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This month’s articles cover: the value of tax planning prior to end of the tax year, the increase in the Annual Investment Allowance announced last month, the intended launch of Universal Credits later this year and further easing of the proposed Income Tax relief cap.Our next newsletter will be published 7 February 2013.
Feedback and Referrals
Cap on Income Tax relief
End of year tax planning
Ten-fold increase in Annual Investment Allowance
Universal Credit and the self-employed
RTI (Real Time Information)
Tax Diary January/February 2013

Feedback and Referrals Practice News
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Articles this month include:

Statutory residence test

Significant changes to NETPs

European VAT update

Charities Online

PAYE issues: P800 forms and RTI


Cap on Income Tax relief Income Tax
Draft clauses recently published for the Finance Bill 2013 outline the way in which the Government proposes to limit the amount of tax relief an individual can claim. Capped reliefs will be limited to the greater of £50,000 or 25% of net taxable income – this is income less pension payments and charitable donations. The cap will commence 6 April 2013 and will include claims to carry back losses from 2013-14 to 2012-13.

Readers may remember that it was originally intended to include charitable donations in the capped reliefs but after successful lobbying by charities this proposal was dropped. We are pleased to report that two further reliefs will be excluded from the cap. These are:

  1. Certain trade loss reliefs that are created by a claim for overlap relief – these losses generally occur when a self-employed trader changes their accounting year end date or ceases trading.
  2. Losses incurred on shares that qualify as Enterprise Investment or Seed Enterprise Investment Schemes.

End of year tax planning Personal
Although we are now at the beginning of a new calendar year we are in the last quarter of the current tax year.

Whether you are a business person, property landlord or pay significant amounts of tax as an employed or retired person there is now a short window of opportunity to examine your likely earnings for the 2012-13 tax year, and more importantly, see what can be done to minimise those liabilities.

It is impossible to outline all of the possible tax planning issues that could be of benefit. We have listed below a few and would request that you give us a call to discuss your individual circumstances.

  • Have you maximised your ISA investments this year?
  • Have you maximised your pension contributions?
  • If possible have you utilised your Capital Gains Tax personal exemption? Currently £10,600 2012-13.
  • If your employer still pays for the private fuel used in your company car, you can effectively avoid the car fuel benefit charge if you repay your employer for the private fuel before the end of the tax year. It may be worth crunching the numbers as the tax benefit in kind is expensive and the private fuel refund may be less.
  • For Inheritance Tax purposes each person can give £250 a year to any number of recipients, as well as £3,000 annually over and above that amount. They can also make regular gifts out of their income (not capital) that should fall to be exempt.
  • If you are married or in a Civil Partnership and one partner/spouse has a much lower level of earned income, consider transferring income producing assets to the lower income earner. With Income Tax rates at a maximum 50% this current tax year, savings could be significant.
  • If you are in business would it be prudent to bring forward capital expenditure so that you can take advantage of the increase in the Annual Investment Allowance from 1 January 2013 – see article that follows.
  • If your income is likely to exceed £100,000 this tax year have you considered the potential reduction or loss of your personal tax allowance?
  • If you are a high income earner paying tax at the 50% additional rate, could you defer taking bonuses or dividends until after 5 April 2013 when the additional rate reduces to 45%?
  • Is it likely you will have business tax losses for 2012-13?

As indicated above every person’s circumstances are different and the above list is by no means exhaustive. Please call if you would like to organise a review of your tax planning opportunities for 2012-13.

Ten-fold increase in Annual Investment Allowance Business
One of the surprise announcements in the Autumn Statement 2012 was the decision to increase the Annual Investment Allowance (AIA) from 1 January 2013 to £250,000. The increase will apply for two years.

Obviously, this is an attempt to focus the minds of entrepreneurs on investment. For profitable, self-employed traders this could be a useful tax planning tool providing a means to drastically reduce higher rate tax payments. Indeed all businesses should consider this change as an opportunity to bring forward the tax relief on qualifying equipment purchases.

There may be an opportunity to quite legitimately create tax losses if the AIA claimed exceeds taxable trading profits for the year. If the losses can be carried back, perhaps tax paid in earlier years can be reclaimed… However, beware if your accounting period falls in the tax year 2013/14 or later, as loss relief may then be restricted by the new cap (see below).

We would advise business owners to consider a rounded approach to investment decisions as it would be imprudent for the “tax tail” to unduly influence other commercial considerations. For example, how would the capital expenditure be funded without depleting working capital?

Please contact us if you would like to discuss how your business would best make use of this new opportunity.

Universal Credit and the self-employed Business
A new Universal Credit (UC) benefits system will be introduced in the UK this year:

– The Greater Manchester and Cheshire regions from April 2013,

– All new claimants from October 2013,

– All existing claimants will be transferred to the new system on a phased approach to be completed in 2017.

Universal Credit will be paid into a claimant’s designated bank account on a monthly basis. Claimants will manage their claims online and will be required to disclose any monthly earnings.

But what if you are self-employed?

It is common for new businesses to be run on a loss making basis in the early years and many businesses are badly affected by the current downturn in economic activity. The Department of Work and Pensions (DWP), who are responsible for managing UC, will apparently require claimants to declare their current earnings, online, each month. The self-employed will need to report the number of hours they work in their business and this will be valued at the National Minimum Wage (NMW) rate. If the actual profits of their business are higher, the higher amount will need to be declared.

Hopefully, the DWP will reconsider these monthly reporting obligations for the self-employed, for two reasons:

  1. Setting a minimum income for the self-employed (hours times the NMW) means that benefits may be reduced even though actual earnings may be lower, and
  2. How many small businesses are going to be able to cope with the need to produce monthly accounts?

It will be interesting to see how the final regulations are drafted…

RTI (Real Time Information) Payroll
RTI – the HMRC Real Time Information initiative for payroll is coming from April 2013, and will have a significant impact on any business which employs staff – including single persona companies in respect of directors.

Details are on a dedicated section of our web site:

In early 2013 we will be contacting you to make sure our data is correct for you and your staff.

As we have previously explained there is likely to be a fee impact of £100 pa for most clients from the administration RTI is generating. Please complain to your MP not us!

Tax Diary January/February 2013 General
1 January 2013 – Due date for Corporation Tax due for the year ended 31 March 2012.

19 January 2013 – PAYE and NIC deductions due for month ended 5 January 2013. (If you pay your tax electronically the due date is 22 January 2013.)

19 January 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2013.

19 January 2013 – CIS tax deducted for the month ended 5 January 2013 is payable by today.

31 January 2013 – Last day to file 2012 Self Assessment tax returns online.

31 January 2013 – Balance of Self Assessment tax owing for 2011-12 due to be settled today. Also first payment on account for 2012-13 due today.

1 February 2013 – Due date for Corporation Tax payable for the year ended 30 April 2012.

19 February 2013 – PAYE and NIC deductions due for month ended 5 February 2013. (If you pay your tax electronically the due date is 22 February 2013.)

19 February 2013 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2013.

19 February 2013 – CIS tax deducted for the month ended 5 February 2013 is payable by today.

28 February 2013 – Self Assessment tax for 2011/12 paid after this date will incur a 5% surcharge.