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Autumn Budget – Oct 2021

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Autumn Budget 2021

The Chancellor Rishi Sunak presented his third Budget on 27 October 2021. In his speech he set out the plans to “build back better” with ambitions to level up and reduce regional inequality.

Main Budget proposals

Tax measures include:

  • a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022/23
  • a change in the earliest age from which most pension savers can access their pension savings without incurring a tax charge. From April 2028 this will rise to 57
  • the retention of the £1 million annual investment allowance until 31 March 2023
  • individuals disposing of UK property on or after 27 October 2021 now have a 60 day CGT reporting and payment deadline, following the completion of the disposal.

Other measures include:

  • a complete overhaul of alcohol duties that will see drinks taxed on their strength
  • the cancellation of the previously announced rise in fuel duties
  • pubs supported with a reduction in draught beer and cider duty
  • increases in the National Living Wage and the National Minimum Wage rates
  • an ultra-long-haul band of air passenger duty introduced.

Some Budget proposals may be subject to amendment in the Finance Bill 2021-22. Should you need any further help or support please contact us.

Personal Tax

The personal allowance

The personal allowance is currently £12,570. The Chancellor announced in the March 2021 Budget that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.

The marriage allowance

The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.

 

Comment
The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2017/18 where the entitlement conditions are met. The total tax saving for all years up until 2021/22 could be over £1,000. A claim for 2017/18 will need to be made by 5 April 2022.

Tax bands and rates

The basic rate of tax is 20%. In 2021/22 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance.

At Spring Budget 2021, the Chancellor announced that the basic rate band will be frozen at £37,700 for the tax years 2022/23 to 2025/26. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these years.

Individuals pay tax at 45% on their income over £150,000.

Scottish residents

The tax on income (other than savings and dividend income) is different, for taxpayers who are resident in Scotland, from that paid by taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2021/22 there are five income tax rates which range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK. The two higher rates are 41% and 46% rather than the 40% and 45% rates that apply to such income for other UK residents. Currently the 41% band applies to income over £43,662 for those who are entitled to the full personal allowance. The 46% rate applies to income over £150,000.

The Scottish Government will announce the Scottish income tax rates and bands for 2022/23 in the Scottish Budget on 9 December.

Welsh residents

From April 2019, the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). The UK government has reduced each of the three rates of income tax paid by Welsh taxpayers by 10 pence. For 2021/22 the Welsh Government has set the Welsh rate of income tax at 10 pence which has been added to the reduced rates. This means the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers.

The Welsh Government will publish its Draft Budget for 2022/23 on 20 December.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £2,000 of dividends is chargeable to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates for 2021/22:

  • 5% for basic rate taxpayers
  • 5% for higher rate taxpayers
  • 1% for additional rate taxpayers.

In September 2021 the government announced an increase to the rates of dividend tax by 1.25% from 6 April 2022 to help fund the new planned investment in health and social care. The new rates will therefore be 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

 

Comment
Dividends on shares held in ISAs and pension schemes are not subject to dividend tax and thus will not be affected by the increase in rates.

Green National Savings and Investment (NS&I) product

In the Spring Budget 2021 the government announced  a green retail savings product through NS&I. The Bonds are now available to buy online and offer savers a chance to support green projects at a fixed rate of 0.65% pa over a three-year term. The Bonds are available to those aged 16 or over, with a minimum investment of £100 and a maximum limit of £100,000 per person. The interest is taxable in the tax year the Bond matures.

The UK’s inaugural sovereign green bond (or ‘green gilt’) was launched in September 2021, and was followed by a second issuance in October 2021. They are the first sovereign green retail product of their kind in the world.

Universal Credit

The Universal Credit taper rate is reduced from 63% to 55%, meaning Universal Credit claimants will be able to keep an additional 8p for every £1 of net income they earn.

Increase to the normal minimum pension age

The current earliest age at which most pension savers can access their pension savings without incurring a tax charge is age 55. From April 2028 this earliest age will rise to 57.

This measure will affect individuals born after 5 April 1973 whose earliest date to access their pension benefits will see a two-year delay to those born on or before that date.

Pensions – Scheme Pays

Although there are no limits to how much an individual can save or accrue in a registered pension scheme, there is an overall limit on the amount of an individual’s tax-relieved annual pension savings or accrual which includes employer contributions. This is known as the annual allowance and the standard annual allowance is currently £40,000, but in some circumstances this is reduced, with the maximum reduction taking it down to £4,000.

An individual’s unused annual allowance from the three previous tax years can be carried forward and added to the annual allowance. However, if the individual’s pension savings for the tax year exceed their annual allowance, the annual allowance tax charge is applied to the excess.

Although this tax liability would normally be the individual’s liability it is possible for them to elect for the pension scheme administrator to be jointly liable.

Where an individual has inputted more than £40,000 and their annual allowance charge exceeds £2,000 the individual can request that their pension company pays the charge for them in return for an equivalent reduction in the value of their pension pot. This is called mandatory Scheme Pays.

From April 2022 there will be a change to the rules for certain pension schemes to remove anomalies where the tax charge has arisen due to a retrospective change of facts, the tax charge is £2,000 or more and the individual requests the pension scheme pays the amount. This measure applies retrospectively from 6 April 2016.

 

Employment

National Insurance Contributions (NICs)

In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.

The Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will decrease back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.

Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment.

Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.

The Employment Allowance, which reduces employers’ Class 1 NICs by up to £4,000, will also be available for the employers’ liability to the Levy.

 

Comment
A novel aspect of the Levy is the application to employees above State Pension age. This does not apply in respect of the temporary increase for 2022/23. The Levy will not apply to Class 2 (a flat rate paid by many self-employed) and Class 3 (voluntary contributions for taxpayers to fill gaps in their contribution records).

The main burden of the 1.25% increase falls on the collective shoulders of the employer and employee as each will have higher contributions to make. Those with property income will be relieved that they are not being included in the Levy.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission, the government will increase the NLW for individuals aged 23 and over by 6.6% from 1 April 2022. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

  • £9.50 for those 23 years old and over
  • £9.18 for 21-22 year olds
  • £6.83 for 18-20 year olds
  • £4.81 for 16-17 year olds
  • £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship.

 

Comment
In total, the annual gross earnings of a full-time worker on the NLW will have increased by over £5,000 since its introduction in April 2016.

Power to make temporary modifications of taxation of employment income

This will allow HM Treasury, under ministerial direction, to make regulations to make temporary modifications to existing legislation for a period of up to two tax years in the event of a disaster or emergency of national significance as determined by HM Treasury. This will enable the government to support taxpayers, for example by:

  • exempting benefits in kind of a specified description from income tax where appropriate
  • changing the qualifying conditions for exemptions on benefits in kind
  • exempting specified reimbursements from the charge to income tax
  • providing relief for specified expenses.

This will have effect on and after the date of Royal Assent to the Finance Bill 2021-22.

Business

Making Tax Digital for income tax

The Making Tax Digital (MTD) regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. It had been expected that sole trader businesses and landlords with business income of more than £10,000 per annum would be required to enter the MTD regime for income tax purposes from 6 April 2023. However, HMRC recently announced that this will be deferred until 6 April 2024. Early adoption of digital record keeping and voluntary submission of MTD for income tax data remains possible.

Following the deferral for sole trader businesses and landlords, general partnerships will not be required to comply with MTD for income tax until 6 April 2025 and the date other types of partnerships (for example limited liability partnerships) will be required to comply will be confirmed in the future.

HMRC has also confirmed that the new system of penalties for the late filing and late payment of tax for income tax self assessment will be aligned with when a taxpayer becomes mandated into MTD for income tax. For individuals without trade or property income or otherwise exempt from MTD for income tax, the new penalty regime will apply to their income tax affairs from 6 April 2025.

MTD for corporation tax

HMRC has previously announced that MTD for corporation tax will not be mandated before 2026.

Accounting periods that are not aligned to tax years

Aligned to the revised start date for MTD for income tax, changes will be made to simplify the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years.

The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024.

Affected self-employed individuals and partnerships may retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date.  Broadly this will require apportionment of accounting profits into the tax years in which they arise.

 

Example
A business draws up accounts to 30 June every year. Currently, income tax calculations for 2024/25 would be based on the profits in the business’s accounts for the year ended 30 June 2024. The change will mean that the income tax calculations for 2024/25 will be based on 3/12 of the profits for the year ended 30 June 2024 and 9/12 of the profits for the year ended 30 June 2025.

This change will potentially accelerate when business profits are taxed but transitional adjustments in 2023/24 are designed to ease any cashflow impact of the change.

 

Comment
An estimated 93% of sole traders and 67% of trading partnerships draw up their accounts to 31 March or 5 April and thus the current rules are straightforward and the proposed changes will not affect them. Those with a different year end might wish to consider changing their accounting year end to simplify compliance with tax rules.

Corporation tax rates

The main rate of corporation tax is currently 19%. In the Spring Budget 2021, the Chancellor announced the rate would remain at 19% until 1 April 2023 but the rate will then increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.

Capital allowances

Plant and machinery

Most corporate and unincorporated businesses are able to utilise a £200,000 annual investment allowance (AIA) to claim 100% tax relief on their qualifying expenditure on plant and machinery. The allowance was temporarily increased to £1 million for expenditure incurred on or after 1 January 2019 and was due to revert back to £200,000 from 1 January 2022. The £1 million allowance will now be retained until 31 March 2023.

Transitional rules will apply to accounting periods that span 1 April 2023.

For companies, this aligns the end of the temporary AIA with the end of the ‘super-deductions’ as announced by the government in Spring Budget 2021.

 

Reminder – super-deductions
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from new capital allowances, termed ‘super-deductions’ or ‘first year allowances’, as follows:

•         a super-deduction of 130% can be claimed on most new plant and machinery investments that ordinarily qualify for the 18% main rate writing down allowances

•         a first year allowance of 50% can be claimed on most new plant and machinery investments that ordinarily qualify for the 6% special rate writing down allowances.

These reliefs are not available for unincorporated businesses.

 

Comment
Businesses incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow. In 2023 not only will the tax relief rules for expenditure on plant and machinery change, for companies the percentage corporation tax relief saving on the expenditure may change as well.

Structures and Buildings

A Structures and Buildings Allowance (SBA) was introduced with effect from 29 October 2018 to relieve costs for new structures and buildings used for qualifying purposes. A business must hold an allowance statement containing certain information to be eligible to claim SBA. Minor changes will be made to the allowance statement requirements to clarify the information required to be kept.

Annual Tax on Enveloped Dwellings

The Annual Tax on Enveloped Dwellings (ATED) charges increase automatically each year in line with inflation. The ATED annual charges will rise by 3.1% from 1 April 2022 in line with the September 2021 Consumer Price Index.

Residential Property Developer Tax

A new tax will be applied from 1 April 2022 on company profits derived from UK residential property development. The tax will be charged at 4% on profits exceeding an annual allowance of £25 million. For companies that are part of a group, the £25 million allowance will be allocated by the group between its companies.

Cultural relief

The government has announced that it will temporarily increase cultural tax reliefs for theatres, orchestras, museums and galleries across the UK from 27 October 2021 to 31 March 2024, increasing the relief organisations can claim as they invest in new productions and exhibitions.

Changes will also be introduced to better target the cultural reliefs and ensure that they continue to be safeguarded from abuse. These will apply from 1 April 2022.

Research and Development relief reform

Research and Development (R&D) tax reliefs for companies will be reformed to:

  • support modern research methods by expanding qualifying expenditure to include data and cloud costs
  • more effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
  • target abuse and improve compliance.

These changes will take effect from April 2023.

Cross-border group relief

Following the UK’s exit from the European Union (EU), the government is bringing the corporation tax group relief rules relating to European Economic Area (EEA) resident companies into line with those for non-UK companies resident elsewhere in the world. This applies to accounting periods ending on or after 27 October 2021 and will affect UK groups with subsidiary companies established in the EEA along with EEA-resident companies that are trading in the UK through a permanent establishment.

Online Sales Tax

The government has announced its plans to consult and explore the arguments for and against the introduction of an ‘Online Sales Tax’.

Should such a tax be introduced in future, it would raise revenue to fund business rates reductions.

Business rates review

Business rates have been devolved to Scotland, Northern Ireland and Wales.

The government announced at Budget 2020 that it would conduct a fundamental review of the business rates system in England. The government’s objectives for the review were reducing the overall burden on business, improving the current business rates system and allowing the consideration of more fundamental changes in the long term.

In March 2021, the government published the Interim Report of the review. The Final Report was published on 27 October 2021. Collectively, these set out the government’s commitments by:

  • Supporting local high streets as they adapt and recover from the pandemic by introducing a new temporary business rates reliefin England for eligible retail, hospitality and leisure properties for 2022/23. Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022/23.  This amounts to support worth more than double the relief that was announced pre-COVID for the 2020 to 2021 financial year and includes additional businesses such as hotels, gyms and bowling alleys.
  • Cutting the burden of business rates for all businesses by freezing the multiplierfor 2022 to 2023.
  • Introducing a new relief to support investment in property improvements, enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
  • Introducing new measures to support green investmentand the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.
  • Making the system fairer by moving to three-yearly revaluations from 2023.
  • Providing stability ahead of the 2023 revaluation by extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023to protect small businesses from significant bill increases in the final year of the current revaluation cycle.

Capital Taxes

Capital gains tax (CGT) rates

No changes to the current rates of CGT have been announced. This means that the rate remains at 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains, mainly chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief.

There is still potential to qualify for a 10% rate, regardless of available income tax basic rate band, up to a lifetime limit for each individual. This is where specific types of disposals qualify for:

  • Business Asset Disposal Relief (BADR). This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
  • Investors’ Relief. The main beneficiaries of this relief are investors in unquoted trading companies who have newly-subscribed shares but are not employees.

Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.

CGT annual exemption

The CGT annual exemption will be maintained at the current level of £12,300 for 2022/23 and up to and including 2025/26.

CGT reporting and payment following a property disposal

UK resident individuals who dispose of UK residential property are sometimes required to deliver a CGT return to HMRC and make a payment on account of CGT within 30 days of completion of the property disposal. Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.

Non-UK residents are subject to similar deadlines in respect of the disposal of all types of UK land and property.

In both cases, for disposals that complete on or after 27 October 2021, the reporting and payment deadline is extended to 60 days following the completion of the disposal.

From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.

Inheritance tax (IHT) nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will now continue up to 5 April 2026. An additional nil rate band, called the ‘residence nil rate band’ (RNRB) is also frozen at the current £175,000 level until 5 April 2026. A taper reduces the amount of the RNRB by £1 for every £2 that the ‘net’ value of the death estate is more than £2 million. Net value is after deducting permitted liabilities but before exemptions and reliefs. This taper will also be maintained at the current level.

Other Matters

Tonnage Tax

The UK’s tonnage tax regime will be reformed from April 2022 to help the UK shipping industry grow and compete in the global market. The reform is intended to make it easier for shipping companies to move to the UK, ensure they are not disadvantaged compared with firms operating in other countries, and reduce unnecessary administrative burdens.

Landfill Tax

As announced at Spring Budget 2021 both the standard and lower rates of Landfill Tax will increase from 1 April 2022 in line with the Retail Prices Index (RPI).

Gaming Duty

The government will raise the bandings for Gaming Duty in line with inflation. The new bandings will affect Gaming Duty accounting periods commencing on or after 1 April 2022.

Vehicle Excise Duty (VED)

The government will increase VED rates for cars, vans, motorcycles, and motorcycle trade licences in line with RPI with effect from 1 April 2022.

For heavy goods vehicles, VED continues to be frozen in 2022/23. The HGV Levy is suspended for another 12 months from 1 August 2022.

Tobacco Duty

Increases in Tobacco Duty rates take effect from 27 October 2021 and the government will legislate in Finance Bill 2021-22 to introduce tougher sanctions to tackle Tobacco Duty evasion.

Alcohol Duty

Rates of Alcohol Duty were not changed in this Budget. The government is publishing a consultation on its detailed proposals for Alcohol Duty reform. These include:

  • changes to duty structures
  • new rates for some products sold on draught
  • extension of small producer reliefs
  • simplification of the administrative regime.

In addition alcohol duties have been frozen to February 2022.

Air Passenger Duty (APD)

The government will introduce a new domestic band for APD for reduced rate and standard rate travel, covering flights within the UK. In addition, a new ultra-long-haul band will be introduced, covering destinations with capitals located more than 5,500 miles from London. These changes will take effect from 1 April 2023.

Freeports

The government announced its plans for Freeports in 2020. Freeports are specified geographical areas that allow certain benefits to businesses operating within them. The main VAT benefit is that businesses selling goods within free zones will be able to zero-rate their supplies. Services carried out on goods in those zones may also be zero-rated subject to conditions. The government will introduce an additional element to the VAT free zone model for Freeports. This will implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model. The measure will take effect from 3 November 2021.

VAT on second-hand cars sold in Northern Ireland

In a measure that will be backdated to 1 January 2021, motor dealers in Northern Ireland will be able to include motor vehicles sourced from Great Britain in their second-hand margin scheme calculations. This measure will apply should a relevant agreement be reached with the EU.

Second-hand Motor Vehicle Export Refund Scheme

Under this scheme, businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export. The power will come into effect on Royal Assent of Finance Bill 2021-22. Legislation outlining the detail of the scheme will be introduced in 2022.

VAT treatment of fund management fees

A consultation will take place on options to simplify the VAT treatment of fund management fees.

VAT penalties

Budget documents confirm that the new late submission and late payment penalties for VAT will still come into effect for VAT registered businesses for accounting periods starting on or after 1 April 2022, as announced at Spring Budget 2021.

Plastic Packaging Tax

Draft legislation has been issued to establish a Plastic Packaging Tax. This is a new tax that applies to plastic packaging produced in or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.

The tax rate will be £200 per tonne of non-compliant plastic packaging. There will be an exemption for businesses that manufacture or import less than ten tonnes of plastic packaging per year. The tax will take effect from April 2022.

 

Newsletter – November 2018

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Enews – November 2018

In this month’s Enews we report on the Chancellor’s key announcements from the Budget and the latest guidance on a ‘No Deal Brexit’.

HMRC has also announced the pilot is open for Making Tax Digital for VAT, but the deferral of the start date for some. With the latest guidance for employers, there is lots to update you on.

Budget 2018

The Chancellor Philip Hammond presented his second Autumn Budget on Monday 29 October 2018. In his speech he stated that ‘austerity is coming to an end – but discipline will remain’. He also promised a ‘double deal dividend’ if the Brexit negotiations are successful but stated that there may be a full-scale Spring Budget in 2019 if not.

We have included separate articles on some of the key announcements.

We will keep you informed of developments.

Internet link: GOV.UK Budget 2018

Personal tax changes – allowance and basic rate band increases

At the Budget, the Chancellor announced that increases to the personal allowance and basic rate band for 2019/20.

The personal allowance is currently £11,850. The personal allowance for 2019/20 will be £12,500. Also for 2019/20, the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% will remain payable on taxable income above £150,000.

The government had pledged to raise the thresholds to these levels by 2020/21.

Internet link: GOV.UK income tax

Capital allowances changes

A number of changes to capital allowances were announced at the Budget, including an increase in the Annual Investment Allowance (AIA), for two years to £1 million, in relation to qualifying expenditure incurred from 1 January 2019. The AIA is currently £200,000 per annum. Complex calculations may apply to accounting periods which straddle 1 January 2019.

Other changes to the rules include:

  • a reduction in the rate of writing down allowance on the special rate pool of plant and machinery, including long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km, from 8% to 6% from April 2019. Complex calculations may apply to accounting periods which straddle this date
  • clarification as to precisely which costs of altering land for the purposes of installing qualifying plant or machinery qualify for capital allowances, for claims on or after 29 October 2018
  • the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020
  • an extension of the current 100% first year allowance for expenditure incurred on electric charge-point equipment until 2023.

In addition, a new capital allowances regime will be introduced for structures and buildings. It will be known as the Structures and Buildings Allowance and will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.

Internet link: GOV.UK Budget 2018

Entrepreneurs’ Relief changes

The government announced, as part of the Budget, that some changes are being made to the rules for Entrepreneurs’ Relief (ER) with immediate effect for disposals on or after 29 October 2018. Two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.

Minimum qualifying period

The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure will have effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018.

Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.

Dilution of holdings below 5%

Draft legislation has already been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.

Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.

The new rules will apply for share issues which occur on or after 6 April 2019.

Please contact us if you would like further information on how this may affect you.

Internet link: GOV.UK ER

Making Tax Digital for VAT public pilot opens and deferral for some businesses

HMRC has opened the Making Tax Digital for VAT (MTDfV) public pilot. However certain VAT-registered businesses (around 3.5% according to HMRC) with more complex requirements will be deferred from being subject to MTD for six months.

Essentially, the public pilot is now open to sole traders and companies using standard VAT accounting. This applies whether returns are done monthly or quarterly provided they are up to date. Those signing up for the pilot will be required to keep their VAT records digitally from the first day of the period covered by their next VAT Return and submit their return using the appropriate software.

Further piloting plans

HMRC intends to roll out further pilots for partnerships, those that trade with the EU and users of the Flat Rate scheme as set out in the timetable.

Date Activity
Late 2018 Private testing begins with partnerships, those customers that trade with the EU, and users of the Flat Rate Scheme.
Late 2018 / early 2019 Open to other sole traders and companies who are not up to date with their VAT and businesses newly registered for VAT that have not previously submitted a VAT return.
Early 2019 Open to partnerships and those taxpayers that trade with the EU.

Six months’ deferral

Making Tax Digital for VAT is to be introduced from 1 April 2019. However, HMRC has announced that the mandated implementation has been deferred until 1 October 2019 for certain taxpayers:

  • trusts
  • ‘not for profit’ organisations that are not set up as a company
  • VAT divisions
  • VAT groups
  • public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
  • local authorities
  • public corporations
  • traders based overseas
  • those required to make payments on account (very large traders)
  • Annual Accounting Scheme users.

Pilot testing for these groups is expected to open in Spring 2019. For help with MTD please contact us.

Internet links: GOV.UK MTD overview MTD timeline

New guidance for employers

HMRC has issued the October 2018 Employer Bulletin which contains a number of articles relevant to employers on payroll related issues.

The articles cover a number of areas including:

  • clarification of the rules regarding paying employees when the regular payday is a non-banking day
  • dealing with PAYE Settlement Agreements and new procedures to accommodate Scottish income tax rates
  • Construction Industry Scheme reminders for contractors
  • an update on the Welsh rates of income tax (WRIT) and new tax codes for Welsh taxpayers
  • guidance on the correct pay rates for apprentices
  • how to apply for advance statutory payment of Maternity, Parental, Paternal or Adoption Pay
  • spotlight on umbrella companies
  • Real Time adjustments to tax codes and their timing
  • closure of childcare vouchers and directly contracted childcare to new entrants from 4 October 2018
  • Disguised Remuneration Loan Charge – reporting requirements and
  • improving the wellbeing of your employees

For help with payroll matters please contact us.

Internet link: Employer Bulletin

HMRC countdown: file your tax return

With less than 100 days until the self assessment tax return deadline of 31 January 2019, HMRC is urging taxpayers to complete their tax returns early, in order to avoid the last minute rush.

The deadline for submitting 2017/18 self assessment tax returns online is 31 January 2019. An automatic penalty of £100 applies if the return is late.

HMRC advise that last year, more than 11 million taxpayers completed a 2016/17 Self Assessment tax return, with 10.7 million completing on time. There were 4,852,744 taxpayers who filed in January 2018 (44.8% of the total), and 758,707 on 31 January, the deadline day.

HMRC is advising taxpayers not to leave the completion of their 2017/18 Self Assessment tax until the last minute.

Angela MacDonald, HMRC’s Director General for Customer Services, said:

‘The deadline for completing Self Assessment tax returns may be 100 days away, yet many of us wait until January to start the process. Time flies once the festive period is underway, yet the ‘niggle’ to file your tax return remains.’

‘We want to help people get their tax returns right – starting the process early and giving yourself time to gather all the information you need will help avoid the last minute, stressful rush to complete it on time. Let’s beat that niggle.’

Contact us for help with your self assessment tax return.

Internet link: GOV.UK news

Further contingency planning guidance on a ‘No deal Brexit’

HMRC has issued a Partnership Pack to help businesses carry out contingency planning and to help their customers, members and clients to:

  • think about how they will need to adapt their business to comply with new systems, processes and controls
  • assess the impact of the increased demand for customs declarations on their business
  • consider whether they need to recruit and train additional staff
  • stay up-to-date with these changes

Meanwhile the Confederation of British Industry (CBI) reports that ‘patience is now threadbare’ amongst UK businesses in regard to the government’s progress in its Brexit negotiations with the EU.

A survey, carried out by the CBI, revealed that 80% of firms believe that Brexit uncertainty is having a ‘negative impact’ on their investment decisions. The majority of businesses polled stated that they may have to implement ‘damaging’ contingency plans if no further progress is made by December.

Carolyn Fairbairn, Director General of the CBI, said:

‘The situation is now urgent. The speed of negotiations is being outpaced by the reality firms are facing on the ground.

‘Unless a Withdrawal Agreement is locked down by December, firms will press the button on their contingency plans. Jobs will be lost and supply chains moved.’

‘As long as ‘no deal’ remains a possibility, the effect is corrosive for the UK economy, jobs and communities.’

Internet links: GOV.UK partnership pack CBI news

Autumn Budget 2018

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Budget 2018

The Chancellor Philip Hammond presented his second Autumn Budget on Monday 29 October 2018. In his speech he stated that ‘austerity is coming to an end – but discipline will remain’. He also promised a ‘double deal dividend’ if the Brexit negotiations are successful but stated that there may be a full-scale Spring Budget in 2019 if not.

Our summary focuses on the tax measures which may affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please contact us for advice.

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • increases to the personal allowance and basic rate band
  • extending off-payroll working to medium/large organisations in the private sector
  • a temporary increase to the Annual Investment Allowance
  • freezing the VAT registration threshold for a further two years
  • changes to Entrepreneurs’ Relief and private residence relief
  • measures to tackle the plastic problem.

Previously announced measures include:

  • increases in car benefits
  • plans for Making Tax Digital for Business
  • extending the charge to gains on non-UK residents of non-residential UK property.

Some Budget proposals may be subject to amendment in the  2019 Spring Statement and subsequent Finance Act. You should contact us before taking any action as a result of the contents of this summary.

 

 

Personal Tax

The personal allowance

The personal allowance is currently £11,850. The personal allowance for 2019/20 will be £12,500.

Comment
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 and the threshold has remained at this figure since its introduction for the 2010/11 tax year. The reduction is £1 for every £2 of income above £100,000. So for 2018/19 there is no personal allowance where adjusted net income exceeds £123,700. For 2019/20 there will be no personal allowance available where adjusted net income exceeds £125,000.

The marriage allowance

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.

Comment
The marriage allowance reduces the recipient’s tax bill by up to £238 a year in 2018/19. The marriage allowance was first introduced for 2015/16 and there are many couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2015/16 where the entitlement conditions are met. A recent change to the law allows backdated claims to be made by personal representatives of a deceased transferor spouse or civil partner.

Tax bands and rates

The basic rate of tax is currently 20%. The band of income taxable at this rate is £34,500 so that the threshold at which the 40% band applies is £46,350 for those who are entitled to the full personal allowance. Additional rate taxpayers pay tax at 45% on their income in excess of £150,000.

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland to taxpayers resident elsewhere in the UK. The Scottish income tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In the 2018/19 Scottish Budget, the Finance Secretary for Scotland introduced five income tax rates as shown in the table of rates at the end of this summary. The income tax rates range between 19% and 46%. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Tax bands and rates 2019/20

The government has announced that for 2019/20 the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% remains payable on taxable income above £150,000.

From April 2019, the Welsh Government has the right to vary the rates of income tax payable by Welsh taxpayers. The UK government will reduce each of the three rates of income tax paid by Welsh taxpayers by 10 pence. The Welsh Government has provisionally set the Welsh rate of income tax at 10 pence which will be added to the reduced UK rates. This means the rates of income tax paid by Welsh taxpayers will continue to be the same as those paid by English and Northern Irish taxpayers. The Welsh Government will need to confirm this proposal prior to their final Budget.

The Scottish Government will announce the Scottish income tax rates and bands for 2019/20 in the Draft Budget on 12 December 2018.

Tax on dividends

In 2018/19 the first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). The Dividend Allowance will remain at £2,000 for 2019/20. Dividends received above the allowance are taxed at the following rates:

  • 5% for basic rate taxpayers
  • 5% for higher rate taxpayers
  • 1% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Comment
In 2017/18 the Dividend Allowance was £5,000. The reduction in the allowance particularly affects family company director-shareholders who extract monies from the company by means of a small salary and the balance in dividends. The cost of the restriction in the allowance for basic rate taxpayers is £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance, which was first introduced for the 2016/17 tax year, applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income less allocated allowances and reliefs) exceeds £5,000.

Rent-a-room relief

Rent-a-room relief gives relief from income tax for up to £7,500 of income to individuals who let furnished accommodation in their only or main residence. Following consultation on the draft legislation and to maintain the simplicity of the system, the government will not include legislation for the shared occupancy test. The government will retain the existing qualifying test of letting in a main or only residence.

Comment
Rent-a-room relief was introduced 26 years ago to encourage individuals to make spare capacity in their homes available for rent rather than letting out their entire property. The emergence and growth of online platforms have made it easier than ever for those with accommodation to access a global network of potential occupants. The government wants rent-a-room relief to be better targeted to achieve its objective of incentivising individuals to share their homes.

Gift Aid – donor benefits

Draft legislation has been issued which simplifies the donor benefits rules that apply to charities who claim Gift Aid tax relief on donations. From 6 April 2019 the benefit threshold for the first £100 of the donation will remain at 25% of that amount. For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.

Comment
The new limits replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim Gift Aid tax relief on the donations given to them.

Gift Aid Small Donations Scheme

The Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. The limit will be raised to £30 from 6 April 2019.

National Living Wage (NLW) and National Minimum Wage (NMW)

Following the recommendations of the independent Low Pay Commission (LPC), the government will increase the NLW by 4.9% from £7.83 to £8.21 from April 2019.

The government will also accept all of the LPC’s recommendations for the other NMW rates to apply from April 2019, including increasing the rates for:

  • 21 to 24 year olds by 4.3% from £7.38 to £7.70 per hour
  • 18 to 20 year olds by 4.2% from £5.90 to £6.15 per hour
  • 16 to 17 year olds by 3.6% from £4.20 to £4.35 per hour
  • apprentices by 5.4% from £3.70 to £3.90 per hour.

Universal Credit

The government has announced that the amount that households with children and people with disabilities can earn before their Universal Credit award begins to be withdrawn – the Work Allowance – will be increased by £1,000 from April 2019.

In addition the government has listened to representations made by stakeholders on Universal Credit, and has announced a package of extra support for claimants as they make the transition to Universal Credit.

Comment
The government remains committed to the introduction of Universal Credit. The set of measures announced in the Budget are worth £1.7 billion per year.

 

 

Business Tax

Making Tax Digital for Business: VAT

HMRC is phasing in its landmark Making Tax Digital (MTD) regime, which will ultimately require taxpayers to move to a fully digital tax system. Regulations have now been issued which set out the requirements for MTD for VAT. Under the new rules, businesses with a turnover above the VAT threshold (currently £85,000) must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.

The new rules have effect from 1 April 2019 where a taxpayer has a ‘prescribed accounting period’ which begins on that date, or otherwise from the first day of a taxpayer’s first prescribed accounting period beginning after 1 April 2019. HMRC has recently announced that the rules will have effect for some VAT-registered businesses with more complex requirements from 1 October 2019. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.

HMRC has recently opened a pilot service for businesses with straightforward affairs and the pilot scheme will be gradually extended for other businesses in the next few months.

Keeping digital records and making quarterly updates will not be mandatory for taxes other than VAT before April 2020.

Comment
Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software will not be available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements.

In the long run, HMRC is still looking to a scenario where income tax updates are made quarterly and digitally, and this is really what the VAT provisions anticipate.

Corporation tax rates

Corporation tax rates have already been enacted for periods up to 31 March 2021.

The main rate of corporation tax is currently 19% and will remain at this rate for next year. The rate will fall to 17% for the Financial Year beginning on 1 April 2020.

Class 2 and 4 National Insurance contributions (NICs)

The government has recently announced that Class 2 NICs will not be abolished for the duration of this Parliament. The Chancellor confirmed in March 2017 that there will be no increases to Class 4 NICs rates in this Parliament.

Comment
The government’s proposed reform of Class 2 and 4 NICs has had a chequered history. The original proposal was to abolish Class 2 contributions and reform Class 4 contributions. The Chancellor had to backtrack on the Class 4 reform due to the reaction to a proposed increase in rates and the Class 2 abolition was deferred to April 2019.

However a significant number of self-employed individuals with the lowest profits would have seen the voluntary payment they make to maintain access to the state pension rise substantially and so the government decided it would not be right to proceed with the abolition of Class 2.

UK property income of non-UK resident companies

Changes are made for non-UK resident companies that carry on a UK property business either directly or indirectly, for example through a partnership or a transparent collective investment vehicle.

Following consultation, from 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to corporation tax, rather than being charged to income tax as at present.

Capital allowances

Annual Investment Allowance

The government has announced an increase in the Annual Investment Allowance for two years to £1 million in relation to qualifying expenditure incurred from 1 January 2019. Complex calculations may apply to accounting periods which straddle this date.

Other changes

A number of changes are made to other rules relating to capital allowances:

  • a reduction in the rate of writing down allowance on the special rate pool of plant and machinery, including long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km, from 8% to 6% from April 2019. Complex calculations may apply to accounting periods which straddle this date
  • clarification as to precisely which costs of altering land for the purposes of installing qualifying plant or machinery qualify for capital allowances, for claims on or after 29 October 2018
  • the end of the 100% first year allowance and first year tax credits for products on the Energy Technology List and Water Technology List from April 2020
  • an extension of the current 100% first year allowance for expenditure incurred on electric charge-point equipment until 2023.

In addition, a new capital allowances regime will be introduced for structures and buildings. It will be known as the Structures and Buildings Allowance and will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.

Change to the definition of permanent establishment

A non-resident company is liable to corporation tax only if it has a permanent establishment in the UK. Certain preparatory or auxiliary activities, such as storing the company’s own products, purchasing goods or collecting information for the non-resident company, are classed as not creating a permanent establishment.

From 1 January 2019, the exemption will be denied to these activities if they are part of a ‘fragmented business operation’.

Preventing abuse of the R&D tax relief for SMEs

To help prevent abuse of the Research and Development (R&D) SME tax relief by artificial corporate structures, the amount that a loss-making company can receive in R&D tax credits will be capped at three times its total PAYE and NICs liability from April 2020.

Comment
HMRC has identified and prevented £300 million of fraud linked to this relief and this change will help to address similar abuses in future. Almost 95% of companies currently claiming the payable credit will be unaffected.

Protecting taxes in insolvency

From April 2020, HMRC will have greater priority to recover taxes paid by employees and customers.

The changes appear to be mainly targeted at the distribution of funds to financial institutions as creditors. The rules will remain unchanged for taxes owed by the business and HMRC will remain below other preferential creditors such as the Redundancy Payment Service.

Comment
This will ensure that an extra £185 million in taxes already paid each year reaches the government.

A veiled comment also suggests that, at some stage in the future, directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.

Other measures

  • Changes to the tax treatment of corporate capital losses from 1 April 2020 to restrict the proportion of annual capital gains that can be relieved by brought-forward capital losses to 50%.
  • Changes to the Diverted Profits Tax from 29 October 2018.
  • An increase in the small trading tax exemption limits for charities from April 2019 from £5,000 per annum or, if the turnover is greater than £5,000, 25% of the charity’s total incoming resources, subject to an overall upper limit of £50,000, to £8,000 and £80,000 respectively.
  • The introduction of an income tax charge to amounts received in a low tax jurisdiction in respect of intangible property, to the extent that those amounts are referable to the sale of goods or services in the UK, from 6 April 2019, with targeted anti-avoidance rules for arrangements entered into on or after 29 October 2018.

Digital Services Tax

The government remains committed to reform of the international corporate tax framework for digital businesses. However, pending global reform, interim action is needed to ensure the corporate tax system is sustainable and fair across different types of businesses.

Therefore, the government has announced that it will introduce a Digital Services Tax (DST) which will raise £1.5 billion over four years from April 2020. The DST will apply a 2% tax on the revenues of search engines, social media platforms and online marketplaces where their revenues are linked to the participation of UK users.

Businesses will need to generate revenues of at least £500 million globally to become taxable under the DST. The first £25 million of relevant UK revenues are also not taxable.

Intangible fixed assets

The Intangible Fixed Assets regime, which was introduced from 1 April 2002, fundamentally changed the way the UK corporation tax system treats intangible fixed assets (such as copyrights, patents and goodwill). As the regime is now more than 15 years old, the government would like to examine whether there is scope for reforms that would simplify it and make it more effective in supporting economic growth.

Following a short consultation, the government will seek to introduce targeted relief for the cost of goodwill in the acquisition of businesses with eligible intellectual property from April 2019.

With effect from 7 November 2018, the government will also reform the de-grouping charge rules, which apply when a group sells a company that owns intangibles, so that they more
closely align with the equivalent rules elsewhere in the tax code.

VAT registration limits

The government had previously announced that the VAT registration and deregistration thresholds would be frozen at £85,000 and £83,000 respectively until April 2020.

The government has now announced that this freeze will continue for a further two years from 1 April 2020.

VAT fraud in labour provision in the construction sector

The government will pursue legislation to shift responsibility for paying VAT along the supply chain with the introduction of a domestic VAT reverse charge for supplies of construction services with effect from 1 October 2019. The long lead-in time reflects the government’s commitment to give businesses adequate time to prepare for the changes.

VAT treatment of vouchers

Draft legislation has been issued to insert a new tax code for the VAT treatment of vouchers, such as gift cards, for which a payment has been made and which will be used to buy something. The legislation separates vouchers with a single purpose (eg a traditional book token) from the more complex gift vouchers and sets out how and when VAT should be accounted for in each case. The new legislation is not concerned with the scope of VAT and whether VAT is due, but with the question of when VAT is due and, in the case of multi-purpose vouchers, the consideration upon which any VAT is payable.

VAT collection – split payment

The government wants to combat online VAT fraud by harnessing new technology and is consulting on VAT split payment. This will utilise payments industry technology to collect VAT on online sales and transfer it directly to HMRC. In the government’s view this would significantly reduce the challenge of enforcing online seller compliance and offer a simplification for business.

 

 

Employment Taxes

Off-payroll working in the private sector

The changes to IR35 that came into effect in April 2017 for the public sector will be extended to the private sector from April 2020. Responsibility for operating the off-payroll rules will be transferred from the individual to the organisation, agency or third party engaging the worker. Only medium and large organisations will be subject to this change.

Employment Allowance

The Employment Allowance provides businesses and charities with up to £3,000 off their employer NICs bill. From April 2020, the Employment Allowance will be restricted to those employers whose employers’ NICs bill was below £100,000 in the previous tax year.

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are normally announced well in advance. Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The maximum charge is capped at 37% of the list price of the car.

For this tax year there was generally a 2% increase in the percentage applied by each band. For 2019/20 the rates will increase by a further 3%.

A new development for the current tax year is an increase in the diesel supplement from 3% to 4%. This applies to all diesel cars (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%. There is no change to the current position that the diesel supplement does not apply to hybrid cars.

Charging facilities for electric and hybrid cars

Legislation is proposed to provide a new exemption from a taxable employment benefit where an employer provides charging facilities for employees’ all-electric and plug-in hybrid vehicles at or near the workplace. The exemption is backdated to have effect from 6 April 2018.

Employer provided cars and vans are already exempt from this benefit.

Exemption for travel expenses

Draft legislation has been issued which removes the requirement for employers to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. This will have effect from April 2019.

The proposed legislation will also allow HMRC to put the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from 6 April 2019. Like benchmark rates, employers will only be asked to ensure that employees are undertaking qualifying travel.

Self-funded work-related training

The government had previously announced that it would consult on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs. The government has now decided to make no changes to the existing rules. However the National Retraining Scheme is being launched to help those in work, including the self-employed, to develop further skills.

 

 

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.

There are two specific types of disposal which potentially qualify for a 10% rate, both of which have a lifetime limit of £10 million for each individual:

  • Entrepreneurs’ Relief (ER). This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses
  • Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly-subscribed shares.

CGT annual exemption

The CGT annual exemption is £11,700 for 2018/19 and will be increased to £12,000 for 2019/20.

Entrepreneurs’ Relief (ER)

Tackling misuse

With immediate effect for disposals on or after 29 October 2018, two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.

Minimum qualifying period

The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure will have effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018. Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.

Dilution of holdings below 5%

Draft legislation has been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.

Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.

The new rules will apply for share issues which occur on or after 6 April 2019.

Gains for non-residents on UK property

Draft legislation has been issued to charge all non-UK resident persons, whether liable to CGT or corporation tax, on gains on disposals of interests in any type of UK land, whether residential or non-residential. Certain revisions are to be made following a further technical consultation when the full legislation is introduced but the key points are covered here.

All non-UK resident persons will also be taxable on indirect disposals of UK land. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest.

All non-UK resident companies will be charged to corporation tax rather than CGT on their gains.

There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019.

The CGT charge relating to the Annual Tax on Enveloped Dwellings will be abolished. The legislation will broadly have effect for disposals from 6 April 2019.

Comment
The main effect of the new legislation will be to extend the scope of UK taxation of gains to include gains on disposals of interests in non-residential UK property.

Previous legislation has focussed on bringing gains made by non-residents on residential properties within the UK tax regime.

Payment on account and 30 day returns

Draft legislation has been issued to change the reporting of gains and the associated CGT liability on disposal of property. The main change is a requirement for UK residents to make a return and a payment on account of CGT within 30 days following the completion of a residential property disposal on a worldwide basis. The new requirements will not apply where the gain on the disposal is not chargeable to CGT, for example where the gains are covered by private residence relief.

For UK residents, the measure will have effect for disposals made on or after 6 April 2020.

CGT private residence relief

It is proposed that from April 2020 the government will make two changes to private residence relief:

  • the final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36 months that are available to disabled persons or those in a care home
  • Lettings Relief will be reformed so that it only applies in circumstances where the owner of the property is in ‘shared-occupancy’ with a tenant.

The government will consult on the detail of both of these changes and other technical aspects.

Inheritance tax (IHT) nil rate bands

The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.

IHT residence nil rate band

From 6 April 2017 a new nil rate band, called the ‘residence nil rate band’ (RNRB), has been introduced, meaning that the family home can be passed more easily to direct descendants on death.

The RNRB is being phased in. For deaths in 2018/19 it is £125,000, rising to £150,000 in 2019/20 and £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.

There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing will.

Downsizing

The RNRB may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.

Changes to IHT RNRB

Amendments are to be introduced to the RNRB relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes. These amendments clarify the downsizing rules, and provide certainty over when a person is treated as ‘inheriting’ property. This will ensure the policy is working as originally intended. The changes will have effect for deaths on or after 29 October 2018.

Stamp Duty Land Tax (SDLT)

First time buyers relief

The relief for first time buyers will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share. Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.

Comment
The relief will apply retrospectively from 22 November 2017, meaning that a refund of tax will be payable for those who have paid SDLT after 22 November 2017 in circumstances which now qualify for first time buyers relief.

Higher rates for additional dwellings (HRAD)

A minor amendment will extend the time allowed to claim back HRAD where an individual sells their old home within three years of buying their new one.The measure also clarifies the meaning of `major interest` in land for the general purpose of HRAD.

Consultation on SDLT charge for non-residents

The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

 

 

Other Matters

Extension of offshore time limits

Draft legislation has been issued to increase the assessment time limits for offshore income and gains to 12 years. Similarly the time limits for proceedings for the recovery of inheritance tax are increased to 12 years. Where an assessment involves a loss of tax brought about deliberately the assessment time limit is 20 years after the end of the year of assessment and this time limit will not change.

The legislation does not apply to corporation tax or where HMRC has received information from another tax authority under automatic exchange of information.

The potential extension of time limits will apply from the 2013/14 tax year where the loss of tax is brought about by careless behaviour and from the 2015/16 tax year in other cases. The amendments will have effect when Finance Bill 2018-19 receives Royal Assent.

Comment
The current assessment time limits are ordinarily four years (six years in the case of carelessness by the taxpayer). The justification for the extension of time limits is the longer time it can take HMRC to establish the facts about offshore transactions, particularly if they involve complex offshore structures.

The legislation cannot be used to go back earlier than 2013/14. If there has been careless behaviour HMRC can make an assessment for up to 12 years from 2013/14 in respect of offshore matters but HMRC could not raise an assessment for 2012/13 or earlier (unless there is deliberate error by the taxpayer).

Penalties for late submission of tax returns

Taxpayers are required to submit tax returns by specified dates. When taxpayers submit their returns late they generally incur a penalty. Draft legislation has been issued which sets out a new points-based penalty regime for regular submission obligations. Returns have to be submitted more frequently in some circumstances. Depending on the frequency of the return submission obligation, a defined number of penalty points will accrue to a threshold. Once this threshold has been reached, a fixed penalty will be charged to the taxpayer.

After this each late submission will attract a fixed penalty, until the taxpayer meets all submission obligations by the relevant deadline for a set period of time. Once this happens, and a taxpayer has provided any outstanding submissions for the preceding 24 months, the points total will reset to zero. Points will generally have a lifetime of 24 months after which they expire, so if a taxpayer accrues points but does not reach the threshold, the points will expire after 24 months. Taxpayers will have a separate points total per submission obligation.

Penalties for late payment of tax

Draft legislation has been issued to harmonise the late payment penalty regimes for income tax, corporation tax and VAT. Late payment penalties are charged when customers do not pay, or make an agreement to pay, by the date they should, and do not have a reasonable excuse for the failure to do so.

The penalties will consist of two penalty charges, one charge based upon payments and agreements to pay in the first 30 days after the payment due date and another charge based upon how long the debt remains outstanding after the 30 days.

Interest harmonisation

Draft legislation has been issued to change the VAT interest rules so that they will be similar to those that currently exist for income tax and corporation tax.

This will mean:

  • late payment interest will be charged from the date the payment was due to the date the payment is received
  • HMRC will pay repayment interest when it has held taxpayer repayments for longer than it should.

The provisions are expected to take effect for VAT returns from 1 April 2020.

Tackling the plastic problem

As part of the government’s response to tackling plastic waste, the following announcements were made:

  • Single-use plastics will be addressed in the Resources and Waste Strategy later in the year for situations where recycling rates are too low and producers use too little recycled plastic.
  • The issue of excess and harmful packaging will be addressed with a tax on the production and importation of plastic packaging which does not contain at least 30% recycled plastic. This tax will be implemented in April 2022.
  • The Resources and Waste Strategy will also consider ways of reducing the environmental impact of disposable cups. The government does not believe that a levy would be effective at this time but will return to the issue if insufficient progress has been made by those businesses already taking steps to address the matter.

 

Budget 2016 – An Overview

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The Budget 2016

George Osborne presented the first Spring Budget of this Parliament on Wednesday 16 March 2016.

In his speech the Chancellor reported on ‘an economy set to grow faster than any other major advanced economy in the world’.

Towards the end of last year the government issued the majority of the clauses, in draft, of Finance Bill 2016 together with updates on consultations. Publication of draft Finance Bill clauses is now an established way in which tax policy is developed, communicated and legislated.

The Budget updates some of these previous announcements and also proposes further measures. Some of these changes apply immediately, others in April 2016 and some take effect at a later date.

Our summary focuses on the issues likely to affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please do not hesitate to contact us for advice.

Main Budget tax proposals

Our summary concentrates on the tax measures which include:

  • reductions in the rates of capital gains tax
  • introduction of a Lifetime ISA for under 40s
  • changes to Entrepreneurs’ Relief
  • abolition of Class 2 NIC
  • reduction in the corporation tax rate
  • reforms to corporate tax losses.

The Budget proposals may be subject to amendment in a Finance Act. You should contact us before taking any action as a result of the contents of this summary.

This summary is published for the information of clients. It provides only an overview of the main proposals announced by the Chancellor of the Exchequer in his Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.

Personal Tax

The personal allowance

For those born after 5 April 1938 the personal allowance is currently £10,600. Those born before 6 April 1938 have a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17. From 2016/17 onwards one personal allowance will apply regardless of age.

Comment
Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 which is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).

Tax bands and rates

The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.

Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.

The additional rate of tax of 45% remains payable on taxable income above £150,000.

Tax bands and personal allowance for 2017/18

The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.

Tax bands and rates – dividends

Currently, when a dividend is paid to an individual, it is subject to different tax rates compared to other income due to a 10% notional tax credit being added to the dividend. So for an individual who has dividend income which falls into the basic rate band the effective tax rate is nil as the 10% tax credit covers the 10% tax liability. For higher rate and additional rate taxpayers, the effective tax rates on a dividend receipt are 25% and 30.6% respectively.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

From 6 April 2016:

  • the 10% dividend tax credit is abolished with the result that the cash dividend received will be the gross amount potentially subject to tax
  • a new Dividend Tax Allowance charges the first £5,000 of dividends received in a tax year at 0%
  • for dividends above £5,000, new rates of tax on dividend income will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

 

Comment
Many individuals do not have £5,000 of dividend income so are potential winners in the new regime. The removal of any tax on dividends up to £5,000 increases the attractiveness of holding some investments which provide dividend returns rather than interest receipts. Use can then also be made of the CGT annual exemption by selective selling of investments.

Basic rate taxpayers in particular need to appreciate that all dividends received still form part of the total income of an individual. If dividends above £5,000 are received, the first £5,000 will use up some or all of any basic rate band available. The element of dividends above £5,000 which are taxable may well therefore be taxed at 32.5%.

Tax on savings income

Savings income is income such as bank and building society interest. In 2015/16 some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

The starting rate limit remains at £5,000 for 2016/17.

In addition, from 2016/17 the Savings Allowance (SA) will apply to savings income. Income within the SA will be taxed at a new 0% rate (the ‘savings nil rate’). However, the available SA in a tax year will depend on the individual’s marginal rate of income tax. Individuals taxed at up to the basic rate of tax will have an SA of £1,000.

For higher rate taxpayers, the SA will be £500 whilst no SA is due to additional rate taxpayers.

Alongside the introduction of the SA, banks and building societies will cease to deduct tax from account interest they pay to customers.

Comment
The new SA will exempt from tax interest receipts for many taxpayers. The government anticipates that around 95% of taxpayers will not have any tax to pay on their savings income. However, the allowance works in a complex way. For example, a taxpayer whose total non-savings income is near to £43,000 in 2016/17 (the point from which higher rate taxes are payable) needs to be aware that savings income is still added to other income to determine whether the SA is £1,000 or £500.

Individual Savings Accounts (ISAs)

The overall ISA savings limit is £15,240 for 2015/16 and will remain at this figure for 2016/17.

Two changes are proposed with effect from 6 April 2016. The following changes will be made to the existing ISA Regulations:

  • Savers will be allowed to replace cash they have withdrawn from their account earlier in a tax year, without this replacement counting towards the annual ISA limit for that year. This flexibility will be available in relation to both current year and earlier years’ ISA savings where provided for in the terms and conditions of a ‘flexible ISA’.
  • A third ISA, the Innovative Finance ISA, is being introduced for loans arranged via a peer to peer (P2P) platform.

The total an individual can save each year into all ISAs will be increased from £15,240 to £20,000 from April 2017.

Lifetime ISA

A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.

Further details of the new account, which will be available from 2017, are as follows:

  • Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
  • There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
  • The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
  • Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
  • Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However only the bonus from one account can be used to buy a house.
  • Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the government bonus (and any interest or growth on this) and will also have to pay a 5% charge.
  • After the account holder’s 60th birthday they will be able to take all the savings tax-free.

Comment
The new Lifetime ISA is designed to allow flexible saving for first time buyers and those wishing to save for their retirement. The Chancellor said in his speech:

‘My pension reforms have always been about giving people more freedom and more choice.

So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.’

Help to Save

The government has announced the introduction of a new type of savings account aimed at low income working households.

Individuals in low income working households will be able to save up to £50 a month into a Help to Save account and receive a 50% government bonus after two years. Account holders can then choose to continue saving under the scheme for a further two years. The scheme will be open to all adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage or those in receipt of Working Tax Credits.

Accounts will be available no later than April 2018.

Pensions consultation and reform

The government consultation ‘Strengthening the incentive to save’ looked at the way pensions are taxed. The consultation found that while the current system gives everyone an incentive to save into a pension, and people like the 25% tax free lump sum, it is also inflexible and poorly understood. Young people in particular are not saving enough, often because they feel they have to choose between saving for their first home and saving for retirement.

Comment
The Chancellor said in his speech:

‘Over the past year we’ve consulted widely on whether we should make compulsory changes to the pension tax system. But it was clear there is no consensus.’

The Chancellor is introducing the Lifetime ISA as a vehicle for younger people to save.

Pensions advice

The Financial Advice Market Review (FAMR) aims to support the provision of affordable and accessible advice. FAMR was a joint review between the Financial Conduct Authority and Her Majesty’s Treasury, and its recommendations were published on 14 March 2016.

The government commits to implement all of the recommendations for which it is responsible, and will:

  • Consult on introducing a single clear definition of financial advice to remove regulatory uncertainty and ensure that firms can offer consumers the help they need.
  • Increase the existing £150 Income Tax and National Insurance relief for employer arranged pension advice to £500. The new exemption will ensure that the first £500 of any advice received is eligible for the relief. It will be available from April 2017.
  • Consult on introducing a Pensions Advice Allowance. This will allow people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save £100 on the cost of financial advice.

The government will also restructure the delivery of public financial guidance to make it more effective.

Phased rollout of Tax-Free Childcare

The government has announced it will introduce Tax-Free Childcare in early 2017. Tax-Free Childcare will be gradually rolled out to children under 12 with the parents of the youngest children being able to enter the scheme first. The scheme will be open to all eligible parents by the end of 2017.

The existing scheme, Employer-Supported Childcare, will remain open to new entrants until April 2018 to support the transition between the schemes.

Business Tax

Corporation tax rates

The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:

  • 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
  • 17% for the Financial Year beginning on 1 April 2020.

Corporate tax loss relief

The government will introduce two reforms to corporate tax losses from April 2017. First, losses arising on or after 1 April 2017 will be useable, when carried forward, against profits from other income streams or other companies within a group. Second, from 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.

Capital allowances on business cars

The current 100% first year allowance (FYA) on businesses purchasing low emission cars will be extended to April 2021. A low emission car is one where the CO2 emissions do not exceed 75 gm/km and this threshold will fall to 50 gm/km from April 2018. In addition, the CO2 emission threshold for the main rate of capital allowances for business cars will reduce from 130 gm/km to 110 gm/km from April 2018.

Corporation tax payment dates

At the Summer Budget 2015, the government announced it would bring forward corporation tax payment dates for companies with taxable profits over £20 million. This measure has been deferred by two years and will now apply to accounting periods starting on or after 1 April 2019.

Loans to participators

The 25% rate of tax charged on loans to participators and other arrangements by close companies will increase to 32.5%.  This applies to loans made and benefits conferred on or after 6 April 2016. This increased rate mirrors the dividend upper rate. The government has noted that this will prevent individuals gaining a tax advantage by taking loans or making other arrangements to extract value from their company rather than remuneration or dividends.

Enterprise Zones – enhanced capital allowances

This measure extends the period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances to eight years.

Removal of statutory renewals allowance

The government will withdraw the statutory renewals allowance, which provides businesses with tax relief for the cost of replacing tools. The changes ensure that tax relief for expenditure incurred on the replacement of tools will be obtained under the same rules as those which apply to other capital equipment. Businesses will be able to claim tax relief under the normal capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as furnishings and appliances. The withdrawal will come into effect for expenditure on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax.

Company distributions

Legislation will be introduced with effect from 6 April 2016 to:

  • amend the Transactions in Securities legislation, which is designed to prevent tax advantages in certain circumstances. The amendments, for example, include liquidations as potentially coming within the scope of the legislation
  • introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a liquidation being taxed as capital, where certain conditions are met and there is an intention to gain a tax advantage.

Comment
In some situations shareholders of close companies can receive a payment from the company which is taxed as a capital gain instead of as dividend income. If Entrepreneurs’ Relief is available the gain will be subject to only 10% tax. The government is concerned that the new dividend tax rates introduced from 6 April 2016 will encourage shareholders to convert to capital what might otherwise be taxed as income.

Abolition of Class 2 National Insurance Contributions (NIC)

The government will abolish Class 2 NIC from April 2018. The government will publish its response to the recent consultation on state benefit entitlement for the self-employed in due course. This will set out details of how the self-employed will access contributory benefits after Class 2 is abolished.

Property and trading income allowances

From April 2017, the government will introduce a new £1,000 allowance for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.

Making tax digital

From 2018 businesses, self-employed people and landlords who are keeping records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that suit them and better manage their cash flow.

Reform of Substantial Shareholding Exemption (SSE)

SSE means that capital gains on corporate share disposals are not subject to UK corporation tax where certain conditions are satisfied. It was introduced in 2002 and was designed to ensure that tax does not act as a disincentive to commercially desirable business sales or group restructuring. There have been significant developments in the UK and international corporate tax landscape since the SSE was first introduced. The government will therefore consult on the extent to which the SSE is still delivering on its original policy objective and whether there could be changes to its detailed design in order to increase its simplicity, coherence and international competitiveness.

Petroleum Revenue Tax (PRT)

The rate of PRT will be permanently reduced to zero for all chargeable periods ending after 31 December 2015.

Anti-avoidance

The government will change the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive.

Employment Taxes

NIC for apprentices under 25

From 6 April 2016 employer NICs are 0% for apprentices under 25 who earn less than the upper secondary threshold (UST) which is £827 per week (£43,000 per annum). Employers are liable to 13.8% NIC on pay above the UST. Employee NICs are payable as normal.

An apprentice needs to:

  • be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
  • have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.

Employers need to identify relevant apprentices and generally assign them NIC category letter H to ensure the correct NICs are collected.

Comment
The proposals exclude apprenticeships which do not follow government approved frameworks, also known as common law apprenticeships. A similar 0% rate of employer NIC already applies for employees under the age of 21.

Employee benefits and expenses changes from 6 April 2016

From 6 April 2016 a number of changes are introduced relating to the tax treatment of employee benefits in kind and expenses:

  • There will be a statutory exemption for certain expenses, such as travelling and subsistence expenses, reimbursed to an employee. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D).
  • Employers will be able to include taxable benefits in pay and thus account for PAYE on the benefits. However, in order to payroll benefits for 2016/17, employers will have to register with HMRC for the service before the start of the new tax year. Employers will then not have to include these payrolled benefits on forms P11D.
  • The £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.

Comment
The statutory exemption for reimbursed expenses will mean that all employees will automatically get the tax relief they are due on qualifying expenses payments.

Another option is introduced which allows amounts based on scale rates to be paid or reimbursed, instead of the employee’s actual costs. The rates that can be used are either HMRC approved figures or figures specifically agreed with HMRC in writing.

The approved figures only cover meals purchased by an employee in the course of business travel.

Simplification of the administration of tax on employee benefits and expenses

The government will introduce a package of measures to further simplify the tax administration of employee benefits and expenses by:

  • extending the voluntary payrolling framework to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017
  • consulting on proposals to simplify the process for applying for and agreeing PAYE Settlement Agreements
  • consulting on proposals to align the dates by which an employee has to make a payment to their employer in return for a benefit-in-kind they receive to ‘make good’
  • legislating to ensure that if there is a specific statutory provision for calculating the tax charge on a benefit in kind, this must be used.

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions. There is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.

From 6 April 2016 there will be a 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%.

From 6 April 2017 the appropriate percentage for cars which have neither a CO2 emissions figure nor an engine cylinder capacity, and which cannot produce CO2 emissions in any circumstances by being driven, will be set at 9%. From 6 April 2018 this will be increased to 13%, and from 6 April 2019 to 16%.

Van benefit charge for zero emissions vans

The van benefit charge for 2015/16 is £3,150 increasing to £3,170 in 2016/17.

The government will extend van benefit charge support for zero-emission vans so that from 6 April 2016 the charge will be 20% of the main rate in 2016/17 and 2017/18, and will then increase on a tapered basis to 5 April 2022. The government will review the impact of this incentive at Budget 2018 together with enhanced capital allowances for zero-emission vans.

Taxation of termination payments

From April 2018 the government will tighten the scope of the income tax exemption for termination payments to prevent manipulation.

Termination payments over £30,000 which are subject to income tax will also be subject to employer NIC. The government will undertake a technical consultation on tightening

the scope of the exemption.

Travel and subsistence expenses rules

In September 2015 the government published a discussion document aimed at modernising the tax rules for travel and subsistence (T&S). The government has analysed responses and concluded that, although complex in parts, the current T&S rules are generally well understood and work effectively for the majority of employees and has decided not to make further changes to the T&S rules at this time.

Employment intermediaries and relief for travel and subsistence

As announced at March Budget 2015, the government will introduce legislation in Finance Bill 2016 to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary. This will bring the rules into line with those that apply to employees.

Simplifying the NIC rules

The government will commission the Office of Tax Simplification to review the impact of moving employee NIC to an annual, cumulative and aggregated basis and moving employer NIC to a payroll basis.

Disguised remuneration schemes

The government will introduce a package of measures to tackle the current and historic use of disguised remuneration schemes, which are used to avoid income tax and NIC. Legislation will be included in Finance Bill 2016 which will prevent a relief in the existing legislation from applying where it is used as part of a tax avoidance scheme from Budget Day.

The government will hold a technical consultation on further changes to the legislation which will be included in a future Finance Bill. This will include a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019.

Employee share schemes: simplification of the rules

The government will make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules.

Employment Allowance

The NIC Employment Allowance was introduced from 6 April 2014. It is an annual allowance which is available to many employers and can be offset against their employer NIC liability.

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage without paying any NIC.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016 companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

Employers who hire an illegal worker face civil penalties from the Home Office. The government will build on this deterrent by removing a year’s Employment Allowance from those receiving civil penalties, starting in 2018.

Salary sacrifice

The government is considering limiting the range of benefits that attract income tax and NIC advantages when provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare, and health-related benefits such as Cycle to Work should continue to benefit from income tax and NIC relief when provided through salary sacrifice arrangements.

Off-payroll working in the public sector

From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. Liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency/third party paying the company.

The government will consult on a clearer and simpler set of tests and online tools.

Capital Taxes

Capital gains tax (CGT) rates

The current rates of CGT are 18% to the extent that any income tax basic rate band is available and 28% thereafter. The government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The trust CGT rate will also reduce from 28% to 20%. The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies). These changes will take effect for disposals made on or after 6 April 2016.

The rate for disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.

Example 2016/17
Annie, a higher rate taxpayer, has the following chargeable gains after the annual exemption:

•         Gains eligible for ER £100,000

•         A residential property gain £30,000

•         Other gains £10,000

The ER gain is taxable at 10%. The residential property gain will be taxed at 28% and other gains at 20%.

Goodwill on Incorporation and ER

New rules were introduced from 3 December 2014 which prevent individuals from claiming ER on disposals of goodwill when they transfer their business to a related company in which they, or a member of their family, held any shares whatsoever. This means that CGT became payable on the gain at the normal rates of 18% or 28% rather than 10%.

Revised legislation will be introduced in Finance Bill 2016 to allow ER to be claimed in respect of gains on goodwill where the individual holds less than 5% of the shares, and less than 5% of the voting power, in the acquiring company.

Relief will also be due where an individual holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

This measure will have backdated effect and will therefore apply to disposals on or after 3 December 2014.

Associated disposals and ER

New rules were introduced in 2015 which were aimed at combatting abuse of ER. Whilst preventing the abuse, those rules also resulted in relief not being due on ‘associated disposals’ when a business was sold to members of the claimant’s family under normal succession arrangements.

Certain revisions are to be made so that ER will be allowed on a disposal of a privately-held asset when the accompanying disposal of business assets is to a family member.

In addition, under the 2015 rules an associated disposal can only qualify for ER if there is also a material disposal of 5% or more of the claimant’s share in a partnership or holding in a company. Under the proposals this is not to apply where the claimant disposes of the whole of his interest and has previously held a larger stake.

These changes will have a backdated effect for associated disposals made on or after 18 March 2015.

Joint ventures, partnerships and ER

Changes introduced in 2015 to combat abuse of ER also resulted in relief not being due to investors in some types of genuine commercial structures where tax avoidance was not a main motive. Those affected were companies with shares in joint venture companies and corporate partners with shares in trading companies because their investments were reclassified as non-trading activities. ER is only available to companies or partnerships which are predominantly trading so ER status was lost in a number of cases.

To enable genuine commercial structures to qualify for ER, this measure changes the definitions of a ‘trading company’ and a ‘trading group’ which apply for ER. Where the new definitions apply, a company which holds shares in a joint venture company will be treated as carrying on a proportion of the activities of that company corresponding to the investing company’s fractional shareholding in it. Also, the activities of a corporate partner in a firm will be treated as having their true nature (trading or non-trading) when determining whether the company is a trading company.

It will also be a requirement that the person making the disposal on which relief is claimed has at least a 5% interest in the shares of the joint venture company, and effectively controls at least 5% of the voting rights in that company. Where a partnership with a corporate partner is concerned, the person making the disposal must be entitled to at least 5% of the partnership’s assets and profits, and control at least 5% of the voting rights in the corporate partner.

The new definitions mean that, in some cases, whether a company is a trading company or the holding company of a trading group will depend on the size of the claimant’s shareholding in the company.

External investors and ER

ER will be extended to external investors (other than employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions will apply:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for investors’ relief will be subject to a lifetime cap of £10 million.

Capital gains and employee shareholder agreements

The ‘employee shareholder’ was a new employment status made available from 1 September 2013. Employee shareholders who agreed to give up certain statutory employment rights received in exchange at least £2,000 of shares in their employer or parent company free of income tax and national insurance. Qualifying conditions do apply.

Any eventual gains on shares received with an original value of up to £50,000 are CGT free. However, a lifetime limit of £100,000 on the CGT exempt gains is introduced on disposals under Employee Shareholder Agreements entered into after 16 March 2016.

Other Matters

Stamp Duty Land Tax (SDLT) and Land and Buildings Transaction Tax (LBTT)

The Chancellor announced in the Autumn Statement that new rates of SDLT on purchases of additional residential properties would apply from 1 April 2016. Similar legislation was introduced in the Scottish Parliament for LBTT which applies to property transactions in Scotland. The LBTT legislation has now been enacted.

The new rates will be three percentage points above the current SDLT and LBTT rates. The higher rates will potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties.

The SDLT proposals were subject to a consultation. The government has now announced:

  • purchasers will have 36 months rather than 18 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence
  • purchasers will also have 36 months between selling a main residence and replacing it with another main residence without having to pay the higher rates
  • a small share in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property when applying the higher rates
  • there will be no exemption from the higher rates for significant investors.

Comment
The main target of the higher rates is purchases of buy to let properties or second homes. However, there will be some purchasers who will have to pay the additional charge even though the property purchased will not be a buy to let or a second home. The proposed 36 month rules above will help to remove some transactions from the additional rates (or allow a refund). Care will be needed if an individual already owns, or partly owns, a property and transacts to purchase another property without having disposed of the first property.

LBTT has been enacted with the 18 month periods rather than 36 months.

SDLT on non-residential property

The government will change the calculation of SDLT on freehold and leasehold premium non-residential transactions, on and after 17 March 2016, so the rates apply to the portion of the purchase price within each band. The SDLT rates and thresholds for non-residential freehold and leasehold premiums will also change from the same date.

For new leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band. On and after 17 March 2016 a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5 million.

Comment
The LBTT on non-residential properties in Scotland is already based on a similar system to that proposed for SDLT.

VAT: overseas businesses and online marketplaces

Changes will be made to the existing rules which allow HMRC to direct an overseas business to appoint a VAT representative with joint and several liability. A new provision will then enable HMRC to hold an online marketplace jointly and severally liable for the unpaid VAT of an overseas business that sells goods in the UK via that online marketplace.

The measure will have effect from Royal Assent to Finance Bill 2016.

Comment
The objective of this measure is to give HMRC strengthened operational powers to tackle the non-compliance from some overseas businesses that avoid paying UK VAT on sales of goods made to UK consumers via online marketplaces. It is directed at getting overseas businesses, that are or should be VAT registered in the UK, paying VAT due either directly or through a VAT representative.

Business rates

Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from 1 April 2017. In particular the government proposes to:

  • Permanently double Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a property with a rateable value of £12,000 and below will receive 100% relief.
  • Increase the threshold for the standard business rates multiplier to a rateable value of £51,000, taking 250,000 smaller properties out of the higher rate.

Insurance Premium Tax

The standard rate of IPT will be increased from 9.5% to 10% with effect from 1 October 2016.

General Anti-Abuse Rule (GAAR)

The government will legislate to introduce a new penalty of 60% of tax due to be charged in all cases successfully tackled by the GAAR. Small changes to the GAAR procedure will be made to improve its ability to tackle marketed avoidance schemes.

New soft drinks industry levy

The government will introduce a new soft drinks industry levy to be paid by producers and importers of soft drinks that contain added sugar. The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres. There will be an exclusion for small operators.

It is proposed to introduce the measure from April 2018.

 

Newsletter – December 2011

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eNEWS – December 2011

In this month’s enews we report on some further announcements made following the Autumn Statement.

Please browse through this month’s articles using the links below and contact us if any issues or questions arise.

With best wishes for 2012.

 

eNEWS quicklinks
Pensions Auto Enrolment Advisory fuel rates for company cars
Capital allowances in Enterprise Zones Seed Enterprise Investment Scheme
Statutory Residence Test Self assessment deadline fast approaching
The Portas Review HMRC to accept Faster Payments
2012/13 Statutory Payments

 

Pensions Auto Enrolment

The Government has confirmed that pensions auto enrolment will commence in Autumn 2012 and all employers will remain within the scope of the rules.

However small businesses, those with less than 50 employees, will be given additional time to prepare for the implementation. The government have confirmed that no small employers are affected by the reforms before the end of this Parliament.

Minister for Pensions Steve Webb said:

‘Our society and economy needs to be based on a foundation of saving, not debt. Automatic enrolment will help millions save, and to not act will leave people poorer in retirement. That is why I am confirming today that automatic enrolment will start on time and all employers will be part of it.

We recognise that small businesses are operating in tough economic times so we are softening the timetable for implementation to give them some additional breathing space. This is a sensible step that ensures long term pension issues are addressed while meeting the short and medium term needs of small business.

We are committed to ensuring the employees of these small businesses get the chance to save and that is why no one will miss out.

Under the revised timeline, small business would begin automatically enrolling their staff in May 2015, instead of the current timing of April 2014. Half of all workers will still be automatically enrolled before the end of this Parliament.’

It is expected that further details will be announced in January 2012 and we will keep you informed of developments.

Internet link: DWP press release

Advisory fuel rates for company cars

New company car advisory fuel rates have been published to take effect from 1 December 2011. HMRC’s website states:

‘These rates apply to all journeys on or after 1 December 2011 until further notice, allowing them to reflect fuel prices more quickly. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.’

The advisory fuel rates for journeys undertaken on or after 1 December 2011 are:

Engine size

Petrol

Diesel

LPG

1400cc or less

15p (15p)

10p (11p)

1401cc – 2000cc

18p (18p)

12p (12p)

Over 2000cc

26p (26p)

18p (18p)

1600cc or less

12p (12p)

1601cc – 2000cc

15p (15p)

Over 2000cc

18p (18p)

Please note that most rates have not changed. However the rate for LPG cars has reduced for those with an engine size of 1400cc or less.

Other points to be aware of about the advisory fuel rates:

  • Employers do not need a dispensation to use these rates.
  • Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
  • The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like to discuss your car policy, please contact us.

Internet link: HMRC advisory fuel rates

Capital allowances in Enterprise Zones

Following the Autumn Statement at the end of November 2011, more information is now available in respect of the proposal to give 100% first year allowances on plant and machinery expenditure for use in some Enterprise Zone areas.

  • The relief will only be available to trading companies.
  • The plant must be new and represent an investment not a replacement of existing plant.
  • The plant must be used primarily in designated assisted areas within Enterprise Zones.
  • The allowance will apply for purchases made from 1 April 2012 up to 31 March 2017.
  • Some businesses and some types of expenditure are specifically excluded from the provisions.

Internet link: Draft rules CA Enterprise Zones

Seed Enterprise Investment Scheme

The government has released more information on the new Seed Enterprise Investment Scheme (SEIS) aimed at smaller companies. The proposals include the following:

  • The relief will initially run from 6 April 2012 until 5 April 2017 but may continue after that date.
  • Income tax relief on a qualifying investment will be 50%.The relief is available to be set against any income tax liability that is due, whether at basic, higher or additional rate.
  • Income tax relief will be withdrawn in certain circumstances including a disposal of the shares within three years.
  • There will be an annual limit of £100,000 investment by an individual.
  • A director may make a qualifying investment but not an employee or an associate of an employee.
  • An individual may not hold more than 30% of the shares in the company.
  • The issuing company must have been incorporated within two years of the date on which the qualifying shares are issued.
  • The company must exist to carry on a qualifying trade.
  • The gross assets of the company (including a proportion of assets of companies which hold at least 25% of the shares in the issuing company) must not exceed £200,000 immediately before the shares are issued.
  • The issuing company must not have more than the equivalent of 25 full-time employees immediately before the shares are issued.
  • The maximum amount which can be raised by a company through SEIS is £150,000 and this is an overall total not an annual limit.
  • Subject to conditions, the disposal of SEIS shares will be exempt from CGT.
  • Where an individual makes a capital gain in 2012/13 and invests an amount which is at least equal to the gain in qualifying SEIS shares before 6 April 2013 then the gain will be exempt from CGT. If the shares fail to meet the qualifications for SEIS for three years then the exemption will be withdrawn.

If you are interested in this new relief and wonder if it may be relevant to you or your business please do get in touch.

Internet link: Treasury SEIS

Statutory Residence Test

The government has been consulting on introducing a Statutory Residence Test (SRT). The test which was expected to be introduced from 2012 has been delayed until 6 April 2013. More details are expected to be announced in the 2012 Budget.

There is currently no definition of ‘residence’ in UK tax law and yet the liability to income tax and capital gains tax (CGT) rests on knowing an individual’s UK residence status for a tax year. Currently the determination of residence is based on old case law and, as a recent Supreme Court decision has shown, it can lead to significant uncertainty and large tax liabilities.

The SRT is expected to be based on three parts and an individual would consider each part in turn. If a definite answer on their residence status is found on the first part then there is no need to proceed further. Similarly if the second part gives a definitive answer there is no need to move to the third part. That final test then provides a definitive answer.

The parts and the conditions are as follows:

Part A – satisfy any one of three conditions and the individual is conclusively non-resident in the year.

Part B – satisfy any one of three conditions and the individual is conclusively resident for the year.

If no definite answer under Part B then proceed to Part C

Part C – here the rules combine the time spent in the UK and a number of connection factors which are deemed to link an individual to the UK.

Some individuals who are currently outside the UK, particularly those working abroad, will need to note that the new rules could change their residence status and they may wish to review plans for visits back to the UK and the impact of any potential connecting factors.

Please contact us if you have any concerns in this area.

Internet link: Treasury consultation on residence

Self assessment deadline fast approaching

HMRC are reminding taxpayers that the deadline for filing self assessment tax returns is fast approaching. According to their website:

‘You must send your online tax return by midnight on Tuesday 31 January 2012.

The deadline is only later than this if you received your tax return, or the letter telling you to complete a tax return, after 31 October 2011. In this case you’ll have three months from the date you received that letter.

If your online tax return is late, you’ll have to pay a penalty. This applies even if you have no tax to pay or if you pay all the tax you owe on time.’

The following illustrates that missing the deadline and failing to submit the return online may result in significant penalties.

‘What happens if you miss the deadline?

If you miss the 31 January deadline for online tax returns, you will have to pay a penalty.

The penalty is £100. You’ll still have to pay this even if

  • your return is just a day late
  • you have no tax to pay
  • you pay all the tax you owe before 31 January 2012.

The longer you delay, the more you’ll have to pay. If your tax return is three months late, you’ll have to pay a penalty for each additional day it is late. If it’s six months late, you’ll have to pay a further penalty and another final penalty if it’s 12 months late. Together these could add up to a penalty of £1,600 or more.

Don’t send a paper tax return now – the deadline was 31 October 2011. You’ll have to pay a £100 penalty straight away if you do and the daily penalties above will start even earlier. Send it online instead.’

If you require any help with your tax return please do get in touch.

Internet link: HMRC news

The Portas Review

The CBI commented on a report by Mary Portas on the future of the high street.

Dr Neil Bentley, CBI Deputy Director-General, said:

‘Retail represents about 10% of our economy, and the high street is a vital part of this.

The Portas Review makes some sensible suggestions about how we can inject life back into town centres, including increased use of Business Improvement Districts and relaxing planning restrictions on the high street, in particular on change of use.

More importantly, she recognises the growing burden business rates are placing on companies right across the country at a critical time.

We need to make sure the UK remains attractive to investors, as it’s their decisions that will ultimately lead to regeneration of our town centres. Any changes to the planning and business rate regimes must therefore encourage investment in the broadest sense, and not just rob Peter to pay Paul.’

Internet links: BIS press release with access to report CBI press release

HMRC to accept Faster Payments

HMRC have announced that they will now accept payments made using the Faster Payments Service. This will allow taxpayers to make faster electronic payments, typically via internet or telephone banking, enabling them to be processed on the same or next day.

HMRC advise that if you want make payments using this method you should contact your bank or building society to confirm the following:

  • the services available to you
  • whether there are any single transaction or daily limits on the amount you can pay
  • their latest cut off times for making a payment.

They are also stressing that when making a payment to HMRC it is important to ensure that you are using the correct bank account details and reference number.

Internet link: HMRC news

2012/13 Statutory Payments

HMRC have announced the following statutory payment rates which are due to take affect for 2012/13. These rates are still subject to Parliamentary approval and HMRC will confirm the rates before 1 April 2012.

Statutory Maternity Pay (SMP) £135.45 per week

Ordinary Statutory Paternity Pay £135.45 per week

Additional Statutory Paternity Pay £135.45 per week

Statutory Adoption Pay (SAP) £135.45 per week

Statutory Sick Pay (SSP) £85.85 per week

Please contact us if you would like any help with payroll issues.

Internet link: HMRC statutory payment rates

Chancellors 2011 Autumn Statement 29 November 2011

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On Tuesday 29th November the Office for Budget Responsibility (OBR) published its updated forecast for the UK economy. Chancellor George Osborne responded to that forecast in a statement to the House of Commons later on that day.

In the period since the Budget in March a number of consultation papers and discussion documents have been published by HMRC. Draft legislation relating to many of these areas will be published on 6 December 2011. Some of these proposals are summarised here. We will provide an update for you if significant changes are announced on 6 December.

This summary also provides a reminder of other key developments which are to take place from April 2012.

The Chancellor’s statement

The Chancellor emphasised that the OBR does not predict a recession in Britain but they have revised down their short term growth prospects for the country. He also made clear that the OBR central forecast assumes ‘the euro finds a way through the current crisis’.

General measures

The Autumn Statement sets out the actions the Government will take in two main areas:

  • protecting the economy and
  • building a stronger economy for the future.

In order to maintain economic stability and meet its fiscal rules, the Government will, for example:

set plans for public spending in 2015/16 and 2016/17 in line with the spending reductions over the Spending Review 2010 period

  • Raise the State Pension age to 67 between April 2026 and April 2028
  • set public sector pay awards at an average of 1% for each of the two years after the current pay freeze comes to an end.

The growth plans include the publication of a National Infrastructure Plan 2011. The plan sets out a pipeline of over 500 infrastructure projects including:

introducing a new approach to financing infrastructure, by obtaining £20 billion of private investment from pension funds

  • investing over £1 billion to tackle areas of congestion and improve the national road network
  • investing more than £1.4 billion in railway infrastructure and commuter links
  • investing £100 million to create up to ten ‘super-connected cities’ across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile coverage.

Comment

The proposal to raise the state pension age is expected to save around £60 billion in today’s prices between 2026/27 and 2035/36.

The aim of the National Infrastructure Plan is to kick start the economy by accelerating infrastructure projects with a view to job retention/creation. Time will tell how successful the new strategy is.

NON-TAX MEASURES FOR SMEs

Credit easing

In order to free up lending to business, the Government is launching a package of measures worth up to £21 billion to ease the flow of credit to businesses. This includes up to £20 billion for the National Loan Guarantee Scheme and £1 billion for the Business Finance Partnership.

Comment

The hope is that credit easing will encourage bank lending and enhance the demand for credit by reducing the price of loans for eligible businesses.

Small business rate relief holiday

The Government will extend the current small business rate relief holiday for a further six months from 1 October 2012 and also give businesses the opportunity to defer 60% of the increase in their 2012/13 business rate bills.

Employment regulations

In an attempt to make it easier to ‘hire and fire’, the Government intends to:

  • look for ways to provide a quicker and cheaper alternative to a tribunal hearing in simple cases by introducing a ‘Rapid Resolution’ scheme
  • complete a call for evidence on the impact of reducing the collective redundancy process for redundancies of 100 or more staff from the current 90 days to 60, 45 or 30 days.

The Government will begin a call for evidence on two proposals for reform of UK employment law. They will:

  • seek views on the introduction of compensated no-fault dismissal for micro-businesses with fewer than 10 employees
  • look at how it could move to a simpler, quicker and clearer dismissal process, potentially including working with ACAS to make changes to their code or by introducing supplementary guidance for small businesses.

Youth Contract

A number of measures under the heading of a ‘Youth Contract’ will be introduced, including Government funding of:

wage incentives for 160,000 young people to make it easier for private sector employers to take them on

  • at least 40,000 incentive payments for small firms to take on young apprentices.

Planning reform

The Government has announced a series of changes to the planning regime. Changes will include:

  • introducing a 13-week maximum timescale for the majority of non-planning consents
  • building more flexibility into the new major infrastructure planning process, particularly in the pre-application phase
  • reviewing the planning appeals procedures to make them faster and more transparent
  • consulting on proposals to allow existing agricultural buildings to be used for other business purposes such as offices, leisure and retail space.

Comment

These changes are designed to speed up building projects. ‘Red tape’ has been cited as a major reason for UK infrastructure development being more expensive than in other European countries.

Housing

In an attempt to increase house building, stabilise the housing market and enable more people to own their own home, the Government will:

  • introduce a new build indemnity scheme under which home buyers will be able to purchase new build houses and flats with a 5% deposit, with house builders and the Government helping to provide security for the loan
  • reinvigorate the ‘Right to Buy’ to help social tenants buy their home
  • launch a new £400m ‘Get Britain Building’ investment fund, which will support firms in need of development finance
  • support new development, which could include modern garden cities and urban and village extensions.

PERSONAL TAX

The personal allowance for 2012/13

For those aged under 65 the personal allowance will be increased by £630 to £8,105. This increase is greater than the minimum required and is part of the plan of the Coalition Government to ultimately raise the allowance to £10,000.

The personal allowance is reduced by £1 for every £2 of adjusted net income over £100,000. Next year the allowance ceases at adjusted net income in excess of £116,210.

Comment

Planning should be considered where adjusted net income is expected to exceed £100,000. This figure is calculated after giving a deduction against income for pension contributions and gift aid payments. Consider whether these could be made to protect some or all of the personal allowance.

 

Tax band and rates 2012/13

The basic rate of tax is currently 20%. The band of income taxable at this rate is being reduced to £34,370 so that the threshold at which the 40% band applies will remain at £42,475.

The 50% band currently applies where taxable income exceeds £150,000.

If dividend income is part of total income this is taxed at 10% where it falls within the basic rate band, 32.5% where liable at the higher rate of tax and 42.5% where liable to the additional rate of tax.

Tax credits

The child element of Child Tax Credit will rise by £135 per year in 2012/13 which is in line with the inflation increase but the additional increase above inflation of £110 which was planned has been dropped.

The disability elements of tax credits will be uprated by the increase in the Consumer Price Index of 5.2% but there is to be no uprating of the couple and lone parent elements of Working Tax Credit.

 Integration of the operation of income tax and NIC

Following an invitation for people to express views on a proposed integration of the operation of income tax and NIC the Government has decided to continue with the review. The Government will establish a number of working groups with stakeholders to explore options for integration. Depending on the results of the working groups, further rounds of consultation will proceed after Budget 2012. It is unlikely that there will be any substantive change in reality before 2017.

Junior ISAs

Provisions to allow these accounts were introduced this tax year. At present there is not a wide availability of these accounts although some building societies have launched products. The key features of the accounts are:

  • the accounts are available to any child who does not qualify for a Child Trust Fund
  • all returns will be tax free
  • funds placed in the account will be owned by the child and would be locked in until the child reaches adulthood although they can manage the account from the age of 16 years
  • investments will be available in cash or stocks and shares
  • annual contributions will be capped at £3,600
  • there will be no Government contributions into the account.

Comment

These accounts provide a way of increasing the tax free income available to a family in addition to the use of adult ISAs for the parents.

Child Trust Funds

These ceased to be available for children born on or after 1 January 2011 although existing accounts remain in place and can be added to by parents and family members. The maximum annual contribution has been increased to £3,600 to keep in line with the Junior ISA. No further Government contributions will be made to any account.

Furnished holiday lettings

From 6 April 2012 the tests which determine whether a property can qualify for treatment as a furnished holiday let will change. The number of days for which the property is available for letting increases from 140 days to 210 days and the number of days actually let increases from 70 to 105 days.

If an individual can show there was a genuine intention to meet the letting conditions but has been unable to do so they will be able to make an election to continue to treat the property as a furnished holiday let. This will protect the special tax treatment that such properties receive.

Statutory Residence Test

There is currently no definition of ‘residence’ in UK tax law and yet the liability to income tax and capital gains tax (CGT) rests on knowing an individual’s UK residence status for a tax year. Currently the determination of residence is based on old case law and, as a recent Supreme Court decision has shown, it can lead to significant uncertainty and large tax liabilities.

The Government published a consultation document in summer 2011 on the introduction of a Statutory Residence Test (SRT) which would come into effect in April 2012. The SRT is based on three parts and an individual would consider each part in turn. If a definite answer on their residence status is found on the first part then there is no need to proceed further. Similarly if the second part gives a definitive answer there is no need to move to the third part. That final test then provides a definitive answer.

The parts and the conditions are as follows:

  • Part A – satisfy any one of three conditions and the individual is conclusively non-resident in the year:
  • an individual with no UK residence in the three previous tax years spends less than 45 days in the UK
  • an individual who has been UK resident in one of the three previous tax years spends less than ten days in the UK
  • an individual goes to work abroad in a full time employment or self- employment and spends less than 90 days in the UK and has less than 20 working days in the UK.
  • If no definite answer under Part A then proceed to Part B
  • Part B – satisfy any one of three conditions and the individual is conclusively resident for the year:
  • an individual spends 183 days or more in the UK
  • an individual has their only home in the UK or if they have more than one home all are in the UK
  • an individual works full time in the UK for a continuous period of at least nine months and not more than 25% of duties are outside the UK.
  • If no definite answer under Part B then proceed to Part C
  • Part C – here the rules combine the time spent in the UK and a number of connection factors which are deemed to link an individual to the UK. Five connection factors have been identified:
  • spouse and/or minor children are resident in the UK at any time in the year
  • the individual has accessible accommodation in the UK and uses it in the year
  • the individual spends at least 40 working days in the UK
  • in either of the two previous tax years the individual spent at least 90 days in the UK
  • the individual spent more time in the UK than in any other single country in the tax year.
  • Part C then provides for a combination of factors and time which will make an individual resident in the UK.

A day will count as being in the UK if the individual is physically present in the UK at midnight unless they satisfy specific rules for those in transit through the UK.

There are a number of issues which have been raised in the consultation process on which clarification has been sought and it is hoped that these will be clarified in the draft legislation. It is intended that the new rules will apply from 6 April 2012. From that point they will supersede all existing case law and practice. However residence status for years up to 2011/12 is determined using the present rules.

Comment

The proposed rules do seem to work to give a definitive answer to the question ‘Am I resident in the UK?’ The answer may not be the one that you want but it should then be possible to identify the factors which need to change in order to achieve the desired result.

Individuals planning a move into or out of the UK after 6 April 2012 should be taking the new rules into account in their planning. They should also note that they are going to need to keep comprehensive records not just of their time in the UK but also, where relevant, their working days in the UK and the time they spend in each other country that they may visit.

Some individuals who are currently outside the UK, particularly those working abroad, will need to note that the new rules could change their residence status and they may wish to review plans for visits back to the UK and the impact of any potential connecting factors.

Changes for non-domiciled individuals

Following changes in 2008 all UK resident individuals are taxable on overseas income and gains overseas arising in the tax year. Individuals who are not domiciled in the UK or who are not ordinarily resident can make a claim to be taxed only on sums actually remitted to the UK in the year. These rules, known as the ‘remittance basis rules’ are complex but can mean a significant tax saving.

There are currently two downsides to making a remittance basis claim:

  •  the individual automatically loses their personal allowance for income tax and their annual exempt amount for CGT unless the remittances amount to almost all of the overseas income and gains arising
  • an individual who has been resident in the UK for at least seven out of the preceding nine UK tax years must pay a remittance basis charge of £30,000 in addition to the tax actually due.

Two significant changes are planned in the remittance basis rules from 6 April 2012:

  • the remittance basis charge will be increased to £50,000 where an individual has been resident in the UK for 12 out of the preceding 14 tax years
  • if an individual remits funds to invest in a UK business then that remittance will be tax free if the remittance basis is claimed (although the remittance basis charge will still be payable). A consultation paper has proposed a wide definition of business and indicates that the business vehicle can be a company or an unincorporated business. When the investment is realised it will be necessary for the individual to either reinvest the funds immediately in another qualifying venture or remove the funds from the UK within 14 days otherwise they will be treated as a remittance for that year.

Some administrative changes in the remittance basis rules will also be introduced.

BUSINESS TAX

Corporation tax rates

In accordance with the plans announced in March the main rate of corporation tax will fall from 26% to 25% from 1 April 2012. The small company rate is 20% and there has been no announcement of the rate for next year.

Enterprise Investment Scheme (EIS)

Changes announced in the March Budget are due to come into effect on 6 April 2012. These are:

  • the maximum amount that an individual can invest in total in a tax year rises from £500,000 to £1m.
  • the maximum funds that a company can receive under EIS rises from £2m to £10m
  • the size of a company that can benefit from EIS (subject to meeting all the qualifications) is increased to £15m gross assets and fewer than 250 employees.

A number of other changes were announced in the Autumn Statement:

  • the rules which identify individuals who are deemed to be connected to the company are to be relaxed in some circumstances
  • the £1m per company limit that currently applies for Venture Capital Trusts will be removed
  • anti-avoidance rules will be introduced  to exclude companies set up for the purpose of obtaining the relief, and to exclude the purchase of shares in another company
  • investment in Feed-in-Tariffs will be excluded.

Seed Enterprise Investment Scheme (SEIS)

This is a new relief which will be introduced from 6 April 2012. It will provide income tax relief at 50% in respect of investment in a small company whose total assets before the investment are less than £200,000. The relief will be limited to investments of up to £150,000 in each company and a maximum of £100,000 investment for an individual. In addition an individual who makes a capital gain in 2012/13 and reinvests some or all of the gain in a SEIS company in the same year will obtain exemption from CGT for the sum invested.

Comment

This relief will encourage business angels or perhaps family members to invest in small enterprises and obtain a tax refund of half their investment. The details of the conditions which the recipient company will have to meet are not yet known.

Annual Investment Allowance (AIA)

The AIA is a capital allowance available for many businesses on most purchases of plant and machinery, long-life assets and integral features. Relief is given on the full cost up to a current maximum allowance of £100,000 for a full year. This allowance is to be reduced to £25,000 with effect from 1 April 2012 for companies and 6 April 2012 for unincorporated businesses.

Where a business has an accounting period that straddles the date of change the allowances have to be apportioned on a time basis. For example a company with an accounting period ending on 30 September 2012 will have an allowance of £62,500 (£100,000 x ½ + £25,000 x ½). However it should be noted that for expenditure incurred after the 1/6 April, the maximum allowance that can be attributed to that expenditure is a fraction of £25,000. The fraction will be the amount of the £25,000 that is included in the calculation of the overall AIA for the accounting period.

Comment

Planning the timing of purchases of significant items of plant becomes very important over the next year to ensure that the maximum available AIA can be secured.

Suppose the company with the 30 September year end wishes to buy new plant costing £35,000. If they buy it in February 2012 they will be able to claim an AIA on the full £35,000 but if they buy it in June 2012 they will only be able to claim an AIA of £12,500. They would actually then be better off if they waited until October when they would have a full £25,000 available.

Writing down allowances

Writing down allowances are to be reduced from April next year. The normal rate of 20% will be reduced to 18% and the lower rate of 10% which applies to integral features and long-life assets will reduce to 8%. It will be necessary to calculate hybrid rates where the accounting period straddles 1/6 April which will give a rate between 20% and 18% (or between 10% and 8%) for that period.

Capital allowances in Enterprise Zones

Over the past year the Government has designated a number of very specific areas as Enterprise Zones. Businesses in these areas enjoy certain reliefs, for example, a relief from business rates. The Chancellor has announced that 100% capital allowances will now be available for the Zones in the Black Country, Humber, Liverpool, North East, Sheffield, and the Tees Valley.

Compulsory pooling

The Government is considering whether to introduce a requirement that businesses should pool their expenditure on fixtures within a short period after acquisition in order to qualify for capital allowances.

Research and development expenditure (R&D)

There are currently a number of restrictions which effectively limit the scope of this relief and it is planned to remove these for expenditure incurred on or after 1 April 2012. The proposals include:

  • removing the rule limiting a company’s payable R&D credit to the amount of PAYE and NIC it pays
  • removing the £10,000 minimum expenditure condition
  • changing the rules governing the provision of relief for work done by subcontractors under the large company scheme
  • increasing the additional deduction for R&D expenditure by SMEs by a further 25% making the total deduction 225% of actual expenditure.

The Chancellor has announced a consultation next year on the introduction of an ‘above the line’ tax credit in 2013 for larger companies.

Controlled Foreign Companies (CFCs)

The CFC regime can apply to a UK company which has a subsidiary operating in a country with a low rate of corporation tax. The rules have been in place for 25 years but are seen as complex and in some cases disadvantageous to business. Some interim changes were made in 2011 but a major overhaul is planned for 2012. The aims of the new rules will be:

  • to target and impose a CFC charge on artificially diverted UK profits, so that UK activity and profits are taxed fairly
  • to exempt foreign profits where there is no artificial diversion of UK profits
  • to not tax profits arising from genuine economic activities undertaken offshore.

General Anti-avoidance Rule (GAAR)

The Government commissioned an independent report from a leading tax lawyer on whether or not it would be appropriate to introduce a GAAR into the UK tax system. This is a route that has been used in a number of other countries.

The reviewer has just presented his report to the Government and recommends that a moderate rule targeted at abusive arrangements would be beneficial to the UK tax system. Such a GAAR would apply for income tax, CGT, corporation tax and NIC. It would not apply to ‘responsible tax planning’.

It is now likely that the Government will undertake a consultation process in this matter but legislation is not likely until 2013 at the earliest.

High risk tax avoidance schemes

Certain types of tax avoidance schemes are currently subject to a disclosure regime which requires the scheme promoter to disclose details of the scheme to HMRC and for the users of the scheme to indicate their involvement on their tax return. Such schemes are usually challenged by HMRC but this procedure can take many years with Tribunal and Court hearings being required. If the scheme is blocked the scheme users have to pay the tax due but HMRC is concerned that the delay can still give them a significant cash-flow advantage.

HMRC is currently consulting on a proposal to introduce an additional charge on scheme users where the scheme fails. A user will be able to prevent this charge by paying the disputed tax to HMRC ahead of the challenge.

Tax treatment of asset-backed pension contributions

Rules are to be introduced from 29 November 2011 to limit tax relief for employers who enter into arrangements to make asset-backed contributions into their pension schemes. The new rules will ensure that the tax relief obtained more accurately reflects the actual costs to the employer.

EMPLOYMENT TAX

Employer-provided cars

From 6 April 2012 the CO2 emissions bands used to work out the taxable benefit for an employee who has use of an employer-provided car will be shifted downwards by 5gm/km. This will have the effect of increasing the charge for each vehicle.

In addition, the current graduated table of employer-provided car bands will extend down to a 10% band and will apply to cars with CO2 emissions between 76 and 99gm/km. As a result ‘qualifying low emission cars’ will no longer exist as a separate category.

In summary the new rules from 6 April 2012 will be:

  • no emissions                              0%
  • 75gm/km or less                        5%
  • 99gm/km or less                      10%
  • 100gm/km                               11%
  • graduated increases of 1% per 5gm/km up to a maximum, including diesel supplement, of 35%

Real Time Information (RTI)

HMRC have produced draft legislation to introduce probably the most significant change in the PAYE system since its introduction in 1944. Under the RTI scheme, employers will electronically provide monthly information to HMRC related to wages and salaries paid to employees. Once the scheme is ‘bedded in’ employers will no longer have to complete year end returns such as the P35 and P14. The new system will also see the end of the use of the P45 when an employee leaves an employment.

Volunteer employers are to pilot the new scheme from 6 April 2012. The intention is that it will apply to employers on a phased basis from 6 April 2013 so that all employers are operating the system by October 2013.

Comment

This really is a major change but the success or otherwise of the scheme will depend on the ability of the HMRC computer system to cope. History suggests that this could be the problem.

CAPITAL TAXES

CGT rates

The current rates of CGT are 18% to the extent that any income tax basic rate band is available and 28% thereafter. The rate for disposals qualifying for Entrepreneurs’ Relief (ER) is 10% with a lifetime limit of £10m for each individual.

No announcement has been made of the rates for next year.

Comment

The ER limit is very generous and owners of businesses should ensure that they meet all the conditions necessary to secure the relief throughout the twelve months up to the date of a disposal.

CGT annual exemption

The CGT annual exemption has been frozen at £10,600 for 2012/13.

Inheritance tax (IHT) nil rate band

The IHT nil rate band remains frozen at £325,000 until 6 April 2015.

Reduced rate of IHT for the charitable

The Government will introduce a reduced rate of IHT for an estate where a minimum level of legacy has been left by the deceased to charity. The actual legacy to charity remains exempt from IHT and it is the rate of tax on the balance of the estate that would be reduced to 36% from 40%.

The intention is that the reduced rate will apply where charitable bequests satisfy a 10% test. A comparison will be made between:

  • the total value of charitable legacies for IHT purposes and
  • the value of the net estate as reduced by:
  • any available nil rate band
  • the value of assets passing to the surviving spouse or civil partner and
  • other IHT reliefs and exemptions for example Business Property Relief.

If the first figure is at least 10% of the second then the balance of the estate will qualify for the reduced IHT rate of 36%.

The changes will apply to estates where the individual dies on or after 6 April 2012.

Comment

Because the benefit of the reduced IHT rate will be dependent on whether or not the amount of the charitable legacy is sufficient for the estate to pass the 10% test there will be a ‘cliff edge’ effect. Where the amount of the charitable legacy is close to the critical 10% point, a small difference to the amount of the legacy could have a much larger impact on the estate’s IHT liability. There are no plans to apply any taper or other mechanism to mitigate this.

OTHER TAXES

VAT – Low value consignment relief (LVCR)

LVCR is an administrative simplification to reduce the costs for businesses, Royal Mail and other carriers and consumers all of whom would otherwise be involved in the collection and/or payment of small amounts of VAT on large numbers of low value packages coming into the UK from outside the EU. It is the main reason that suppliers of DVDs and CDs often use a base in the Channel Islands from which to ship their products.

The amount at which LVCR was to apply was reduced from £18 to £15 from 1 November 2011.

The Government recently announced that the relief is to be abolished from 1 April 2012 for goods imported as part of a distance selling transaction from the Channel Islands.

VAT cost sharing exemption

The Government is to introduce an EU VAT exemption for organisations that wish to share costs between themselves on a non-profit basis. The exemption can be used, amongst others, by organisations such as charities, universities and higher education colleges and housing associations wanting to make efficiency savings by working together to achieve economies of scale.

Under current UK legislation a VAT cost can arise creating a barrier to the sharing of services. The exemption once implemented would also, in certain circumstances, remove this VAT barrier.

Stamp Duty Land Tax (SDLT) holiday for first time buyers

Currently first-time buyers do not have to pay SDLT on house purchases where the cost is no more than £250,000. This relief is due to expire at midnight on 24th March 2012.

Air Passenger Duty (APD)

The Government intends to proceed with the introduction of APD to flights taken aboard business jets from 1 April 2013.


Disclaimer – for information of users

This summary is published for the information of clients. It provides only an overview of the Autumn Statement and previous announcements. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by the authors or the firm.