What does the Network Rail ‘pause’ mean for business?

What does the Network Rail ‘pause’ mean for business?

What does the Network Rail ‘pause’ mean for business?

In 2013 a five-year plan was announced to electrify the route from London to Sheffield through the East Midlands.

Just weeks after the General Election, where there was a strong focus on the proposal of a Northern Powerhouse to boost economic growth in the North of England, the government has ‘paused’ promised upgrades to major rail lines in the Midlands and the North of England.

The  Secretary of State for Transport, Patrick McLoughlin, announced yesterday that the plans for the electrification project would be ‘paused’,  with rising costs and missed targets making the £38.5bn plan untenable. The Transport Secretary also blamed Network Rail, saying it should have foreseen that the changes would cost more.

What does the Network Rail ‘pause’ mean for Sheffield?

Peter Kennan, tax partner at Hawsons, who also Chairs Sheffield Chamber of Commerce Transport Forum, appeared on BBC and ITV news programmes last night to express the disappointment felt by Sheffield City Region businesses at yesterday’s announcement.

Peter said: “A ‘pause’ was the announcement, but the issue is how long is that pause and could the whole electrification project be kicked into the long grass as too costly and difficult to achieve in a time where Network Rail has to rein in and get better control of its finances.  Worse still, could the electrification from London to Sheffield be extended but finish short of Sheffield, leaving the city region at a competitive disadvantage? Budget cuts could always ultimately lead to that conclusion.”

“Businesses in Sheffield City Region deserve better than this. Under-investment in the Northern cities has been endemic for decades and this latest setback is a major disappointment and points to a cooling of ambition to achieve a credible Northern Powerhouse.”

Peter Kennan ITV news

Source: ITV news

Watch Peter’s interview on ITV news

What does the Network Rail ‘pause’ mean for businesses across the North of England?

Paul Wormald, partner at Hawsons, and Transport & Logistics expert, said: “The announcement yesterday will undoubtedly have a damaging impact on the economy, and particularly on businesses throughout the rail sector. The impacts on the supply chain of many rail businesses are likely to be on budgets, cash flow forecasts, financing lines, capital expenditure plans and recruitment plans.”

“With growing pressures to maintain margins and mounting uncertainty surrounding paused infrastructure plans, businesses within the rail supply chain are going to find it increasingly difficult to budget and plan ahead. Any delay, or worse, a cancellation, of the proposed rail upgrades, is going to lead to increasing concerns in regards to inward investment and business confidence. The sector is being left in limbo.”

Commenting on what this pause may mean for the Northern Powerhouse, Paul said: “The rail network in areas of the North of England is out of date and in need of a major overhaul to boost the Northern economy. With concerns now growing over the integrity of the proposal of the Northern Powerhouse, following yesterday’s announcement, the next few months promises to be eventful for all involved in the sector.”

More from our transport and logistics experts

You can find all of our latest transport and logistics sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]

Planning for capital expenditure in the next few months

Planning for capital expenditure in the next few months

Planning for capital expenditure in the next few months 

For many businesses the prospect of obtaining a 100% tax deduction for the cost of plant and machinery purchased by the business is attractive.

Announcement from the Summer 2015 Budget

The Chancellor announced in the Summer 2015 Budget that the Annual Investment Allowance will be set permanently at £200,000 from 1 January 2016. He has previously said that this would be included in the Autumn Statement, but this earlier announcement provides welcome certainty for businesses.

What is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) provides such deduction to many businesses for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit. Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

The maximum annual amount of the AIA was increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. However it was due to return to £25,000 after this date. George Osborne announced in Budget 2015 that following conversations with business groups this would be addressed in the Autumn Statement and would be set at a much more generous rate.

So, does that mean there is little time pressure on bringing forward capital expenditure plans?

Not necessarily. There are two reasons why you may wish to press ahead with your plans. The first reason is the straightforward point that tax relief is available for the expenditure on an accounting period basis. For example if you have a 30 September year end, expenditure incurred between 1 October 2014 and 30 September 2015 reduces the same period’s tax liability.

The second reason is the effect of moving from a higher to a lower annual amount of AIA. The amount of the AIA from 1 January 2016 is not known but is likely to be considerably less than £500,000.

On the previous occasions where there has been a change in AIA, there have been transitional provisions to calculate the amount AIA in an accounting period which straddles the date of change. If the transitional provisions for the 1 January 2016 are similar to the previous changes, there will be two important elements to the calculations:

  1. A calculation which sets the maximum AIA available to a business in the whole accounting period which straddles 1 January 2016.
  1. A further calculation which limits the maximum AIA relief that will be available for expenditure incurred from 1 January 2016 to the end of that accounting period.

It is the second figure that can catch a business out.

Example

Let us assume the new AIA is £200,000.

A company has a 31 March year end.

The maximum AIA in the accounting period to 31 March 2016 will be:

9 months to 31 Dec 2015 (three quarters of £500,000)                        £375,000

3 months from 1 Jan 2016 (one quarter of £200,000)                           £50,000

Total annual AIA using first calculation                                                    £425.000

This is still a generous figure. However, if expenditure is incurred on or after 1 January to 31 March 2016 the maximum amount of relief for that expenditure will only be £50,000. This is because of the restrictive nature of the second calculation.

Alternatively, the business could defer its expenditure until after 31 March 2016. In the accounting period to 31 March 2017, Annual Investment Allowance will be £200,000. However tax relief will have been deferred for a full year. In tax terms the moral of the tale is for the business to ensure that significant expenditure is incurred before 1 January 2016.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Rising company car benefits

Rising company car benefits

Rising company car benefits

If you are an employee or a director you typically will have received a notice of coding for the 2015/16 tax year about three months ago. If you haven’t done so already it is well worthwhile comparing this to the notice of coding for 2014/15, because if you have a company car and you haven’t recently changed your car you will probably see a larger than normal increase in the estimated company car benefit.

Most cars are taxed by reference to bands of CO2 emissions. The percentage applied to each band has typically gone up by 1% each year with an overriding maximum charge of 35% of the list price of the car. From 6 April 2015 the percentage applied by each band goes up by 2% and the maximum charge is increased to 37%. So a petrol car with an original list price of £30,000 and CO2 emissions of 135 will see an increase in the taxable benefit from £6,000 (20%) to £6,600 (22%). These increases may discourage businesses from retaining the same car. If the car was purchased by the employer, say three years earlier, a decision to replace the car with a new car needs to take account of not just the cost of the new car but also the fact that many cars are more efficient and thus have lower CO2 emissions than a model manufactured three years earlier.

What does the future hold? It won’t get any better. From 6 April 2016 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. So if the same car is still owned in 2019/20, the car benefit is £9,300 (31%) even though the car will be nine years old.

These levels are published four years in advance, so that the taxable benefit is known prior to acquisition for the life cycle of most company cars.

There is a bit of good news on the horizon. If the car is diesel we have had a 3% supplement to the percentages (subject to the overriding maxima of 37% or 35%), to reflect that although diesel engines typically have lower CO2 emissions they have higher emissions of other unhealthy substances. The supplement will be removed from 6 April 2016 for all diesel cars.  Newer cleaner engines result in lower emissions of these other substances.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Prompt payment discounts and VAT

Prompt payment discounts and VAT

If you offer a discount to your customers for prompt payment, the VAT treatment has become quite tricky.

For many years UK legislation has allowed suppliers to account for VAT on the discounted price offered for prompt payment even when that discount was not taken up. An example would be a 5% discount of the full price if payment was made within 14 days of invoice date. If the supply was for £1,000 (20% standard VAT rate), VAT on the invoice could be charged at £190 (£1,000 less 5% discount x 20%) rather than £200 (£1,000 x 20%). Whether the customer took up the discount or not the VAT payable would stay at £190 in both cases.

The VAT treatment has now been brought into line with the Principal VAT Directive, which requires VAT to be accounted for on the consideration actually received. The change applies generally to businesses that offer a prompt payment discount (PPD) on invoices raised or received from the 1 April 2015. The change does not apply to imports.

Correct accounting

On issuing a VAT invoice a business will have to record the VAT on the full price on the invoice and in their accounts. If offering a PPD suppliers must show the rate of the discount offered on their invoice. If the PPD is taken up then the supplier will have to make an adjustment in their accounts to reflect the reduced consideration. In addition the supplier will have to decide which of two processes it will undertake to inform the customer that the PPD has been validly claimed and the reduced VAT payment accepted. This can be done either through formally issuing a credit note or an approved statement on the original invoice. An example of this would be:

‘A discount of X% of the full price applies if payment is made within Y days of the invoice date. No credit note will be issued. Following payment you must ensure you have only recovered the VAT actually paid.’

If you have any questions on the correct procedures regarding prompt payment discounts and VAT or information requirements in the light of this change, please do not hesitate to contact us.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

Has inheritance tax planning been turned on its head?

Has inheritance tax planning been turned on its head?

Has inheritance tax planning been turned on its head?

From time to time there is a change to the income or corporation tax system which can significantly impact on capital tax planning. Some would argue that the new tax treatment of pension funds is one such change.

Where an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. Inheritance tax (IHT) can be avoided by making an ‘expression of wishes’ to the pension provider suggesting to whom the funds should be paid. However, under the old system there were other tax charges. These charges reflected the principle that income tax relief was given on contributions into the pension fund and therefore some tax should be payable when the fund was paid out. In some situations tax at 55% of the fund value was levied.

A new era?

There are now significant exceptions from the tax charges for benefits first paid on or after 6 April 2015.

  • Anyone who dies under the age of 75 will be able to give their defined contribution pension fund to anyone completely tax free. This is subject to the condition that the fund is transferred into the names of chosen beneficiaries within two years. A beneficiary can take the fund out as a lump sum, buy an annuity or take income when required through drawdown.
  • Those aged 75 or over when they die will also be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income whenever they wish. They will pay tax at their marginal rate of income tax when the income is received. The same tax position applies where a beneficiary receives an annuity payment. Beneficiaries will also have the option of receiving the fund as a lump sum payment, subject to a tax charge of 45%. It is proposed that from 6 April 2016 the lump sum will be charged to tax at the recipient’s marginal rate of income tax.

The fund does not have to be left to just one beneficiary – it can be split among many beneficiaries and the beneficiaries are not restricted to the person’s family.

The new tax treatment does not apply to the extent that the pension fund exceeds the Lifetime Allowance (currently £1.25 million but set to fall to £1 million from 6 April 2016).

Example

Eric is 65 and is thinking of retiring. He has built up a good pension fund and has other investment assets. He has passed control of his company to his son who is now running the company but he envisages he will continue to receive a reasonable dividend from the company.

His wife is to inherit his non-pension assets. He completes an expression of wishes form leaving 50% of his pension fund to his daughter, Jane, who is not involved in the company and the remaining 50% to be split between his grandchildren.

Eric dies, aged 80. He has accessed some of his pension fund but most of the fund remains intact. As he was over 75, the beneficiaries of his fund are taxable at their marginal rates of tax but only if, and when, income is taken. So if a grandchild is still in full time education when Eric dies and has no other income, withdrawals up to the personal allowance could be taken with no tax and further amounts at relatively low tax rates. If another grandchild is already earning a good salary and is a higher rate taxpayer, their fund could be left to grow and accessed in their retirement.

These changes may for some turn traditional inheritance tax planning on its head.

With a 55% tax charge on inherited pension funds and 40% on assets not in a pension fund, the message was ‘don’t leave money in your fund – take it out while you can’. Now the message is: ‘if you have other assets, live off those and save the pension fund for another day’. You may need access to the fund in later life, but if you don’t, there is comfort in knowing that your chosen beneficiaries will have the chance of accessing the accumulated wealth in a tax efficient way.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Jenny Brown Senior Tax Manager

Jenny Brown is a personal tax manager at Hawsons, based in the Sheffield office, who manages the personal tax affairs of our clients. She started her career with HM Revenue and Customs, specialising in small business compliance. For more details and advice, please contact Jenny on [email protected] or 0114 266 7141 or your local tax specialist.[/author_info]