What does the 2014 Budget mean for the North East? March 2014.

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 49,000o Good news?o Youth employment (16 to 24) also fell over the same period. It fell by 4.4%

from 158,000 to 151,000o 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

Wales 12.0 11.2 15.7 28.1

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 EastAssist private sector employmentAssist skills trainingMore 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 HodgsonPrivate 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

Top rate of income tax 50% 45% 45% 45%

Dividend rate 42.5% 37.5% 37.5% 37.5%

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 LLPsThe 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 LLPsBreaching 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

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

Pension overhaul

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

Pensions

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

Investments

Adrienne PatersonBusiness Taxes

Corporation tax rates

Since 2007 the main rate of corporation tax has been falling

– Large companies have profits greater than £1.5m, small companies have profits less than £300k.

Large companies Small companies

From 1 April 2012 24% 20%

From 1 April 2013 23% 20%

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 rateBudget changes from 1st

April 2014Main rate poolWriting down allowance 18%

Special rate pool/integral featuresWriting down allowance 8%

Annual investment allowance £250,000 £500,000 Available for qualifying expenditure up to 31st

December 2015

Enhanced capital allowances(energy efficient/environmentally beneficially)

100%

Business premises renovation allowance, available to 31 March 2017 100%

Enterprise Zones enhanced capital allowances 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.

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.

Capital Allowances – New rules for claiming relief for fixtures

Alastair WilsonEncouraging growth

The North East’s R&D expenditure

Expenditure on R&D in the North East

Not last! Ahead of WalesTwo 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 WalesHalf of Northern Ireland’s A third of Scotland’sA 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 2013Employee shareholder contracts in existence Useful alternative to EMI schemes

From 6 April 2014Register online for

o Existing and new employee share schemes o Unexercised EMI optionso New grants of EMI optionso 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 onlineAutomatic penalties will apply for late filingHMRC 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 reportingBenefits and expenses reporting via the payroll instead of on P11DsNew 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 administrationWe’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)

Self-employed

Remain eligible if qualified before sick , maternity, paternity or adoption leave

Parents must work 8 hours per week @ NMW (£6.31)

Who won’t benefit?

Tax / universal credit recipientsESC recipients

If any parent is an additional (45%) rate taxpayer

Age of child Up to 1st Saturday in September following 15th birthday

Year 1 – up to age 5Age limit will build up to 12 “over time”

Year 1 – under age 12

Effective from Currently effective Autumn 2015

Effective until Phased out from Autumn 2015 On-going

Childcare

Employer Supported Childcare Tax Free Childcare

Couple – only one parent working

Additional rate (i.e. 45%) taxpayers

Children at or approaching age 12

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

Self-employed lone parent or couple

Employees not offered ESC by employers

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

Who will be better off under each scheme?

Any circumstances not listed here will require further investigation

Anti avoidance matters

Intermediary arrangementsOffshore employment intermediaries - rules strengthened Avoidance schemes using offshore employers will pay income tax and NICs on UK employment . Genuine overseas employment unaffectedOnshore employment intermediaries – legislation expectedPrevent onshore employment intermediaries from presenting employment relationship as self employment to avoid NICs and income tax.Attacks “Umbrella arrangements”

Acceleration of tax prior to litigationHMRC can issue a notice demanding tax even though tax payer may believe arrangements not yet defeated by HMRCAccelerated payment of tax under arrangements covered by DOTAS regimeEg EBTs, EFRBs etc.

Round-upOther changes you need to consider

Other announcements

FRS 102 VAT – mini one stop shop Auto enrolment

Questions?