38 taxation


Plan unveiled to cap unlimited income tax relief


HM Treasury and HMRC have now published detailed plans of precisely how the proposed cap on unlimited income tax relief will take shape, writes Ben Allman, senior, Whitley Stimpson


From April 6, 2013, those on higher incomes will no longer benefit from favourable tax reliefs. The cap will be set at the greater of £50,000 or 25% of an individual’s income, and there will be a separate cap for each year in which the relief in question can be claimed.


With much recent controversy surrounding the tax relief available to those in the high income bracket, ministers have acted swiftly to clamp down on what they perceive as any unfair advantages available to high earners. The new plans are intended to help to ensure that a fair rate of tax is applied to this bracket, and prevent the average tax payer from footing the bill for tax avoidance scams, but may still deny relief where an individual has suffered a genuine business loss.”


While reducing the scope for those trying to exploit tax reliefs to avoid paying tax on high earnings, HM Treasury is keen to assert that there will still be generous tax reliefs available to individuals investing in small businesses. Similarly, charitable donations (including gift aid, relief for gifts of land and shares, payroll giving and community


pensions Auto-relax for small employers?


The new auto-enrolment pension regime commenced with great fanfare from October 1


SMEs can semi-relax for a while as the only employers included in the first wave are those with at least 120,000 employees. Small employers with fewer than 50 employees won’t be forced into auto-enrolment until June 2015 at the earliest.


But that doesn’t mean that SME employers should do nothing; they need to start planning for their own staging date. The rules are complicated, and they will no doubt seem excessively so to employers not concerned with pension schemes before.


Pension reforms Obligations


Under the new pension laws, employers will be required to:


• Have a qualifying workplace pension scheme in place;


• Register with the pensions regulator;


• Categorise their workforce into three categories to determine their rights under the pension reforms;


• Provide all workers with certain information about their entitlement to join the pension scheme;


• Automatically enrol many of their workers into a pension scheme;


• Make employer pension contributions for many of their workers;


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• Re-enrol those who have opted out automatically every three years.


Employers may be surprised that ‘workers’ for whom they must comply include many contractors who are not even on their payroll.


Costs


Apart from the administrative costs, employers will need to make pension contributions for many employees which start at 1%, rising to 3% of ‘band earnings’. Band earnings will be earnings between the national insurance contributions lower earnings limit and national insurance contributions upper earnings limit (presently £5,564 - £42,475). Only ‘eligible jobholders’ who earn more than £156 in any week will trigger automatic enrolment, but others may have the right to opt in.


What happens if businesses do not conform?


These reforms will be policed by the pensions regulator who will have several powers at it disposal including:


• Issue of compliance notice; • Notice for payment of unpaid contributions; • Fixed penalty notice; and


• Escalating penalty notice increasing on a daily basis until compliance is achieved.


THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2012 Mitigating costs


It’s not all bad news though. If addressed as part of a salary sacrifice arrangement, and possibly in conjunction with a wider flexible benefits scheme, not only can the employer’s costs be mitigated, but employees can achieve a higher net pay and enjoy greater flexibility in their salary arrangements. This can lead to greater motivation and job satisfaction. Salary sacrifice will not be a simple formality, though; there is a prohibition on inducing employees to opt out of the pension scheme, and offering the right to a higher salary if the employee does opt out (typical in salary sacrifice arrangements) will be a clear breach of this rule.


How can Baker Tilly help?


It can arrange all the help needed to become fully compliant with these regulations including:


• Assessing suitability of any pension arrangement in place; • Implementing a new pension scheme;


• Putting in processes for managing opt ins and opt outs;


• Maintaining adequate records; • Designing employee communications;


• Implementing a salary sacrifice arrangement on a free standing basis for pensions or as part of a wider flexible benefit scheme.


Details: Tim Smith, 01256-486800 www.bakertilly.co.uk


investment tax relief) are now excluded from the cap.


The tax reliefs that will be capped are: trade loss relief against general income; early trade losses relief; post-cessation trade relief; property loss relief against general income; post-cessation property relief; employment loss relief; former employees deduction for liabilities; share loss relief; losses on deeply discounted securities; and qualifying loan interest relief.


Key aspects to consider in the run-up to April 2013 include loss reliefs and loan interest. If a loss in excess of £50,000 could arise in the current tax year, it may be possible to ensure that full relief against other income is obtained. Additionally, those who have taken out personal loans to invest in or lend to a business should consider restructuring these loans, where possible, and individuals who have made investments in unquoted trading companies may need to review these to see if any are potentially standing at a loss which might be triggered before the change in the rules.


The HMRC consultation period closed on October 5, 2012 and at the time of writing the results are yet to be published. However, due to significant pressure the Government has already performed a U-turn on the inclusion of the proposed charitable donations cap; we wait to see if any other significant changes arise.


If you are concerned that you could be adversely affected by the new regulation or you require further clarification on how best to prepare for it, I am available to respond to queries.


Details: Ben Allman 01494-448122 bena@whitleystimpson.co.uk


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