Archive for the 'Capital Allowances' Category

Employment Allowance – £2,000 deduction from Employers Class 1 NIC’s

As you may now be aware, the Government has announced that from 6 April 2014 there will be an allowance for businesses who operate PAYE schemes that will reduce their employers Class 1 National Insurance Contributions liability by £2,000.

The allowance will be used against the first £2,000 of employers National Insurance that would otherwise be due to be paid to HMRC.

For a business which has a number of PAYE schemes, the allowance can only be used against one of these schemes.

As is usually the case with these sorts of allowances, there are various rules in place; and in this instance the main rules that we think that you need to know about are the rules that are in place relating to the claiming of the allowance where there are connected businesses. Many of these rules are based upon the connected persons rules which are used for corporation tax purposes.

Below is an explanation of some of the various rules and scenarios regarding the claiming of the £2,000 allowance:

Simple rules/scenarios

Where a company is part of a group of companies, only one company can claim the allowance. It is a personal choice which company should have the allowance, although we would suggest that you claim the allowance in the company which has the highest National Insurance liability.

If two or more companies are under the control of the same person(s), then they are only entitled to one allowance between the companies; and once again you have to specify which of the companies will claim the allowance (you can’t share it out between the companies, nor can unused allowances be transferred to other companies). Once again we would suggest that you claim the allowance in the company which has the highest National Insurance liability.

More complex rules/scenarios

The outcomes in these situations depend on the result of a test to determine what HMRC call ‘substantial commercial interdependence’. The connected persons/connected businesses rules only apply where the companies in question are deemed to be substantially commercially interdependent.

In simple terms, companies are connected where there is a reliance/link between the companies.

For companies to be substantially commercially interdependent (and therefore only entitled to one employment allowance between these companies), there needs to be a link between the companies which is either financial, economic, or organisational (you only need one of these links to be treated as being connected):

  • Financial interdependence – this is where one company gives financial support to another, or companies have a financial interest in the affairs of the same business.
  • Economic interdependence – this is achieved where the companies either seek to realise the same economic benefit, have activities which benefits one of the other companies, or where the companies have common customers.
  • Organisational interdependence – this occurs where the companies have common management/premises/equipment/employees.

Remember, if one of the above links is present then only one employment allowance can be claimed in one of the companies; the rest of the companies will not have an allowance for the year.

Differences for unincorporated businesses

The rules for unincorporated businesses (sole trades and partnerships) are the same as for companies, with one noteworthy exception.

If an unincorporated business which claims the employment allowance does not have a liability of £2,000 for employers National Insurance in the year, any remaining allowance not used can be transferred and used against the PAYE scheme of another unincorporated business controlled by the same person(s). This transfer of the remaining allowance will take place after the end of the tax year.

For example, if you claimed the employment allowance against a sole trade business which only had a liability for employers National Insurance throughout the year of £1,600, the remaining £400 not utilised could be transferred to reduce the employers National Insurance due in another sole trade business.

If you have any questions regarding the entitlement of your business/businesses to the allowance then please contact your client manager or our payroll team who will be happy to help you.

This article was compiled by Phil Auckland.

Annual Investment Allowances rise…. temporarily

In the Autumn statement, the Chancellor announced a tenfold increase in the amount of Annual Investment Allowance (AIA) available. The AIA gives full tax relief for expenditure on integral features and plant and machinery as it is incurred. It is not available on cars.

This will be the third change in the rate of this allowance in less than twelve months. Up to 31 March 2012 (for corporates) and 5 April 2012 (for other taxpayers) the allowance stood at £100,000. Since then, and until 31 December 2012, the allowance is £25,000.

For expenditure incurred on or after 1 January 2013 the maximum annual AIA becomes £250,000. This is for a two year period and so the annual AIA will reduce to £25,000 for expenditure incurred after 1 January 2015.

Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis. The calculations are complex depending on the accounting year end and the date of the spend, with specific difficulties if the accounting period covers spending prior to the rate reduced in April 2012.

Please contact us before capital expenditure is incurred for your business in a current accounting period, so that we can help you to maximise the AIA available, you could potentially save £000’s of tax.

This article was compiled by Karen Ashton, Client Manager at Balance Accountants.

Significant Changes to Capital Allowances

The capital allowances regime will change significantly on 1 April 2012 for limited companies and on 6 April 2012 for soletraders and partnerships.

Currently, there is an annual investment allowance of £100,000 per annum which means that expenditure on plant & machinery, including vans, is fully tax deductible in the year of acquisition up to £100,000 of total expenditure.  From 1/6 April 2012 this annual allowance will fall to £25,000 per annum.  Any amounts in excess of the £25,000 will only qualify for annual writing down allowances of 18% of cost (20% prior to 1/6 April 2012).

For any business with a 31 March year end therefore, there will be a significant benefit in incurring any major plant and machinery investment before the year end when the higher rate of annual investment allowance will apply.

However the position becomes more complicated where the business year end spans 1/6 April 2012.  In this case, any expenditure incurred prior to 1/6 April will get a proportionate amount of the £100,000 annual investment allowance, whilst any expenditure after 1/6 April 2012 will get a proportionate amount of the £25,000 annual investment allowance but none of the £100,000 annual investment allowance.

For example, a business with a year end of 31 May:

If expenditure on plant and machinery is incurred before 1/6 April 2012 then it will attract a maximum of 10/12 of the £100,000 (i.e. 10 months out of 12) which amounts to a maximum of £83,000.

If expenditure is incurred in April or May, however, then it will not attract any of the £100,000 allowance and will only be eligible for a maximum of 2/12 of the £25,000 allowance which is a measly £4,166.

Confused?????? – we certainly were – so if you are thinking of acquiring plant and machinery in the next six months or so, and want some advice on the best timimg, please do not hesitate to give us a call.

This article was compiled by Ashley Barrowclough on behalf of the Balance Team

Find out the best time to buy if planning on significant additions/replacements to you plant and equipment

Maximise Your Capital Allowances Claims

With the tax year end coming up fast you should consider the timing of purchases so as to maximise the capital allowances available.  Bringing forward capital expenditure into the current tax year you can increase the amount of relief available and reduce your income tax significantly. With the changes to the annual investment allowance such that for 2010/2011 and 2011/2012 the amount available is £100,000 for each tax year, business owners should consider utilising these amounts before the Annual Investment Allowance reduces to £25,000 for 2012/2013.

In addition, claiming the annual investment allowance may also impact upon your Tax Credits Claim for the year.  Given that the Tax Credits regime is becoming less generous, you should consider maximising your claim now and see the cash flow and tax advantage utilised earlier.

With Government incentives for energy efficient plant and machinery, environmentally friendly vehicles and energy efficient plant, you could get 100% first year allowances on a whole host of items purchased through the business.

Extract taken from our 2011 Bonus edition Tax newsletter – if you would like to subscribe please leave your details here.

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