive a higher pension later. At present, the rule is that for every five weeks you defer your pension, it will increase by one per cent. After one year, the pension will have increased by ten per cent, and after five years, by just over 50 per cent.

The State Pension is index-linked, so if you defer now, in 2019 you will receive 152% of whatever the pension is for that year (including any entitlement you have under the State Second Pension, SERPS or Graduated Pension schemes), and so on in future years.

Especially considering the promise of index-linking, there is an argument for deferring if you can afford to do so, even if this means dipping into capital to pay living expenses in the meantime.

Last month some newspapers reported that the rate of increase is to be halved, with effect from April 2016. However, this was itself only half true. In fact, the rate of accrual is to be reduced from one per cent every five weeks, to one per cent every nine weeks, but only for those who reach State Pension age on or after 6 April 2016 - this means men born on or after 6 April 1951 and women born on or after 6 April 1953. Anyone born before those dates will continue to qualify for the ‘one per cent every five weeks’ rate of accrual, even after April 2016.

Thursday 11 September 2014

Tax free childcare


The Government has announced further details of the ‘Tax Free Childcare’ scheme, first announced in the March 2013 Budget and due to be launched in Autumn 2015. The current childcare tax reliefs - for workplace nurseries and for childcare vouchers - apply only to childcare provided, or partly paid for, by an employer. What is new about ‘Tax Free Childcare’ is that it will provide direct help with childcare costs, without involving the employer. Accordingly, it will be available without the co-operation of the employer, and to self-employed people on equal terms with employees.



How will Tax Free Childcare work?

Shortly put, the concept is that the parent(s) will open a special account with National Savings & Investments. If there is more than one qualifying child in the family, a separate account may be opened for each. Children will qualify until their twelfth birthday, or until their seventeenth, if they are disabled. It is possible that the scheme will be phased in - applying first to nurseries and playschools for very young children, and then being extended to after-school clubs, etc, for older children.

The parent(s) may pay up to £8,000 a year into each account, and for every £8 paid in, the Government will add another £2, so the overall effect is identical to giving tax relief at 20%. The parent(s) will then use the money in the account to pay their childcare provider. All payments into and out of the account will be made electronically.

There will be no additional relief for higher-rate taxpayers. Also, there will be no reduction in National Insurance contributions.

Will everyone be entitled to Tax Free Childcare?

Three groups will be excluded from the scheme:
  • Tax Credit and Universal Credit claimants, who will continue to receive help with childcare costs as part of their Tax Credit claim. Universal Credit will cover 85% of childcare costs, compared with 70% for Tax Credit.
  • Families which include a parent who is not earning (at least) an amount equal to eight hours a week at the National Minimum Wage (about £50 a week, at present).
  • Families which include a parent with an annual income of £150,000 or more.

Once Tax Free Childcare is launched, parents already receiving childcare vouchers from their employer will be able to choose either to continue doing so, or to claim Tax Free Childcare. But the voucher scheme will close to new entrants.

However employers will be able, if they wish, to continue to operate a workplace nursery and their subsidy to the nursery will continue to be disregarded for both income tax and National Insurance purposes.

Wednesday 10 September 2014

RTI late filing penalties from October


Employers should be aware that automatic penalties will apply if their RTI submissions are not up-to-date by Sunday, 5 October 2014 - and thereafter kept up-to-date. These penalties will be in addition to the automatic interest charge which has applied to late payments since April this year. Penalties will be imposed:

  • Where a Full Payment Submission (FPS) is filed late - that is to say, is not filed by the day the employees are paid or, if the employer qualifies for the concession for some employers with nine or fewer employees, by the last pay day in the tax month; and


  • Where an employer fails to file a nil Employer Payment Summary (EPS) - for a month in which no payments to employees were made - by the 19th day of the following month (so by 19 October for the tax month to 5 October).

The monthly penalty will be £100 if the employer has less than ten employees; £200 if he has between ten and 49; £300 if he has between 50 and 249; and £400 if he has 250 employees or more. However, the first default each tax year will be ignored. 

Penalty notices will only be issued every three months. It appears that the first penalty notices will be issued in October 2014, to cover any defaults for the current tax year that were not rectified by Sunday, 5 October.

Where a submission is three months late, HMRC will additionally be able to impose a 5% surcharge on the tax and National Insurance contributions payable. They say that this will be used ‘only for the most serious and persistent failures.’

From April next year, the screw will be tightened yet further, with the existing penalties for late payment of monthly or quarterly PAYE remittances being made automatic and applied in all cases. The penalty will be between 1% and 4% of the tax due, depending on how many times, in the tax year, the employer pays late.

Further Developments.......

HMRC has announced that the introduction of automatic penalties for late RTI submissions will be delayed another five months for small employers.

Under the revised timetable announced back in February, automatic penalties were due to start from 6 October. This date will still apply for companies that employ 50 or more people, but smaller companies will get an extra five months until the automated regime starts to bite from 6 March 2015. 


The Revenue said it will send electronic messages to all employers shortly to let them know when the penalties will apply to them, based on the number of employees shown in the department’s records.

Monday 1 September 2014

September 2014 Newsletter

Welcome to the September 2014 Newsletter from Easterbrook Eaton Limited

The UK's entrepreneurial spirit is still very much alive and well, as new figures show a record number of claims from small businesses for research and development tax reliefs. These have become increasingly generous in recent years and for small firms there is a possible tax credit of 225% of R&D expenditure. Remember, we can advise on tax saving opportunities for you and your business ...

R&D tax credit claims reach record levels for SMEs

There were 13,010 claims for research and development tax relief under the SME scheme in 2012/13 - up 30% from the previous year and the largest number since the scheme was introduced in 2000 - according to official HMRC figures.

The amount claimed by small businesses reached almost £600m, up from £430m last year. Overall, the total number of claims, combining the SME and large companies schemes, rose 26% to 15,930.

The HMRC figures also show that R&D tax relief is not just the preserve of manufacturing companies. Although the manufacturing sector still has the most applications with 3,970 applications for relief of £165m, information and communications companies put in 3,585 claims, and professional, scientific and technical businesses accounted for 2,410 applications, for a total of £145m in relief.

Tax credits on R&D were introduced in 2000 in an attempt by the Government to encourage research and innovation. Since then the available tax breaks have become increasingly generous and HMRC has also broadened its interpretation of the rules to apply more widely and provide a greater stimulus to innovation. The level of corporation tax relief for SMEs has been more than doubled to 225% of the R&D expenditure over the last two years and the £10,000 a year minimum spending limit has been scrapped.

With more and more SMEs realising that R&D tax credits aren't just for large manufacturing firms or tech companies but for many other types of business working on innovative products or processes, could your firm benefit? We can advise on whether the relevant conditions can be met.

Current R&D tax relief rates - a brief overview:

Tax relief is available on research and development revenue expenditure at varying rates. Current rates of relief are as follows:

for small and medium-sized companies paying tax at 20%, the maximum rate of tax relief is 45% (that is a tax credit on 225% of the expenditure)
for small and medium-sized companies not yet in profit, the relief can be converted into a tax credit payment worth 32.63%
for larger companies paying tax at 21%, the maximum rate of relief is 27.3% (that is tax relief on 130% of the expenditure)
a 10% 'Above the Line' (ATL) credit exists for large company R&D expenditure incurred on or after 1 April 2013. The credit is fully payable, net of tax, to companies with no corporation tax liability. The ATL credit scheme will be optional until it becomes mandatory on 1 April 2016. Companies that do not elect to claim the ATL credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016.
SMEs barred from claiming SME R&D tax credit by virtue of receiving some other form of state aid (usually a grant) for the same project will be able to claim the large company R&D tax credit. Therefore they will qualify for relief on 130% of their R&D expenditure. An SME may also be entitled to the large company R&D tax credit for certain work that has been subcontracted to it.

For more business and personal tax planning ideas, visit the Tax Strategies section of our website and contact us for more advice.

New car tax rules - avoiding a penalty

From 1 October 2014, the traditional paper tax disc will cease to be used in the UK. Those already in existence with some months left before renewal can be taken from vehicle windscreens and discarded, but, unfortunately, you will still need to pay vehicle tax!

The paper tax disc was first issued on 1 January 1921 and, according to recent figures, over 99% of motorists pay their vehicle tax on time. Some concern has been raised that not having to display a paper disc will increase the number of vehicle owners attempting to avoid the tax.

But the Government is confident that this will not be the case. In place of the disc, recognition cameras will be put in place on roads to track vehicle number plates. A central computer system will monitor the cameras, and any vehicles detected which have not been taxed will be liable for a fine.

The Driver and Vehicle Licensing Agency (DVLA) will send vehicle owners a reminder to renew, including a reference number, which individuals can use online to pay in instalments or set up a Direct Debit. As with the current system, owners will also need the reference number from their vehicle log book.

Direct Debits can be set up from 1 November, and certain factors must be taken into account when deciding which payment frequency to choose. For monthly and six-monthly payments, a surcharge of 5% will be applied. A yearly payment will incur no fees.

Certain exceptions apply when paying Direct Debit. The service will not be available to first registration vehicles, fleet schemes or HGVS paying the Road User Levy.

Important for those buying or selling vehicles: on the date of the changeover any vehicle tax owners currently have will not be transferred as with the current system. Instead, this will be refunded for the number of months already paid and they will have to get tax for their new vehicle.

A spokesperson for the Treasury said the new system would 'make dealing with Government more hassle-free'.

The status of your vehicle can be checked online here.