The Chancellor said the Budget is for ‘makers, doers and savers’. But what does it mean for independent publishers? Crowe Clark Whitehill provides some analysis and recommendations.
What’s new in the 2014 Budget?
A number of new measures were announced by the Chancellor, adding to the changes to business tax announced in the Autumn Statement and previous Finance Acts. Corporation tax rate
The main rate of corporation tax, currently 23%, will be lowered to 21% from 1 April 2014 and to 20% from 1 April 2015. The small company rate remains at 20%. Our recommendation: For accounting periods ending prior to 1 April 2014, or straddling 1 April 2014, consider any opportunities to accelerate expenditure or defer income.
Tax relief for capital expenditure
Tax relief on plant and equipment, fixtures and fittings and other chattels is generally available at either 18% or 8% on a reducing balance basis. Where the asset qualifies for 18% tax relief, it takes approximately six years to get relief for 70% of the cost and a further 18 years to get relief on the remaining capital cost. Our recommendation: Consider whether your business is eligible for any of the following capital allowance accelerators.
Annual Investment Allowance (AIA) increased to £500,000
The AIA allows companies to claim 100% tax relief in the year of expenditure on most types of plant and equipment, fixtures and fittings and other chattels.
The Chancellor announced an increase in the AIA, doubling the rate to £500,000 from 1 April 2014 until 31 December 2015. Transitional provisions will apply to businesses with an accounting period straddling 1 April 2014. If these mirror the 2013 transitional provisions then the rules are likely to be complex. The timing of planned capital expenditure in excess of £250,000 is critical in order to maximise tax relief where an accounting period straddles 1 April 2014. Our recommendation: If your capital expenditure exceeds the AIA, allocate the AIA to expenditure attracting writing down allowances at the 8% rate before allocating it to expenditure eligible for the 18% rate. Where the accounting period straddles 1 April 2014, careful consideration should be given to the timing of expenditure if the total planned capital expenditure is likely to exceed £250,000.
Short life assets (SLAs)
SLA pooling is available for expenditure on assets with a useful life of less than eight years. It does not apply to cars or leased assets. SLA pools are maintained separately from the 18% ‘general pool’ and the 8% ‘special rate pool’. Our recommendation: By making an SLA election and pooling SLAs it is possible to accelerate tax relief by up to 18 years and claim a balancing allowance when the asset is disposed of or at the end of its useful life. Review your capital expenditure especially on computers and printing equipment, to make the most of this mechanism for accelerating tax relief.
Other assets eligible for 100% capital allowances
Several types of assets attract 100% capital allowances. These include:
* The purchase of new electric cars or cars with gas emissions of 95gm/km or less. From 1 April 2015 the level of emissions will further reduce to 75gm/km. There are over 128 models of low emission cars (less than 95gm/km) and 12 electric cars which could qualify for 100% relief. As there are currently only 22 cars with emission levels of less than 75gm/km any high volume purchases of low emission cars which are likely to be less than 95gm/km but greater than 75gm/km should be made before 1 April 2015.
* Assets used in research & development (R&D) can attract 100% research and development allowances—see our commentary below on the R&D tax credit.
* Expenditure on energy-saving plant and machinery and on water-saving plant attracts 100% capital allowances. A list of qualifying assets can be found on the Enhanced Capital Allowances website
. Legislation will be introduced to modify the existing list of qualifying technologies and to extend it to include two new technologies: active chilled beams and desiccant air dryers with energy saving controls.
Tax relief for innovations
R&D tax credit to increase to 14.5% R&D tax incentives are not just available to technology companies and companies carrying out scientific research. R&D tax incentives can also apply to publishing companies developing IT and software, whether it is for sale or use within the business to enhance the business performance.
R&D tax relief is an additional tax deduction beyond the 100% normally available. It is currently 125% for SMEs and 30% for large companies. By making an R&D claim SMEs can reduce their corporation tax liability. For loss-making companies there is currently an option to cash this in at 11% for every pound of loss forgone.
From 1 April 2014 this rate will increase to 14.5%. This will make it a harder decision for companies to decide whether to cash them in or to carry forward the R&D tax losses in anticipation of offsetting these against future trading profits. Carrying unused losses forward not only defers the tax benefit by at least one year, but in some instances if the company does not become profitable in the future there is a risk that the tax benefit might not crystallise.
Our recommendation: Where your company is loss-making, explore the benefits of the two different ways of obtaining relief for R&D losses.
R&D for large companies
Above the Line (ATL) is a 10% taxable credit only available to large companies introduced on 1 April 2013. It is slightly more generous than the alternative 30% tax uplift. The taxable credit is offset against R&D expenditure in the accounts, similar to a grant. This gives more visibility to the R&D department and an overall cheaper R&D cost. For tax paying companies the credit can be offset against the company’s tax liability and, in certain circumstances, for companies with a nil tax liability, or a liability that is less than the taxable credit, there is potential to make a tax repayment claim.
Our recommendation: Whether your company is an SME or a large company, we can help maximise any available tax relief by preparing a R&D claim.
The Patent Box
The Patent Box is a reduced rate of corporation tax applied to Patent Box profits in companies that develop and exploit patented processes or products. Despite the contention by some EU members that this is anti-competitive, the UK Government’s view remains that the Patent Box is here to stay.
The rate of tax applied to Patent Box profits was initially set at 15.2%, compared to the main rate of corporation tax of 23%. From 1 April 2014 the rate will reduce to 13.3% (compared to the main rate of corporation tax at 21%) and it will gradually taper down to 10% from April 2017, when the main rate of corporation tax is expected to be 20%.
Our recommendation: If your company develops or uses patents, consider how the Patent Box tax incentives might apply.
From 6 April 2014, businesses that are registered for PAYE may be entitled to a discount of up to £2,000 against their Class 1 employer’s NIC liability for a tax year. VAT From 1 April 2014 the VAT registration threshold will increase to £81,000 per annum and the deregistration limit to £79,000.
This is an edited extract from a post-Budget briefing compiled for the IPG by Crowe Clark Whitehill. More analysis, including the implications of the Budget from a personal perspective, can be found here. For more about Crowe Clark Whitehill’s services, contact Partner Paul Fay at email@example.com.
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