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Month: December 2023

R&D tax relief schemes set to merge, but concerns remain

Written by admin on . Posted in Corporation Tax, R&D. No Comments on R&D tax relief schemes set to merge, but concerns remain

The two existing research and development (R&D) tax relief schemes are set to merge, although the newly created scheme will be similar to the R&D expenditure credit currently claimed mainly by large companies.

Although the merger will remove the complexities when companies move between schemes, there will invariably be some who significantly lose out as a result of the changes.

The merged scheme and other changes will apply in relation to accounting periods beginning on or after 1 April 2024.

R&D expenditure credit (RDEC)

Along with a deduction for the R&D expenditure itself, the RDEC provides for a 20% standalone credit. Since the credit is taxable, it is worth £15,000 for every £100,000 spent on R&D assuming the main rate of corporation tax applies.

  • For loss-making companies, the expenditure credit can lead to a repayment.
  • When calculating the repayment, the notional tax rate applied will in future be the profit rate of corporation tax of 19%.

If not used to reduce the current year’s corporation tax liability, the expenditure credit – before any alternative use – is capped according to the amount of PAYE and national insurance contributions paid in respect of R&D workers. In future, the more generous cap from the SME scheme will be used.

R&D-intensive SMEs

Despite the merger, loss-making R&D-intensive small or medium-sized enterprises (SMEs) will still be able to claim a 14.5% repayable credit under the existing SME scheme.

  • Given there is an 86% uplift, this works out to a cash repayment of £26,970 for every £100,000 of qualifying R&D expenditure.
  • R&D intensity is calculated as the proportion of an SME’s qualifying R&D expenditure compared to total spending. The intensity threshold is to be reduced from 40% to 30%.

Also, a one-year grace period will be introduced for companies that fall below the 30% threshold.

HMRC’s guide to the RDEC as it currently applies can be found here.

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Incoming NIC reforms for the self-employed

Written by admin on . Posted in Income Tax, MTD, National Insurance Contributions, Self-Employed. No Comments on Incoming NIC reforms for the self-employed

National insurance contribution (NIC) changes for the self-employed announced in the Autumn Statement come in from 6 April 2024 and will be welcome news. But the reforms don’t go far enough to offset the continuing cost of frozen tax thresholds.

NICs classes

The self-employed currently pay two classes of NICs:

  • Class 2 NICs are at a flat weekly rate, and it is these contributions that give entitlement to contributory benefits, such as the state pension (35 qualifying years being required to receive a full pension). Class 2 NICs are deemed to be paid if profits are between £6,725 and £12,570, and can be paid voluntarily if profits are lower.
  • Class 4 NICs are earnings related. The main rate of 9% is paid on profits between £12,570 and £50,270, with an additional rate of 2% on profits in excess of £50,270.


Class 2 voluntary only

From 6 April 2024, any self-employed person with profits of £6,725 or more will be entitled to contributory benefits without having to pay class 2 NICs – an annual saving of £179 for those who would otherwise have had to pay.

However, those with profits below £6,725, will still have to pay voluntarily if they wish to maintain access to contributory benefits.

Anyone with profits just below £6,725 might decide to forego claiming sufficient expenses to meet the income limit, although the overall tax impact of doing so must be considered.

Class 4 reduced

From the same date, the main rate of class 4 NICs will be reduced from 9% to 8%, representing a maximum annual saving of £377. The additional rate of 2% is unchanged.

There are also no changes to the thresholds of £12,570 and £50,270, although this will be beneficial for anyone with profits in excess of £50,270 – it means no increase to the amount of profits charged at the main rate rather than at the lower additional rate.

HMRC’s guide to voluntary national insurance can be found here.

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NIC changes from 6 April 2024 will be welcome news for the self-employed, although the reforms don’t go far enough to offset the continuing cost of frozen tax thresholds.

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Are we witnessing the decline of trusts?

Written by admin on . Posted in Lasting Will & Testaments, Tax, Wealth, Wills & Probate. No Comments on Are we witnessing the decline of trusts?

The number of trusts filing self-assessment tax returns for 2021/22 was 37% lower than for 2003/04. The decline comes as no real surprise given the eroding advantages of using a trust and the recent requirement to register trusts with HMRC.

Interest in possession trusts

Interest in possession trusts have seen the sharpest decline since 2003/04, with their number falling from over 100,000 down to just 44,000.

  • HMRC figures show that the decline in interest in possession trusts is mainly at the lower end of the scale where trust income is less than £10,000.
  • The inheritance tax (IHT) regime for interest in possession trusts from 2006 removed much of their favourable tax treatment. Such trusts are now subject to IHT on a similar basis to discretionary trusts, so, for example, a 20% tax charge can arise on a lifetime gift into an interest in possession trust.

However, interest in possession trusts are still commonly used in wills. Typically, a spouse or partner will be given rights during their lifetime (such as being able to stay in a marital home), with the capital subsequently passing to children – which is particularly important if there are children from a previous relationship. Such arrangements still enjoy a favourable IHT treatment.

Going forward

Trusts are more than ever becoming a specialist method of tax planning, and this trend is only likely to increase over the coming years.

Trust planning is still popular for those with a high net worth. Trusts allow wealth to be passed down the generations, protecting against marital breakdown, bankruptcy and family disputes.

There are reports that a future Labour Government would scrap business relief and agricultural property relief, and such a move would further limit the use of trusts. Trusts holding assets currently qualifying for relief could find themselves facing periodic IHT charges.

HMRC’s latest information on trusts (at October 2023) can be found here.

 

Updated tax guidance for electric company car charging

Written by admin on . Posted in benefit-in-Kind, Company Car Tax, Employment Tax. No Comments on Updated tax guidance for electric company car charging

HMRC has updated its guidance to clarify that there is no taxable benefit when an employer reimburses employees who charge their electric company cars at home. Previously, HMRC maintained that the relevant exemption did not apply.

There is a general rule that no income tax liability arises where an employee is reimbursed for expenses incurred in connection with a company car – such as repairs, insurance and car tax. Although this exemption does not apply to car fuel, electricity is not treated as fuel for tax purposes.

Exemption

The exemption applies whether a company car is used solely for business mileage, solely for private mileage or where there is mixed use.

  • Although HMRC’s guidance has been updated, at the time of writing their tool to check if you need to pay tax for charging an employee’s electric car is still giving incorrect answers, unless a company car is used solely for business mileage.
  • National insurance contribution (NIC) guidance is in line with the income tax guidance, so there are no class 1 or class 1A NICs on reimbursements for charging an electric company car at home.

Employers do, however, need to ensure that the cost of electricity reimbursed is solely for the company car.

Employers, directors and employees who have previously followed HMRC’s incorrect guidance should be entitled to a refund of the tax and NICs that have been overpaid.

Other charging situations

There is no taxable benefit if an electric company car is charged at work, if a charge card is provided so that public charging points can be used, or if the employer pays for a charging point to be installed at an employee’s home.

If the employer does not reimburse for charging an electric company car at home, the employee can claim a deduction from earnings for the electricity cost of business mileage.

The relevant section of HMRC’s employment income manual can be found here.

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Powers of attorney move one step closer to the digital age

Written by admin on . Posted in Uncategorized. No Comments on Powers of attorney move one step closer to the digital age

The administration of lasting powers of attorney (LPA) is on its way to becoming fully online.

In an ideal world, you should have an LPA (or its Scottish or Northern Ireland equivalent) sitting beside your will. The absence of either can complicate matters considerably for your family. Without a will, the distribution of your estate defaults to the laws of intestacy, which may not match your (or your family’s) wishes. Similarly, if illness means that you cannot manage your own affairs, then in the absence of an appropriate LPA, the Court of Protection will be your family’s first port of call to make decisions on your behalf. Going to the Court can be an expensive and slow process.

In England and Wales, the LPA process is dealt with by the Office of the Public Guardian (OPG). Over the years, technology has gradually crept into what has traditionally been a heavily paper-based system. You can now prepare an LPA for property and financial affairs and/or health and welfare matters online (https://www.lastingpowerofattorney.service.gov.uk/lpa/type). These LPAs are basic, government-drafted documents, but you may prefer to use a solicitor to include specific provisions that the standard issue version does not contain.

However your LPA is prepared, it will need to be registered before it can be used. While in theory registration can be delayed until your attorney needs to act on your behalf, in practice it is best to register your LPA as soon as it has been completed. That involves signing the document and sending the paperwork to the OPG (with a fee of £82 per LPA). The OPG says that it takes “up to 20 weeks” to register an LPA, provided there are no mistakes in the application.

The Powers of Attorney Act 2023, which received Royal Assent in September, paves the way for LPA registration to be completed online (as is currently possible in Scotland with powers of attorney). The paper option will also remain available.

If you do not have an LPA, then do not let the passing of the Act be an excuse to carry on without one until the technology is in place. Even the Chief Executive of the OPG says “…it’s important to recognise that we’ve still got a long way to go.” You – and your family – could need an LPA before that journey is over.

Footnote: In October, the Law Commission launched a consultation on allowing wills in England and Wales to be made and stored in electronic form. More information can be found here.

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