Budget Statement 2014

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The Chancellor, George Osborne, made his 5th annual budget announcement today. His Autumn Statement on 5 December 2013, amongst other things, made some major changes to the tax treatment of Members of Limited Liability Partnerships (LLPs) and the draft legislation and guidance that followed between then and earlier this month has been keenly followed. Previous client briefings have given further details of these changes. We had hoped that the further guidance regarding partnerships with mixed membership (i.e. corporate members) would also be issued today but it has been confirmed that revised legislation and guidance will be issued with the draft Finance Bill which is expected on 27 March 2014. Provision for the collection of PAYE was made today.

A further bulletin will be issued once the draft Finance Bill and further guidance has been issued. We understand that minor amendments have been made to the legislation. Despite calls for the changes to be deferred until 2015 the legislation will take effect from 6 April 2014.

A more general advice note summarising the changes announced in today’s budget will be issued and it will also appear on our website shortly. Compared to the autumn statement, the 2014 budget has not resulted in many further changes. Those that are of particular relevance to those in the Hedge Fund and Private Equity industries are as follows:

  • Annual Investment Allowance (AIA) – The AIA is being increased from £250,000 to £500,000 with effect from April 2014 through to 31 December 2015. This effectively means that a 100% allowance will be available for qualifying investment in plant and machinery used in the business. The maximum amounts for businesses with accounting periods that straddle 1/5 April 2014 will have to apportion the maximum amounts for each relevant period. This allowance, however, is not available to LLPs with a corporate member.
  • Research & Development Tax Credits – The tax credit available to loss making small and medium sized enterprises engaged in R & D activities is being increased to 14.5% from 11%.
  • Stamp Duty Reserve Tax (SDRT) – The 2014 Finance Bill will abolish the SDRT charge on most transactions in Unit Trusts and Open Ended Investment Companies.
  • Artificial use of dual contract arrangements – As announced in the 2013 autumn statement, legislation is to be introduced in the 2014 Finance Bill to prevent high earning non-domiciled individuals from avoiding UK tax by dividing the duties of their single employment between a UK and overseas contract where tax is not payable at tax rates comparable (at least 65%) of the UK rates. Certain exemptions have been introduced along with a tax avoidance motivation test.
  • From April 2016, Class 2 National Insurance Contributions will be collected via self-assessment rather than as currently by Direct Debit or on demand.
  • The VAT registration and deregistration thresholds have been increased to £81,000 and £79,000 respectively.
  • Major reforms are proposed in how defined contribution pensions can be drawn in order to remove many of the restrictions in how benefits are taken. Consultation will take place on defined benefit arrangements.
  • Cash and Stocks and Shares ISAs will be merged into New ISAs and the annual limit increased to £15,000. Seed EIS relief will be made permanent.

As is to be expected, there are a number of anti-avoidance measures announced including:

  • Offshore and Onshore employment intermediaries are being targeted to ensure that appropriate employment taxes are paid.
  • Venture Capital Trust (VCT) Tax relief will be restricted where investment in the trust is conditionally linked to a share buy-back or made within six months of a disposal of shares in the same VCT. They will also be unable to return capital to investors within 3 years of the end of the accounting period in which the shares were issued.
  • Users of failed (defeated in another parties litigation) avoidance schemes will be issued with notices by HMRC requiring them to amend their tax returns and settle their disputes with HMRC. Not settling will expose the taxpayer to possible penalties. 
  • In future, all users of tax avoidance schemes under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, or under the General Anti Abuse Rule (GAAR) will be required to make payment to HMRC of the tax under dispute which will be held by HMRC whilst the dispute is resolved.
  • Legislation will be introduced to counter the avoidance of tax by transferring profits between companies in a group.
  • The 15% Stamp Duty Land Tax charge on residential property purchased by non-natural persons will be extended to properties costing over £500,000. The Annual tax on enveloped dwellings will also apply to properties over that amount (the previous threshold was £2m).

There were also some measures announced regarding Non-Residents and Non- Domiciled individuals as follows:

  • There is currently an anomaly for remittance basis users making gains in a tax year where the split year treatment applies. The changes will ensure that gains made in the overseas part of the split year are not taxed.
  • There is a consultation underway regarding Capital Gains Tax on gains made by non-residents on the disposal of UK residential property.
  • There will be a consultation on whether personal allowances should be restricted or withdrawn for non UK residents.

If you require any further details regarding any of the above, please speak to your usual Throgmorton contact or one of the people listed below.  
Neil Oliver 

19 March 2014 

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About Throgmorton: Throgmorton is one of the leading companies specialising in the provision of financial and administrative outsourcing to the UK SME financial services sector.

The information in this notice is intended for general guidance only. Throgmorton does not accept any responsibility for losses incurred to any person acting or refraining to act as a result of the information in this notice. Advice should be taken in the context of specific circumstances.

Copyright 2014 Throgmorton UK Limited. All rights reserved. Throgmorton is a trading name of Throgmorton UK Limited a company registered in England and Wales (company no 3853848) having its registered office at 4th Floor, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS.