Autumn Statement 2014: Implications for Charities

The festive season has got off to a great start with good news for charities in the Autumn Statement. The National Press coverage is concentrating on stamp duty reforms that will affect you if you are buying a home, amongst other announcements. Hidden behind those headlines are a number of positive measures for charities; perhaps the most direct measures are the extension of VAT rebate schemes for hospices and search and rescue charities.

These VAT news stories for charities are:

Hospice charities move to a level VAT playing field

Until now, hospice charities have been disadvantaged when competing for contracts with NHS providers as they have suffered VAT  on many non-business supplies, which NHS providers of course do not. This gives a significant disincentive to contracting out.

Following the Fair Playing Field Review, the government says that they will refund the VAT that hospice charities incur. This should give VAT savings of up to £4million per year.

VAT rebates for air ambulances and search and rescue charities

Emergency response charities have campaigned that they were in a special situation and needed VAT reliefs in order to operate on the same tax footing as the other emergency services, such as the police, fire officers and coastguard.

The anomaly has been removed as, from April 2015, UK search and rescue and air ambulance charities will be eligible to claim refunds on VAT they have paid on purchases of goods and services for their non-business activities. Savings of up to £5million per year are estimated.

To summarise the other welcome measures for charities, including extension to Social Investment Tax Relief, and progress in modernising gift aid:

Social Investment Tax Relief (“SITR”): enlarging the scheme

The government will increase the annual investment limit for SITR to £5 million per annum, up to a total of £15 million per organisation, from April 2015 and will also consult further on a new relief for indirect investment in social enterprises.

SITR was introduced in Budget 2014 and was welcomed as a relief that encouraged funding for the sector from a genuinely new source of loan/investment capital. However it has not proved straightforward for charities to comply with the rules on the scheme, and larger charities are currently hampered by an investment cap of €344,000 per organisation.

Donor benefits and Gift Aid entrance and membership fees

The government will continue and extend the review of donor benefits launched at Budget 2014 to include consideration of the rules for claiming Gift Aid on membership and entrance fees. An update will be provided at Budget 2015. The Charity Tax Group, of which Larking Gowen is a member, has led the sector representation on this issue. The government is considering suggestions that include reviewing the value thresholds for benefits and the way that membership schemes are assessed.

The government will also work with the sector on updating the guidance and making it easier to understand, which ought not to be a bad thing.

Simplifying Gift Aid on digital donations

This aims to make Gift Aid operate in an efficient way on text giving and other digital giving platforms. The idea is that a single Gift Aid declaration would suffice for all money collected through a single intermediary.

The government has repeated the Budget 2014 announcement that it will publish draft legislation to allow regulations to be made which give intermediaries a greater role in administering Gift Aid.

Business rates reform

It is often not appreciated that business rates relief is more valuable to charities nationally than any other tax relief, including Gift Aid. This is of course the point picked up by Shadow Education Secretary Tristram Hunt, in his recent broadside across the bow of the independent school sector. Therefore it is of considerable interest to charities that the government will conduct a review of the future structure of business rates, due to report by Budget 2016.

Companies with similar turnovers can pay wildly different sums for business rates because their properties have varying “rateable values” depending on the size and location of their premises – these discrepancies are a target of the review. Treasury officials have indicated that the review is not aimed at the vast majority of charities, and existing charity reliefs are not being questioned. As always, the devil will be in the detail.

Church roof repair fund

The government will provide £15 million for a new Listed Places of Worship: Roof Repair Fund, to support the maintenance of church roofs – but only for 2015.

An orchestra tax relief

No specifics yet, but expect a formal consultation in early 2015 about introducing a new tax relief for orchestras from April 2016.

And also of interest to charities and donors …

  • the personal allowance will be increased by a further £100 in 2015-16 to £10,600
  • the higher rate threshold will increase by inflation (1.2 percent) in 2015-16: the full gains of the increase in the personal allowance will thus be passed on to higher rate taxpayers.

To discuss the needs of your Not for Profit organisation please contact us to speak to one of our specialist advisors.

Autumn Statement: Implications for Professional Practices

Following the chancellor’s Autumn Statement yesterday, Karen Hain, Head of Professional Practices at MHA, the national association of independent accountants, commented:

“The Chancellor’s announcement regarding the changes to the taxation of goodwill on incorporation is not good news for professional practices who were considering changing from a partnership to a limited company status.

Under the old rules, Capital Gains Tax could often be paid at the rate of 10% on the goodwill upon incorporation. These new measures mean that the rate of tax will rise to 18% and in most cases 28%.

Another blow is that the new rules will prevent any tax relief claims by the company for the amortisation of the goodwill. Notwithstanding these changes we still think it is worth professional practices such as solicitors and architects considering incorporating their businesses as the income tax benefits remain intact.

The changes to Stamp Duty Land Tax provide a glimmer of hope for estate agents and solicitors as the reduced rates may stimulate an increase in residential property transactions”.

To discuss the needs of your business with one of our sector experts please contact us.

Autumn Statement: Implications for Agriculture

While there was relatively little of direct interest to farm businesses in the 2014 Autumn statement, the following minor changes may be of interest to those in the agriculture sector:

  • The ATED charge on enveloped dwellings will rise by 50% over the rate of inflation for 2015/16.
  • There had been suggestions that a single settlement IHT nil rate band would be introduced. This will not now happen, although consultations on trust IHT will continue.
  • Restrictions will be introduced on the tax reliefs for both parties where goodwill is sold to a controlled company.
  • The proposed improvements to small business rate relief and discount may help those with farm shops and  small commercial properties.
  • Research and development tax credit rates are to be increase
  • Major changes to the scales and rates of Stamp Duty Land Tax will be introduced. It should be noted that these will apply to residential property only: commercial buildings and farmland will continue to attract tax on the old rates and bands.

The CLA has also highlighted an additional point of interest to those involved in agriculture:

Flood Defences

The Chancellor has announced how the £2.3billion allocated to investment in flood defences over 6 years will be spent on projects around the country. For details of this see here

The Chancellor also announced that from 1 January 2015 business contributions to Flood and Coastal Erosion Risk Management (FCERM) projects will be eligible for tax relief offset against either Corporation or Income Tax.

What this means for you: If you decide to invest in a FCERM project on your land you will be able to offset the cost in your tax return

If you would like to discuss the needs of your agriculture business in the light of the changes please contact us.

Autumn Statement: Implications for the Motor Sector

Compared to previous speeches by the Chancellor, this time’s statement held relative few large changes, no doubt adopting a ‘treading carefully’ approach in the run up to the election.

Whilst there is some incidental support for the motor sector (fuel duty frozen – billions more on road improvements), there is little in the way of direct assistance.

For manufacturers, they will be able to benefit from the increase in the above the line R&D tax credit, which will become 11% from 1 April 2015.

For dealers, there was a small missed opportunity!  The SDLT changes are a positive development for the residential property market, removing unfairness from the system.  Why has this unfairness been left for the motor sector and the rest of the commercial property market?

A dealer buying a site for £500,000 will pay SDLT of £15,000 (3%).  Spending just £1 more the SDLT will jump to £20,000 (4%).  There appears to be no logic for leaving this distortion in the commercial property market and it must have been left in place due to the cost to the Exchequer.

Also announced was a 2% cap on the RPI increase in the business rates multiplier for an additional year from 1 April 2015 and a revenue neutral review of the entire Business Rate system, scheduled to be completed in time for Budget 2016.

It is disappointing that whilst the statement suggests that the Government are committed to introducing 51 of the 58 recommendations made by the Office of Tax Simplification, it does not state which are to be introduced and when.  The announced proposed change in benefit reporting which permits employers to payroll these and not report on a P11d at the year end is to be welcomed.  This will make it easier and is likely to avoid problems at the tax year end for employees.  The concession of £50 of exemption of reporting of minor benefits is lower than expected and is a token gesture.  Also the proposed taking away of the £8,500 limit for benefit reporting will leave some employees out of pocket with the only help given in this regard to carers and clergymen

The proposed clampdown on the use of salary sacrifice arrangements for travel and subsistence expenditure will impact on a number of employers who will have to consider their current practices.  Those who engage workers via an umbrella arrangement are likely to see the tax advantages of this type of arrangement disappear.

If you would like to discuss how we are able to assist your motor business please contact us.

Autumn Statement: Key points

The 2014 Autumn Statement contained a large number of detailed proposals on tax and spending, some of which were only hinted at in the Chancellor’s speech. Some of the key changes include:

Effective immediately:

  • Major reform of Stamp Duty Land Tax rates on residential property: SDLT to be paid on bands of purchase consideration at a marginal rate rather than the whole consideration at a single rate. 98% of house purchases will see a reduction; those above £937,000 will increase.
  • Restriction of tax planning on incorporation of a business: Entrepreneurs’ Relief and corporation tax deduction no longer available for goodwill transferred to a company by connected individuals.
  • Action on some tax avoidance schemes, including use of “miscellaneous losses” created to reduce tax on income.

Coming in April 2015:

  • The personal allowance will be raised to £10,600 in 2015/16, rather than £10,500 as previously announced (from £10,000 in 2013/14).
  • The 40% higher rate threshold will be raised from £41,865 in 2013/14 to £42,385 in 2015/16.
  • No new announcements on pension reform coming in April 2015, but confirmation that tax charges on passing a pension fund or annuity to beneficiaries on death will in many cases be abolished.
  • £2,000 Employment Allowance relief from employer’s National Insurance contributions to be extended to care and support workers from April 2015.
  • Increases in the annual tax charge payable by long-term resident foreign domiciled individuals for 2015/16: £60,000 for those resident in 12 of the last 14 years (up from £50,000), and a new rate of £90,000 for those resident in 17 of the last 20 years.
  • Increase in ATED charge on houses owned through companies for houses valued at over £2m.
  • From 1 May 2015, Air Passenger Duty abolished for children under 12 on economy flights.
  • Exemption for “trivial” benefits costing up to £50 provided by employers; some reimbursed expenses will also be exempted rather than requiring declaration and a claim for deduction by the employee.
  • ISA annual subscription limit rises from £15,000 to £15,240; permission to transfer tax-free ISA status to spouse or civil partner on death.
  • The temporary doubling of small business rate relief will be extended for yet another year from 1 April 2015; increase in rate relief for small retail outlets from £1,000 to £1,500.
  • Small increases in the rates of Research & Development tax credits.

Autumn Statement 2014: Initial reflections

Stamp Duty Changes could lead to increasing house prices

Changes to the way stamp duty is calculated changing the ancient system which used to produce unfair results have been broadly welcomed across the board. Purchasers buying houses under £937,500 will now be better off under the new rules which broadly equate to 98% of residential transactions.

There will however be an unintended affect on houses which are valued around the previous boundaries. These properties (which have been artificially reduced because of the boundaries) are likely to go up in value overnight and prospective vendors are likely to try and cash in on stamp duty savings on offer.

 


 

Iggle Piggle the big winner as large corporates and banks get hit!

Children’s television was amongst the winners of the Autumn Statement which targeted banks and large corporate tax avoidance in the UK. New reliefs for children’s television will be introduced along with reliefs for orchestras. There were large changes to the way residential properties are taxed with the abolition of the old arcane “slab” methodology with a fairer incremental approach .

The devil will be in the detail with regard to the large corporate tax avoidance plans which looks to tax profits artificially shifted out of the UK at 25%. The details will be announced on 10 December and will be considered carefully to see if they are workable. Utilisation of the losses that arose in Banks during the financial crisis is going to be restricted going forward so that they can only be used up at half the rate. Interestingly, this could lead to the Banks paying Corporation tax and reducing the speed at which they will be able commence dividends to their large body of shareholders including the UK Government!

 


 

Improvements to R&D tax relief

The Chancellor seems determined to maintain the UK as one of the “goto” places to undertake innovation.

R&D tax relief provides a tax saving for companies involved in qualifying development work. As corporation tax rates have been falling, as have the benefits of this relief. The Autumn statement has announced an increase in the benefits partly to make up for this.

The tax relief for profitable SMEs will provide a cash tax saving of 26% of the costs, up from 25% and loss-making SMEs will be able to claim a cash credit of 33.35%, a slight increase from the current rate.

The cash savings for larger businesses will increase by 10% to 8.8%.

Although relatively small increases, this shows the Chancellor, with cross party support, as the relief was originally introduced under the Labour government in 2000, provides comfort to those business that do claim and could claim, that the relief will continue for the foreseeable future.

There will also be a consultation starting next month on how to improve the administration of the scheme for small businesses on which the MHA innovation tax relief team will take a leading role.

This, together with an excellent corporate tax regime in the patent box tax for the exploitation of the resultant intellectual property, shows that the UK remains an excellent place for innovation.

If you would like to discuss the implications of the Autumn Statement 2014 please contact us.