In a major boost for pioneering small businesses, the Financial Secretary to the Treasury, David Gauke, recently launched a new plan outlining how government will make it easier for small businesses investing in research and development to claim tax relief.

The two-year plan, which is a response to an HMRC consultation, aims to increase take-up of research and development (R&D) tax relief through raising awareness of the relief amongst small businesses and making it easier for them to apply.

The tax relief, which encourages companies to invest in costly new product development, helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development. Latest statistics for 2013-14 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

Financial Secretary to the Treasury David Gauke said:

R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.

That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.

The plan, ‘Making R&D Easier: HMRC’s plan for small business R&D tax relief’, was published 28 October 2015 and sets out that:

• From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
• HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
• Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment. SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230 per cent of their qualifying R&D expenditure. In 2013-14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009-10.

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A number of trade associations have issued warnings to their members recently. They are concerned that HMRC are making an issue of business mileage recording. Apparently, employers are failing to keep adequate records of mileage for employees who have the use of company vehicles.

Self-employed business owners can also be caught out by the same issue. If you are a sole trader or partner in a business and have the use of a business vehicle for a mix of private and business mileage you should keep a record of your total mileage for the tax year and your total business mileage. Any claim for vehicle running costs, or a claim for capital allowances, should then be adjusted to remove any private use element, using the mileage data collected.

HMRC are still running a business record check campaign. Business owners should take steps to regularise their record keeping ensuring that they are compliant with legislation. If you have any doubts about the systems you presently use to record mileage, or any other aspect of your business record keeping, please call and we will undertake a review on your behalf. A few adjustments to your present routines may be preferable to an uncomfortable audit by HMRC and possible additional tax bills, penalties and interest payments.
 

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It has been announced that the new Single-Tier State Pension will start, subject to Parliamentary approval, April 2016.

The original proposals for the new system were outlined in a White Paper published January 2013. At present the changes are speculative and will need to be agreed by Parliament. However, readers may be interested to read the following notes that summary some of the provisions set out in the White Paper.

• Persons reaching the State Pension Age after the proposed single-tier scheme starts will receive the new flat rate payment. This was set at £144 per week in the White Paper.

• The single–tier pension will be increased each year by at least the percentage average earnings have increased in the previous year.

• If you are already over the State Pension age when the new scheme starts 6 April 2016 you will continue to receive your State Pension in accordance with the existing rules.

The new pension will be fairer to the lower paid, the self-employed and carers, as all persons reaching the State Pension Age after 6 April 2016 will receive the same amount.

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One of the major accountancy bodies, the Association of Certified Accountants, has reminded home based entrepreneurs that they can make a valid claim, for tax purposes. The ACCA’s head of tax, Chas Roy-Chowdhury, reflected:

“The rise in start-ups from the home is good news for the economy, but whether these home-based entrepreneurs are aware that, for example, they can deduct tax for the electricity they use in the room where they do most of their work is another matter.

Unless you are trawling through HM Revenue & Customs website, you may not know that even costs of hiring a cleaner can be deducted from your tax bill for the work they have done in the ‘business room’ of your home.”

However, business owners were advised to look before they leap into claiming.

“It is not always straightforward and it will not always be clear what can and cannot be allowed,” said Mr Roy-Chowdhury. “Getting it wrong could land you in hot water with HM Revenue & Customs, so it’s worth going over what is allowed and what isn’t”.

Home based businesses can claim reasonable costs for using a room in their house for business purposes. The costs could include: cleaning, electricity, water, heating and even decorating expenses. In some circumstances, house repairs can be tax deductable too.

If you do work from home, check out what you can validly claim.
 

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If you own the property that you trade from, for example a hotel or guest house, the purchase price of the property may have included the cost of certain integral features that it may be possible to submit a claim for capital allowances.

 The Finance Act 2012 included provisions that affect the ability to make such a claim and we are now in a transition period ending in April 2014. Accordingly, we recommend that if you think you may be affected to contact us to discuss how the change in rules will affect you and whether a “late” claim for capital allowances can be made if you have not already made a claim.

 What sort of integral features can you claim for?

 The rules that define what can be claimed vary from business to business. Usually, it should be possible to claim for items that are used in the running of the business. For example: heating systems, security systems, general power, and fire alarms.

 HMRC defines integral features, eligible for plant and machinery allowances, as:

1. An electrical system (including a lighting system),
2. A cold water system,
3. A space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
4. A lift, an escalator or a moving walkway,
5. External solar shading

HMRC’s guidance goes on to say that:

 “…the new definition does not extend to any asset whose principal purpose is to insulate or enclose the interior of a building, or to provide interior walls, floors or ceilings which are intended to remain permanently in place.”

 What are the advantages of making a claim?

 A back dated claim for capital allowances will reduce your tax bills, possibly for a number of years, and if tax has already been paid for those years then you should receive refunds.

 Further, if you fail to make this type of claim it may affect the valuation of your business in the event of a future sale since the ability of a purchaser to claim allowances may be restricted.

 If you have never explored the possibility that tax allowances may be locked away in the cost of the building you own, and trade from, we would be happy to take a look on your behalf. Time is running out. As mentioned above, you should consider this before April 2014.

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 From 6 April 2014 the pensions’ lifetime allowance will be reduced to £1.25 million from the present level of £1.5 million. If you have already built up pension savings of more than £1.25 million or have planned to do so in the expectation that the lifetime allowance would not reduce from the 2013-14 level, there is a new form of protection called “Fixed Protection 2014” (FP2014).

The legislation for FP2014 applies from 6 April 2014 and broadly follows that for the existing fixed protection which was introduced when the lifetime allowance was reduced from £1.8 million to £1.5 million in 2012-13.

 If you expect your pension savings to be more than £1.25 million (including taking into account past benefits crystallised) when you come to take any benefits on or after 6 April 2014 you can use FP2014 to help reduce or mitigate the lifetime allowance charge. FP2014 will allow you to crystallise benefits worth up to £1.5 million without paying the lifetime allowance charge, although the ability to accrue future benefits is very limited.

The application form for FP2014 is available since 12 August 2013 and must be submitted electronically or in paper form by 5 April 2014. However, HMRC will not send out any FP2014 certificates before November 2013.

We will be happy to speak with any pension savers who may be affected: those who have, or intend to have, pension savings in excess of £1.25m.

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The acronym stands for Annual Tax on Enveloped Dwellings. The tax was introduced in April 2013 to discourage ownership of property in an “envelope” that could avoid payment of Stamp Duty Land Tax on a subsequent sale.

 ATED is a tax on companies and so-called Non-Natural Persons (NNPs) who have an interest in a residential property in the UK that was valued at £2m or more on 1 April 2012, or with a purchase price over £2m if acquired on or after 1 April 2012.

 A Non-Natural Person is an owner who is not an individual and includes certain partnerships and collective investment schemes.

 The ATED tax due for 2013-14 depends on the property value:

• £2,000,001 to £5m – £15,000
• £5,000,001 to £10m – £35,000
• £10,000,001 to £20m – £70,000
• Over £20m – £140,000

For the first year, 2013-14, the ATED return was due by 1 October 2013 and the tax is due to be paid by 31 October 2013. For subsequent years the ATED return and payment is due by 30 April in the year of assessment. Thus, for 2014-15 the return and payment will need to be made by 30 April 2014.

 The tax is only due for the period of ownership in a tax year.

 A dwelling might get relief from ATED if it is:

• Let to a third party on a commercial basis and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner.
• Open to the public for at least 28 days per annum. If part of a property is occupied as a dwelling in connection with running the property as a commercial business open to the public, the whole property is treated as one dwelling and any relief will apply to the whole property.
• Part of a property trading business and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner.
• Part of a property developers trade where the dwelling is acquired as part of a property development business the property was purchased with the intention to re-develop and sell it on and isn't, at any time, occupied (or available for occupation) by anyone connected with the owner.
• For the use of employees of the company, for the company's commercial business and where the employee does not have an interest (directly or indirectly) in the company of more than 10 per cent. The employee's duties must not include services for any present or future occupation of the property by someone connected with the company. The relief is also available where a partner in a partnership does not have an interest of more than 10 per cent in the partnership.
• A farmhouse, if it is occupied by a qualifying farm worker who farms the associated farmland, a former long-serving farm worker or their surviving spouse or civil partner.
• A dwelling acquired by a financial institution in the course of lending.
• Owned by a provider of social housing.

 There are also a number of exemptions from the tax, most significantly, charitable companies using the dwelling for charitable purposes.

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HMRC was given new powers from 1^st September 2013 to request information from UK’s merchant acquirers – the companies that process card payment transactions.

This will enable HMRC to data-mine information on all credit and debit card payments made over the last four years.

It would seem likely that HMRC will use their Connect software to make connections within the data obtained that will forward investigations into taxpayers’ affairs.

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 1 October 2013 – Due date for Corporation Tax due for the year ended 31 December 2012.

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

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

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

 31 October 2013 – Latest date you can file a paper copy of your 2013 Self Assessment tax return.

 1 November 2013 – Due date for Corporation Tax due for the year ended 31 January 2013.

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

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

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

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If you are married, and if you and your spouse do not pay tax at the higher rates, you may benefit to the tune of £4 per week if the Conservative party wins the next election, or controls a coalition, from 2015.

It is estimated that four million married couples, and fifteen thousand civil partnerships, would benefit from a scheme that would allow the transfer of part of any unused personal allowances, from one spouse to the other, up to £1,000 per tax year. The personal tax allowances in April 2015 will likely stand at £10,000, or more. So if one spouse has income below this amount, and the other income above, then £1,000 of the lower paid spouse’s personal allowance can be transferred.

The maximum benefit to couples who could claim under this scheme is £200 – £1,000 at the basic 20% income tax rate. Not every couple eligible to make a claim under this scheme would benefit to the same degree. For example, if the lower paid spouse had income of £9.500 ant the personal allowance was £10,000 for 2015-16, then the maximum allowance they could transfer is £500. This would save their spouse £100 (£500 x 20%).

In 2015-16 the higher rate income tax rate of 40% will apply to income in excess of £42,285. Couples where one person earns more than this amount will not qualify for this tax break.

The scheme is targeted at married couples. Accordingly, couples in long term relationships, but not married, will not be able to make a claim.

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