Corporation Tax – all companies pay tax at 20%

From 1 April 2015 all companies regardless of their size will pay corporation tax at the rate of 20%. Companies with chargeable profits more than £1,500,000 will continue to pay their corporation tax by four quarterly instalments so a large company with a year end of 31 December 2014 will pay tax on 14 July 2014, 14 October 2014, 14 January 2015 and 14 April 2015.

Change of rules for associated companies

The complex rules for identifying which companies are “associated” for corporation tax purposes will be significantly simplified from 1 April 2015. From 1 April 2015 companies will only be associated if they are members of a 51% group. Companies will therefore only be associated if they are members of a group owned company holding more than 51% share of control.

Thus having only one tax rate at 20%, these new rules will only be relevant in deciding whether a company’s profits are large enough to bring it within the corporation tax instalments regime as discussed above.

Annual Tax on Enveloped Dwellings and New Thresholds

Annual Tax on Enveloped Dwellings (ATED) is a new tax that came in on 1 April 2013, which applies to single dwelling UK residential properties, worth more than £2,000,000 as at 1 April 2012 and which are held by a non-natural person (being a company, a partnership or LLP). ATED is a tax designed to heavily hit companies who own domestic properties above £2,000,000 (currently); over £1,000,000 to £2,000,000m from 1 April 2015 and more than £500,000 from 1 April 2016.

Owning a residential property through a company will have the follow tax consequences:

15% Stamp Duty Land Tax (SDLT) to get the property into the company
Yearly ATED charges based on HMRC annual charge list
A Benefit-in-Kind (BIK) taxed on any director living in the property
Class 1A National Insurance (NIC) payable by the company on the BIK

An ATED return must be completed by the beneficial owner every year, so for 2014/15 this must be completed by 30 April 2014 with ATED payable on the filing date. All properties within the AETD charge will also be within an ATED-related Capital Gains Tax charge. This AETD related CGT charge applies to both UK resident and non-resident companies, at a rate of 28%.

Capital Allowances

The Annual Investment Allowance (100% capital allowances) was increased from £250,000 to £500,000 from 1 April 2014. There has also been a change to the accounting of Integral features for capital allowance purposes. Integral Features are items such as electrical systems (including lighting systems), water heating systems, air conditioning systems, lifts and escalators. Previously these would normally go into the 8% pool. However they can and (should be) included in the first £500,000 of expenditure which qualifies for 100% Annual Investment Allowance (AIA), instead of 8%. Note however that from 1 January 2016 AIA will be heavily reduced from £500,000 to £25,000.

Scrap dispensations and £8,500 limit

With respect to P11Ds there are two key issues of which to be aware:

In the past, companies have had the option to apply to HMRC for dispensations that would remove the requirement to report the individual business expenses of employees on their P11Ds. Following the most recent HMRC consultation document (June 2014) there are discussions to remove these dispensations and put the onus on the employer to determine whether expenses should be taxable. Remember business expenses can be defined as those expenses ‘incurred wholly exclusively and necessarily in the performance of duties of the employment. For those that already have dispensations it is important that you still maintain adequate records to support the tax-free payment of expenses.

Only Directors and employees who earn more than £8,500 per annum and receive benefits are required to report them on a P11D. Following HMRC’s consultation document the proposal is to abolish the threshold completely so that everyone who has a taxable benefit or expense will have it taken into account in calculating their tax liability.

Under 21 Exemption

From 6 April 2015, companies who employ or engage employees under the age of 21 will not be required to pay Employers NICs on earnings that they pay to employees. Using the expected earnings threshold for April 2015 this would be up to £813 per week or £42,285 per annum. This would apply to both existing and new employees. The exemption does not apply to benefits in kind so class 1A NIC will still be due on any benefits provided to the under 21s.

Need specific advice?

Should you have any specific questions in relation to the above, or if you wish to obtain specific advice on how these changes affect your business, please contact Howard Moss at Kingswood.