RSM Tenon: Key changes and developments in 2013
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 Rob Gunn, Tax Partner, RSM Tenon, Birmingham
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“THERE are a number of upcoming changes to be aware of as we head into 2013 which will affect businesses, high net worth individuals, those who develop valuable intellectual property and owner managers.” Tax Relief capped: “From April 2013, there will be a cap on income tax reliefs to ensure that those on higher incomes cannot use income tax reliefs excessively. This will mean that anyone seeking to claim more than £50,000 of relief, a cap will be set at 25% of earnings of income. Whilst this new cap does not extend to charitable donations as previously suggested it does, however, limit relief from trading losses against general income and interest on certain loans, including loans to buy an interest in a company or invest in a partnership This approach mirrors the US system of Alternative Minimum Tax (AMT) which broadly speaking requires a taxpayer to do two calculations – an ordinary calculation with full deductions and then an AMT calculation which has far fewer deductions and a different basis of calculating taxable income. The taxpayer would pay tax based on the higher of these calculations. What is interesting is how over time fiscal drag and the failure to index allowances has widened the scope of the AMT. It started off with the aim of getting a small number of taxpayers – 154 in total – with incomes over $200,000 paying no tax in 1969. By 1997, 605,000 taxpayers paid the AMT, and by 2008 3.9m paid the AMT. This is very much in line with the Chancellor’s proposed theory that reducing the headline top rate of tax but taking other steps will increase the overall tax take.” Patent box: “This will reduce the tax rate for those who have income from patented products or processes down to 10% on qualifying profits. Changes will be phased in starting from April 2013 and will apply to pre-existing patents as well. The impact of this is that it might encourage those working in research and development to patent their products or technology – as the patent process can be long, this is something that is not always done so it will be interesting to see how the change will have an impact on that. Entrepreneurs’ relief: Enterprise Management Incentives (EMI) were a tax favoured share option, initially very efficient. However, with the introduction of Entrepreneur’s Relief most people who had EMIs could not benefit from the 10% tax rate as they did not have the required 5% of the company’s shares or they did not own the shares for a year prior to sale. From April both of these requirements have been relaxed meaning the individual can access a 10% tax rate whilst the company gets tax relief at 20%, this gives a negative tax rate! Whilst these are still significant charges the scope is not as far reaching as originally thought when they were first announced in the Budget. Corporation tax: The tax rate for large organisations will be reduced to 23% in April 2013 and will then go down to 21% in 2014. This will effectively mean that businesses get to keep more of the money they make and will so have more to invest – they can also take the lower tax rate into account when structuring group operations and the number of companies owned. Statutory residency test: Delayed for a year, the SRT will come into force on 6 April 2013. This is an historic landmark for tax in the UK, as for the first time we have definitive legislation on this critical area. Historically whether someone has been resident or not has been decided by application of practice and an evolution of tax cases that have been interpreted in different ways. As ever, there will be matters of interpretation that will evolve but it represents a significant advance from where we are. The anti-avoidance clauses around this are surprisingly voluminous and, on first sight, unnecessarily complex. Annual Investment Allowance: The surprise announcement of the Autumn Statement – the AIA increased tenfold from 1 January 2013 to £250,000 for the next two years. Companies considering investing in capital equipment over the next couple of years should review the timing of that expenditure in the light of this additional relief now available. Share Incentive Scheme: There will be a new share incentive scheme, under which the recipient gives up employment rights, to get tax efficient gains on a final disposal. However, our initial reservations regarding the income tax and NI treatment seem to have fallen on deaf ears and we are left wondering just how attractive this scheme will be.” More articles in
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