Small salaries for company directors?

The payment of a State Pension is often far in the future for some clients.  The press often question whether the State Pension will even be around in 5 or 10 years’ time. But, other benefits, like Maternity Benefit and Incapacity Benefit, are payable provided your contributions to the National Insurance scheme are up to date.

During 2013/14 there are two limits for National Insurance Contribution (NIC) for employed individuals (Class 1 contributions): the lower earnings limit (£109 per week) and the primary threshold (£149 per week).  If a salary in the range of £109 – £148 is taken then NIC is deemed to have been paid but at zero per cent making a salary of £5,688 – £7,696 attract no liability to either employees NIC (roughly 12% of the salary) or employers NIC (13.8% of the salary).  This can make a substantial difference to the individual’s net pay and the company’s PAYE liability whilst continuing to ensure that the individuals NIC contributions are up to date.

If the director is also a shareholder then additional distributions can be made in line with the shareholdings provided the company has sufficient retained profit after Corporation Tax has been paid. If these distributions to the shareholders are less than the basic rate band threshold, for Income Tax purposes, then no further tax is payable.

Care should be taken when drawing dividends from a company, so please discuss this with us before adopting this method.  Dividends must be correctly voted and declared in line with the Companies Act 2006 and your client manager will be able to discuss the systems to be implemented to ensure this runs smoothly for the company.

Think carefully before assets are sold

In the same ways as assets can be transferred between spouses and civil partners to best utilise the Income Tax Allowances available to the couple, the Capital Gains Tax annual exemption should also be utilised if possible, to maximum the tax saving.

By transferring assets into joint names before sale it is possible to utilise both Capital Gains Tax exemptions – in this current tax year, that amounts to £10,900 each – and could make a massive tax saving of £3,052 if the disposing spouse or civil partner is a higher rate tax payer!

And because of the tax treatment of the way assets are transferred between spouses and civil partners there is no loss of benefit of the base cost or the length of holding the assets.  The transfer is called a “no gain no loss” transfer.

Please take legal advice before transferring properties as there may be stamp duty and legal fees to take into consideration and these may outweigh the tax savings.

Claim back tax on bank and building society interest

Tax is deducted from most bank and building society interest before it is paid over.  This is a problem if you are not a tax payer.

If you or a relative hold a bank or building society account and are not a tax payer then we will happily check this, organise the interest to be paid gross and reclaim the tax overpaid for up to 4 years.  If the account is in the name of a minor it will be necessary to establish the origin of the capital invested, because if the capital was derived from a parent and any interest comes to over £100, the interest is deemed to be the parent’s income and, as such, is taxable on that parent.

NEW HMRC TASKFORCES

HMRC has announced four new taskforces to investigate tax evasion in specific commercial and geographical sectors. The taskforces bring together various compliance and enforcement teams for what they term intensive bursts of targeted activity.

The new taskforces are localised and cover the following:

Holiday industry in Blackpool, Lake District, North Wales, Devon and Cornwall

  • Restaurants in Yorkshire and Humber
  • Road hauliers in the Midlands
  • Fishing industry in Scotland

 

NEW TAX RELIEFS TO ENCOURAGE EMPLOYEE OWNERSHIP

Consultation has started on the following possible reliefs:

  1. CGT relief when the controlling share of a business is sold into an indirect employee ownership structure.
  2. Income tax and NICs exemption by reference to an indirect employee owned company paying a certain amount each year to their employees. Employer NICs would also be exempt.

Early days to consider this topic in detail but in the right circumstances it looks like there will be significant tax breaks on offer.

EXTRA CORPORATION TAX RELIEF FOR THE CREATIVE SECTOR

If you run a business involving the creation of animation programmes, high-end TV programmes, or video games, you can look forward to extra tax relief on the production costs. This results in corporation tax relief on no less than 200% of the actual costs on UK expenditure up to a maximum of 80% of the total core expenditure.

We now have more details of the rules and regulations and can advise you of the scope for getting this new tax relief, which can give you an alternative tax credit where the enhanced tax relief results in a loss arising.

HMRC promise a pro-active approach through their new CREATIVE INDUSTRIES TEAM and in particular have a target to process 98% of tax credit claims within 28 days.

 

 

CGT PRIVATE RESIDENCE RELIEF – IS IT A RESIDENCE?

To stand any chance of the gain on sale of a residential property being wholly or partly exempt from tax, one of the requirements is that you can show it was used as your only or main residence.

There are a growing number of tax tribunal cases on this issue, where whether or not a property has been used as a residence is a question of fact with evidence being vital to obtain. That really is the basic message as a lack of evidence will be fatal where you lived in a property for only a short time.

As to what evidence is needed, that all depends on the circumstances. Forward planning is vital, as is being able to show that there was an intention (albeit not necessarily realised) to live in the property with some degree of permanence.

HMRC GOING INCREASINGLY DIGITAL

£200 million is to be invested in HMRC’s digital services, which they believe will reduce their costs dramatically.

Cynics will say that is all very well, but it means the taxpayer or his agent will have to do more of the work needed. Please be assured that we will use the increasing range of HMRC digital services to your advantage, providing a personal service which gets your tax affairs up to date and ensures no tax planning opportunities are missed.

Looks like it won’t be long before HMRC are left with nothing much to do except check tax returns. That will be done with an overall reduced workforce, but with more people freed from doing other tasks and soon to be reallocated to compliance checks. On our part we will always seek to reduce the chances of a tax return being queried in any way.

NICs AND SELF-EMPLOYED ENTERTAINERS

This controversial issue revolves around the fact that whilst self-employed for income tax purposes, an entertainer is generally deemed to be an employed earner for NIC purposes.

Up for consultation is a choice of action to take effect from 6 April 2014, with the choices being:

  • Do nothing – entertainers retain dual status for tax and NICs.
  • Simplifying legislation within the Class 1 NICs regime.
  • Moving entertainers’ earnings into the Class 2 and 4 NICs regime like all other self-employed people

 Not surprisingly, HMRC do not consider it is realistic to do nothing. It is a very important issue for entertainers as if the decision is to bring them all into the self-employed net for NICs they will no longer have earnings which count towards entitlement to earning-related contributory benefit – something that is vital to the majority of entertainers given that HMRC believe the average annual earnings are only £12,000 and they perform for an industry average of only about 13 weeks per year.