 Business taxes: Iain Wright, Claritas
 Personal taxes: Steve Holden, HCB Solicitors
2

 No triple dip recession
 0.6% growth in 2013, 1.8% forecast for 2014





Poorer than expected but better than France or Germany
Exports to Brazil, India and China up by 2/3 rds
Government departments underspent by £11bn
£3bn boost to infrastructure expenditure from 2015
Fiscally neutral Budget
 Now the most competitive tax system in the G20
3

Trend towards lower corporation tax rates continues
 UK will have 3 rd lowest corporation tax rate in the G20 in
2015- behind Russia and Turkey
 Recent rate reductions have been at cost of reduced capital allowances- temporary increase in Annual investment
Allowance partially addresses this
Main CT rate
Marginal rate
Small companies rate
Capital allowances
Annual Investment
Allowance
2012
24%
2013
23%
2014 2015
21% 20%
25% 23.75% 21.25%
20% 20% 20%
N/A
20%
18% 18% 18% 18%
£25,000 £250,000 £250,000 £25,000
4



10% tax rate on profits generated from patents
Rate applies to sales of products incorporating patents and products or services produced or provided using patented technology



Phased in over 4 years from 1 April 2013
But only ‘super margins’ qualify for reduced tax rate
Must have exclusive right to use patent in a territory
 Must have contributed to development of patent
5

 Wonder Loos Ltd sells 2 types of loo, the Bog Standard and the Wonder
Loo, which incorporates several patented new features. 70% of sales are of Wonder Loos
Sales
Cost of sales
Administrative costs
Profit before tax
Deduct 10% margin on routine costs
Wonder
Loos
(£000)
7,000
(5,000)
(700)
1,300
(570)
Bog
Standard
(£000)
3,000
(2,400)
(300)
300
N/A
Total
(£000)
10,000
(7,400)
(1,000
1,600
Profit eligible for patent box
Patent Box tax relief
Residual profits
Tax at 23%
Effective tax rate
730
(413)
887
204
15.7%
300
69
23%
(413)
1,187
273
17.1%
6

Existing R&D tax relief:
 225% deduction for SMEs-



HMRC contribute up to 51.75% towards qualifying expenditure
Cash payment of 24.75% of qualifying expenditure for loss making companies
130% deduction for large companies
 HMRC contribute 29.9% towards qualifying expenditure
 Relief given through reduction in tax charge, so reflected in tax line in profit and loss account
What is R&D?


Any activity which seeks to achieve a technological or scientific advance through overcoming technological or scientific uncertainty
Men in white lab coats are not necessary!
What costs qualify?
 Labour


Materials and consumables, including power
Subcontractor costs
7

“Above the Line” Credit
 Payable credit introduced for R&D expenditure incurred by large companies. Optional until 2016, mandatory thereafter


Also applies to subcontracted and subsidised R&D carried out by SMEs
Credit at 10% replaces 130% super deduction


Credit can be paid (net of tax) if no corporation tax liability
The example assumes an SME incurs £1m qualifying R&D
No R&D
£000
10,000
Current
£000
10,000 Sales
Above the line R&D Tax Credit
Costs
Profit before tax
Tax at 23%
Profit after tax
(7,000)
3,000
(690)
2,310
(7,000)
3,000
(621)
2,379
ATL
£000
10,000
100
(7,000)
3,100
(713)
2,387
8






Enhanced deduction similar to R&D tax relief for production of:

“High end” TV dramas and documentaries
 Animation
 Video games
Must be certified as “Culturally British”
Enhanced deduction equal to 100% of qualifying expenditure
Loss making companies can claim relief equal to 25% of expenditure incurred
Government consulting on options for supporting visual effects industry
9



Exemption for gains reinvested in Seed EIS companies extended by another year
CGT relief from 2014 on sale of controlling interest to employee ownership structure
10

11







OECD focus on:
 Transfer pricing (UK)


Base erosion and profit shifting (Germany)
E-commerce (France & USA)
Arbitrage between tax systems
Tax havens- why is Mauritius the largest investor into India and why do
Barbados, BVI and Bermuda invest more overseas than Germany?
Tax treaties
Moving towards a common tax base:
 EU/ G20 or more widely?
International tax competition
12







Exclusion from Government contracts for tax avoiders
Self certification of tax compliance history




Notification of any tax return amendments as a result of GAAR
Notification of participation in schemes which were or should have been subject to Disclosure of Tax Avoidance Scheme (“DOTAS”) rules
Disclosure of tax related offences and civil fraud penalties
Disclosure goes back 6 years, but only to April 2013- Previous proposal was for 10 year look back
Government departments can use discretion if circumstances permit
Contracts can be drafted to enable cancellation if tax status changes subsequently
Only applies to contracts worth more than £5m
Financial services “mis-selling” provisions to be applied to promoters of tax avoidance schemes?
13

Government will consult on:
 Removing presumption of self employment for members of LLPs

Could cause partners to be subject to employers’ NIC


Manipulation of profits within partnerships
 May block or reduce benefits of hybrid partnership/ company structures
Changes likely from 2014
14






Incorporation of partnership or sole trader can be tax free
Disincorporation cannot be-
 Company makes gain on transferring assets
 Shareholders receive a taxable distribution
Initial suggestion was that companies with turnovers under £2m would be able to disincorporate
Rules restrict benefit to companies with gains on goodwill and property of less than £100,000
Relief is of marginal benefit
15





£2,000 reduction in annual employers’ NIC bill for all businesses and charities
Takes effect from 1 April 2014
Benefit to be claimed through RTI process
Government to consult on implementation
16

Benefits
 Income tax on current market value, taxed when exercised.




Uplift from current market value to sale value subject to CGT
Corporation tax deduction on difference between market value on exercise and exercise price
Restrictions



Max EMI option value is £250,000/ employee
Maximum company size is £30m assets and 250 employees
“Low risk” businesses don’t qualify
Changes in Budget
Entrepreneurs' relief available on shares acquired through EMI regardless of size of shareholding. No need to hold shares for 12 months provided that options have been held for 12 months- exercise immediately presale will qualify for entrepreneurs’ relief
Negative combined tax rate of 13% for company and employee!
17





Employees giving up certain employment rights can be rewarded with shares
Shares worth up to £50,000 at time of gift will be CGT exempt
At least £2,000 shares must be awarded in return for accepting status
Employees will be deemed to have paid £2,000 for the shares, eliminating income tax and NIC on share awards up to that value
The problem

The employee will be taxed on the value of shares (over £2,000) received at income tax rates
 National Insurance and PAYE could also apply if shares are readily convertible into cash
18

Childcare



Childcare vouchers to be replaced by Government contribution of 20% to the cost of childcare
Worth up to £1,200 per child
Applies to all families unless both parents earn more than £150,000
 Applies from Autumn 2015
Company cars




From 2015, new company car bands for:
Cars emitting 0-50g CO2/km- 5%
51-75g- 9%
Other bands increase by 2% up to maximum of 37%
19

Progress towards £10,000 personal allowance continues


Personal income tax allowance to increase to £9,440 from 6 th
April 2013
Further rise to £10,000 announced to come in from 6 th April 2014
Basic personal allowance
Basic rate threshold
Higher rate threshold
Basic rate
Higher rate
Additional rate
6 April
2012
£8,105
6 April
2013
£9,440
6 April
2014
£10,000
£34,370 £32,011 £31,865
£150,000 £150,000 £150,000
20%
40%
50%
20%
40%
45%
20%
40%
45%
20

Child benefit tax:


 affects taxpayers in receipt of Child Benefit with incomes of between
£50,000 and £60,000; charge equals 1% of Child Benefit for every £100 above £50,000; e.g. Child Benefit for two children is £1,752, so £17.52 will be paid in tax for each £100 above £50,000 earned.
Childcare:


New tax free childcare system announced;
20% of first £6,000 per child, worth up to £1,200.
Cap on Income Tax reliefs:

 cap on unlimited Income Tax reliefs deductible from income; set at £50,000 or 25% of income;
Transfer of assets abroad

 changes to be enacted in Finance Bill 2013; retrospective to April 2012.
21

For tax year 2014 -15 onwards:



The annual allowance for pensions tax relieved savings will be reduced from £50,000 to £40,000;
The standard lifetime allowance for pensions tax relieved savings will be reduced from £1.5 million to £1.25 million;
Capped drawdown increased from 100 per cent to 120 per cent.
Fixed protection?

 a transitional 'fixed protection' regime will be introduced for those who believe they may be affected by the reduction in the lifetime allowance
Individuals (who apply) will have a LTA of the greater of £1.5m and the standard LTA (£1.25m from April 2014), provided that:
 If they are in a defined contribution scheme, they make no further contributions and nor are any contributions paid on their behalf;
 If they are in a defined benefit scheme, they stop accruing benefits above a “relevant percentage”. This is broadly defined as either the annual rate specified in scheme rules for the revaluation of accrued rights, or CPI (if no rate is specified)
22

Statutory residence test - the basic rule
 You will be resident in the UK for a tax year if:

 you meet the automatic residence test, or the sufficient ties test.





You will meet the automatic residence test in a tax year if:

 you meet any of the automatic UK tests, and you do not meet any of the automatic overseas tests.
Automatic overseas tests;
 16 days, 46 days and 91 days;
Automatic UK tests;
 183 days, a home and full time work;
Sufficient ties test;
 family, accommodation and time;
Deceased persons;
23

Capital gains tax (CGT):


The capital gains tax annual exempt amount will increase by 1 per cent in 201415 to £11,000 and by 1 per cent in 2015-16 to £11,100;
Extension of CGT to certain non-natural persons disposing of UK residential property valued at over £2 million at a rate of 28% where liable to the Annual Residential Property Tax (ARPT);
Inheritance tax (IHT):



The IHT nil-rate band was frozen at Budget 2010 at its current level of
£325,000 until April 2015. For 2015-16, the band will be increased by
1% rounded up to £329,000;
For nondomiciled spouses from 6 April 2013, the allowance of £55,000 is being increased to £325,000 and will follow any future increases in the nil rate band;
Legislation will be introduced in Finance Bill 2013 to amend the inheritance tax provisions which allow a deduction from the value of an estate for liabilities owed by the deceased on death.
24

GAAR


Designed to tackle abusive anti-avoidance schemes:




Are there arrangements which give rise to a tax advantage?
Does the tax advantage relate to one of the taxes to which the GAAR applies?
Is it reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes of the arrangements?
Are the arrangements abusive?
Stages:






1 - notification
2 - response
3 - advisory panel
4 - opinion
5 - decision
NOTE THAT THE ADVISORY PANEL IS NOT BINDING ON HMRC!
25

DOTAS


Revisions to DOTAS were consulted on over summer 2012 as part of the ' Lifting the Lid on Tax Avoidance Schemes' consultation;
Finance Bill 2013 will contain two powers for secondary legislation which will be consulted on in early 2013 alongside other changes;



The Government intends to implement all the secondary legislation on a common date, later in 2013;
Naming and shaming of high risk promoters of tax avoidance schemes;
Offshore employment intermediaries (EBTs) to be legislated for in
Finance Bill 2014;
26

Annual Residential Property Tax (ARPT):

UK dwellings valued at over £2m; and
 it's owned, completely or partly, by a company, a partnership where one of the partners is a company or a 'collective investment vehicle’.
Property Value
£2m to £5m
£5m to £10m
£10m to £20m
£20m and over
Annual Tax
£15,000
£35,000
£70,000
£140,000
SDLT schemes and reliefs
 15% by corporate bodies and non-natural persons on residential property.
Offshore arrangements:
 Agreement with Isle of Man, Guernsey and Jersey to disclose details of account holders, to be coupled with a disclosure facility.
27

Flat Rate Pension:

Set at £144; and
 Abolition of contracting out to end; but
 Salary Sacrifice contributions still possible?
Social Care Costs/;


Cap for care set at £72,000; and
The means testing disregard raised to £118,000.
Dishonest tax agents
 From 1 April 2013, HMRC will have powers to address dishonest conduct by tax agents, and issue civil penalties of up to £50,000.
28