As we are about to enter the tax year 2013/14, I thought it might be useful to outline some of the key changes that come into force and also some points of general interest from this year’s Budget.
If you have any questions on how any of these matters affect you and your business, please get in touch before implementing any changes.
1. Personal Tax Allowances & National Insurance
As previously announced, the personal tax allowance will increase by to £9,440 for 2013/14. There will be a further increase from 1st April 2014 to £10,000. The increase in personal allowance is good news for lower earners but for higher rate tax payers the threshold at which 40% tax becomes payable reduces to £41,450. The additional tax rate on taxable income in excess of £150,000 reduces to 45% for 2013/14.
Class 1 National Insurance for employees remains at the rate of 12% but will now be applied to earnings between £149 and £797 per week (note that the upper level has fallen by £20 per week.) and 2% above £797. Employer’s contributions remain at 13.8% on an increased threshold of earnings above £148 per week.
For the self-employed, there is a small increase in the amount of profits at which Class 4 National Insurance will start: £7,755 but the upper limit decreases to £41,450. Profits above this level continue to be subject to 2% NI. The weekly rate of Class 2 contributions increases from £2.65 to £2.70. The small earning exception for Class 2 National Insurance is increased to £5,725 per year. Self-employed individuals with profits below this level can apply to HMRC and gain an exception from paying Class 2 NI.
2. Business Mileage in Personal Cars
The maximum tax allowable rate per mile for using a personal car on business remains at 45p on the first 10,000 miles in the tax year. This increases to 50p per mile where more than one person travels in the car. The rate for mileage in excess of 10,000 is also unchanged at 25p. These mileage rates can be applied for directors and employees of limited companies and as well as the self-employed.
3. Salaries for Shareholder/Directors
Many directors who hold the majority of shares in their company pay themselves a small monthly salary up to the limit at which National Insurance contributions would be triggered. This threshold increases to £641 from £624 per month.
4. Small Company Tax Rate
You may have heard that the rate of corporation tax is to be reduced. Presently, we have two rates of corporation tax, one for smaller companies (20%) and one for larger companies with profits in excess of £300,000. It is the larger company rate that is to reduce. Already scheduled to fall to 23% from 1st April 2013 and to 21% for 2014, the rates will be aligned at 20% from 1st April 2015.
5. VAT Registration Threshold
The level of sales at which businesses are required to register for VAT increased to £79,000 from 1st April and businesses will be able to deregister for VAT at £77,000.
Businesses with sales (taxable turnover) excluding VAT of less than £150,000 per year, may benefit from moving to the flat rate VAT scheme which simplifies the quarterly VAT calculation.
6. Tax Allowances for Investment in Plant & Equipment
For several years now there have been tax incentives in place for businesses who invest in plant and equipment used in the business known as “Annual Investment Allowance”. Plant and equipment includes machinery, office equipment and furniture, computer equipment and commercial vehicles but not cars. The effect is that the cost of the plant and equipment can be deducted from profits before calculating tax – a tax saving of 20% of the cost of the item for most small companies. Although the amount of the allowance fell to £25,000 per year last year, a temporary 2 year increase to £250,000 per year came into force on 1st January 2013.
7. Key dates
Remember that PAYE year-end returns (P35) for 2012/13 are due by 19th May and P11d returns (employee benefits) are due by 6th July.
Also remember that the Real Time Information regime comes into force for PAYE from 6th April 2013.
8. Employer’s Allowance
Probably the most useful measure announced in this year’s Budget for small businesses is the introduction from 1st April 2014 of an allowance which will mean that all businesses save the first £2,000 of Employer’s National Insurance contributions. The allowance will be claimed as part of the normal payroll process.
For businesses thinking of taking on more employees, this means that they can employ one worker on a salary of £22,400 or 4 employees working full-time on the adult National Minimum Wage, without paying any additional employer NICs.
9. Company car and company car fuel rates
Two new appropriate percentage bands will be introduced for cars with low carbon dioxide (CO2) emissions. Cars emitting 0-50g per kilometre of CO2 will be charged at 5% and cars emitting 51-75g per kilometre of CO2 will be charged at 9%.
The remaining percentages are all increased by 2% for cars emitting more than 75g per km of CO2. Planning for tax efficiently running company cars and car fuel is always one of the key concerns for our clients. A review of the car policy is advisable on an annual basis to plan for any tax savings which can be made.
10. Capital Gains Tax (CGT): annual exempt amount (AEA)
The AEA will increase to £10,900 for 2013/14 and by 1 per cent in 2014-15 and 2015-16. The AEA will rise to £11,000 in April 2014 and £11,100 in April 2015. The rate of charge to CGT remains at 18% or 28% depending on your level of income. If the asset disposed of is a business asset then the rate of CGT may fall to 10%.
ESP Business Solutions