Welcome to the April edition of our Inspire newsletter. March has been all about the Budget for us here, as we work to keep our clients informed about all of the changes introduced. If you haven’t managed to catch-up with all of the Budget news yet, check out our article on the essential points you should know.
As well as the Budget, it is now the time to think about the imminent end of the 2013/14 tax year. For employers, making a correct, final PAYE report in real-time, to avoid any year end penalties, is key. With regards to your personal affairs also, there is now very little time left to ensure you have maximised your benefits, annual tax reliefs, exemptions and allowances, so make this a priority if you have not already done so.
With that, I hope you enjoy reading our newsletter, and remember that we’re here to help if you need any further information on the topics covered.
Best wishes,
Ian Govier,
Director
PERSONAL TAX UPDATES
IMPORTANT CHANGES TO ISAS
In order to encourage savers, the current £11,520 ISA limit is to be significantly increased to £15,000 from 1 July 2014. Furthermore, the current 50% cash ISA limit of £5,760 is to be abolished so that any combination of cash and stocks and shares can be held within the ISA wrapper, up to the overall £15,000 limit. These products will be termed “New ISAs” or NISAs. The Junior ISA limit will increase to £4,000 from 1 July 2014.
SECURING BUSINESS SUCCESS
As many as half of all small businesses fail within their first three years of trading, and the recession has wiped-out many well established businesses in the past few years. Nevertheless, in 2013, almost 530,000 new business were registered, so how can these new ventures secure success?
There are numerous steps business owners can take to increase their chances of business success, and many of them relate specifically to our specialty; money. No matter how big a business is for instance, poor cash flow can be a pressing issue. Similarly, maintaining a turnover, rather than profit-led mentality, can also lead to problems.
Other considerations include the effect of competition from larger businesses and a lack of sales. For a handy guide on what pitfalls to look out for, and how to mitigate against them, take a look at our 5 Considerations for Business Success.
BUSINESS TAX UPDATES:
CORPORATION TAX REDUCTIONS PENALTIES
From 1 April 2014 to 31 March 2015, the main rate of Corporation Tax is 21% where a company’s profits exceed £1,500,000 (divided by companies under common control). The 20% small profits rate continues to apply to companies with profits up to £300,000 (also divided as above). As previously announced, a single Corporation Tax rate of 20% will apply from April 2015 whatever your level of profits.
ANNUAL INVESTMENT ALLOWANCE INCREASED TO £500,000
The Annual Investment Allowance (AIA) provides a 100% tax write off for the cost of most plant and machinery acquired by businesses, a notable exception being motor cars. This allowance was temporarily increased to £250,000 on 1 January 2013 and was due to reduce back down to just £25,000 on 1 January 2015. The Chancellor has announced that the allowance will be increased to £500,000 per annum for expenditure incurred between 1 April 2014 and 31 December 2015 (the change takes effect from 6 April 2014 for unincorporated businesses).
Remember that the AIA is available for assets bought on hire purchase as well as those bought for cash. It can also be claimed in respect of fixtures and fittings within buildings. The timing of expenditure can be critical, so if you need any advice on this, let us know and we’d be happy to chat with you about it.
RESEARCH AND DEVELOPMENT TAX CREDIT RATE INCREASED
Companies that are small and medium sized enterprises (SMEs) carrying out qualifying research and development can currently claim a Corporation Tax deduction of 225% of their qualifying spend. This means that £100,000 spend would result in a £225,000 reduction in taxable profits, potentially saving £45,000 Corporation Tax (at 20%). However, if the company is loss making this benefit may not be received until future years when profits are made. In order to improve the cash flow of these loss- making SMEs, the tax rules allow the company to surrender the loss attributable to the enhanced R&D spend for a tax refund. This has been increased from 11% to 14.5% with effect from 1 April 2014. So the £225,000 (based on £100,000 spend) would result in a refund of £32,625. The scope of companies who are eligible for Research and Development Tax Relief, is wider than many people imagine, so it may be worth discussing this if you think this could be a possibility for you.
NEW FLEXIBLE PENSIONS
There are significant changes being proposed which will make it easier to access your pension fund pot if you have a defined contribution (money purchase) pension scheme. As a general rule, 25% of the pension fund can be taken as a tax free lump sum at age 55, although this age will be increased in future to be 10 years before State Pension age (age 57 in 2028). Remember also that the requirement to buy an annuity at age 75 had already been abolished with the introduction of the “flexible drawdown” pensions that are currently available.
From 27 March 2014 the Government has increased the maximum amount you can take out each year from a capped drawdown arrangement from 120% to 150% of an equivalent annuity. For example, if the equivalent annuity rate is 6%, then up to 9% of the fund can now be drawn down each year. This is in response to concerns about low annuity rates which are linked to savings rates.
The Government has published a consultation document to consider proposals which would make the drawdown rules even more flexible from April 2015. This would allow you to withdraw more than the current 25% of the fund limit, subject to a tax charge. This charge would be at your marginal tax rate instead of the current penal 55% charge on the fund.
The other significant change being consulted on is the proposal to reduce the current limit of £20,000 guaranteed pension income to just £12,000 a year. Those with this level of guaranteed pension income will be able to draw as much or as little as they wish from their pension fund each year without the 150% of equivalent annuity rule applying.