Newsletter January 2014
Happy New Year...
This month we have added
articles covering: the new "salaried member" status for certain members of limited
liability partnerships; a simple check list to remind you of tax planning
opportunities for 2013-14; assets provided by employers for private use; and a
reminder to avoid "phishing" emails purporting to be from HMRC...
Our next newsletter will
be published Thursday 6th February 2014.
Salaried members of LLPs
HMRC
published the draft Finance Bill 2014 last month. Included were changes to the
taxation of certain partnerships. This article discusses the introduction of a
new type of partnership member for Limited Liability Partnerships (LLPs) that
will commence 6 April 2014: the "salaried member".
The new
status has been introduced to counter so-called "disguised employment"
arrangements, where staff are elevated to the status of partners (also defined
as members) of LLPs in order to benefit from self-employed tax status. The LLP
employer also saves Class 1 NIC contributions.
HMRC have
argued that the underlying relationship between the LLP and partners who fall
into this category has not changed and that they remain, in essence, employees
rather than partners - hence the description "disguised employment".
From April
this year all LLP members/partners will have to pass a new test to determine if
they are salaried members. Members who are reclassified in this way will be
treated for Income Tax purposes as employees of the LLP and subject to PAYE in
the normal way. Salaried members will also be subject to the employee-related
benefit in kind rules.
The status
test will consider three conditions which need to be met for a member to be
considered a salaried member:
1.
The
member receives a fixed or variable sum that could be considered to be
substantially (80% or more) disguised salary. Generally, this will cover
arrangement where members' "salaries" seem to be paid without reference to the
underlying profit or loss of the LLP - as a whole.
2.
The
member does not have, or cannot exert, "significant influence" over the
management and affairs of the LLP as a whole, and
3.
The
member's capital contribution is less than 25% of the disguised salary in a
year. This condition is further complicated if there are changes to capital
contributions in the year.
From a
planning perspective these definitions are uncertain in their application;
particularly the second point: what constitutes "significant influence"?
LLPs with
salaried members will be liable to employers' NIC contributions, and the
combined cost of the salaried member's salary and employers' NIC will be an
allowable deduction in the LLP's tax computation.
One thing is
clear, all LLP partnerships should undertake a review
of their members' tax status before 6 April next year.
End of year tax planning 5 April 2014
Although we are now at
the beginning of a new calendar year we are in the last quarter of the current
tax year.
Whether you are a
business person, property landlord or pay significant amounts of tax as an
employed or retired person there is now a short window of opportunity to
examine your likely earnings for the 2013-14 tax year and, more importantly,
see what can be done to minimise those liabilities.
It is impossible to
outline all of the possible tax planning issues that could be of benefit. We
have listed below a few and would suggest that you give us a call to discuss
your individual circumstances.
*
Have you maximised your ISA investments this year?
*
Have you maximised your pension contributions?
*
If possible have you utilised your Capital Gains Tax personal exemption?
Currently £10,900 for 2013-14.
*
If your employer still pays for the private fuel used in your company
car you can effectively avoid the car fuel benefit charge if you repay your
employer for the private fuel before the end of the tax year. It may be worth crunching
the numbers as the tax on the benefit in kind is expensive and the private fuel
refund may be less.
*
For Inheritance Tax purposes each person can give £250 a year to any
number of recipients, as well as £3,000 annually over and above that amount.
They can also make regular gifts out of their income (not capital) that should
fall to be exempt.
*
If you are married or in a Civil Partnership and one partner/spouse has
a much lower level of earned income, consider transferring income producing
assets to the lower income earner. With Income Tax rates at a maximum 45% this
current tax year, savings could be significant.
*
If you or your partner/spouse are affected by
the Child Benefit claw back for high income earners, have you considered
equalising your income (if possible) to avoid the charge, or have you considered
your obligation to file a Self Assessment tax return
to disclose your liability?
*
If your income is likely to exceed £100,000 this tax year have you
considered the potential reduction or loss of your personal tax allowance?
*
If you are a high income earner paying tax at the 45% additional rate
could you take advantage of charitable donations reliefs or other planning
opportunities to defer, reduce or eliminate the impact the 45% rate?
*
Is it likely you will have business tax losses for 2013-14?
As indicated above
every person's circumstances are different and the above list is by no means
exhaustive. Please call if you would like to organise a review of your tax
planning opportunities for 2013-14.
Taxable benefits 2013-14
Where
employees are provided with living accommodation, a car or a van, any private
use is usually subject to specific scale charges or other rules. This article
considers the provision of two further classes of assets provided for an
employee's or director's personal use.
The
cash equivalent of the asset provided is the annual value of the asset's use,
plus expenses (other than costs of acquisition) incurred in connection with the
asset that would not have been incurred without the provision of the benefit.
1.
Land: the annual
value of the asset's use is the greater of the gross rateable value when the
property was last rated, and any rent paid by the provider.
2.
Assets
other than land: the annual value of the asset's use is equal to 20%
of the asset's market value when it was first used to provide a benefit. If the
provider paid rent for the asset that was more than the 20% calculation, then
the higher figure is used.
If
an asset is provided for part of a tax year the above cash equivalent figures
would be adjusted accordingly.
For
example:
A company buys a boat
for a director's private use on 6 April 2013 for £25,000. It takes out a loan
to buy the boat and interest charges are £4,500 in the year to 5 April 2014.
Running costs paid by
the employer in the year are £2,400 and the director makes a contribution of
£1,500.
The benefit would be
£5,900 (20% of £25,000 plus expenses £2,400, less £1,500 made good by the
director).
The bank interest
charges are disregarded as they are part of the cost of acquisition.
Tax office bogus emails
Readers are
reminded that HMRC do not send communications to tax payers by email. If you
receive an email purporting to be from HMRC, it will be some sort of "scam" and
should be ignored (deleted from your PC).
Do not under
any circumstances open any attached files or disclose any personal information.
Typically, the email will offer you a tax refund if you send your bank details,
or some other inducement to part with similar information.
HMRC will
either call you or send a letter if they need to communicate with you.
Tax Diary
January/February 2014
1
January 2014 - Due date for Corporation Tax payable for the year ended 31 March
2013.
19 January 2014 - PAYE
and NIC deductions due for month ended 5 January 2014. (If you pay your tax
electronically the due date is 22 January 2014.)
19 January 2014 - Filing
deadline for the CIS300 monthly return for the month ended 5 January 2014.
19 January 2014 - CIS
tax deducted for the month ended 5 January 2014 is payable by today.
31 January 2014 - Last
day to file 2013 Self Assessment tax returns online.
31 January 2014 -
Balance of self assessment tax owing for 2012-13 due to be settled today. Also
first payment on account for 2013-14 due today.
1 February 2014 -
Due date for Corporation Tax payable for the year ended 30 April 2013.
19 February 2014 - PAYE and NIC
deductions due for month ended 5 February 2014. (If you pay your tax
electronically the due date is 22 February 2014.)
19 February 2014 - Filing deadline for
the CIS300 monthly return for the month ended 5 February 2014.
19 February 2014 - CIS tax deducted
for the month ended 5 February 2014 is payable by today.
1 March 2014 - Self Assessment tax for
2012/13 paid after this date will incur a 5% surcharge.