Transcript Slide 1

What does the 2014 Budget mean for the North East?
March 2014
Budget 2014
 Andrew Moorby – A North East background to the Budget
 Chris Hodgson – Personal Taxes
 Mark Parkinson – Wealth Management
 Adrienne Paterson – Business Taxes
 Alastair Wilson – Encouraging growth
 Round up and Questions
N E Economy (NEE) concerns from 2012 and 2013
 Over reliance on public sector employment
 High Unemployment
 Skills shortages
 Too many low paid jobs with a reliance on benefits
 Lack of entrepreneurship
Over Reliance on Public Sector Employment

Looking at the annual change between
September 2012 and September 2013, the
number of people employed in the public
sector fell by 52,000.

By September 2013 the percentage of
public sector employment was down to
21.8.

Better than Wales, Scotland and Northern
Ireland.
Nationally, the number of people
employed in the private sector increased
by 537,000 to reach 24.4 million.


BUT in the NE we have only created 7,000
net new jobs in the year to Sept 2013.
NEE – Unemployment Rates (October 2013)
Youth Unemployment
 For the year to June 2013
o Youth unemployment (16 to 24) fell by 9.7% from 54,000 to 49,000
o Good news?
o Youth employment (16 to 24) also fell over the same period. It fell by 4.4%
from 158,000 to 151,000
o The youth employment rate is now 45.9%
 Not in Education Employment or Training (NEET) 15.4%
o Midlands 17.1%
o International NEET comparatives – Germany 9.5%, Spain 17.6%
Proportion of residents with no
qualifications - by age
16 – 24
25 – 34
35 – 49
50 – 64
North East
11.3
11.0
14.4
29.7
North West
11.0
10.5
14.1
28.1
Yorkshire and
The Humber
11.5
12.0
15.6
28.3
East Midlands
11.1
10.5
12.7
27.3
West Midlands
12.0
12.3
15.6
29.2
East
10.8
8.3
10.6
23.8
London
8.9
6.9
12.4
23.0
South East
9.4
7.1
8.7
19.8
South West
9.6
7.2
9.3
20.7
12.0
11.2
15.7
28.1
Wales
New Businesses in 2013 – Hotspots?
NEE – What initiatives did we want to
see from the 2014 Budget?
What does all this mean for us?
 The average weekly earnings in the North East are £455, the lowest in England
(London £613).
 Average House price in North East £145,000, the lowest in England (£425,000 in
London).
So what do we want to see?




Encourage growth outside London and the South East
Assist private sector employment
Assist skills training
More help for people wanting to set up businesses here (access to finance, help
to export)
 Incentives for inward investment.
We need to retain our best young people!
Chris Hodgson
Private client
Income tax allowances and rates
2012/13
2013/14
2014/15
2015/16
Personal allowance
£8,105
£9,440
£10,000
£10,500
Basic rate band
£34,370
£32,010
£31,865
£31,785
50%
45%
45%
45%
42.5%
37.5%
37.5%
37.5%
Top rate of income tax
Dividend rate
NI Contributions
 Lower earnings limit increases to £111 per week.
 Upper earnings limit comes down to £41,865 from £42,475, due to reduction
in band of income taxed at 20%.
 Rates of NIC unchanged.
 Primary threshold increases to £153 per week.
 Secondary threshold increases to £153 per week.
Mr £15,000
Tax & NIC
Employer’s NIC
2012/13
£2,266
£1,036
2013/14
£1,982
£1,008
2014/15
£1,845
£972
2015/16
£1,745
£972
Mr £50,000
Tax & NIC
Employer’s NIC
2012/13
£14,219
£5,867
2013/14
£14,037
£5,838
2014/15
£13,859
£5,802
2015/16
£13,717
£5,802
Mr £200,000
Tax & NIC
Employer’s NIC
2012/13
£85,461
£26,567
2013/14
£83,313
£26,538
2014/15
£83,359
£26,502
2015/16
£83,417
£26,502
Other changes
 From 2015/16, there is to be an ability to transfer up to £1,050 of unused
personal allowance to your spouse. This is only available where the receiving
spouse is a basic rate taxpayer.
 This is to be 10% of the personal allowance and so the figure will increase as
the personal allowance increases.
 For low earning savers the rate of tax on interest is 10% on the first £2,880 for
2014/15. The 10% rate is abolished from 5 April 2015. Instead up to £5,000 of
interest will now be taxed at 0%.
Profit Extraction from Companies
 From 6 April 2014, the new Employment Allowance will apply.
 Companies with only the directors being paid a salary may end up paying no
employers NIC.
 Typically salary would be set at the primary threshold of £153 per week.
 However if the EA covers the employer’s NIC it may now be better for the
person to be paid a salary of £10,000 to use their personal allowance, get a
higher corporation tax deduction and pay a small amount of employee’s NIC.
Fixed Share Members of LLPs
 At the moment a member of an LLP is automatically self employed for tax
purposes.
 From 6 April 2014, if a member of an LLP meets Conditions A, B and C, the
payments made to that person will subject to PAYE and NIC, including
employer’s NIC, even though for employment law purposes, the person may
not be an employee.
 The new rules do not apply to a traditional partnership.
Fixed Share Members of LLPs Who is a member of an LLP?
Fixed Share Members of LLPs
The Conditions
 Condition A – Less than 20% of the amounts payable to the member is by
reference to the overall profits of the LLP.
 Condition B - The member does not have significant influence over the affairs
of the LLP.
 Condition C – Any capital contribution to the LLP is less than 25% of any
disguised salary payable to the member.
Fixed Share Members of LLPs
Breaching the Conditions
 Provided one condition is breached, the new rules will not apply.
 Detailed guidance has been issued showing scenarios of when a condition will
be met or breached. However there is still a lot of uncertainty.
 A non-statutory clearance can be submitted to HMRC to clarify if the
conditions are met for a particular LLP.
Capital Gains Tax
 Annual exemption increase to £11,000 for 2014/15 from £10,900.
 We also know that the annual exemption will increase to £11,100 for 2015/16.
 Tax rate stays at 28% for a higher rate taxpayer and 18% for a basic rate
taxpayer.
 When selling a principal private residence, the period of deemed occupation
falls to the last 18 months of ownership for disposals after 5 April 2014 from
the previous figure of 36 months.
 From 6 April 2015, the sale of UK residential property by a non-UK resident
individual will be subject to Capital Gains Tax.
Trusts
 Trust rate stays at 45% for 2014/15.
 Capital gains tax rate stays at 28%.
 CGT annual exemption for 2014/15 increases to £5,500 from £5,450.
Inheritance Tax (IHT)
 Nil rate band frozen at £325,000 up to and including 2017/18.
 This is to help pay for the proposed cap on reasonable care costs of £72,000.
 Finance Bill 2015 to include an IHT exemption for emergency service
personnel who die while on service.
Mark Parkinson
Wealth Management
Pension overhaul
George Osborne drops bombshell on pensions flexibility
 From April 2015 anyone over the age of 55 will be able to take their entire pension
pot as cash
 25% can still be taken tax free however the remainder will be taxed at an
individuals marginal rate rather than the previous 55%
 Annual allowance is reducing from £50,000 to £40,000 from 6th April 2014
 Lifetime allowance falling to £1.25 million from 6th April 2014
Pensions
 Trivial commutation limit across pensions has increased from £18,000 to £30,000
from 27th March 2014
 The small pot commutation limit increases from two lump sums of up to £2,000 to
three lump sums of up to £10,000
 Government intending to introduce ban of public sector members transferring out
of Defined Benefit schemes
Pensions
 The capped drawdown limit will also increase from 120% to 150% of GAD to allow
more flexibility to those who would otherwise buy an annuity
 The flexible drawdown minimum income requirement will also reduce from
£20,000 to £12,000
 Lump sum death benefits - The government feels that the 55% tax rate on lump
sum death benefits is too high. The consultation process for change will kick off
now
Investments
 This is the last year for benefiting from renewable energy incentives such as ROCs
and RHIs. As with feed-in-tariff, this is not retrospective. There are EIS funds
currently open which will allot shares on 3rd April for anyone wanting carry back
and another share allotment before the rules on renewable obligations kicks in
 CGT reinvestment relief for SEIS is being continued
 Further consultation on lower risk structures which benefit from Government
subsidies (looks like HMRC are keen to see the end of low risk investment
proposals)
Investments
 Cash and stocks and shares ISA to be merged into a single New ISA with annual tax
free savings limit of £15,000 from 1st July 2014
 Junior ISA limits increased to £4,000
 Pensioner Bonds for the over-65s, with a possible rate of 2.8% for one year bonds
and 4% for three year bonds – up to £10,000 to be saved in each bond
 Cap on Premium Bonds to be lifted from £30,000 to £40,000 from June then
increase to £50,000 in 2015
Adrienne Paterson
Business Taxes
Corporation tax rates
Since 2007 the main rate of corporation tax has been falling
From 1 April 2012
Large companies
Small companies
24%
20%
1 April
2013
23%
20%
–From
Large
companies
have profits greater
than £1.5m, small companies
have
profits less than £300k.
From 1 April 2014
21%
20%
From 1 April 2015
20%
20%
Large companies have taxable profits greater than £1.5m, small companies less
than £300k
Corporation tax rates
Corporation Tax liabilities by sector
Rates of CT in G20
Corporation tax rates
 The alignment of the main rate of CT with the small companies rate will mean
that the complex rules regarding associated companies can be simplified.
 Reduction in rate is intended to save businesses £7.8bn per year by 2016/17.
 If rate of CT reduces to 20%, UK will have the lowest rate of the G20
companies, along side Russia, Turkey and Saudi Arabia.
 The focus on tax enforcement and compliance remains high. In 2013 a
General Anti Abuse Rule was introduced to strengthen HMRC’s armoury
against tax avoidance.
 Introduction of new rules to block arrangements involving payments between
group companies which transfer profits to avoid tax.
Other changes to Corporation tax
 Amending loss relief provisions – ease the rules restricting the availability of
relief for the losses when a company changes ownership.
 Corporation tax relief for donations to Community Amateur Sports Clubs –
such gifts will come under the corporate gift aid scheme from 2014.
 Corporation tax relief for theatres – the introduction of a relief at 25% for
commercial theatre productions and a relief at 20% for touring productions to
regional theatres, with effect from 1st September 2014.
 Corporation tax film relief – relief at 25% on the first £20m of qualifying
production expenditure and 20% thereafter, from April 2014.
 Corporation tax video games relief and high end television tax relief –
extension of the relief to goods and services provided within EEA.
Not-for-profit sector
 Rules for Community Amateur Sports Clubs (CASCs) were reviewed last year.
The new rules come in from 1st April 2014.
 New relief for investment in Social Enterprises. Individuals will be eligible for tax
relief on qualifying investments at a rate of 30% from 6th April 2014 (rules will
operate in a very similar manner to EIS).
Capital allowances
Current rate
Main rate pool
Writing down allowance
18%
Special rate pool/integral features
Writing down allowance
8%
Annual investment allowance
Enhanced capital allowances
(energy efficient/environmentally
beneficially)
Business premises renovation allowance,
available to 31 March 2017
Enterprise Zones enhanced capital
allowances
£250,000
Budget changes from 1st
April 2014
£500,000
Available for qualifying
expenditure up to 31st
December 2015
100%
100%
100%
Extended until 31st March
2020
Business premises renovation allowance
 BPRA was introduced in 2007 to provide an incentive for businesses to tackle
derelict shops and empty business premises and to bring them back into productive
use.
 Scheme was reviewed in July 2013. HMRC felt that the scheme had been subject of
exploitation.
 As a result of the review the legislation has been overhauled with the aim of make
the scheme more simple and its application more clear.
 The new legislation comes into effect from 1 April 2014.
What is BPRA?
 100% capital allowances are available for the costs incurred in converting or
renovating empty business premises in certain deprived areas.
 Premises must have been unused for 1 year.
 Definitions of what expenditure qualifies are being made clearer.
 Under original legislation had to continue to own the property for 7 years, otherwise
some or all of allowances could be clawed back on a sale. This is reducing to 5 years.
Capital Allowances –
New rules for claiming relief for fixtures
 Rules are introduced from 1st April 2014 regarding the availability of Capital
Allowances on fixtures and fittings in purchased buildings.
 Any business purchasing a building needs to be aware of the rules.
 It is the responsibility of the buyer to ensure that the conditions for claiming
capital allowances are met by both the seller and the buyer.
 The seller is required to make appropriate disclosures in their tax computation.
 The seller and the buyer need to complete a Section 198 Election.
 Full cooperation of the seller is needed and therefore it may be necessary to
include the conditions to be met by the seller in the Sale and Purchase Agreement.
Alastair Wilson
Encouraging growth
The North East’s R&D expenditure
Expenditure on R&D in the North East





Not last!
Ahead of Wales
Two thirds of Northern Ireland’s
Less than half of Yorkshire’s
Just over a third of Scotland’s
The North East’s R&D employment
Employment on R&D in the North East




Joint last with Wales
Half of Northern Ireland’s
A third of Scotland’s
A third of Yorkshire’s
Taxation of Intellectual Property
 From 1 April 2014 the rate at which loss making companies can surrender their
R&D expenditure for a cash tax credit will be increased from 11% to 14.5%
 This means that companies who usually surrender their losses to HMRC for an
R&D tax credit will receive an additional 3.5% per year
 The maximum value of this change in cash terms will be 7.875% or £7,875 for
every £100,000 spent on qualifying R&D
 This change will affect not only loss making companies but also companies
who are treated as loss making for tax purposes as a result of claiming the
enhanced R&D deduction
 For companies with accounting periods which straddle 1 April 2014, extra
benefit will be gained by reviewing the timing of R&D expenditure in detail to
ensure that the maximum benefit is being extracted from the scheme
Taxation of Intellectual Property
 Measures announced in previous Budgets regarding the taxation of intellectual
property are now starting to really benefit North East businesses:
 The Patent Box legislation applies for accounting periods starting after 1 April
2013 and will effectively tax business profits derived from IP at a rate of 10%,
although is being phased in until 31 March 2018.
 Companies with impending year ends should now be in a position to assess
how beneficial it will be to elect in to this new regime
 The R&D Expenditure Credit and the ‘above the line’ accounting treatment has
now been in effect for 1 year and companies are starting to reap the benefits
 The Creative Sector Tax Reliefs for animation and television are now available
but the games sector tax relief is still awaiting EU State Aid approval
Employment Allowance (EA)
 Eligible employers can claim up to £2k off Class 1 NIC
 Only one employer within a charities / connected company structure can
claim EA
 Not automatic! Employer must claim via EPS
 Excluded employers include:
o employing someone for personal, household or domestic work;
o allowance claimed by a connected company or charity;
o public authorities (local, district, town and parish councils);
o functions provided either wholly or mainly of a public nature (unless
charity);
o Personal and Managed Service Companies who pay contract fees instead
of wages and salaries.
Abolition of Employer NIC for under 21s
 No Class 1 secondary (i.e. employers) NIC if employee < 21
 From 6 April 2015
 All employers are eligible
 On earnings up to UEL (£42,285 for 2015/16)




Admin for employers to ensure correct NIC letter applied to employees < 21
To encourage employment of youths and boost economic development
What if employees are 22?
What about elderly employees?
Share schemes
From September 2013
 Employee shareholder contracts in existence
 Useful alternative to EMI schemes
From 6 April 2014
 Register online for
o Existing and new employee share schemes
o Unexercised EMI options
o New grants of EMI options
o Non-tax advantaged arrangements (currently recorded on Form 42)
o CSOP schemes, SAYE option schemes, SIPs
 Self-certify that share scheme requirements met for CSOP, SAYE, SIP
otherwise tax advantages will be lost! HMRC will no longer approve new tax
advantaged schemes
Online filing of share schemes (2)
From 6 April 2015
 All share scheme information returns must be filed online
 Automatic penalties will apply for late filing
 HMRC will no longer issue reminders
Benefits and expenses reporting
From 6 April 2014
 Legislative framework to simplify the tax system for benefits and expenses for
businesses and their employees
 > 20 recommendations by OTS to improve benefits reporting
 Benefits and expenses reporting via the payroll instead of on P11Ds
 New statutory definitions and guidance proposed to assist with understanding
o subsistence,
o list of “trivial benefits”,
o temporary workplace rules
 Abolition of £8,500 threshold to reduce administration
 We’ll keep you informed!
Childcare
Employer Supported Childcare
Tax Free Childcare
(ORIGINAL)
Tax Free Childcare
(REVISED)
What does
individual get?
Up to £243 per month per
parent free of PAYE and NIC
20p top-up for every 80p paid
(up to £1,200 top-up per child
pa)
20p top-up for every 80p paid
(up to £2,000 top-up per child
pa)
Who benefits?
Any employed parent if
employer offers scheme
Families where ALL parents are
employed (working single parent
or couple where both work or
one parent receives ESA or CA)
Remain eligible if qualified
before sick , maternity, paternity
or adoption leave
Self-employed
Who won’t
benefit?
Parents must work 8 hours per
week @ NMW (£6.31)
Tax / universal credit recipients
ESC recipients
If any parent is an additional (45%) rate taxpayer
Age of child
Up to 1st Saturday in September
following 15th birthday
Effective from
Currently effective
Effective until
Phased out from Autumn 2015
Year 1 – up to age 5
Age limit will build up to 12
“over time”
Year 1 – under age 12
Autumn 2015
On-going
Childcare
Who will be better off under each scheme?
Employer Supported Childcare
Tax Free Childcare
Couple – only one parent working
Self-employed lone parent or couple
Additional rate (i.e. 45%) taxpayers
Employees not offered ESC by employers
Children at or approaching age 12
Employees earning at or near NMW so unable to
salary sacrifice
One parent qualifies for ESC and childcare fees
< £4,665 for BR taxpayer,
< £3,130 for HR taxpayer
Two parents qualify for ESC and childcare fees
< £9,332 for BR taxpayer,
< £6,260 for HR taxpayer
One parent qualifies for ESC and childcare fees
> £4,665 for BR taxpayer,
> £3,130 for HR taxpayer
Two parents qualify for ESC and childcare fees
> £9,332 for BR taxpayer,
> £6,260 for HR taxpayer
Any circumstances not listed here will require further investigation
Anti avoidance matters
Intermediary arrangements
 Offshore employment intermediaries - rules strengthened
 Avoidance schemes using offshore employers will pay income tax and NICs on
UK employment . Genuine overseas employment unaffected
 Onshore employment intermediaries – legislation expected
 Prevent onshore employment intermediaries from presenting employment
relationship as self employment to avoid NICs and income tax.
 Attacks “Umbrella arrangements”
Acceleration of tax prior to litigation
 HMRC can issue a notice demanding tax even though tax payer may believe
arrangements not yet defeated by HMRC
 Accelerated payment of tax under arrangements covered by DOTAS regime
 Eg EBTs, EFRBs etc.
Round-up
Other changes you need to consider
Other announcements
 FRS 102
 VAT – mini one stop shop
 Auto enrolment
Questions?