Tax Credits Changes

The government has made major changes to tax credits with effect from 6 April 2012.

Previously, you could usually get some form of Child Tax Credit (CTC) if your income was below the limit of £41,300.  From 6 April 2012 the income limit depends on individual circumstances, but as a rough guide CTC will not be payable if:

·         you have one child, and your annual income is more than around £26,000;

·         you have two children, and your annual income is more than around £32,200.

You could still qualify for CTC if your income is above these amounts.  For example, if you pay for registered or approved childcare, have more than one or two children,  are disabled, or your child has a disability.

Also with effect from 6 April 2012 there are new working hours rules for Working Tax Credits purposes for couples with children:

·         if you both work, your joint weekly hours must be at least 24, with one of you working at least 16 hours a week;

·          if only one of you works, that person must be working at least 24 hours a week.

In addition, there have been changes to how far payments can be backdated. From 6 April 2012, payments can only be backdated by up to one month, down from three months.  A protective claim for tax credits should be considered, particularly for self employed individuals with fluctuating profits.  Please be aware that any such claim needs to be made on an annual basis.

For further advice on tax credits please contact Ward Williams: www.wardwilliams.co.uk

Ways to reduce your IHT liability

“The only two certainties in life are death and taxes” – Benjamin Franklin

Inheritance Tax (IHT) is usually payable on an Estate on the event of someone’s death. The current IHT threshold, also known as the 'Nil rate band', stands at £325,000. If your overall Estate is above this level, any excess amount will be taxed at 40%. Although there are some exceptions in respect of charities etc.

Since October 2007, any late spouse’s or civil partners unused nil rate band can be transferred to the second spouse or civil partner when they die. This will mean that currently on second death the IHT threshold will be £650,000.

How can one reduce the IHT liability if one’s Estate is worth more than the IHT threshold?

There are a number of ways to reduce the level of Inheritance Tax on one’s Estate, or provide funds to pay the tax bill, and highlighted below are a few simple examples;

Annual Allowance
Each individual can gift £3,000 each year (and any unutilised allowance from the previous year).

Potentially Exempt Transfers
Any lifetime transfer will be outside of an individual’s Estate if they survive seven years from the date of the transfer.

Whole of Life Policy
If an IHT liability is expected, a Whole of Life policy for the sum of the expected liability can be written into a Trust arrangement.

This policy will be payable on death of the life assured (or second death for couples), leaving Beneficiaries monies to pay all or part of any IHT liability.

The above examples are merely some of the actions that can be taken, there are many many more – if you would like more information please call Ward Williams Financial Services on 01932 830664 for an informal discussion, or to book an appointment with one of our highly qualified financial planners.
http://www.wardwilliamsfs.co.uk/

George Expects!

The Chancellor recently set out his ‘expectations’ from HMRC for the current financial year, with the emphasis on increasing revenues, tackling non-compliance and increasing efficiency and customer service.

The priority areas targeted by the Chancellor are set out below.

Improving tax collection and reducing the tax gap

HMRC is expected to secure ‘additional’ revenue in 2012/13 of at least £17bn.  Of this, £917m invested in efficiency savings under the Spending Review should secure £4bn by tackling tax avoidance, evasion and criminal activity.

Delivering cost reductions

In recognition of the need to reduce public spending, HMRC has committed to achieving efficiency savings of 25% by 2014/15, through their ‘comprehensive cross-departmental workforce strategy’.

Improving Services for Customers

HMRC has taken on board the Government’s proposals to make the tax system as straightforward as possible and generally improving the service to taxpayers.  The much improved internal PAYE computer system has aided HMRC’s strategy of bringing taxpayers affairs up to date however, it has been stressed that all outstanding cases are to be cleared by April 2013.  HMRC is encouraged to continue its proposal to improve online services, which includes the implementation of the ‘One Click’ programme for businesses.

Real Time Information

HMRC is on course to deliver RTI in 2013, which is crucial to the introduction of ‘Universal Credit’.   HMRC has been given targets to reduce tax credit errors and fraud, and to work closely with the DWP in recovering tax credit debts.

Tax Policy

Budget 2012 provided a large number of tax changes that need to be implemented in the coming year.  HMRC has been reminded of the important role it plays in designing and delivering tax policy changes.

Can Lin Homer, the new Chief Executive of HM Revenue & Customs, live up to George’s high expectations?  Only time will tell!

For further information/advice on this topic please visit www.wardwilliams.co.uk

 

Patent Box – a shining opportunity

The UK Government’s new Patent Box regime will come into effect from 1 April 2013.  It presents companies that are holding patents, and using them in their business, with the opportunity to significantly reduce their tax burden.

Although your company may not currently hold any patents, don’t assume that Patent Box won’t apply to you.  You may have products or processes, for which a patent application could  be made.  The tax benefits of the new scheme are attractive and make consideration of such an application well worthwhile.   The patent registration process can take at least 12 months so it is important for companies to act now.

The regime will be phased in gradually from 1 April 2013 with a 10% rate applying to all qualifying profits from 1 April 2017 onwards, and will apply to worldwide income earned by UK companies from UK and European registered patents. 

The scheme mirrors others already in place in Europe, and is intended to encourage companies to locate high value jobs and activity associated with development, manufacture and exploitation of UK patents. 

Patent Box presents many companies with the opportunity to significantly reduce their UK corporation tax bill.  Companies should take action now to understand how they can benefit from the regime and what business changes might be advantageous prior to the rules coming into effect.
 
Ward Williams are a leading firm of Chartered Accountants specialising in Patent Box and Research and Development claims.  For more information please contact us on 01932 830 664 or email sarah@wardwilliams.co.uk.

The Importance of Protection

We all hope to live a long and healthy life, but have you stopped to think what if everything did not go to plan?

According to research from Unbiased.co.uk, 30% of UK adults are uninsured in some of the most important aspects of their lives that include income protection, life insurance and critical illness.

The recent case of Fabrice Muamba, a young and fit footballer who collapsed during a match, demonstrates our vulnerability. 

What if you became too ill to work or died?

Who would support your family? Who would pay the school fees and/or help your children through university? Who would pay the mortgage?

If you do not have a family or a mortgage, who would pay the bills and basic living expenses if you could not work?

There are a number of different policies that can help in these situations.

An Income Protection (IP) policy is used to replace earnings lost if you are unable to work because of long-term illness or injury.

A Critical Illness Cover (CIC) policy pays out a lump sum you are diagnosed as having one of the specified critical illnesses.

Instead of a policy that pays out a lump sum on your death, it is possible to have a policy that will pay out a tax-free income over a specific term. Premiums for this type of policy can be very cost effective.

A Whole of Life (WOL) policy will pay out a lump sum to your dependents following your death. This could potentially help pay some or all of an inheritance tax bill.

At Ward Williams Financial Services, we can help you to find the right type and level of protection suitable to your circumstances in order to give you and your family peace of mind.

Please call us on 01932 830664 to find out more or to book an appointment with one of our highly qualified financial planners.

BUDGET 2012 – Granny Tax and Pasties

George Osborne delivered his third budget on 21 March 2012.  The contents of the budget were so well rehearsed by politicians, pundits and papers that the real thing threatened to be an anti-climax.  There were no major surprises but some interesting announcements for businesses and individuals alike and the usual controversial headlines.

Business Highlights

For businesses the focus was on moving towards making the UK a more competitive place to do business.  The main changes included a further 1% cut in corporation tax which means that the large company rate will be 24% from 1 April 2012, falling to 23% in 2012 and 22% in 2014. 

The Chancellor confirmed details of the new ‘Patent Box’ regime which will mean reduced rates of corporation tax on qualifying Patent profits from 1 April 2013 and an eventual rate of 10% by 2018. 
An ‘above the line’ credit for Research and Development will be introduced from April 2013.  Loss-making companies will be able to claim a payable credit.  As previously announced, from 1 April 2012, the rate of R&D tax credits for Small and Medium sized Enterprises will increase from 200% to 225%.

Corporation tax reliefs for the creative sector were announced including the video games, animations and high-end television sector.  These will be introduced from April 2013, subject to EU State aid approval.

Small businesses (with turnover of less than £77,000) will welcome the proposed voluntary cash basis for calculating tax which will be introduced from April 2013, subject to consultation.  There will also be consultation on a simplified expenses system and on proposals to introduce a disincorporation relief.  These measures are all designed to improve the administration of the tax system for small businesses.

Stamp Duty Land Tax and VAT

A new Stamp Duty Land Tax rate of 7% for residential property purchases with a value of £2m was introduced with immediate effect. In addition, a higher rate of 15% will apply to residential properties purchased by companies and certain other ‘non-natural’ persons, subject to exemptions for property developers.

For VAT the main announcement was the launch of a consultation to correct VAT anomalies and close loopholes, including those in relation to the supply of hot take-away food.  The Chancellor’s intention is to ensure that all hot food is taxed at the standard rate of 20%.  Since the Chancellor’s budget speech there have been a number of headlines relating to ‘pasty tax’ and increasing pressure on the Chancellor to reconsider his proposals.

Personal Highlights

On the personal tax side the main headline was the reduction in the tax rate of income tax from 50% to 45% from 6 April 2013.  This follows growing criticism of its effectiveness to raise revenue and suggestions that it is a risk to UK growth.

The announcement of the gradual phasing out of the age-related personal allowance was not well received by the media and tax-payers alike.  Branded by the media as ‘granny-tax’ there will be no increase in the age-related personal allowances from 2013/14 until alignment with the standard personal allowance is achieved.
For 2013/14 the standard personal allowance will rise to £9,205, moving nearer to the Chancellors target of £10,000.  The basic rate band will be reduced from £34,370 to £32,245.  This will mean that the higher rate threshold will reduce from £42,475 to £41,450.

Child benefit will be withdrawn for some taxpayers by an income tax charge with effect from 7 January 2013.  The charge will apply to households (regardless of marital status) where a parent or partner has an ‘adjusted net income’ of over £50,000 a year. 

As well as making several changes to the existing Enterprise Investment Scheme regime, the previously announced Seed EIS (SEIS) was introduced.  The SEIS will give 50% income tax relief for investments in qualifying companies of up to £100,000 and a CGT reinvestment exemption.

The 2012 Budget presents a variety of challenges and opportunities.  For more information and advice on how you will be affected personally please contact Ward Williams at enquiries@wardwilliams.co.uk or on 01932 830664.

SMEs warned of £7 billion tax waste

According to a survey by a consumer advice site, small and medium sized businesses (SMEs) will waste more than £7 billion in unnecessary payments to the taxman this year.

This is because SMEs are not making better use of available tax allowances and business arrangements.

The three main areas where tax reliefs were being wasted were found to be:

1.      Incorporation

The number one area of tax wastage for SMEs is incorporation, which stands at more than £4.22 billion alone. Changing from a sole trader or partnership and becoming a company can save tax and NIC. For instance in tax year 2011/12 the saving on profits of £50,000 is £4,257.

2.      Use of self employed sub-contractors

The survey suggests that £2.05 Billion in tax and National Insurance contributions is overpaid because sub contractors are incorrectly treated as employees

For both 1. and 2. above, advice from a qualified accountant must be obtained to ensure all aspects are considered before a change is made.

3.      Not claiming Research and development allowances.

Total extra tax paid under this heading is estimated to be less than the others mentioned above, but from 1^st April 2012 the relief is set to rise to 225% of relevant spending. (i.e. for a small company at least 45% tax relief). SMEs should carefully review their activities to decide whether their processes and technologies fulfill the relevant criteria. It is shocking to note that, according to the report, only 12% of eligible businesses make use of R & D tax relief.

The report opined that “tax is a vast and complex subject and business owners often simply do not have the time to manage their tax affairs or understand the allowances available to them whilst also running their business day to day.”  It concluded by suggesting  that the use of  a professional adviser, such as an accountant or independent financial adviser could really make a difference to the amount of tax a business paid.

At this time, when bank borrowing is perceived to be difficult, any saving of tax might lead to more growth for the UK’s SMEs.

For further information/advice on this topic please contact Ward Williams: www.wardwilliams.co.uk