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Personal Tax

Detailed Budget Measures

New Childcare Scheme from Autumn 2015

A new childcare scheme will be introduced to support childcare costs.

For childcare costs of up to £6,000 per year per child, support of 20% will be available worth up to £1,200. From the first year of operation, all children under 5 will be eligible and the scheme will build up over time to include children under 12.

The scheme will provide support for families where all parents are in work and not receiving support through the Childcare Element of Working Tax Credits/Universal Credit, or where one has an income over £150,000. Support will be provided through a childcare account redeemable at any registered childcare provider.

The new scheme offer will be phased in from Autumn 2015 as the current system of Employer Supported Childcare is phased out. The Government will shortly consult on the detail of delivery.

Further details are available from HM Treasury.

CCH Comment:

The current childcare voucher scheme was in need of an overhaul and there is much to like in these proposals. However, there are a number of policy issues to resolve and it may be some time before we get a good feel for how the new rules will work.

Stephen Relf, Senior Tax Writer.

Industry Comment:

ICAEW has repeatedly urged successive governments to adopt a fairer system for giving tax relief for the costs of childcare. Although very few of the details have been announced so far, this one is already capturing headlines and it is clear that many parents will welcome the extra financial help.

We don’t yet know much of the detail, but this scheme is clearly focussed on those who work, which we hope will include the self-employed. It is paramount that any changes made ensure the system is workable, offers stability and certainty, and does not disadvantage any groups of individuals.

Anita Monteith, Technical Manager, ICAEW Tax Faculty.

Enterprise Management Incentives (EMI)

As announced in Budget 2012, legislation will be introduced in Finance Bill 2013 that removes, for shares acquired through the exercise of a qualifying EMI scheme option, the requirement for a person to hold 5 per cent or more of the ordinary share capital in the company in order to qualify for the entrepreneurs’ relief. Following consultation, the legislation has been revised to allow the period during which the option is held to count towards the qualifying 12 month holding period requirement. In addition, relief will also apply to the disposal of shares that replace EMI shares following a reorganisation of a company and to certain shares following an exchange for shares in another company.

Industry Comment:

Extension of the tax relief on shares acquired through Enterprise Management Incentives schemes confirmed by the Government should also help to drive growth for SMEs  -  it makes it more attractive for employees to have a larger stake in the business which should keep the business focused on the firm's long term success.

Gerallt Jones, Partner and Head of Corporate and Banking Division at Hugh James.

Company Car Tax and Car and van fuel benefit charge

Legislation will be in Finance Bill 2013 to introduce two new appropriate percentage bands for company cars emitting 0-50g of carbon dioxide per kilometre (with appropriate percentage set at 5 per cent) and 51-75g CO² per km (with the appropriate percentage set at 9 per cent).

For more details see the Tax Information and Impact Note.

The rate of fuel benefit charge for company cars, fuel benefit charge for company vans, and the benefit charge for company vans will all increase in line with inflation (based on RPI) for 2014-15. The increase will be based on the September 2013 RPI figure.

For more details see the Tax Information and Impact Note.

CCH Comment:

Without this announcement about company car tax the appropriate percentage for zero emission cars would have reverted to 9 per cent from 6 April 2015 so it is good news that a new 5 per cent rate will instead apply. By the Government not extending the period of exemption for zero carbon cars it is probably a sign that more company car drivers are switching to low or zero emission vehicles, however given that drivers of such cars currently suffer no benefit in kind tax charge they may be in for a shock. The inflationary increase to the fuel benefit charges were to be expected.

Meg Wilson, Tax Writer.

Employee shareholder status

As announced in the Autumn Statement in December 2012, legislation will be introduced in Finance Bill 2013 to exempt gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares from CGT. Following consultation, the legislation has been revised to prevent an income tax charge arising on a distribution where a company buys back CGT-exempt shares and to strengthen the ‘material interest’ anti-avoidance provision, which denies CGT exemption in certain circumstances. Legislation will also be introduced in Finance Bill 2013 and by statutory instrument so that income tax and National Insurance contributions (NICs) respectively will not be chargeable on the first £2,000 of share value received by eligible employee shareholders. It is anticipated that these changes will have effect from 1 September 2013.

For more details see the Tax Information and Impact Note.

Review of tax advantaged employee share schemes

As announced in the Autumn Statement in December 2012, legislation will be introduced in Finance Bill 2013 to implement a number of the recommendations made by the Office of Tax Simplification (OTS) in its review of tax advantaged employee share schemes. Following consultation, the legislation has been revised to:

Most of these changes will have effect from the date of Royal Assent to Finance Bill 2013, although changes which relate to the reinvestment of cash dividends paid on SIP shares come into effect on 6 April 2013.

Exemption threshold for employer provided beneficial loans

The threshold for employment-related taxable cheap loans to be treated as earnings of the employment, will increase from the current threshold of £5,000 to £10,000 for  2014-15 and subsequent tax years. As long as the total outstanding balances on all such loans do not exceed the threshold at any time in a tax year, there is no tax charge.

For more details see the Tax Information and Impact Note.

Statutory residence test

As announced in Budget 2011, the Government will introduce a statutory definition of tax residence for individuals. The legislation will be introduced in Finance Bill 2013 and will also provide for a tax year to be split into a UK part and an overseas part in certain circumstances, and contain new rules for the taxation of certain income and gains arising during a period of temporary non-residence. Following consultation, the legislation contains amendments to the concepts of full-time work, international transportation workers and split-year status. The legislation will take effect from 6 April 2013.

Ordinary residence

As announced in Budget 2011, the Government will reform the concept of ‘ordinary residence’ for tax purposes. The legislation will be introduced in Finance Bill 2013. The legislation will eliminate as far as possible the concept of ordinary residence. In particular, overseas workday relief, which is currently accessed by remittance basis users who are resident but not ordinarily resident and who perform employment duties in the UK and abroad, will in future be available to non-domiciled individuals who have been non-resident for three tax years. It will apply for a fixed period of residence in the UK regardless of whether the individual settles or intends to settle here. Following consultation, the legislation contains amendments to the transitional rules for claiming overseas workday relief to better align these with the current position. The legislation will take effect from 6 April 2013.

Pensions tax relief

As announced in Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to reduce the annual allowance to £40,000 for the 2014-15 tax year onwards and to reduce the standard lifetime allowance to £1.25 million also for the 2014-15 tax year onwards. Transitional protection (fixed protection 2014) will be introduced to provide individuals with a lifetime allowance of £1.5 million subject to certain conditions. Following consultation, draft legislation for the restriction to the lifetime allowance has been revised to include various minor adjustments and several consequential changes in connection with previous protection regimes.

For more details see the Tax Information and Impact Note.

Pensions drawdown policy

As announced in Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to increase the capped drawdown limit for pensioners of all ages with these arrangements from 100 per cent to 120 per cent of the value of an equivalent annuity. Following consultation, the legislation has been revised to remove the rule requiring the maximum drawdown pension to be recalculated after a pensioner with transitional protection from the Finance Act 2011 rules transfers to another scheme, so ensuring that transfers do not affect the capped drawdown limit. These changes will have effect from 26 March 2013.

For more details see the Tax Information and Impact Note.

Pensions tax: abolition of contracting out

As announced in Budget 2012, legislation will be introduced in Finance Bill 2013 to bring tax legislation into line with Department of Work and Pensions legislation which abolished contracting out through a defined contribution pension scheme from 6 April 2012. Following consultation, the legislation has been revised to clarify the types of payment that would be considered a ‘member’s contribution’ for the purposes of a short service refund lump sum.

Income tax personal allowances for 2014-15

The personal allowance for people born after 5 April 1948 will be increased to £10,000 in 2014-15. As set out in Budget 2011, once the personal allowance has reached £10,000, it will then increase in line with inflation (based on CPI) in future years, starting from 2015-16. As announced in Autumn Statement 2012, the higher rate threshold, which equals the sum of the personal allowance and the basic rate limit, will be increased by 1 per cent to £41,865 in 2014-15. Therefore the basic rate limit will be set at £31,865 in 2014-15.

The rates and allowances for 2013-14 are unchanged from the amounts announced at Autumn Statement.