In a welcome move from the Treasury, the Seed Enterprise Investment Scheme (SEIS) came into force on 6 April 2012. In essence, the scheme allows individuals to invest up to £100,000 as seed capital for a fledging business looking to raise finance. There are some generous tax reliefs available for the individual in exchange for their investment, as follows:

Income tax

• Up to 50% income tax relief on the amount invested, regardless of the investor’s marginal rate of tax
• From 2013/14, it will be possible to carry back the investment to the previous year in order to maximise the income tax relief available

Capital Gains Tax

• Reinvestment relief – For the 2012/13 tax year only, it will be possible to exempt any capital gain on a £1 for £1 basis, meaning further tax relief of up to £28,000 (see example below)
• Disposal relief –
  • If the SEIS shares are held for at least 3 years there will be no capital gains tax on the disposal of the shares
  • If the company invested in fails, investors can claim loss relief against their general income in the year, to the extent that they have not received income tax relief (see below)

SEIS Case Study
The following example shows how, for an individual in the right circumstances, making an investment under SEIS can be a win/win situation.

Mr A has total income of £300,000. In the 2012/13 tax year and he also sells a buy-to-let property, realising a capital gain of £150,000. He makes an investment of £100,000 under SEIS and receives the following tax relief:

2012/13 tax year – The year of investment

2016/17 tax year – The SEIS company is liquidated and Mr A receives no return on his investment

Based on the rate of income tax coming into force from 2013/14, an additional rate taxpayer would receive relief at 45% (£50,000 x 45% = £22,500), so the overall position becomes:

As shown above, even in the worst case scenario of the SEIS investment failing the investor still makes an, albeit small, return on their original investment.

Please note that the example above is merely an illustration of a particular scenario in which, in particular, an individual makes a £100k+ chargeable gain in the 2012/13 tax year and advice on your individual situation should be sought before any action is taken.

If you would like to make an SEIS investment but are unsure of how much to invest in order to make your investment tax efficient, or would like some general advice on the tax relief available on SEIS investments, please contact us.

The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT). We are not Financial Advisors and are not regulated by the Financial Services Authority (FSA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to an IFA we have worked with in the past who can take care of the FSA aspects of any advice you require. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.

While there were some surprises in the Chancellor’s speech, a lot was widely predicted in advance and the usual story of “winners and losers” seems to have prevailed.

The headlines from our perspective are largely as follows:

Income tax

• It was nice to see both an increase in the personal allowance and a reduction in the top rate of income tax to 45% from April 2013. In particular, UK taxable income is likely to be more valuable in the 2013-14 tax year than in 2012-13, and this will make the timing of income tax charges important.
• Refreshingly, there was no change to the valuable tax relief for pension contributions, an area which has seen too much change and uncertainty in recent years.
• Mr Osborne also made some comments on restricting “unlimited” tax relief claims to a maximum of £50,000 or 25% of an individual’s income from 6 April 2013 (whichever is the lower). The precise impact is unclear at present, but this may be likened to the “tycoon tax” trumpeted by the Lib Dems. As e.g. EIS/VCTs and pension contributions are already subject to various caps we know that these won’t be affected. We will have to wait until later this year to find out which reliefs will be hit by these new rules, but the most likely areas affected would seem be trading losses against income, loan interest and Gift Aid (the latter being subject to specific consultation).

Stamp Duty Land Tax (SDLT)

• As expected, the Chancellor has come down hard on individuals who own high value UK property, but also on those who own UK property through an offshore company. As such:
  • 7% SDLT will apply from 22 March 2012 to residential properties costing over £2m.
  • 15% SDLT will apply from 21 March 2012 to residential properties costing over £2m that are acquired by an offshore entity, with consultation to introduce an additional annual charge from April 2013.
• There was also a clear message that SDLT avoidance schemes will be targeted harder in future, and a worrisome footnote about a potential capital gains tax charge on UK residential property held by overseas structures from April 2013. Those with an existing structure should keep a keen eye on this, and those buying UK property should keep this in mind also.

Businesses

• Owners of limited companies will benefit from the gradual reduction to corporation tax rates, with the reduction to the Main Rate to 24% being brought forward to 1 April 2012, and the rate reducing down to 22% by 2014. The Small Companies’ Rate remains at 20%.
• Those looking to incentivise key staff via the Enterprise Management Incentive scheme will see an increase to the upper limit on the value of options granted from £120,000 to £250,000 per individual. There was some good news for the option holder too as the fine detail reveals a proposal to allow gains from EMI options to qualify for Entrepreneurs Relief, reducing the rate of Capital Gains Tax to 10%.
• Businesses with a turnover of less than £77,000 may be have the option of operating on a “cash” accounting basis instead of having to account for income that they may not yet have received, which should be good news in terms of complexity and cash flow!

Inheritance Tax (IHT)

• The Government will also consult on legislation to increase the IHT-exempt amount (currently £55,000) that a UK domiciled individual can transfer to their non-UK domiciled spouse or civil partner. They also propose to allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of IHT. Again we will have to be patient, as the legislation will be included in Finance Bill 2013.

Please contact us to discuss any matters regarding this year’s Budget.

The lifetime allowance is the maximum value a pension fund can be at your nominated retirement date without the excess being subject to tax charges. From 6 April 2012 this allowance will be reduced from £1.8m to £1.5m, and individuals who expect the amount of their pension savings to be more than £1.5m by the time they take their benefits can apply for “fixed protection” by 5 April 2012.

Various conditions must be met in order to successfully obtain fixed protection, the key ones being:

• Agreeing not to start a new pension arrangement (unless you are accepting a transfer of existing pension rights), and
• Agreeing not to make further payments into a money purchase scheme.

To put this into context, an individual with a pension fund worth £1m at today’s date who anticipates the fund to be worth £1.8m when the benefits vest would be subject to the following charges (based on current tax rates):

Without a claim for Fixed Protection

• 25% Tax free Lump Sum / 75% Annuity
  £1.8m less £1.5m lifetime allowance = £300,000

  Lump sum excess – £300,000 x 25% = £75,000 x 55% immediate pension charge	£41,250
  Annuity excess – £300,000 x 75% = £225,000 x 25% immediate pension charge	£56,250
  Total charges	£97,500

• 100% Annuity
  £1.8m less £1.5m lifetime allowance = £300,000

  Excess x 25%	£75,000
  Total charges	£75,000

With a claim for Fixed Protection

As a claim preserves the entitlement to a lifetime allowance of £1.8m, there would be no pensions savings charges due when benefits are taken.

Needless to say, choosing whether or not it is appropriate to take fixed protection is a difficult decision and we have good relationships with independent financial advisers who specialise in this area. Those individuals who hold existing “primary” or “enhanced” pension protection will not be affected by the reduction to the lifetime allowance.

If you would like to talk to us about Fixed Protection Claims or any other tax planning opportunities in more detail, please contact us at the earliest opportunity.

In the absence of a crystal ball, there is no way of knowing for sure how tax relief will be affected by the upcoming Budget on 21 March. Having said that, there is always the possibility that higher rate relief will be withdrawn altogether in which case, now is the time to contribute to your pension.

Maximising the tax relief on your pension.

From April 2011 the annual allowance for claiming higher and additional rate tax relief is £50,000, but depending on your contribution history, you may be able to contribute more than this. Click here to read our previous blog on how the pension carry forward rules could apply to you.

As the 5th April approaches it is time to review your affairs and explore some of the opportunities available to reduce your UK tax bill!

The following table summarises the main tax allowances available, in most cases they are wasted if they are not used before the end of the tax year:

Some of the tax planning opportunities available to utilise these allowances include:

Pension Contributions
The annual allowance is now £50,000 and you can carry forward unused pension relief from the prior 3 tax years. Therefore, contributions of up to £200,000 may qualify for higher rate tax relief in 2011/12.
Various commentary has suggested higher rate tax relief may be abolished on pension contributions, so this year may be the last chance to get up to 50% tax relief for higher earners.

Capital gains tax (CGT)
If you have assets which have increased in value you could uplift the base costs and utilise your CGT annual exemption. Rebasing could be achieved with shareholdings through ‘Bed and Spouse’ and ‘Bed and SIPP’, ‘Bed & ISA’ transactions. Contact us for more information on these planning techniques.

Foreign Exchange Gains
From 6 April 2012, it is no longer necessary to report gains and losses on movements on foreign currency bank accounts acquired for investment purposes.
If you have a significant unrealised sterling gain on a foreign currency bank account, it could be worth postponing payments from that account until after 5 April.

Utilise Spouses Tax Free Allowances, Exemptions & Lower Tax Bands
You and your spouse are entitled to the same tax free allowances and exemptions. You should consider if it is appropriate to transfer assets or hold them in joint names in order to reduce your tax liability next year.

Tax efficient investments
Enterprise Investment Schemes (EIS)
Key benefits: 30% income tax relief, capital gain tax exemption after 3 years, inheritance tax exemptions, capital gains tax deferral.

Venture Capital Trusts (VCT)
Key benefits: 30% income tax relief, capital gain tax exemption after 5 years, tax-free dividends

Individual Savings Accounts (ISA)
Key benefits: Tax free growth and no capital gains tax on exit, can be a cash ISA or Stocks & Shares.

When considering making a tax efficient investment It is important that you take advice from an Independent Financial Adviser, please let us know if you would like us to recommend one.

If you would like to consider any of these, or any other, tax planning opportunities, in more detail please contact us at the earliest opportunity.

Heather Miller, our new tax consultant, has been published this week in Taxation magazine – click here to read her article on partnerships and basis periods.

The article discusses a medical practice and the admission of new partners; in particular, overlap profits, opening year rules, and the amount of profits taxed on each partner in each tax year. Although the scenario involves a health centre, it could easily be applied to any business operating through a partnership or limited liability partnership.

Are you about to make the transition from employee/sole trader to partner? Call us to discuss how this will affect your tax position going forward.

Inevitably, the main focus of the Chancellor’s Autumn Statement was the state of the UK’s finances and the outlook for future growth.

The most interesting announcement from a tax perspective was the proposed relief for investments via a new “Seed Enterprise Investment Scheme” (SEIS) which is intended to give UK business a much needed jump-start.

Fine details of the new scheme are yet to be announced, but the headlines are:

• From the start of the next tax year, an individual will be able to invest up to £100k as seed capital in a “qualifying” company and generate a 50% rebate (regardless of whether or not the investor is a 50% taxpayer).
• For the 2012/13 tax year only, the individual investor will also enjoy an exemption from tax on capital gains of up to £100k invested in via the SEIS programme.
• From the company’s perspective, the maximum fund raise under the SEIS plan will be £150,000.

In other welcome news, the Chancellor acknowledged the challenges that small businesses are facing in terms of raising finance. It was pleasing to see some helpful relaxations to the current Enterprise Investment Scheme (EIS) which may help the flow of “investor angel” funds to companies looking to expand. There was also the promise of simplifying and refocusing the existing EIS and Venture Capital Trust schemes which, again, augurs well for the future.

The SEIS proposals are in addition to the enhancements already announced in respect of EIS, as detailed in our earlier blog.

Please contact us for further details or to discuss the impact of the Autumn Statements with one of our advisors.

Changes to HMRC’s penalty regime mean that taxpayers who submit their 2010/11 Tax Return late, face far heftier fines than ever before – regardless of whether they ultimately have a tax liability or indeed even if they are due a repayment.

HMRC are understandably keen to encourage tax payers to submit prompt returns, particularly in this climate of austerity, but taxpayers need to ensure they aren’t caught out by the new regime. The additional penalties mean that taxpayers need, more than ever, to make sure that their return is submitted on time and is accurate.

The new late filing and late payments penalties introduced apply in respect of 2010/11 Tax Returns – which must be filed by 31 January 2012. Because of these changes, late submission of a self-assessment return, even by one day, results in a fine of £100 – even if you do not owe any tax. A return submitted six months late will incur a fine of at least £1,300, even if no tax is due!

We are offering free 30 minute evening consultations for City professionals who want to ensure they are organised for the New Year. We will evaluate your affairs, answer any specific tax questions you may have and offer a guide as to how complex your return is likely to be and provide a quote for assisting you with the completion of your return.

To take advantage of one of our 30-minute consultations, email your name and telephone number to help@tap-london.com and one of our team will call you back to arrange an appointment. There are a limited number of slots, and these will be allocated on a first come, first served basis.

Contribute more than £50,000 to your pension in 2011/12 AND get higher rate tax relief

As of 6th April 2011, the government reduced the annual pension allowance to ensure that only the first £50,000 of an individual’s gross pension contributions will attract higher rate tax relief at 40% or 50%.

But if you have not contributed to your pension for the last few years, or if your contributions have been limited by the special annual allowance of £20,000 or £30,000 in 2009/10 and 2010/11, there may be some scope to contribute more than £50,000 and still receive full higher rate tax relief.

How?

If you have an existing pension scheme and have already made gross contributions of £50,000 (a £40,000 net contribution if made personally outside of payroll arrangements) in the pension input period ending in 2010/11, it is possible to look back to the previous 3 tax years and carry forward any “unused pension allowance”.

How is “unused pension allowance” calculated?

A notional £50,000 annual allowance is applied to the 2008/09, 2009/10 and 2010/11 tax years and any leftover allowance after actual contributions made can be carried forward to the current tax year.

For example:

In this example the total unused pension allowance is £95,000 which means that the taxpayer could make a total gross contribution of £145,000 in 2011/12 and, providing they have at least £145,000 of relevant earnings in the tax year, receive full higher/additional rate tax relief of up to 50%.

Why now?

With murmurs of a complete withdrawal or restriction of higher and additional rate pension relief on the horizon, it would make sense for taxpayers to consider their position ahead of the Chancellors Autumn Statement on 29th November, as any changes could be effective from that date.

Please note that the example above is merely an illustration of a particular scenario; the pensions rules are complex and advice on your individual situation should be sought before any action is taken.

If you have an existing pension scheme and you are unsure of how much you can contribute, or would like some general advice on the tax relief available for pension contributions, please contact us.

The Tax Advisory Partnership is a member firm of the Chartered Institute of Taxation (CIOT). We are not Financial Advisors and are not regulated by the Financial Services Authority (FSA). Where appropriate we will work with your Independent Financial Advisor or we can introduce you to an IFA we have worked with in the past who can take care of the FSA aspects of any advice you require. However, our focus is on ensuring that any investment strategy you may select meets with your overall financial and taxation objectives.

2010/11 Self Assessment Tax Return Filing

The economic climate of recent years and austerity measures introduced by the government have resulted in a spotlight being turned on the collection of UK tax.

We are increasingly seeing a hard line approach being taken in respect of a taxpayer’s failure to comply with very complex and ever changing legislation.

New late filing rules introduced this year could result in penalties being charged, even if you do not owe any tax!

These penalties were highlighted in an earlier TAP blog, and it is fair to say that failure to submit returns and/or late payment of tax can be a costly business.

For ease of reference, we have detailed key dates and filing deadlines for you below.

If you require any assistance with the completion of your 2010/11 Tax Return or any earlier years, please contact us at the earliest opportunity.

The filing deadlines for 2010/11 UK Tax Returns are as follows:

31 October 2011 – If you are filing a hard copy paper return;

31 January 2012 – If you are filing your Return on-line.

You may have an extension to the above dates if you have only just been notified a Tax Return is required.

There’s an earlier deadline of 30 December if you want HMRC to collect any tax due through your PAYE (Pay As You Earn) tax code. You can only ask for this if you owe less than £2,000.

If you are unsure whether or not you have to file a tax return, our on-line tool should help you decide: “Do I Need to Complete A Tax Return”

If you do need to complete a Tax Return for 2010/11 but have not notified HMRC you should do so at the earliest opportunity. You will then be issued with a tax reference and will hopefully still be able to meet the filing deadline.

New late filing penalties apply in respect of the 2010/11 Tax Return, as follows:

Tax Repayment

If you have overpaid your tax and are due a refund this is normally received within two weeks of filing your Return.

As of 27 January 2009, the rate of interest paid by HMRC in respect of overpaid tax has been a very un-generous 0%. Therefore, if you are owed a repayment it makes sense to file your Return at the earliest opportunity.

Deadlines for Paying Your Tax

31 January 2012

You must pay any tax you owe for 2010/11 by 31 January 2012.

The payment deadline is the same for both paper and online returns.

You will need to pay one or both of the following:

• any tax you still owe for 2010/11, the ‘balancing payment’
• the first of two ‘payments on account’ towards your 2011/12 liability, where appropriate.

31 July 2012

This is your deadline for making any further payments on account towards 2011/12, where appropriate.

The following surcharges (separate to the penalties as above) will apply if you pay your tax late:

The surcharges above do not apply to any payments on account that you pay late.

Interest charges if you pay late

You will have to pay interest (currently 3%) on anything you owe and haven’t paid, including any unpaid penalties, until HMRC receives your payment. Surcharges will also start to attract interest if they are not paid within 30 days.