Work Hard and Get On – Our Budget Summary

The Chancellor promised a Budget “for people who aspire to work hard and get on”. He also said that it is fiscally neutral. That means that anything he gives to one group of taxpayers must be funded by taking from others. So there will be winners and there will be losers but in practice very little has changed for most people and privately owned businesses.

We are particularly encouraged by the promise to stimulate growth in the construction industry by underwriting deposits for new homes, and not just for first time buyers, but unfortunately, construction looks to be an isolated sector and there were few other industries where significant new measures are likely to trigger a surge of additional investment.  Of course, if the construction industry can be stimulated we would assume that there will be a positive knock on effect on others.

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Inheritance Tax: Deductions from the Estate for Inheritance Tax Purposes

George Osborne’s announcement today affected how Inheritance tax is charged on estates. Inheritance tax is normally charged on the net value of a deceased person’s estate after taking into account liabilities outstanding at the date of death.

The changes affect certain debts in the estate that are no longer able to be deducted. This change combined with the freezing of the nil rate band could cause many estates to come within the charge to inheritance tax at 40%

Clay Shaw Thomas are able to provide advice in order to assist you with effective estate planning. If you would like more information please do not hesitate to contact Andrew Knott at this office.

Inheritance Tax: Social Care and Nil-Rate Band Cap

The Chancellor of the Exchequer, George Osborne has brought the social care spending cap forward to April 2016 to protect funding above £72,000. This will provide peace of mind to those who want to plan for their old age and leave savings to their children.

Further to the announcement in February 2013 to freeze the current nil rate band at £325,000 until April 2018, the extra revenue created by way of inheritance tax will fund the cap on reasonable care costs for older people.

The freezing of the nil rate band is expected to cause approximately 5,000 additional estates per year to become taxpaying estates, increasing the requirement to prepare and submit the required forms to HM Revenue and Customs.

Clay Shaw Thomas are able to provide assistance with completion of the relevant forms and effective estate planning in order to minimize potential inheritance tax liabilities. If you would like more information please do not hesitate to contact Andrew Knott at this office.

Enterprise Investment Schemes

The theme of this year’s Budget was very much on growth and entrepreneurship, with continuing support for Seed Enterprise Investment Scheme and Enterprise Investment Scheme investments. Those pursuing Capital Gains Tax Relief on Seed EIS investments have been given a one year extension whereby relief can now be claimed up until the 2014/15 tax year.

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Partnership’s are now on HMRC’s radar…..

As a choice of business vehicle, partnerships offer a level of flexibility that companies may not enjoy. The perception at HMRC appears to be that, in some cases, this flexibility has been taken too far and “the misuse of the partnership rules has become a feature of many avoidance schemes”. The Chancellor has therefore announced an intention introduce new legislation designed to target the use of partnerships to artificially reduce tax liabilities.

One concern is that employers are avoiding paying national insurance by encouraging staff to become members of an LLP with national insurance rates on partners being lower than those payable by employers and their employees. The indications are that there may be a substance test introduced to determine whether an individual is to be treated as a member (and thus self employed) or an employee, and based upon similar tests already in existence we should expect to see consideration being given to voting rights, capital contributions of members, exposure to losses and remuneration which varies in direct correlation to the results of the business.

Whilst the artificial manipulation of partnership profits in order to gain tax advantage must understandably be discouraged it is hoped that any new legislation does not hamper the potential for improved participation and performance and the sense of loyalty to a business that genuine equity participation can encourage.

If you are concerned that the proposed new legislation may adversely affect you please contact either Andrew, Jigna or Karen for advice.

HMRC Cracking down on Loans from Companies

Legislation will be implemented to counter arrangements under which close companies seek to avoid the charge to tax under section 455 (formally section 419).

Section 455 tax is applied when a person who possesses, or is entitled to acquire, share capital of a company has a loan from the company which remains outstanding at the end of the accounting period. The charge is equivalent to 25% of the amount of the loan or advance and the company can claim relief for any s455 tax payable if the loan is repaid to the company.

The new legislation has been implemented with immediate effect in order to prevent bed and breakfasting whereby loans are repaid simply to avoid paying the Section 455 tax but very quickly afterwards reinstated. The new rules will look to ensure that in these circumstances tax is still payable even though the original loan has technically been repaid.

Due to these changes the cash flow of the company could be greatly affected each year. If you would like further assistance regarding how this change affects your company, please contact Andrew Knott who would be happy to advise you further.

Simpler income tax for small businesses…..

Small businesses with a turnover less than the VAT registration threshold (currently £77,000 but increasing to £79,000 from 1 April 2013) will, from April 2013, be able to use a simpler method to work out their profits to charge to tax.

The new method will simply measure money in against money out of the business rather than use more complicated accounting principles that might see adjustments for debtors, creditors or stock. Some businesses will also be allowed to use flat rates to calculate certain business expenses and there may no longer be a need to distinguish between capital and revenue monies spent.

Whilst this simplification is welcomed, making it easier for business owners to see a direct correlation between the amount of their profit and the amount that is charged to tax not all businesses will benefit and its important that the position is reviewed regularly to ensure that you do not advertently fall foul of these simplified rules.

If you want to know more about what is proposed or need help to establish whether your business is affected, please call our Small Business Manager Nick Hillsdon for further advice on 01656 867167.