The Finance Bill 2013 was published on 28th March 2013 and will probably become law in July 2013.
The bill contains 232 clauses, 49 schedules and covers 629 pages.
It is one of the biggest Finance Bills ever produced although a few pages short of the record breaker last year.
What follows is a summary only of some main topics covered in the Bill.
Personal tax >
Income Tax
Basic Personal Allowance
Basic Rate Limit
The personal allowance for those born after 5th April 1948 will be:
> £9,440 for 2013/14
> £10,000 for 2014/15
> Thereafter it will rise in line with the Consumer Prices Index.
> The basic rate limit for 2013/14 will be reduced to £32,010 and to £31,865 for 2014/15.
Small Business Income Tax Simplification – cash basis & fixed expenses options
Legislation will be introduced in Finance Act 2013 to allow eligible small unincorporated businesses to calculate their income and expenses on a cash basis from 2013/14.
They will generally not have to distinguish between revenue and capital expenditure but capital allowances (tax deprecation on equipment) will remain available for expenditure on cars only.
In addition, all unincorporated businesses will be able to choose to deduct certain expenses on a simplified flat-rate basis.
Employee Shareholder Status
A new "shareholder status" is introduced.
Employees who take up shares in an employing company, under special arrangements, will gain shares but will be required to give up some employment rights in return.
The shares will be exempt from Capital gains on disposal (up to £50,000 of shares acquired) and reduction in income tax and National Insurance contributions will be given.
Our comment ….we do not like this "offer". It is not generous especially when considering that employees will need to give up statutory employment rights in exchange for the shares, and the manner in which schemes are being set up by some employers is non beneficial to their staff.
At this moment we would advise extreme caution before accepting shares under these arrangements.
Income Tax Status of Universal Credit
Universal Credit will be exempt from income tax.
Personal Independence Payment (PIP)
Armed Forces Independence Payment (AFIP)
From Royal Assent to Finance Act 2013 the income tax exemption for employer-supported childcare for disabled children will be amended to include a reference to PIP.
Other effects of this will be made to capital allowances legislation, insurance premium tax, the VAT reduced rate and the VAT zero rate.
New child care scheme
There is a new proposal is to replace the current system of child care vouchers – which will still exist for those who have them already – with a new scheme that is more generous to larger families.
This is because a tax break is available per child.
Working parents will be able to claim vouchers to subsidise nannies or child care for every child under five. Claims will initially be up to £1,200 for each young child but is to be extended by 2020 to include children under 12.
The Government is planning that newcomers will not be allowed to join existing child care voucher schemes which are reported to be used by around 500,000 households. In due time, child care vouchers will, of course, fade into history.
The new scheme is due to start in autumn 2015.
Effectively, claimants will not have to pay basic rate tax on the first £6,000 they spend on child care.
Only households where BOTH parents work will be eligible. Single parents must be in work to qualify.
Families are eligible:
1. as long as neither parent earns more than £150,000 (meaning a couple could earn up to £299,998) and
2. to receive the full £1,200, the family must spend at least £6,000 on childcare for each child. If they spend a smaller sum, they will receive 20p for every £1 spent.
The scheme will also apply to the self employed who cannot currently claim vouchers.
Compared with the current system, it disadvantages those families where:
1. one parent stays at home
2. only small amounts of child care is paid for.
No one in authority has commented on whether the 12.8% National Insurance bill will be avoided to be in line with the current child voucher arrangements.
Watch out for more detail.
Limit on Income Tax Reliefs
From 6th April 2013 a cap will operate to fix the limit on claims for reliefs set against other taxed income.
The main restrictions will apply to:
> trade and loss reliefs (although it will still be possible to carry forward unlimited losses against future trade profits)
> property loss reliefs
> qualifying loan interest relief
> losses attributable to overlap relief and business premises renovation allowances.
The limit is set at the greater of £50,000 or 25% of "adjusted" income. (The word "adjusted" has its own special definition for this new rule)
The good news is that, in a change to the expected restrictions. this new cap will not now apply to charitable reliefs.
Living in the UK………
Statutory Residence Test
In order to try and give taxpayers comes clarity about whether or not they are UK resident, for income tax and capital gains tax purposes, a new rule has been introduced.
From 6th April 2013 a new "statutory residence test" will be applied. This test contains three elements:
1. an automatic overseas test,
2. an automatic UK test and
3. a 'sufficient ties' test combining time spent in the UK with a person's ties to the UK.
Much debate and change to this rule is ongoing in many aspects including the number of "hours spent" in the UK.
The Statutory Residence Test is based on the concept of home. This is awkward to say the least. How they intend to apply a test which contains this word seems a bit strange to us.
You would have thought, when this new test was brought it, it would be accompanied by a definition of "home". It doesn't so we are left with….what exactly? What does home mean to you?
Combined with the taxman's wonderful 80 page tome on the subject (i.e. their online book 'HMRC6') we foresee more problems with this new test. Not more clarity.
Reforms to Ordinary Residence
From 6th April 2013 the legal concept of "ordinary residence" is abolished.
The effect of this is mitigated by retaining "Overseas Workday Relief" (OWR) and putting it into law.
OWR is to be available to non-domiciled individuals coming to the UK regardless of whether they intend to stay or not.
It will be available for the tax year in which the individual becomes resident and the following 2 tax years.
As usual in these things, there will be transitional provisions.
Business tax >
Main Rate of Corporation Tax
The main rate of corporation tax for companies with profits above the upper limit of £1.5m will be reduced to:
> 23% from 1 April 2013 and then
> 21% from 1 April 2014.
> From 1 April 2015, the main rate will be reduced further to 20% and aligned with the small profits rate.
The main rate of 30% will still apply to company profits arising from oil extraction and oil rights in the UK and the UK Continental Shelf (ring-fence profits).
National Insurance contributions allowance
A new National Insurance contributions allowance of £2,000 per year for all businesses and charities is to be available to offset against their employer Class 1 NIC bill from April 2014.
Disincorporation Relief
This new relief is intended to make it easier for the owners of small incorporated business to disincorporate by removing some of the tax charges that arise when assets are transferred by the company to one or more individual shareholders who then continue to carry on the business in an unincorporated form.
It will apply to disincorporations between 1st April 2013 and 31st March 2018 inclusive.
The relief takes the form of a joint claim by company and shareholders to allow qualifying business assets (goodwill and land and buildings) to be transferred between them at a reduced value for tax purposes.
No corporation tax will be payable by the company on the transfer, and the shareholders to whom the assets are transferred will inherit the transfer value for capital gains tax purposes.
Relief will be restricted to cases where the market value of the qualifying business assets does not exceed £100,000.
Creative Industries Tax Reliefs
The Finance Act 2013 will introduce a new corporation tax relief for animation, high-end television and video games production.
These reliefs will allow eligible companies engaged in the relevant production to claim an additional deduction in computing their taxable profits and, where that additional deduction results in a loss, to surrender those losses for a tax credit. Both the additional deduction and the tax credit will be calculated on the basis of UK core expenditure up to a maximum of 80% of the total core expenditure by the qualifying company.
The additional deduction will be 100% of qualifying core expenditure, and the payable tax credit will be 25% of losses surrendered. In order to qualify for the relief, productions must be certified by the Department of Culture, Media and Sport as 'culturally British'.
Subject to State Aid approval by the European Commission, this relief will have effect for qualifying expenditure incurred on or after 1 April 2013.
Group Relief and "controlled foreign companies"
The rules for these arrangements are to be amended.
CAPITAL ALLOWANCES
Annual Investment Allowance
Legislation introduced by Finance Act 2013 will increase the annual investment allowance from £25,000 to £250,000 per annum for a 2-year period commencing on 1 January 2013.
GREAT CARE will be necessary when calculating maximum capital allowances available if accounting periods straddle the change dates. Specific complex rules need to be applied to work out the correct amount of capital allowances.
Particular calculation difficulties occur with companies whose accounting year end is 28th / 29th February.
VAT
Registration
The VAT threshold rises to £79,000
Car Fuel Scale Charges
The scale used to charge VAT on fuel used for private motoring in business cars will be amended from the start of the first VAT period beginning on or after 1st May 2013.
With effect from Royal Assent to Finance Act 2013, deemed supplies of road fuel (i.e. in respect of private or non-business use) will be taxed according to the rules set out in VAT Act 1994, Sch 4.
Valuation of the deemed supply by scale charge is to be retained as an optional method within VAT Act 1994.
The scale charge table will be updated annually by H. M. Revenue & Customs.
Anti-forestalling arrangements apply from 11th December 2012 where deemed supplies of fuel made between that date and the date of Royal Assent will be valued under the new arrangements to the extent that the actual use of the fuel is after the date of Royal Assent.
Changes to the Place of Supply Rules
Currently, intra-EU business-to-consumer supplies of telecommunications, broadcasting and e-services are taxed in the member state in which the business is established.
With effect from 1st January 2015 European legislation requires that these supplies be taxed in the member state in which the customer is located.
To save the need for affected businesses to register for VAT in all member states in which they have customers a "mini one stop shop" system will be introduced from 1st January 2015.
This will give businesses the option of registering in the UK only and accounting for VAT due in other member states using a single return.
The requisite legislation will be introduced in Finance Act 2014.
INHERITANCE TAX
Nil-rate Band
Legislation will be introduced in Finance Act 2014 to extend the freeze on the IHT nil-rate band of £325,000 for a further 3 years from 2015/16 until 2017/18.
PROPERTY TAXATION
High-value UK Residential Property held by Certain "Non-natural" Persons
With effect from 1st April 2013 a new "annual tax on enveloped dwellings" (ATED) will be imposed on residential properties valued at more than £2 million which are owned by certain "non-natural persons".
"Non-natural persons" are certain companies, collective investment schemes and partnerships with company members.
This will have stamp duty land tax and capital gains tax implications.
The tax charge will be based on the band into which the property value falls. There will be a range of reliefs.
ANTI-AVOIDANCE
General Anti-abuse Rule
Legislation will be introduced in Finance Act 2013 whereby a General Anti-abuse Rule (GAAR) will provide for the counteraction of tax advantages arising from tax arrangements that are abusive. The GAAR will apply to income tax, National Insurance contributions (NICs), corporation tax (including amounts treated as corporation tax), capital gains tax, inheritance tax, petroleum revenue tax and stamp duty land tax. It will also apply to the residential property tax due to be enacted with effect from 1st April 2013. The measure will apply to abusive tax arrangements entered into on or after Royal Assent to Finance Act 2013, but separate legislation will be introduced later to apply the GAAR to NICs.
To assist in identifying and tackling tax evasion, the Isle of Man, Guernsey and Jersey have agreed to enter into tax information exchange agreements with the UK that will significantly increase the amount of information automatically exchanged on potentially taxable income.
This is in addition to other overseas disclosure facilities/agreement with Lichtenstein, Switzerland and other jurisdictions.
The long arm of H. M. Revenue & Customs is reaching out internationally further then it has ever done before.
Implementation of FATCA
Legislation introduced in the USA in 2010, the Foreign Account Tax Compliance Act (FATCA), requires financial institutions outside the US to pass information about the accounts of US persons to the US tax administration (the Internal Revenue Service).
Any financial institution that fails to comply with the US legislation is subject to a 30% US withholding tax on any US source income.
However, current law does not allow UK financial institutions to pass FATCA information either directly to the US or to HMRC on a voluntary basis, nor does it enable HMRC to require it.
With effect from the date of Royal Assent to Finance Act 2013 UK financial institutions are able to comply.
Consultations:
H. M. Revenue & Customs will conduct two consultation processes which you may find interesting and relevant to you……..
1. Improving collection of tax debts through the PAYE system (coding out) to make the process fairer and more equitable.
2. Moving collection of Class 2 National Insurance contributions to self assessment.
And finally ….. important footnote….
H. M. Revenue & Customs are now looking to check / investigate and attack any "LLP" companies which they view as being artificial "disguised employments".
All LLP companies should check their own situation most carefully.
Other information is detailed elsewhere in this site.
Please visit this page again after future Budget statements are made to view our comments.
Further information about UK tax and other legislation can be found here ..... www.opsi.gov.uk/