GUIDANCE ON THE NEW GENERAL ANTI-ABUSE RULE (GAAR)

This controversial measure allows HMRC to nullify an arrangement which is held to be abusive in terms of avoiding tax. This is all fairly subjective, but HMRC have published guidance on how they will operate the new rules which do give some comfort.

In particular they have detailed the approach to take when considering whether the new rule should apply, and to protect you from any HMRC attack we will always make sure that when giving tax advice the possible operation of the GAAR will be fully considered. The extent of any sensible disclosure to HMRC is linked to this when preparing your annual tax return.

AUTO ENROLMENT OF EMPLOYEES INTO A PENSION SCHEME

The Auto Enrolment Scheme is also controversial but in a different way, as it imposes a legal obligation on employers to enrol employees into a pension scheme that meets certain standards.

The start date for auto enrolment varies, but all employees aged between 22 and the state pension age must be enrolled into a pension scheme, unless they earn up to the basic personal allowance of £9,440 (going up to £10,000 for 2014/15). Employees can opt out if they wish (and indeed opt in if not automatically enrolled).

HEALTH AND WELLBEING TAX PLAN

The latest campaign from HMRC is aimed at chiropodists, psychologists and homeopaths who feel they might not have declared all of their income. It offers the usual time-limited disclosure opportunity in which to bring tax affairs up to date on preferential terms. The campaign is not intended for doctors and dentists, who were covered by a previous disclosure initiative, or for nurses or social workers.

Individuals have until 31 December to join the scheme. They will then have until 6 April 2014 to make a disclosure and pay the tax owed, facing a penalty of a maximum of 20% (which is less than would apply if HMRC were to discover undeclared income themselves). If you know of anyone in this category having tax concerns, please refer them to us and we will get them the best available tax deal.

TRANSFERABLE TAX ALLOWANCE FOR COUPLES

From 2015/16, married couples and civil partners can transfer up to £1,000 of their personal allowance to their partner, but only if neither individual pays tax at the 40% rate. It is therefore a modest tax break, worth a maximum of £200 each tax year, but every little helps (as we are often reminded)! The estimate is that over 4 million couples will benefit. Oddly, there is no allowance transfer available where a man and woman are living together but are not married.

COMPANY CAR ADVISORY FUEL RATES

These are reviewed each quarter on 1 March, 1 June, 1 September and 1 December. They have shown very little change in recent times, but the new rates from 1 September 2013 do show a modest increase (reduction for LPG) in some situations. Where a change applies, the previous rates are shown in brackets:

engine size

petrol

diesel

LPG

1,400 cc or less

15p

10p

1,600 cc or less

12p

1,401cc to 2,000cc

18p (17p)

11p (12p)

1,601cc to 2,000cc

15p (14p)

over 2,000cc

26p (25p)

18p

16p (18p)

 

TAX CHARGE ON TAKING A LOAN FROM A CLOSE COMPANY – MORE BAD NEWS TO COME?

As I have mentioned in previous editions of the Tax E-News, there has been a tightening of the rules regarding the receipt of a loan from a close company. The company can be taxed 25% on the amount of a loan drawn by a shareholder which is still outstanding more than 9 months after the end of the company’s accounting period.

We now find that they are looking at a possible increase in the tax charge, from 25% to perhaps 40%. A completely different approach suggests a reduction in the tax charge to 5%, but with no tax refund when the loan is repaid. All of these changes mean it will be important to keep all directors’ loan accounts up to date in terms of identifying money in and money out, and the sources of the latter.

BENEFIT OPTIONS FROM YOUR PENSION SCHEME

With annuity rates still not looking attractive for most of us, it is vital that all of the options are considered. The number of options continues to increase to ensure maximum flexibility, as in this area one size does NOT fit all! In looking at the options, the tax position must always play a large part. We can advise on this by reference to your own requirements. For example, taking benefits in some ways can create a tax hit of 55%, but in others can ensure a tax charge simply at your top tax rate.

EXPENDITURE WHICH HAS A DUAL PURPOSE

This has always been a major bugbear of the tax rules, as where there is both a business and a personal reason or benefit in meeting an expense, there is no tax relief on any of it. There are a few exceptions; for example, if the expense can be properly split between business and personal (motor expenses is an obvious example), you receive tax relief on the business portion.

Unfortunately, recent case law demonstrates that despite the changes in communications and the way in which people run their businesses, the courts are unwilling to apply the rule in a sensible or more up to date manner. We will always claim tax relief in the best possible way whenever business and private expenditure gets mixed, so that you do not lose out while staying within the rules.