Archive for January, 2014

Taxable benefits 2013-14

Tuesday, January 7th, 2014

Where employees are provided with living accommodation, a car or a van, any private use is usually subject to specific scale charges or other rules. This article considers the provision of two further classes of assets provided for an employee’s or director’s personal use.

The cash equivalent of the asset provided is the annual value of the asset’s use, plus expenses (other than costs of acquisition) incurred in connection with the asset that would not have been incurred without the provision of the benefit.

  1. Land: the annual value of the asset’s use is the greater of the gross rateable value when the property was last rated, and any rent paid by the provider.
  1. Assets other than land: the annual value of the asset’s use is equal to 20% of the asset’s market value when it was first used to provide a benefit. If the provider paid rent for the asset that was more than the 20% calculation, then the higher figure is used.

 If an asset is provided for part of a tax year the above cash equivalent figures would be adjusted accordingly.

For example:

A company buys a boat for a director’s private use on 6 April 2013 for £25,000. It takes out a loan to buy the boat and interest charges are £4,500 in the year to 5 April 2014.

Running costs paid by the employer in the year are £2,400 and the director makes a contribution of £1,500.

The benefit would be £5,900 (20% of £25,000 plus expenses £2,400, less £1,500 made good by the director).

The bank interest charges are disregarded as they are part of the cost of acquisition.

End of year tax planning 5 April 2014

Tuesday, January 7th, 2014

Although we are now at the beginning of a new calendar year we are in the last quarter of the current tax year.

Whether you are a business person, property landlord or pay significant amounts of tax as an employed or retired person there is now a short window of opportunity to examine your likely earnings for the 2013-14 tax year and, more importantly, see what can be done to minimise those liabilities.

It is impossible to outline all of the possible tax planning issues that could be of benefit. We have listed below a few and would suggest that you give us a call to discuss your individual circumstances.

  • Have you maximised your ISA investments this year?
  • Have you maximised your pension contributions?
  • If possible have you utilised your Capital Gains Tax personal exemption? Currently £10,900 for 2013-14.
  • If your employer still pays for the private fuel used in your company car you can effectively avoid the car fuel benefit charge if you repay your employer for the private fuel before the end of the tax year. It may be worth crunching the numbers as the tax on the benefit in kind is expensive and the private fuel refund may be less.
  • For Inheritance Tax purposes each person can give £250 a year to any number of recipients, as well as £3,000 annually over and above that amount. They can also make regular gifts out of their income (not capital) that should fall to be exempt.
  • If you are married or in a Civil Partnership and one partner/spouse has a much lower level of earned income, consider transferring income producing assets to the lower income earner. With Income Tax rates at a maximum 45% this current tax year, savings could be significant.
  • If you or your partner/spouse are affected by the Child Benefit claw back for high income earners, have you considered equalising your income (if possible) to avoid the charge, or have you considered your obligation to file a Self Assessment tax return to disclose your liability?
  • If your income is likely to exceed £100,000 this tax year have you considered the potential reduction or loss of your personal tax allowance?
  • If you are a high income earner paying tax at the 45% additional rate could you take advantage of charitable donations reliefs or other planning opportunities to defer, reduce or eliminate the impact the 45% rate?
  • Is it likely you will have business tax losses for 2013-14?

As indicated above every person’s circumstances are different and the above list is by no means exhaustive. Please call if you would like to organise a review of your tax planning opportunities for 2013-14.

Salaried members of LLPs

Tuesday, January 7th, 2014

HMRC published the draft Finance Bill 2014 last month. Included were changes to the taxation of certain partnerships. This article discusses the introduction of a new type of partnership member for Limited Liability Partnerships (LLPs) that will commence 6 April 2014: the “salaried member”.

The new status has been introduced to counter so-called “disguised employment” arrangements, where staff are elevated to the status of partners (also defined as members) of LLPs in order to benefit from self-employed tax status. The LLP employer also saves Class 1 NIC contributions.

HMRC have argued that the underlying relationship between the LLP and partners who fall into this category has not changed and that they remain, in essence, employees rather than partners – hence the description “disguised employment”.

From April this year all LLP members/partners will have to pass a new test to determine if they are salaried members. Members who are reclassified in this way will be treated for Income Tax purposes as employees of the LLP and subject to PAYE in the normal way. Salaried members will also be subject to the employee-related benefit in kind rules.

The status test will consider three conditions which need to be met for a member to be considered a salaried member:

  1. The member receives a fixed or variable sum that could be considered to be substantially (80% or more) disguised salary. Generally, this will cover arrangement where members’ “salaries” seem to be paid without reference to the underlying profit or loss of the LLP – as a whole.
  2. The member does not have, or cannot exert, “significant influence” over the management and affairs of the LLP as a whole, and
  3. The member’s capital contribution is less than 25% of the disguised salary in a year. This condition is further complicated if there are changes to capital contributions in the year.

From a planning perspective these definitions are uncertain in their application; particularly the second point: what constitutes “significant influence”?

LLPs with salaried members will be liable to employers’ NIC contributions, and the combined cost of the salaried member’s salary and employers’ NIC will be an allowable deduction in the LLP’s tax computation.

One thing is clear, all LLP partnerships should undertake a review of their members’ tax status before 6 April next year.

New year tax changes 2014

Monday, January 6th, 2014

In his Autumn Statement last month George Osborne announced a number of measures to help businesses grow and support families with cost of living pressures. Here’s a quick round up of the changes you can expect:

For growing businesses:

To help business grow and create jobs and to provide help for the high street, the government is:

  • introducing a cap on the Retail Prices Index (RPI) increase in business rates in England to 2% in 2014-15
  • introducing a £1,000 business rates discount to help the high street
  • doubling the Small Business Rate Relief for a further 12 months from 1 April 2014 to help 540,000 firms
  • making it cheaper for businesses to employ young people by abolishing National Insurance contributions for under-21s earning below £813 per week
  • introducing a new tax relief for shale gas and support for the creative industries

To support families with cost of living increases:

  • freezing fuel duty for the remainder of this Parliament, saving the average motorist £11 every time they fill up their tank by 2015-16
  • introducing the married couples transferable tax allowance, benefitting eligible couples by up to £200 in 2015-16
  • introducing reforms to save the average energy bill payer £50, whilst maintaining support for the poorest families
  • extending free school meals to all children in reception and years 1 and 2
  • cap the average increase in regulated rail fares for 2014 in line with the Retail Prices Index, complementing the decision by the Mayor of London to cap average fare increases in London for 2014