January 2015 Newsletter

Welcome to the January 2015 Newsletter from Easterbrook Eaton Limited

Barely had the dust settled on Chancellor George Osborne's 2014 Autumn Statement Speech than a debate erupted over the likely need for significant spending cuts in the coming years. The consequent publication of Finance Bill 2015 also paved the way for the introduction of the controversial new tax on diverted profits, dubbed the 'Google tax'. Meanwhile, small business groups have welcomed the somewhat happier news of a new set of proposals aimed at tackling late payment.

We would like to wish all of our customers Season's Greetings and our best wishes for a happy and prosperous New Year.

Autumn Statement sparks debate over 'colossal' cuts and diverted profits

Following the recent 2014 Autumn Statement, the Institute for Fiscal Studies (IFS) has confronted Chancellor George Osborne regarding the need for deep cuts in public spending in the years to come.

An initial statement from the IFS warned of a 'fundamental re-imagining of the state', which Mr Osborne rebuked as 'totally hyperbolic'.

Trades Union Congress (TUC) Regional Secretary, Beth Farhat, said: 'Britain faces a profound challenge to reverse the tide of rising inequality and build a new economy that delivers fairness for working people'.

Shadow Chancellor, Ed Balls, said: 'Over two years he's revised up borrowing by £12.5bn... this means the chancellor will have borrowed in this parliament £219bn more than he planned in 2010.

'He promised to make people better off. Working people are worse off. He promised we were all in this together. Then he cut taxes for millionaires'.

Meanwhile, the Office for Budget Responsibility (OBR) confirmed that the proposed cuts would see the state reduced to its smallest size relative to GDP for 80 years. The OBR also stated that only 40% of planned cuts will have been made by the general election in 2015.

The Government has now published draft tax legislation to implement its 2014 Budget and Autumn Statement policies, in the form of Finance Bill 2015. The legislation paves the way for further anti-avoidance measures, via the introduction of a new tax on the diverted profits of large multinational enterprises, dubbed the 'Google tax'.

The new Diverted Profits Tax will target multinational enterprises with business activities in the UK who use tax planning techniques to divert profits from the UK. The tax will be applied using a rate of 25% from 1 April 2015 and is expected to raise £1.4bn over the course of the next five years.

However, the move has sparked criticism from business groups. Commenting on the new measures, John Cridland, director-general of the Confederation of British Industry, said: 'International tax rules are in urgent need of updating but there is already an OECD process underway to do this. It is unfortunate that the UK has decided to go it alone with a Diverted Profits Tax outside this process, which will be a real concern for global businesses.

'The legislation will be complex to apply, and if other countries follow suit businesses will have a patchwork of uncoordinated unilateral rules to navigate, which risks undermining the whole OECD approach.'

A consultation on the draft legislation will run until 4 February 2015.

New proposals to tackle late payment culture

New proposals obliging large and listed companies to publish detailed information about their payment practices and performance were recently unveiled by the Business Minister Matthew Hancock.

The proposed changes, published in a consultation paper 'Duty to Report on Payment Practices and Policies', are designed to make it easier for small businesses to compare the payment practices of different companies, including their average payment time and the proportion of invoices that are paid beyond terms.

Business Minister Matthew Hancock said: 'Tackling late payment is at the heart of our drive to help small businesses. Coming from a small business background, I know just how critical late payment can be for small firms' cashflow. We know that small businesses are often reluctant to risk losing business by using the redress measures we've put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance.

'The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers'.

The consultation paper proposes that companies report on the following metrics: the proportion of invoices paid beyond terms; the proportion of invoices paid within 30 days; the proportion of invoices paid over 30, 60 and 120 days; and the average time taken to pay invoices. It will close on 13 January 2015.

The Institute of Credit Management has welcomed the proposals, with Chief Executive Philip King saying: 'I applaud the measures in the Small Business Bill to drive change by allowing more visibility of how businesses behave in paying their suppliers. Small businesses need to make better informed decisions before entering into commercial relationships and this measure will be invaluable in helping them enter into such relationships with their eyes wide open'.

Late payment can have a significant impact on small businesses. We can help with all aspects of financial management, including improving cashflow - please contact us for further assistance.

ESSENTIAL TAX DATES FOR JANUARY

1 January

Due date for payment of Corporation Tax for period ended 31 March 2014.

31 January

Self assessment payment and filing deadline for 2013/14 tax returns.

Don't be late!

Autumn Statement 2014

Overview: Stamp duty reforms and business rates feature in pre-Election Autumn Statement

Notwithstanding the mixed economic news, the Chancellor unveiled a number of key measures with the stated aim of bolstering the economy and 'supporting aspiration'.

With tax receipts lower than expected despite strong economic growth, many had predicted that Chancellor George Osborne would have limited room for manoeuvre when presenting his last Autumn Statement before the 2015 General Election.

UK economic growth forecasts have been revised upwards to 3% for the current year, but the Chancellor conceded that the UK deficit 'remains too high' and that further 'very substantial savings' in public spending will be required. Revised forecasts from the Office for Budget Responsibility now predict Government borrowing of £91.3 billion this year, compared with its previous forecast of £86.6 billion.

The headline measure was a complete reform of stamp duty on residential property. The existing system will be abolished, with a new set of graduated rates - including a new 12% rate for the most expensive properties -applying with effect from Thursday 4 December.

The Chancellor's speech also confirmed a package of reforms affecting small and medium-sized businesses, including a £400 million Treasury pledge to extend Government-backed Enterprise Capital Funds, together with plans to back up to £500 million of new bank lending to SMEs under the Enterprise Finance Guarantee. The R&D tax credit will also be increased for SMEs, while employer national insurance contributions (NICs) for young apprentices will be abolished and the Employment Allowance extended to care and support workers.

Meanwhile, the Chancellor answered calls from leading UK business groups to review the business rates system, with some of the more immediate measures including an extension of the doubling of the Small Business Rate Relief by a further year from 1 April 2015 and extending the 2% cap on inflation-linked increases by another year.

Turning to personal taxation, the Chancellor confirmed plans to allow pensioners to take control of their pension pots from April 2015, adding that from this time the 55% 'death tax' on the annuities of those who die aged under 75 will also be abolished. The income tax personal allowance for 2015/16 will also see an additional increase, rising to £10,600, and will be accompanied by a corresponding increase in the higher rate threshold to £42,385.

In the run-up to the Autumn Statement, the Chancellor had already pre-announced a package of support for the NHS, UK road and rail infrastructure and flood defence schemes.

Other significant announcements included further anti-avoidance measures, an ongoing fuel duty freeze, and the abolition of Air Passenger Duty for under-12s from 1 May 2015.

Additional analysis is available on our website, see here for details

Saving tax on seasonal gifts

With the season of gift-giving fast approaching, it's important to be sure that you're up to date on the rules around gifts for clients and staff - and making the most of any tax-free opportunities!

In general, HMRC advises that businesses treat gifts in the same way that they treat entertainment. This means that, with a few key exceptions, gifts are not tax deductible. But what are those exceptions and how can you make the most of them?

The office Christmas party is of course a tradition, but did you know it is also tax deductible? Staff annual functions can be tax-free where the total cost per person attending is not more than £150 per year (including VAT).

This will apply to everyone attending the party, including employees and their guests. It can also be used for other expenditure which is part of the event, such as taxis or accommodation for the attendees.

A big caveat is that if you overspend the amount per head then the whole cost of the party is subject to tax, not just the proportion that exceeds the limit. This will need to be paid by reporting the benefit on the employee's P11D form, or the grossed up tax can be settled through a PAYE Settlement Agreement (PSA). A further national insurance bill will also be payable - so be sure to get the sums right!

Seasonal treats for clients and staff may also be deductible, but in order to qualify they must be seen as promotional gifts. This means displaying a ‘conspicuous advertisement' in the form of your company logo. But with many options available for personalisation, it's incredibly easy to give meaningful gifts while staying tax free. These could be anything from calendars and diaries to stress balls and festive snow globes.

Promotional gifts can be given to staff tax-free providing the overall cost does not exceed £50 per person per year. It's important to note that gifts of food, drink, tobacco and vouchers are specifically excluded from this scheme.

Tax efficient charitable donations can be made through Gift Aid, or in cash, stock or investments. There are various tax efficient schemes and incentives for individuals, sole traders and companies so it pays to make sure that your gifts are deductible depending on your business size. Detailed HMRC rules on the subject can be found here.

Third party gifts, which employers may receive from third parties such as business associates or clients, are exempt from tax providing their total value is less than £250. It is very important to be aware of anti-bribery rules when dealing with such gifts. In many cases simple ‘common sense' can be applied to tell when a gift should be accepted. Anti-bribery rules now mean that even those aware but not directly involved may be found culpable should such an illegal transaction take place.