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One of the key incentives from the government to encourage businesses to either retain or take on additional staff is set to come into effect from 6th April 2014.
The Employment Allowance will be available to most companies that run a payroll and that pay Class 1 National Insurance Contributions on employees’ and/or Directors’ earnings.
The Employment Allowance will cover up to the first £2,000.00 of Employer’s Class 1 NIC for the 2014-15 tax year onwards.
In practise, this means that a business with either one employee earning an annual salary of £22,000 or two employees each earning an annual salary of £15,000 will have no Employer’s Class 1 NIC to pay in 2014-15.
The Employment Allowance will operate as a deduction from the National Insurance payments to HM Revenue and Customs rather than a rebate at the end of the tax year. As such, it has an immediate positive cashflow impact.
This is to be administered as part of the overall Real-Time Information monthly payroll submissions to HMRC.
For our clients for whom we administer the payroll, we will be taking care of this for you.
For our clients who operate their payroll independently, we would advise you to verify that your payroll provider will be claiming the Employment Allowance on your behalf.
If you would like more detailed guidance on your circumstances in relation to the Employment Allowance or have a specific question on any topic, please contact admin@cooperfaure.co.uk to arrange a consultation.
A topic that we have been asked to cover is the impact of the changes to Private Residence Relief that will come into effect from April 2014 and, in particular, how this affects the ‘Accidental Landlord’ who has rented out their property as residential accommodation as a result of, say, a work secondment abroad.
To recap on the change, up until April the final thirty-six months of ownership of a Primary Residence is included in the calculation of the allowable period for Private Residence Relief irrespective of whether the property was lived in by the owners or let out. From April, this final period is reduced from thirty-six months to eighteen months.
For the ‘Accidental Landlord’ working abroad, the property they have let out would remain their Primary Residence so long as they do not own any other home in the UK. As a result, the property would qualify for Private Residence Relief on the qualifying period that the owner has lived at the property, subject to certain other criteria.
In the scenario below, the property has been owned for eight years but let out for the last three.
Under the current rules, the Private Residence Relief would apply to all eight years but, from April, this period would reduce to six and a half years.
If the property were sold and there was a gain of £200,000, before April the Private Residence Relief would fully cover the gain. After April, £37,500 would not be covered – the fraction of the gain from the eighteen months not covered divided by the period of ownership.
However, there is a second relief that would apply when a Primary Residence is sold that has been let out as residential accommodation for part of the time of ownership, Letting Relief.
The amount of Letting Relief is calculated as the lowest of:
• the amount of Private Residence Relief already calculated, or
• £40,000, or
• the amount of any chargeable gain you make during the period of the letting
In this scenario, the Letting Relief would be the amount of chargeable gain made during the period of letting of £37,500 resulting in there being no chargeable gain subject to Capital Gains Tax.
| Years of Ownership |
8 |
8 |
| Years of Residence |
5 |
5 |
| Years of Letting |
3 |
3 |
| Years of Qualifying Residence |
8 |
6.5 |
| Gain |
£200,000.00 |
£200,000.00 |
| Private Residence Relief |
£200,000.00 |
£162,500.00 |
| Chargeable Gain |
£0.00 |
£37,500.00 |
| Letting Relief |
£0.00 |
£37,500.00 |
| Chargeable Gain |
£0.00 |
£0.00 |
| 2013-14 Annual Exempt Amount |
£10,900.00 |
£10,900.00 |
| Amount Chargeable to Capital Gains |
£0.00 |
£0.00 |
| Capital Gains Tax @ 28% |
£0.00 |
£0.00 |
Looking at a second scenario where the property had been owned for ten years and let out for the last five and, again, there was a gain of £200,000 when the property is sold in April, the Private Residence Relief would be £130,000 covering six and half years of ownership and the Letting Relief would be capped at £40,000. As a result, there would be a residual chargeable gain of £30,000.
After taking into account the individual Annual Exempt Amount (£10,900 for the 2013-14 tax year), the amount subject to Capital Gains Tax would be £19,100.
| Years of Ownership |
10 |
| Years of Residence |
5 |
| Years of Letting |
5 |
| Years of Qualifying Residence |
6.5 |
| Gain |
£200,000.00 |
| Private Residence Relief |
£130,000.00 |
| Chargeable Gain |
£70,000.00 |
| Letting Relief |
£40,000.00 |
| Chargeable Gain |
£30,000.00 |
| 2013-14 Annual Exempt Amount |
£10,900.00 |
| Amount Chargeable to Capital Gains |
£19,100.00 |
| Capital Gains Tax @ 28% |
£5,348.00 |
It is important to note that this is an overview of a relatively complex area. If you would like more detailed guidance on your circumstances in relation to Private Residence Relief or have a specific question on any topic, please contact admin@cooperfaure.co.uk to arrange a consultation.
HM Revenue and Customs has announced that it is changing the IT systems that support its Real Time Information (RTI) system for PAYE.
As a result, HMRC is the delaying the imposition of fines on employers who have not implemented a RTI-compliant payroll system.
Under the original proposals when RTI was implemented at the start of the 2013-14 tax year, fines for late filings and interest for late payments were due to come into effect from 6th April 2014.
Despite numerous warnings before RTI was implemented of the magnitude of the change and the additional administrative burden and cost placed on businesses, it has taken until now for HMRC to acknowledge that “RTI is a big change and HMRC and some employers are continuing to learn. Having listened to customer feedback, HMRC has decided to stagger the start of the new in-year late filing and payment penalties, to give employers more time to adapt to reporting in real time.”
The new timetable will be:
April 2014 – in-year interest on any in-year payments not made by the due date
October 2014 – automatic in-year late filing penalties
April 2015 – automatic in-year late payment penalties
The HMRC continued, “This additional time will give us the opportunity to ensure that improvements to our internal systems are working, to learn from them and to provide better customer support to employers who need more time to adapt.”
Part of the reason for the revision of the timetable is to allow the RTI system to integrate with the Department for Work and Pensions (DWP) new Universal Credit system, which brings together means-tested in work and out-of-work benefits.
The Universal Credit system itself has experienced IT problems and is behind schedule.
If you have any specific question or topic that you would like to be covered in a forthcoming Newsletter, please contact admin@cooperfaure.co.uk.
2014 promises to be a pivotal year for the economic recovery both in the United Kingdom and the Eurozone.
In the United Kingdom, whilst there has been a significant reduction in the level of unemployment and an easing of inflationary pressures, there remains a major concern that the growth in the economy is not being matched by an underlying growth in productivity.
The Governor of the Bank of England indicated in a speech last week that interest rates were set to remain well below historic norms in the medium term but that one of the upwards pressures was this lack in meaningful productivity growth.
Against this economic backdrop, governments across Europe need to support and nurture the conditions to allow business to thrive.
The apparent unwillingness of traditional banking sector to provide the necessary level of working capital funding to business remains an obstacle. However, the last year has seen a remarkable increase in peer-to-peer lending culminating last week in the world’s largest loan to date of slightly over £4m being attained by a housing development in Croydon, south London provided by literally hundreds of private investors.
To keep you up to date with the latest economic and fiscal news and the impact on both businesses and individuals, from February, CooperFaure will be launching a new fortnightly Newsletter supported by regular News Alerts and we invite you to subscribe to this free service.