YEAR END PENSION PLANNING

Take advantage of the pension carry forward rules in order to benefit from any unused allowances from the previous three tax years.  This is generally the difference between £50,000 and the pension input each year and can be added to your relief for 2013/14.  Note that the annual pension allowance reduces to £40,000 from 6 April 2014.

From 6 April 2014, the lifetime pension allowance, which determines the amount you could save into pensions and receive tax relief will be reduced to £1.25 million.  Apply for  fixed protection before 6 April 2014 to continue to benefit from the current £1.5 million lifetime allowance.

OTHER TAX EFFICIENT INVESTMENTS

If you are looking for investment opportunities, have you considered the Enterprise Investment Scheme (EIS), which offers income tax relief of 30 per cent as well as capital gains tax relief?  An even more generous tax break is available for investment in A qualifying Seed EIS company where income tax relief at 50 per cent is available, together with a capital gains tax exemption on disposal and the ability to shelter 50% of your capital gains in 2013/14. A 30% income tax break is also available by investing in a Venture Capital Trust.

INHERITANCE TAX PLANNING BEFORE 6 APRIL 2014

Have you made use of your annual inheritance Tax exemptions? The general annual exemption is £3,000 per donor (plus last year’s £3,000 exemption if you did not use it). Also consider making regular gifts out of your income to minimise the growth of your estate that will be liable to IHT.

NO INCOME TAX ON DIRECTOR AND EMPLOYEE LOANS UP TO £10,000

The current £5,000 limit for cheap or interest free loans to directors and employees increases to £10,000 from 6 April 2014. This means that such loans will not need to be reported on form P11d and there will be no income tax or national insurance liability on loans up to the new limit. However, as previously reported in these newsletters,  there may be a 25% corporation tax charge payable by the company if the loan is to a shareholder and is still outstanding 9 months after the end of the accounting period.

TAKE ADVANTAGE OF THE £2,000 EMPLOYMENT ALLOWANCE FROM 6.4.2014

The new £2,000 “employment allowance” that provides relief from paying employers NIC on the first £2,000 of contributions starts 6 April 2014. For many employers the benefit of the £2,000 relief will be obtained in month 1 by reducing employers NIC payable, for others it could take several months before credit for the £2,000 is obtained  on a cumulative basis.

This new relief appears to be available to most employers, including one man band companies, and leads us to consider a change of profit extraction strategy from 6 April 2014 as it will be more advantageous to increase directors’ salaries to £10,000 instead of the NIC threshold of £7,956.

The extra £2,044 will save £409 (20%) corporation tax (£818 for two directors) whereas the additional employees NIC would be just £245 each.

Husband and wife company – from 2014/15:

Salary –                             £9,755 net  = gross  £10,000

Dividend up to BR band  £28,678 net = gross £31,865

Top of BR band                                             £41,865

Net cash extracted (each) £38,433

Total extracted       £76,866

There would however be 20% corporation tax payable.

Profits before tax £71,695 @ 20% = £14,339 corporation tax, thus profits before salaries and tax would be  £91,695.

This results in an overall tax and NIC rate of just 16.2%.

A salary in excess of £10,000 would attract income tax (at  20%) and employee’s NIC at 12.2%.

TAX DIARY OF MAIN EVENTS

 

Date

What’s Due

1 April Corporation tax for year to 30/6/13
6 April 2014/15 tax year begins
19 April Final RTI FPS due by this date. Indicate that this is final submission for the tax year and answer Annual Declaration questions – note no P35 this year.
19 April PAYE & NIC deductions, and CIS return and tax, for month to 5/4/14 (due 22 April  if you pay electronically)
1 May Corporation tax for year to 31/7/13
19 May PAYE & NIC deductions, and CIS return and tax, for month to 5/5/14 (due 22 May if you pay electronically)

 

 

RTI – PAYROLL PROCESSING FOR SMALLER EMPLOYERS

Real Time Information or RTI was introduced from 6 April 2013 which requires employers to submit payroll data to HMRC on or before wages and salaries are paid to employees.

However during the 2013/14 tax year this general rule is relaxed for employers with fewer than 50 employees who may submit their payroll data by 5th of the following month. It has recently been announced that this concession will be extended to 5 April 2016.

This relaxation is very useful as it should be remembered that penalties will start being imposed for late submissions from 6 April 2014. Please contact us if you need advice on operating RTI or would like us to deal with the administration of payroll on behalf of your business.

NEW HMRC TAX RESIDENCE INDICATOR TOOL

From 6 April 2013 new Statutory tests were introduced to determine whether individuals are resident in the UK or not, generally making the rules much clearer than previously. There will still be situations where someone’s tax residence isn’t clear cut where they spend substantial time overseas and also make visits to the UK.

HMRC have released an updated version of the Tax Residence Indicator tool, which helps individuals check whether they are likely to be treated as resident in the UK for income tax and capital gains tax purposes from 2013/14 onwards. This is available on the HMRC website, however we would recommend that you contact us if you have any doubts about your tax residence.