UK BUDGET 2013
POINTS OF INTEREST
By Malcolm Green MAAT TEP FInstSMM
AAT Birmingham branch
www.aatbirmingham.org.uk
www.pinwm.co.uk
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RTI
PENSIONS
IHT AND LONG TERM CARE
SEIS
RTI penalties
No late filing penalties will apply to RTI returns in either 2012/13
or 2013/14
–The existing penalty regime will apply if there are late
returns at the year end
–So the penalty will be £100 per 100 employees (or part
thereof) per month late (or part month)
Late filing penalties from April 2014
The first month in a tax year which is filed late will not be subject to a
penalty
•After this a penalty will apply which takes into account the number of
employees and the number of defaults in the tax year
•The penalty is triggered if the full payment submission is not made:
‘on or before the time of payment of the employee’
• But for employers with multiple paydays in a month
–the legislation limits the number of penalties under this provision in
respect of each tax month to one
–Regulations will provide for the precise calculation of a penalty
-Penalties will be applied quarterly
A fairer regime from next tax year
The first late payment in a tax year continues to be regarded as “not a
default” for the purposes of this legislation (as now)
•For the first, second and third defaults in respect of the tax year
–the penalty is chargeable at the time of the default at a rate of 1% of
the tax comprised in the default
•For the fourth, fifth and sixth defaults
–2% of the amounts comprised in the default
•For the seventh, eighth and ninth defaults
–3% of the amounts comprised in the default, and
•For the tenth and subsequent defaults a penalty is chargeable at the
time of the default at a rate of 4%
–This allows for the late payment penalties to be issued during the
year
Employment taxes
Employment allowance worth £2,000 available to all
employers from April 2014
–To be delivered through RTI
•Replaces the failed Regional Employer’s NIC Holiday
scheme
–Less than 14,000 employers successfully claimed it
•Employment-related loans exemption to double to
£10,000 from 6 April 2014
–Very helpful given ongoing rise in cost of season tickets
–Will also benefit OMBs and reduce the burden of P11D
completion
Pension changes from 6 April 2014
Annual allowance reduced from £50k to £40k
•Lifetime reduced from £1.5 million to £1.25 million
-From April 2014/15
•Incentive to make larger contributions in 2012/13 & 2013/14
•Could be a problem for employees in final salary schemes
•Can claim “Fixed Protection 2014”
•Follow the auto-enrolment consultation carefully
•Currently the DWP proposes that Fixed Protection 2014 is
excluded from the system
Pension input amount
Money purchase scheme
–Amount contributed
•Defined benefit scheme
–More complicated
–Based on the increase in the member’s benefits for the year
Example - Chris
Chris is a teacher who is entitled to:
•pension of 1/80th final pay
•lump sum of 3/80th pensionable pay for each year of service
Pensionable pay = pay received over last 12 months
At the start of 2013/14:
•24 years of service
•Pay is £45,000 (pensionable pay)
He is promoted during the year:
•Earning £55,000 p.a.
•Pensionable pay for the 12 months to April 2014 is £51,600
Example - Chris
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Opening value
Annual pension: 24/80 x £45,000 = 13,500
Flat factor x 16 = 216,000
Lump sum: 24 x 3/80 x £45,000 = 40,500
Value (216,500 + 40,500) = 256,500
Increase by CPI (say) x1.031
Opening value 264,452
Example - Chris
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Closing value
Pension: 25/80 x £51,600 = 16,125
Flat factor x 16 = 258,000
Lump sum: 25 x 3/80 x £51,600 = 48,375
Closing value 306,375
Pension input (306,375 - 264,452) = £41,923
From April 2014 this would give rise to a tax
charge on: £1,923 at 40%
-Luckily Chris is Head of Maths!
Other pensions changes
Drawdown cap to increase from 100% to 120% of the
“basis amount”
–Essentially the equivalent pension that would be
available through a purchased annuity
•To apply to pension years commencing on or after 26
March 2013
•Cap does not apply where other lifetime pension income
exceeds £20,000
•Pension payments to a scheme registered to employee’s
spouse/family to be subject to income tax & NIC on both
the employer and employee from 6 April 2013
Non-domiciled spouses & civil partners
Limit of inter-spouse transfers to a non UK domiciled spouse increases to
£325,000 from 6 April 2013
–Previously this was only £55,000
–Exemption will rise in line with the Nil Rate band
•No limit on transfers to a UK domiciled spouse
•Election now available to treat non-dom spouse as UK domiciled
–Worldwide assets brought into IHT charge BUT…
–No limit on inter-spouse exempt transfers
–Advantageous where non-dom spouse has few foreign assets
•Elections to be made in writing
–Provision to backdate up to 7 years (but not before 6 April 2013)
–Once made it’s irrevocable whilst the individual is UK resident
Limit on IHT deduction for business
owners
Liabilities can be deducted in arriving at the net value of an estate on
which IHT is charged
–Even where the debt is used to acquire an assets eligible for BPR or
APR
•Business loans secured on the taxpayer’s home currently reduce the
value of the home and thus the chargeable estate
•BUT from Royal Assent (around 20 July 2013)the loan will reduce the
value of the business which is already covered by BPR
•This will increase IHT liabilities significantly in some cases
–Will also impact on IOU estate planning arrangements
Care in old age
Implementation of the Dilnot Commission proposals
Currently those with savings in excess of £23,000 are required
to contribute to their costs of care
–This limit is due to rise to £118,000
•From 6 April 2016 there will be a cap of £72,000 on the
amount of individual contribution to reasonable care costs
–Funded by freezing of IHT Nil Rate Band
•This provides greater certainty in estate planning
SEIS Changes
•“Friends and Family” relief
–But friends and family will often be associates!
•CGT exemption now reduced to just half of the reinvested gain
–But extended to allow reinvestment in 2013/14 or 2014/15
•Off-the-shelf companies now eligible
–Previous exclusion was a drafting error
•Income tax relief is at 50% as long as there is tax capacity in
year of investment or previous year
SEIS example – failure of business pre
Budget 2013
Investment £100,000, tax relief £50,000
•CGT exemption at 28%, £28,000
•If business fails, claim loss under s131
–Conversion of capital loss into an income loss
•Loss £50,000 @ 45% = £22,500
•Return to investor is £500, better than risk free!
•If a 40% taxpayer then net cost is only £2,000
SEIS example – failure of business
post Budget 2013
Investment £100,000, tax relief £50,000
•CGT exemption 50% of gain at 28%, £14,000
•If business fails, claim loss under s131
–Conversion of capital loss into an income loss
•Loss £50,000 @ 45% = £22,500
•Net cost to investor is NOW £13,500
•If a 40% taxpayer then net cost is only £16,000