Budget 2013: Business Taxes

News: March 2013

Budget 2013: Business Taxes

Cash Basis

Unincorporated businesses will be permitted to calculated profits and losses for tax purposes using the cash accounting basis, rather than the standard accruals accounting basis. The cash basis ignores all creditors, debtors, prepayments and accruals, and includes flat rate amounts for certain expenses such as a motoring or use of home for business purposes.

This cash basis will be compulsory for anyone who claims Universal Credit, but it can only be used by businesses whose turnover, when they start to use the cash basis, is under the VAT registration threshold. The business will be required to continue using the cash basis until it is no longer suitable for them, perhaps when the turnover exceeds a certain threshold. This will prevent businesses from opting in and out of the cash basis to gain a tax advantage. The cash basis can be applied from 6 April 2013.

Partnerships

The taxation of partnerships can be very complex, so the Government has asked the Office for Tax Simplification to make suggestions to simplify tax for partners and partnerships.

Alongside this review the Government is considering changes to the self-employed status of the members of LLPs, and restrictions on the variation of profit allocations within the LLP. These changes may make the taxation of LLP members more like employees of companies for some members. Any changes to the taxation of partnerships or LLPs will not take effect until at least 2014. However, if your business operates as an LLP please talk to us about how the structure could be changed if the tax changes prove to be hostile to LLPs.

Corporation Tax Rates

The corporation tax rates for small and large companies will be aligned at 20% from April 2015. This will remove the need for the associated companies rule and the marginal rate of corporation tax will disappear.

The small companies rate is already at 20% and the main rate will be 23% for the year beginning 1 April 2013, 21% for the year beginning 1 April 2014 and then 20% for the year beginning 1 April 2015.

Loans to Participators

Where a company that is controlled by its directors or five or fewer shareholders, makes a loan to a participator (typically a shareholder/director), there are tax consequences. The company must pay 25% of the loaned amount to HMRC if the loan is not repaid within nine months of the end of company’s accounting year. This rule is widely taken advantage of by company shareholder/directors who repay the loan just before the nine month deadline and immediately take out a replacement loan from the company. New tax avoidance rules will apply from 20 March 2013 such that:

– loans channelled through third parties to shareholders will be included in these rules;
– transfers of assets from the company will be treated as loans; and
– the immediate replacement of a repaid loan will not count as a repayment of the first loan.

If you have taken a loan from your own company we need to discuss whether you will be caught be these new tax avoidance rules.

Capital Allowances

The rates and thresholds of the main capital allowances will apply as follows for 2013/14:

Main pool: writing down allowance: 18%
Special rate pool: writing down allowance: 8%
Annual Investment Allowance (AIA) cap: £250,000

Expenditure within the AIA cap qualifies for 100% allowance in the year the asset is bought.

The AIA cap was changed in April 2012 and January 2013, so great care is needed to calculate the available AIA for accounting periods which straddle the change. The AIA cap is due to revert to £25,000 on 1 January 2015.