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Tax Changes for 2014-15

Written by Jon Cooper

The Chancellor of the Exchequer has announced that the Autumn Statement will be on 5th December.

Over recent years, the Autumn Statement has become an important update of Government finances and policies in the UK and provides a precursor to the Budget, which is normally delivered in March.

In the last week, George Osborne is reported to have said there was “no pot of money for tax sweeteners” in his upcoming statement leading to a flurry of speculation on areas that could face cutbacks with both ISAs and Entrepreneurs’ Relief being seen as potential targets.

We will be issuing a News Alert on reflecting the key announcements in the Autumn Statement that affect individuals and businesses.

However, in this Newsletter, we are looking at policies announced in the 2013 Budget that have will have an impact from the beginning of the 2014-15 tax year on 6th April 2014.

The Personal Allowance is set to increase to £10,000 (£9,440 in 2013-14) whilst the Basic Rate Limit will reduce to £31,865 (32,010 in 2013-14).  Overall, for a Director/owner earning a salary of £15,000 per annum and without any other source of income, this means that the total amount of tax-free Dividends that can be declared will increase to £24,178.50 from £23,805.00 in the current year.

The policy that will have the biggest impact on small businesses is the National Insurance Employment Allowance of £2,000 per year that is due to come into effect from April 2014.

Whilst the precise mechanism of how this allowance will be claimed is yet to be announced other than “as part of the normal payroll process through Real Time Information (RTI)”, the policy has moved a step closer to becoming law with the First Reading of the Bill passed on 14 October 2013.

It is important to bear in mind that this allowance is against Employer’s National Insurance contributions and does not affect the amount of National Insurance deductions from employees’ pay.

The exemption threshold for Employer provided Beneficial Loans will increase from the current threshold of £5,000 to £10,000 from the 2014-15 tax year.

As long as the total outstanding balance on all such loans to an individual does not exceed £10,000 at any time in a tax year, there is no taxable benefit nor tax charge.

However, the corporate rules regarding the mechanism of using Director’s Loans as a way to effectively extract funds from a company are being tightened.

Under the existing rules, if a Director has a loan at the end of a company’s financial year, so long as that loan is “repaid” within nine months of this date there is no company tax liability.

If the loan runs beyond this nine month period, a “notional tax” of 25% of the outstanding amount of the loan is payable to HMRC. This notional tax is repaid once the loan has been repaid.

The Government has announced three changes to tackle perceived avoidance of this tax charge:

• the use of an intermediary such as a trust or partnership to receive the loan on behalf of the Director will be within the scope of the charge.

• the transfer of value other than monetary loans will be brought within the scope of the charge where the Director receives a corresponding value.

• the definition of repayment will be reinforced so relief is only given for ‘genuine’ repayments and not, for example, where loans are repaid within the time limit only then to be re-granted shortly afterwards.

However, the HMRC is campaigning for further changes with the options of increasing the notional tax charge to 40% of the outstanding balance or replacing the notional tax by a non-refundable annual charge on loans owing at the company’s year-end both mooted in a recently completed consultation.

Any resulting proposal from this consultation will be outlined in our Newsletter as soon as we are notified.

Another significant change from the 2014-15 tax year revolves around Pension Tax Relief.  This is the annual allowance of pension savings qualifying for tax relief an individual can make and this amount is coming down from £50,000 to £40,000.

In addition, the lifetime allowance, which sets a limit on the amount of tax-relieved pension savings an individual can build up over their lifetime, is reducing from £1.5m to £1.25m.

The impact of these changes should be discussed with your pension advisor before April 2014.

Finally, a new scheme to support Childcare Costs remains scheduled to be phased in from the autumn of 2015 as the current systems of Employer Supported Childcare are phased out with the consultation process on this scheduled to begin shortly.

The overall concept is that for childcare costs of up to £6,000 per year per child support of 20% will be available worth up to £1,200. From the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under twelve.

The scheme will be open to all families with individual incomes of less than £150,000 and, therefore, not subject to the child benefit limits where if the highest earner in a family earns over £60,000, no child benefit is payable.

On the subject of Child Benefit, please be aware that if your family receives child benefit in the UK and the income of the highest earner is over £50,000, it is now mandatory to submit an annual Self-Assessment Tax return.

Our next newsletter is scheduled to be published on 28th October and will be focusing on the upcoming second phase of the Help to Buy scheme.

In the meantime, if you would like any further information or have any questions or comments, please do not hesitate to contact us.

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