SOCIAL INVESTMENT TAX RELIEF

As previously announced, a new tax relief for equity and certain debt investments in social enterprises will be available from April 2014. Organisations which are charities, community interest companies or community benefit societies will be eligible. Following consultation, investment in social impact bonds issued by companies limited by shares will also be eligible.

A ‘roadmap’ for social investment will be published in January 2014.

MEMBERS OF LIMITED LIABILITY PARTNERSHIPS (LLPs)

LLPs have become increasingly popular as a vehicle for carrying on a wide variety of businesses, although running a business as a limited company may well be the norm once corporation tax rates go down to 20% whatever the level of taxable profits.

An LLP combines limited liability for its members with the tax treatment of a traditional partnership. Individual members are deemed to be self-employed and are taxed as such on their respective profit shares as if they were carrying on a notional sole trade.

It has now been decided that deemed self-employed status is not appropriate in some cases. For example, individuals who would normally be regarded as employees in high-salaried professional areas such as the legal and financial services sectors are benefitting from self-employed status for tax purposes which leads to a loss of employment taxes payable.

The legislation may be amended (probably with effect from 6 April 2014) by simply removing the provision which deems individual members to be self-employed. This would mean applying the normal employment v self-employment tests. A consultation document proposed additional tests which may be easier to apply in certain scenarios.

CORPORATION TAX

profits     year to: 31/3/15

(FY2014)

31/3/16

(FY2015)

first £300,000  

20%

20%

over £1.5m  

21%

20%

The concept of associated companies will be of limited application once there is a standard rate of corporation tax of 20%, but it will still be relevant in determining whether the tax has to be paid by instalments by large companies. A simpler system will apply, based on 51% group membership, so this may help you avoid paying the tax before the normal due date of 9 months from the end of the accounting period (well 9 months + 1 day to be exact!).

Equally interesting is the news that the rules which restrict the availability of relief for trading losses on a change in ownership will be relaxed via Finance Bill 2014.

 

PERSONAL ALLOWANCE AND TAX BANDS

The promised hike in the personal allowance to £10,000 is confirmed for the tax year 2014/15.

The basic rate limit is £31,865 for 2014/15. This means that 40% taxpayers (if taxable income does not exceed £100,000) will partly benefit from the increase in personal allowance.

The 45% band for 2014/15 applies to taxable income over £150,000.

As is well known, there is a nasty tax trap by reference to the gradual withdrawal of the personal allowance if taxable income exceeds £100,000.This is via a reduction of £1 of allowance for every £2 of excess taxable income. For 2014/15 the trap is even wider than before with the increase in personal allowance to £10,000:

Taxable income Marginal rate
£100,000 to £120,000 60%
£120,001 to £149,999 40%
£150,000 + 45%

If your taxable income is ordinarily in the 60% marginal band we can advise on possible solutions.

VAT Warning for Storage Units

Many farmers are unaware that they should be charging VAT at 20 per cent on any rent they receive from buildings let as storage.

Buildings rented for storage covers not only farmers letting to tenants who may then use it for their own storage, but also farmers storing caravans, horse boxes and so on, for their owners.

Rental income from storage facilities has been standard rated for VAT since October 2012, but many landlords are not responsible for knowing how buildings are being used and charging the appropriate rate of VAT.

Landlords are being advised to carry out inspections and ensure that contracts specify that the tenant must inform them when they start or stop using the space for storage.

Landlords failing to comply with these requirements face penalties from HMRC ranging from 30 per cent to 100 per cent of the VAT owed, depending on the circumstances.

NICs AND SELF-EMPLOYED ENTERTAINERS

Entertainers will be treated as self-employed for NIC purposes from 6 April 2014 instead of being deemed to be employed earners. This is a reversion to the rules which applied up to 1998.

For this purpose an entertainer is defined as someone engaged as an actor, singer or musician, or in any similar performing capacity, other than under a contract of service.

The average annual income of an entertainer engaged as an actor or in any similar performance category is £12,000.The total annual performing work for an average entertainer is only between 12 and 14 weeks, so most at some point supplement their earnings with outside employment. Benefit entitlements will be affected under the new rule, as up to 5 April 2014 entertainers could claim jobseekers’ allowance when not working. As a self-employed person, however, the universal credit will be reduced.

As a positive step the change should result in the UK being more competitive as a production location, with the 13.8% employer’s NIC ceasing to apply.

CLASS 4 NICs HAVE TO BE PAID UP TO STATE RETIREMENT AGE EVEN WHERE THAT IS INCREASED

It needs to be appreciated that Class 4 NICs are only not due by the self-employed with profits in excess of the lower annual profits limit if under 16 or he/she reached state pension age (SPA) before the start of the tax year in question.

The start of the tax year is 7 April for this purpose, so anyone born on 6 April is exempt for the tax year which factually started on that day.

As and when the SPA rises, liability to Class 4 NICs continue. As an example, a woman born on or before 5 April 1951 is not liable to Class 4 NICs as from 2012/13, whereas when her SPA was 60 they ceased to be due from 2011/12.

SPECIAL RELIEF

This valuable relief is worth knowing about. It effectively extends the right to claim OVERPAYMENT RELIEF to cover tax overpaid where ordinarily the deadline of four years after the end of the tax year concerned has not been met. It can only apply if specific conditions are met. In particular you have to show that it would be unconscionable to seek to recover the amount, or to withhold repayment of it if already paid, and also your tax affairs have to be otherwise up to date or arrangements have been put in place to bring them up to date so far as possible. Recent case law gives more ammunition to claim special relief in certain circumstances.