Now that most of the dust from the Budget Day announcements has settled, I thought it might be a good idea to highlight some of the more pertinent things to come out of 2013's Budget, and to explain how they will affect you.
Loans from Companies to their Directors or Employees
For a number of years now, interest-free loans from companies to employees or directors, which total less than £5,000 per individual, have not been chargeable to tax on that individual. This figure is set to rise from £5,000 to £10,000.
New legislation, and the introduction of ‘Real Time Information' for businesses operating a payroll, however, means that the timing and method of repayment of these loans now needs to be handled very carefully.
If an individual falls foul of the new laws, they could end up with an unexpected tax bill. Additionally, there could be National Insurance Contributions for the company to pay and a hefty fine to boot.
Gone are the days of simply paying a bonus to pay off such a loan.
Furthermore, the practice of ‘bed and breakfasting' loans, whereby the loans are temporarily repaid at the company year-end, and then taken out again in the new accounting year, will be more closely monitored for abuse.
Infringement of these new rules could mean increased tax bills and further fines.
Loans by companies therefore need to be made and repaid on a much more organised and carefully planned basis going forward.
Used carefully, they are an extremely valuable and flexible means of rewarding both directors and their employees.
Incidentally, I have heard a rumour that at least one accountant is planning to make full use of the new limit, and it goes something like this:
Say you own a company and you have a young relative working for you. The company could make an interest free loan to that relative of say £10,000.
The relative could then use that as a 5% deposit on a new build house. The government would then add a further 15% – or £30,000 – under the new Help to Buy Scheme also announced in the Budget.
The relative then has a £40,000 deposit for a new home!
Will this work in practice? Watch this space…
Rates of Corporation Tax
These are set to drop to 20% from April 2015. You may have noticed a lot of the more positive projections the Chancellor of the Exchequer makes are geared toward 2015, which is – of course – because it’s election year.
This will mean that companies both large and small will pay the same rate of tax.
Traditionally, the larger companies have paid considerably more tax, but the Chancellor wants to encourage international companies to use the UK as their base, and plans to use low tax rates to attract and retain such businesses.
This should, in turn, mean no more complex planning and calculations for those medium-sized companies that currently pay a punitive hybrid rate, designed to ease the transition from the rate small companies pay to the rate larger companies pay.
Annual Investment Allowance
The value of this allowance has been increased from £25,000 to £250,000 – for two years – effective from 1 January 2013.
The rules are not quite as straightforward as you might imagine.
If you have had large items of capital expenditure, it’s advisable to let your accountant know now, so that any necessary tax planning can be put in place to maximise this relief.
Capping of Certain Tax Reliefs
Some tax reliefs that have been taken for granted in the past, for example tax relief for loan interest paid, may now be subject to a maximum claim each year, to the greater of £50,000 or 25% of income.
It may be wise to address the completion of your annual personal tax return sooner rather than later, to ensure there are no nasty surprises here.
Capital Gains Tax
Individuals can now normally have total capital gains of up to £10,900 per year, without being liable to Capital Gains Tax.
The first £325,000 of an individual’s estate up on death is normally Inheritance Tax free. This limit will be frozen until 2017-18.
General Anti-Abuse Rule
The Government has made it perfectly clear that they will not tolerate abuse of the tax system, particularly by the very wealthy.
It is anticipated that there will shortly be a further tightening of the rules, including action intended to prevent high-risk promoters of some tax avoidance schemes from abusing the tax system.
Ironically, if you have been involved in questionable or aggressive tax planning in the past, or you believe that you may not have paid all your taxes in previous years for whatever reason, now may be the time to address the issue.
There are currently certain opportunities for making disclosure to HM Revenue and Customs, which may well result in offenders being asked to pay significantly less by way of fines (or penalties as they are known) than might otherwise be chargeable.
Opinion within the tax profession is clear. If you believe you may be in contravention of the tax laws, approach a suitably qualified and experienced tax professional for advice on how best to address the issues.
Voluntary disclosure in this way usually means that the professional may negotiate on your behalf with HM Revenue and Customs, and may be able to greatly reduce the penalties chargeable.
Remember to let your accountant know if you have received any Child Benefit payments from the State during the year ended 5 April 2013 as this could affect the calculation of your self assessment tax due 31 January 2014.