Tag Archives: entrepeneurs’ relief

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 2015 – An Overview

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The Budget 2015

George Osborne presented the final Budget of this Parliament on Wednesday 18 March 2015.

In his speech the Chancellor reported ‘on a Britain that is growing, creating jobs and paying its way’.

Towards the end of 2014 the government issued many proposed clauses of Finance Bill 2015 together with updates on consultations. Due to the dissolution of Parliament on 30 March some measures will be legislated for in the week commencing 23 March, whilst others will be enacted by a Finance Bill in the next Parliament (depending on the result of the General Election).

The Budget proposes further measures, some of which may only come to fruition if the Conservative Party is in power in the next Parliament.

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

Main Budget tax proposals

  • Increased personal allowances
  • The introduction of a new Personal Savings Allowance
  • Changes to ISAs including the introduction of a new type of ISA for First Time Buyers
  • Changes to pensions
  • Potential business rate reform in England
  • Entrepreneur’s Relief – changes to qualifying conditions

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.

Personal Tax

The personal allowance for 2015/16

For those born after 5 April 1938 the personal allowance will be increased to £10,600. For those born before 6 April 1938 the personal allowance remains at £10,660.

Comment

The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction 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.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

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

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased from £2,880 to £5,000, and this starting rate will be reduced from 10% to 0%. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

Comment

This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. Eligible savers can register to receive their interest gross using a form R85.

The increase will also provide a useful tax break for director-shareholders who extract their share of profits from a company by taking a low salary and the balance in dividends. This is because dividends are taxed after savings income and thus are not included in the individual’s ‘taxable non-savings income’.

Transferable Tax Allowance

From 6 April 2015 married couples and civil partners may be eligible for a new Transferable Tax Allowance.

The Transferable Tax Allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

The option to transfer will be available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to the other partner which means £1,060 for the 2015/16 tax year.

Comment

For those couples where one person does not use all of their personal allowance the benefit will be up to £212 (20% of £1,060).

Eligible couples can now register their interest for marriage allowance at GOV.UK/marriageallowance. The spouse or partner with the lower income registers their interest in transferring some of their personal allowance by entering some basic details. HMRC will subsequently invite the couple to apply. Those who don’t register their interest will be able to make an application at a later date and still receive the allowance.

The personal allowance and tax bands for 2016/17 and beyond

The personal allowance will be increased to £10,800 in 2016/17 and to £11,000 in 2017/18. The Transferable Tax Allowance will also rise in line with the personal allowance, being 10% of the personal allowance for the year.

The higher rate threshold will rise in line with the personal allowance, taking it to £42,700 in 2016/17 and £43,300 in 2017/18 for those entitled to the full personal allowance.

Personal Savings Allowance

The Chancellor announced that legislation will be introduced in a future Finance Bill to apply a Personal Savings Allowance to income such as bank and building society interest from 6 April 2016.

The Personal Savings Allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income each year. The Personal Savings Allowance will not be available for additional rate taxpayers.

These changes will have effect from 6 April 2016 and the Personal Savings Allowance will be in addition to the tax advantages currently available to savers from Individual Savings Accounts.

Comment

The Personal Savings Allowance will provide basic and higher rate tax payers with a tax saving of up to £200 each year.

The end of tax deduction at source on interest

Due to the changes to the starting rate for savings and the introduction of a Personal Savings Allowance, many individuals will no longer need to pay tax on their savings income. Currently, 20% income tax is automatically deducted from most interest on savings excluding ISAs.

From April 2016, the automatic deduction of 20% income tax by banks and building societies on non-ISA savings will cease.

Individual Savings Accounts (ISAs)

On 1 July 2014 ISAs were reformed and the overall annual subscription limit for these accounts was increased to £15,000 for 2014/15. From 6 April 2015 the overall ISA savings limit will be increased to £15,240.

The Chancellor announced in the Autumn Statement an additional ISA allowance for spouses or civil partners when an ISA saver dies. The additional ISA allowance will be equal to the value of a deceased person’s savings at the time of their death and will be in addition to the normal ISA subscription limit. Regulations will set out the time period within which the additional allowance will be used. In certain circumstances an individual will be able to transfer to their own ISA non-cash assets such as stocks and shares previously held by their spouse.

Comment

In most cases it is envisaged that the additional allowance will be used to subscribe to an ISA offered by the same financial institution that provided the deceased person’s ISA. As the new regulations will allow the transfer of stocks and shares directly into the new ISA, in many cases the effect will be that the investments are left intact and the spouse becomes the new owner of the deceased person’s ISA.

This measure applies for deaths from 3 December 2014 and takes effect from 6 April 2015.

As announced at Budget 2015, regulations will be introduced to extend the list of qualifying investments for ISAs and Child Trust Funds to include listed bonds issued by Co-operative Societies and Community Benefit Societies and SME securities that are admitted to trading on a recognised stock exchange, with effect from 1 July 2015.

The government will also consult during summer 2015 on further extending this list of qualifying investments to include debt securities and equity securities offered via crowd funding platforms.

It was announced at Budget 2015 that regulations will be introduced in autumn 2015, following consultation on technical detail, to enable ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for that year.

At Budget 2014, the Chancellor announced that peer-to-peer loans would be eligible for inclusion within ISAs. The government has consulted on the options for changes to the ISA rules to allow peer-to-peer loans to be held within them.

No start date has been announced.

Comment

Peer-to-peer lending is a small but rapidly growing alternative source of finance for individuals and businesses. The inclusion of such loans in ISAs will increase choice for investors and encourage the growth of the peer-to-peer sector.

Help to Buy ISA

The government has announced the introduction of a new type of ISA, the Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home.

The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.

Help to Buy ISAs will be subject to eligibility rules and limits:

  • An individual will only be eligible for one account throughout the lifetime of the scheme and it is only available to first time buyers.
  • Interest received on the account will be tax free.
  • Savings will be limited to a monthly maximum of £200 with an opportunity to deposit an additional £1,000 when the account is first opened.
  • The government will provide a 25% bonus on the total amount saved including interest, capped at a maximum of £3,000 which is tax free.
  • The bonus will be paid when the first home is purchased.
  • The bonus can only be put towards a first home located in the UK with a purchase value of £450,000 or less in London and £250,000 or less in the rest of the UK.
  • The government bonus can be claimed at any time, subject to a minimum bonus amount of £400.
  • The accounts are limited to one per person rather than one per home so those buying together can both receive a bonus.
  • As is currently the case it will only be possible for an individual to subscribe to one cash ISA per year. It will not be possible for an account holder to subscribe to a Help to Buy ISA with one provider and another cash ISA with a different provider.
  • Once an account is opened there is no limit on how long an individual can save into it and no time limit on when they can use their bonus.

The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years.

Junior ISA and Child Trust Fund (CTF)

The annual subscription limit for Junior ISA and Child Trust Fund accounts will increase from £4,000 to £4,080.

The government has previously decided that a transfer of savings from a CTF to a Junior ISA should be permitted at the request of the registered contact for the CTF. The government has confirmed the measure will have effect from 6 April 2015.

Bad debt relief on investments made on peer-to-peer lending

The government will introduce a new relief to allow individuals lending through peer-to-peer platforms to offset any losses from loans which go bad against other peer-to-peer income. It will be effective from 6 April 2016 and, through self assessment, will allow individuals to make a claim for relief on losses incurred from 6 April 2015.

Pensions saving

There is an overall limit, known as the lifetime allowance, on the total amount of tax relieved pension savings that an individual can have over their lifetime. The Chancellor has now announced that for tax year 2016/17 onwards:

The standard lifetime allowance will be reduced from £1.25 million to £1 million.

Fixed and individual protection regimes will be introduced alongside the reduction in the lifetime allowance to protect savers who think they may be affected by this change.

The lifetime allowance will be indexed annually in line with CPI from 6 April 2018.

Pensions – changes to access to pension funds

The Taxation of Pensions Act has recently been enacted. It provides that individuals aged 55 or over can access their money purchase pension savings as they choose from 6 April 2015.

In most cases access to the fund will be achieved in one of two ways:

  • Allocation of a pension fund (or part of a pension fund) to a ‘flexi-access drawdown account’ from which any amount can be taken over whatever period the person decides.
  • Taking a single or series of lump sums from a pension fund (known as an ‘uncrystallised funds pension lump sum’).

When an allocation of funds to a flexi-access account is made the member typically will take the opportunity of taking a tax free lump sum from the fund (as under current rules).

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum.

The tax effect will be:

  • 25% is tax free
  • the remainder is taxable as income.

An annuity can, of course, be purchased with some or all of the fund as currently.

Comment

The fundamental tax planning point arising from the changes is self-evident. A person should decide when to access funds depending upon their other income in each tax year.

Pension freedoms to be extended to people with annuities

The Chancellor announced just before the Budget a new flexibility for people who have already purchased an annuity. From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity for a capital sum.

Individuals will then have the freedom to take that capital as a lump sum, or place it into drawdown to use the proceeds more gradually.

Income tax at the individuals’ marginal rate will be payable in the year of access to the proceeds.

The proposal will not give the annuity holder the right to sell their annuity back to their original provider. The government has begun a consultation on the measures that are needed to establish a market to buy and sell annuities and who should be permitted to purchase the annuity income.

Comment

The government recognises that for most people retaining their annuity will be the right choice. However, individuals may want to sell an annuity, for instance to pay off debts or to purchase a more flexible pension income product.

Taxation of resident non-domiciles

There will be some changes in the annual charge paid by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation.

The charge paid by people who have been UK resident for seven out of the last nine years will remain at £30,000. The charge paid by people who have been UK resident for 12 out of the last 14 years will increase from £50,000 to £60,000. A new charge of £90,000 will be introduced for people who have been UK resident for 17 of the last 20 years.

The changes apply for 2015/16.

The government is consulting on making the election to pay the remittance basis charge apply for a minimum of three years.

Business Tax

Corporation tax rates

From 1 April 2015 the main rate of corporation tax, currently 21%, will be reduced to 20%.

As the small profits rate is already 20%, the need for this separate code of taxation disappears. The small profits rate will therefore be unified with the main rate.

It is proposed that the rate of corporation tax will continue at 20% for the financial year beginning on 1 April 2016.

Annual Investment Allowance (AIA)

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses. Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

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

Research and Development (R&D) tax credits

As previously announced, the government will increase the rate of the ‘above the line’ credit from 10% to 11% and will increase the rate of the SME scheme from 225% to 230% from 1 April 2015.

It is proposed to restrict qualifying expenditure for R&D tax credits from 1 April 2015 so that the costs of consumable items incorporated in products that are sold are not eligible. Following consultation the restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is received.

A new voluntary advance assurance service lasting three years will be introduced for small companies making their first claim from autumn 2015. From 2016 the time taken to process a claim will be reduced. New guidance will be issued by HMRC aimed specifically at smaller companies, backed by a two year publicity strategy to raise awareness of R&D tax credits. HMRC will publish a document in the summer setting out a roadmap for further improvements to the scheme over the next two years.

Construction Industry Scheme (CIS) improvements

At Autumn Statement the government announced it would make a number of changes to the CIS. The aim of the changes is to reduce the administrative burden and related cost burden on construction businesses. The measures should result in more subcontracting businesses being able to achieve and maintain gross payment status, thus improving their cashflow. These changes are to be implemented in stages by the issue of Statutory Instruments.

From 6 April 2015 amendments will be made to the system including:

  • The requirement for a contractor to make a return to HMRC even if the contractor has not made any payments in a tax month is removed.
  • The requirements for joint ventures to gain gross payment status will be relaxed where one member already has this status and where that firm or company has a right to at least 50% of the assets or the income or holds at least 50% of the shares or the voting power in the joint venture.

From 6 April 2016 further changes are proposed:

  • Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.
  • The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.
  • The threshold for the turnover test will be reduced to £100,000 in multiple directorship situations.

From 6 April 2017 mandatory online verification of subcontractors will be introduced.

Comment

About two thirds of CIS contractors are also employers who therefore file Real Time Information PAYE returns online. It is no surprise that the government wants to extend the scope of mandatory online filing. The improvements to the online verification process would be welcome but the government is also proposing to remove the option of verifying subcontractors by telephone.

Class 2 National Insurance contributions (NIC)

From 6 April 2015 liability to pay Class 2 NIC will arise at the end of each year. Currently a liability to Class 2 NIC arises on a weekly basis.

The amount of Class 2 NIC due will still be calculated based on the number of weeks of self-employment in the year, but will be determined when the individual completes their self assessment return. It will therefore be paid alongside their income tax and Class 4 NIC. For those who wish to spread the cost of their Class 2 NIC, HMRC will retain a facility for them to make regular payments throughout the year. The current six monthly billing system will cease from 6 April 2015.

Those with profits below a threshold will no longer have to apply in advance for an exception from paying Class 2 NIC. Instead they will have the option to pay Class 2 NIC voluntarily at the end of the year so that they may protect their benefit rights.

The government has announced that Class 2 NIC will be abolished in the next Parliament and will reform Class 4 NIC to include a contributory benefit test. Consultation on these matters will take place later in 2015.

Corporation tax relief for goodwill on incorporation

Corporation tax relief may be available to companies when goodwill and intangible assets are recognised in the financial accounts. Relief is normally given on the cost of the asset as the expenditure is written off in accordance with Generally Accepted Accounting Practice or at a fixed 4% rate, following an election.

An anti-avoidance measure was announced at Autumn Statement to restrict corporation tax relief. The restriction applies where a company acquires internally-generated goodwill and certain other intangible assets used in a business from ‘related persons’. In particular, related persons includes individuals who are shareholders in the company.

In addition, individuals will be prevented from claiming Entrepreneurs’ Relief (ER) on disposals of goodwill when they transfer the business to a related company. Capital gains tax will be payable on the gain at the normal rates of 18% or 28% rather than 10%. Following consultation, the legislation will be revised to allow ER to be claimed by partners in a firm who do not hold or acquire any stake in the successor company.

These measures apply to all transfers on or after 3 December 2014 unless made pursuant to an unconditional obligation entered into before that date.

Comment

Prior to this announcement it was possible, for example, on incorporation of a sole trader’s business to a company which is owned by the sole trader, for the company to obtain corporation tax relief on the market value of goodwill at the time of incorporation. The disposal by the sole trader would qualify for a low rate of capital gains tax.

The government considers this is unfair to a business that has always operated as a company.

Diverted profits tax

At Autumn Statement, a new tax to counter the use of aggressive tax planning techniques by multinational enterprises to divert profits from the UK was announced. Legislation will be introduced in Finance Bill 2015 for a new Diverted Profits Tax using a proposed rate of 25% to apply from 1 April 2015.

Farmers averaging

The government will extend the period over which self-employed farmers can average their profits for income tax purposes from two years to five years. A consultation will be held later this year and the legislation to be introduced in a future Finance Bill will come into effect from 6 April 2016.

Changes to venture capital schemes

The government will make amendments to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs).

The government will, subject to EU State aid approval:

  • Require that companies must be less than 12 years old when receiving their first EIS or VCT investment, except where the investment will lead to a substantial change in the company’s activity.
  • Introduce a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies.
  • Increase the employee limit for knowledge-intensive companies to 499 employees, from the current limit of 249 employees.

The government will encourage the transition from SEIS to the other venture capital schemes by removing the requirement that 70% of the funds raised under SEIS must have been spent before EIS or VCT funding can be raised.

Business rates – England

Shortly before the Budget the government launched a wide-ranging review of national business rates in England.

The review, set to report back by Budget 2016, will examine the structure of the current system. The review will look at how businesses use property and how to modernise the system so it better reflects changes in the value of property.

Employment Taxes

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. The percentage applied to each band has typically gone up by 1% each year with an overriding maximum charge of 35% of the list price of the car. From 6 April 2015 the percentage applied by each band goes up by 2% and the maximum charge is increased to 37%.

From 6 April 2016 there will be a further 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%. The 3% diesel supplement will be removed from 6 April 2016.

Comment

These increases may discourage businesses from retaining the same car. New cars will often have lower CO2 emissions than the equivalent model purchased by the employer, say three years earlier.

Zero emission vans

The van benefit charge exemption for zero emission vans is to be phased out from 6 April 2015. For 2015/16 a charge will apply equal to 20% of the normal van benefit charge. This will increase by a further 20% each year over the next three years up to 2018/19 and by a further 10% in 2019/20. From 6 April 2020 a normal 100% van benefit charge will apply to zero emission vans.

Comment

The charge for a zero emission van for 2015/16 will therefore be £630 (£3,150 x 20%).

Employer National Insurance contributions (NIC) for the under 21s

From 6 April 2015 employer NIC for employees under the age of 21 will be reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply the employee will need to be under 21 when the earnings are paid.

This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The weekly UST is £815 for 2015/16 which is equivalent to £42,385 per annum. Employers will be liable to 13.8% NIC beyond this limit.

Comment

The UST is a new term introduced for this new NIC exemption. It is set at the same amount as the Upper Earnings Limit, which is the amount at which employees’ NIC fall from 12% to 2%.

NIC for apprentices under 25

The government will abolish employer NIC up to the UST for apprentices aged under 25. This will come into effect from 6 April 2016.

Comment

Detailed regulations will be issued on the NIC for apprentices including the definition of an apprentice.

NIC Employment Allowance

The Employment Allowance was introduced from 6 April 2014. It is an annual allowance of up to £2,000 which is available to many employers and can be offset against their employer NIC liability.

The government will extend the annual £2,000 Employment Allowance for employer NIC to householders who employ care and support workers. This will come into effect from 6 April 2015.

Review of employee benefits

In 2014 the Office of Tax Simplification published recommendations on the tax treatment of employee benefits in kind and expenses. In response the government has issued draft legislation on four areas:

  • From 6 April 2015 there will be a statutory exemption for certain non-cash benefits in kind costing up to £50. An annual cap of £300 will be introduced for office holders of close companies and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.
  • From 6 April 2016 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.
  • From 6 April 2016 there will be no tax liability on an employee for certain reimbursed expenses. 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). Also employees will automatically get the tax relief they are due on qualifying expenses payments.
  • HMRC will be able to issue Regulations to allow employers to include taxable benefits in pay and thus account for PAYE on the benefits. Employers will therefore not have to include these items on forms P11D.

Overarching contracts of employment and temporary workers

The use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’ can result in workers obtaining tax relief for home to work travel that would not ordinarily be available.

From April 2016 the government will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

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 rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual.

CGT annual exemption

The CGT annual exemption will increase to £11,100 for 2015/16.

CGT – Entrepreneurs’ Relief (ER)

Gains which are eligible for ER, but which are deferred into investments which qualify for the Enterprise Investment Scheme or Social Investment Tax Relief can now remain eligible for ER when the gain is realised. This applies to qualifying ER gains on disposals on or after 3 December 2014 which are deferred into either scheme.

CGT – Restricting ER

ER will not be available to reduce CGT on gains which accrue on personally owned assets used in a trading business carried on by a company or a partnership, unless they are disposed of in connection with a disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This measure will affect disposals on and after 18 March 2015.

Comment

To obtain ER on a personally owned asset used in a trading company or partnership there has to be a genuine withdrawal from participation in the company or partnership. The measure therefore clarifies what is allowed for a valid ER claim to be made.

CGT – ER on joint ventures and partnerships

Amendments are to be made for ER purposes to the definition of a trading company or holding company of a trading group. This will be determined by reference to that company’s own activities (or the activities of the group.)

The aim is to exclude the activities carried on by joint venture companies in which a company is invested, or of partnerships of which a company is a member. Therefore a company will need to have a significant trade of its own in order to be considered as a trading company. It does not, however, affect shareholdings in companies whose investment in a joint venture is part of their own trade. This measure will affect disposals on and after 18 March 2015.

CGT – non-residents and UK residential property

Following consultation the government has confirmed that from 6 April 2015 non-UK resident individuals, trusts, personal representatives and narrowly controlled companies will be subject to CGT on gains accruing on the disposal of UK residential property on or after that date. Non-resident individuals will be subject to tax at the same rates as UK taxpayers (28% or 18% on gains above the annual exemption). Non-resident companies will be subject to tax at the same rates as UK corporates (20%).

CGT – Principal Private Residence Relief (PPR)

The government has decided that some changes are required to the rules determining the circumstances when a property can benefit from PPR. The changes will apply to both a UK resident disposing of a residence in another country and a non-resident disposing of a UK residence.

From 6 April 2015 a person’s residence will not be eligible for PPR for a tax year unless either:

  • the person making the disposal was resident in the same country as the property for that tax year, or
  • the person spent at least 90 midnights in that property.

Comment

The main point of the changes to the PPR rules is to remove the ability of an individual who is resident in, say, France with a property in the UK as well as France to nominate the UK property as having the benefit of PPR. Any gain on the French property is not subject to UK tax anyway and, without changes to the PPR rules, the gain on the UK property could be removed by making a PPR election.

The good news is that the latest proposals retain the ability of a UK resident with two UK residences to nominate which of those properties has the benefit of PPR.

Changes to the tax treatment of pension funds on death

If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. Inheritance tax (IHT) can be avoided by making a ‘letter of wishes’ to the pension provider suggesting to whom the funds should be paid. However, currently there are other tax charges to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. In some situations tax at 55% of the fund value is payable.

The government has introduced significant exceptions from the tax charges (in the Taxation of Pensions Act). Generally the changes take effect where the first payment to a beneficiary is on or after 6 April 2015.

Under the new system, anyone who dies under the age of 75 will be able to give their remaining defined contribution pension fund to anyone completely tax free, whether it is in a drawdown account or untouched. This is subject to the condition that the fund is transferred into the names of chosen beneficiaries within two years. The fund can be paid out as a lump sum to a beneficiary or monies taken out of the fund by the beneficiary when required.

Those aged 75 or over when they die will also be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income whenever they wish. They will pay tax at their marginal rate of income tax when the income is received. Beneficiaries will also have the option of receiving the fund as a lump sum payment, subject to a tax charge of 45%.

Changes to the tax treatment of annuities on death

Draft legislation has been issued which changes the tax treatment when an annuity continues to be paid after death. The changes mirror the changes to the treatment of pension funds passing to beneficiaries on death. For example beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free.

The changes apply where the first payment to a beneficiary is on or after 6 April 2015.

Inheritance tax and deeds of variation

The government will review the uses of deeds of variation as these can currently be used to avoid IHT charges.

Other Matters

Digital tax accounts

The government has announced some initiatives to ‘transform the tax system over the next Parliament’ by introducing digital tax accounts and removing the need for annual tax returns. A digital tax account will enable individuals and small businesses to see and manage their tax affairs online. As a first step, the government will:

  • publish a roadmap later this year setting out the policy and administrative changes needed to implement this reform
  • introduce digital tax accounts for five million small businesses and the ten million individuals by early 2016.

Gift Aid

It is proposed to increase the annual donation amount which can be claimed through the Gift Aid Small Donations Scheme to £8,000. This will allow charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments of up to £2,000 a year, with effect from April 2016.

VAT help for certain charities

As announced at Autumn Statement 2014 hospice, search and rescue and air ambulance charities will be eligible for VAT refunds from 1 April 2015. The Chancellor has now announced that blood bike charities will also be included.

Tax evasion

The government will toughen sanctions for those who evade tax by closing early the existing disclosure facilities. For example the Liechtenstein Disclosure Facility will close at the end of 2015, instead of April 2016. A tougher ‘last chance’ disclosure facility will be offered between 2016 and mid-2017, with penalties of at least 30% on top of tax owed and interest and with no immunity from criminal prosecutions in appropriate cases.

Tax avoidance

The government will introduce tougher measures for those who persistently enter into tax avoidance schemes that fail, and will develop further measures to publish the names of such avoiders and to tackle avoiders who repeatedly abuse reliefs.

Specific anti-avoidance measures

  • The government will introduce legislation, effective from 18 March 2015, to prevent companies from obtaining a tax advantage by entering contrived arrangements to turn historic tax losses of restricted use into more versatile in-year deductions.
  • Measures will be introduced to prevent partly exempt VAT businesses taking account of foreign branches when calculating how much VAT on overhead costs they can reclaim in the UK. This will take effect from 1 August 2015.
  • The government will introduce legislation, with effect from 26 February 2015, to clarify the effect of capital allowances anti-avoidance rules where there are transactions between connected parties or sale and leaseback transactions.

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.

The Chancellor’s 2014 Autumn Statement

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Autumn Statement 2014

On Wednesday 3 December the Office for Budget Responsibility 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 and some of these proposals are summarised here. Draft legislation relating to many of these areas will be published on 10 December and some of the details in this summary may change as a result.

Our summary also provides a reminder of other significant developments which are to take place from April 2015.

The Chancellor’s statement

His speech and the subsequent documentation announced tax measures in addition to the normal economic measures.

Our summary concentrates on the tax measures which include:

  • improvements to the starting rate of tax for savings income
  • new rules for accessing pension funds
  • removal of corporation tax relief for goodwill on incorporation
  • changes to the Construction Industry Scheme
  • the introduction of new CGT rules for non-residents and UK residential property
  • changes to the remittance basis charge for resident non-domiciles
  • changes to the tax treatment of pensions on death
  • changes to the IHT treatment of trusts
  • changes to Stamp Duty Land Tax for residential property.

Personal Tax

The personal allowance for 2015/16

For those born after 5 April 1948 the personal allowance will be increased from £10,000 to £10,600.

Comment
The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So for 2014/15 there is no allowance when adjusted net income exceeds £120,000. In 2015/16 the allowance ceases when adjusted net income exceeds £121,200.

Tax bands and rates for 2015/16

The basic rate of tax is currently 20%. The band of income taxable at this rate is being decreased from £31,865 to £31,785 so that the threshold at which the 40% band applies will rise from £41,865 to £42,385 for those who are entitled to the full basic personal allowance.

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

Dividend income is taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. Where income exceeds £150,000, dividends are taxed at 37.5%.

Starting rate of tax for savings income

From 6 April 2015, the maximum amount of an eligible individual’s savings income that can qualify for the starting rate of tax for savings will be increased to £5,000 from £2,880, and this starting rate will be reduced from 10% to nil. These rates are not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income) exceeds the starting rate limit.

Comment
This will increase the number of savers who are not required to pay tax on savings income, such as bank or building society interest. If a saver’s taxable non-savings income will be below the total of their personal allowance plus the £5,000 starting rate limit then they can register to receive their interest gross using a form R85.The increase will also provide a useful tax break for director/shareholders who extract their share of profits from a company by taking a low salary and the balance in dividends. This is because dividends are taxed after savings income and thus are not included in the individual’s ‘taxable non-savings income’.

 

Example
Type of income Amount Tax rate Comment on tax rate
Salary £10,600 Nil (as covered by personal allowance)
Bank interest £3,000 Nil (as salary plus interest is less than £15,600)

Dividend income is then taxed at the appropriate dividend tax rates.

Transferable Tax Allowance for some

From 6 April 2015 married couples and civil partners may be eligible for a new Transferable Tax Allowance.

The Transferable Tax Allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

The option to transfer will be available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their personal allowance to the other partner which means £1,060 for the 2015/16 tax year.

Comment
For those couples where one person does not use all of their personal allowance the benefit will be up to £212 (20% of £1,060).HMRC will, no doubt, be publicising the availability of the Transferable Tax Allowance in the next few months and details of how couples can opt to transfer allowances.

New Individual Savings Accounts (NISAs)

On 1 July 2014 ISAs were reformed into a simpler product, the NISA, and the overall annual subscription limit for these accounts was increased to £15,000 for 2014/15. From 6 April 2015 the overall NISA savings limit will be increased to £15,240.

The Chancellor has now announced an additional ISA allowance for spouses or civil partners when an ISA saver dies. From 6 April 2015, surviving spouses will be able to invest the inherited funds into their own ISA, on top of their usual allowance. This measure applies for deaths from 3 December 2014.

At Budget 2014, the Chancellor announced that peer-to-peer loans would be eligible for inclusion within NISAs. The government is consulting on the options for changes to the NISA rules to allow peer-to-peer loans to be held within them.

No start date has been announced.

Comment
Peer-to-peer lending is a small but rapidly growing alternative source of finance for individuals and businesses. The inclusion of such loans in NISAs will increase choice for investors and encourage the growth of the peer-to-peer sector.

Junior ISA and Child Trust Fund (CTF)

The annual subscription limit for Junior ISA and Child Trust Fund accounts will increase from £4,000 to £4,080.

The government has previously decided that a transfer of savings from a CTF to a Junior ISA should be permitted at the request of the registered contact for the CTF. The government has confirmed the measure will have effect from 6 April 2015.

Bad debt relief on investments made on peer-to-peer lending

The government will introduce a new relief to allow individuals lending through peer-to-peer platforms to offset any losses from loans which go bad against other peer-to-peer income. It will be effective from 6 April 2016 and, through self assessment, will allow individuals to make a claim for relief on losses incurred from 6 April 2015.

Pensions – changes to access of pension funds

In Budget 2014, George Osborne announced ‘pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want’. Some of changes have already taken effect but the big changes will come into effect on 6 April 2015 for individuals who have money purchase pension funds.

The tax consequences of the changes are contained in the Taxation of Pensions Bill which is currently going through Parliament.

Under the current system, there is some flexibility in accessing a pension fund from the age of 55:

  • tax free lump sum of 25% of fund value
  • purchase of an annuity with the remaining fund, or
  • income drawdown.

For income drawdown there are limits, in most cases, on how much people can draw each year.

An annuity is taxable income in the year of receipt. Similarly any monies received from the income drawdown fund are taxable income in the year of receipt.

From 6 April 2015, the ability to take a tax free lump sum and a lifetime annuity remain but some of the current restrictions on a lifetime annuity will be removed to allow more choice on the type of annuity taken out.

The rules involving drawdown will change. There will be total freedom to access a pension fund from the age of 55.

It is proposed that access to the fund will be achieved in one of two ways:

  • allocation of a pension fund (or part of a pension fund) into a ‘flexi-access drawdown account’ from which any amount can be taken over whatever period the person decides
  • taking a single or series of lump sums from a pension fund (known as an ‘uncrystallised funds pension lump sum’).

When an allocation of funds into a flexi-access account is made the member typically will take the opportunity of taking a tax free lump sum from the fund (as under current rules).

The person will then decide how much or how little to take from the flexi-access account. Any amounts that are taken will count as taxable income in the year of receipt.

Access to some or all of a pension fund without first allocating to a flexi-access account can be achieved by taking an uncrystallised funds pension lump sum.

The tax effect will be:

  • 25% is tax free
  • the remainder is taxable as income.

Comment
The fundamental tax planning point arising from the changes is self-evident. A person should decide when to access funds depending upon their other income in each tax year.

Pensions – changes to tax relief for pension contributions

The government is alive to the possibility of people taking advantage of the new flexibilities by ‘recycling’ their earned income into pensions and then immediately taking out amounts from their pension funds. Without further controls being put into place an individual would obtain tax relief on the pension contributions but only be taxed on 75% of the funds immediately withdrawn.

Currently an ‘annual allowance’ sets the maximum amount of tax efficient contributions. The annual allowance is £40,000 (but there may be more allowance available if the maximum allowance has not been utilised in the previous years).

Under the proposed rules from 6 April 2015, the annual allowance for contributions to money purchase schemes will be reduced to £10,000 in certain scenarios. There will be no carry forward of any of the £10,000 to a later year if it is not used in the year.

The main scenarios in which the reduced annual allowance is triggered is if:

  • any income is taken from a flexi-access drawdown account, or
  • an uncrystallised funds pension lump sum is received.

However just taking a tax-free lump sum when funds are transferred into a flexi-access account will not trigger the £10,000 rule.

Taxation of resident non-domiciles

The Chancellor has announced an increase in the annual charge paid by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation.

The charge paid by people who have been UK resident for seven out of the last nine years will remain at £30,000. The charge paid by people who have been UK resident for 12 out of the last 14 years will increase from £50,000 to £60,000. A new charge of £90,000 will be introduced for people who have been UK resident for 17 of the last 20 years. The government will also consult on making the election apply for a minimum of three years.

 

Business Tax

Corporation tax rates

From 1 April 2015 the main rate of corporation tax, currently 21%, will be reduced to 20%.

As the small profits rate is already 20%, the need for this separate code of taxation disappears. The small profits rate will therefore be unified with the main rate.

Research and Development (R&D) tax credits

The government will increase the rate of the ‘above the line’ credit from 10% to 11% and will increase the rate of the SME scheme from 225% to 230% from 1 April 2015.

It is proposed to restrict qualifying expenditure for R&D tax credits from 1 April 2015 so that the costs of materials incorporated in products that are sold are not eligible. There will be a package of measures to streamline the application process for smaller companies investing in R&D.

Construction Industry Scheme (CIS) improvements

In Budget 2014 the government announced that it would consult on options to improve the operation of the scheme for smaller businesses and to introduce mandatory online CIS filing for contractors. The consultation has now taken place.

A key reform concerns changes to the requirements for subcontractors to achieve and retain gross payment status. There are proposals for simplifying and improving the compliance and turnover tests which will enable more subcontractors to access gross payment status. There is no intention to change the £30,000 turnover test for sole traders, but the government proposes lowering the threshold for the upper limit of the turnover test to help more established businesses with multiple partners or directors qualify for gross payment status. The current upper threshold of £200,000 could fall to as little as £100,000.

Some compliance tests would be relaxed so that it would be easier for subcontractors to retain their gross payment status.

For contractors the government is proposing mandatory online filing of monthly CIS returns. Improvements will be made to the IT systems to provide a better CIS online service. These will include the online system for verification of subcontractors by contractors.

Comment
About two thirds of CIS contractors are also employers who therefore file Real Time Information PAYE returns online. It is no surprise that the government wants to extend the scope of mandatory online filing. The improvements to the online verification process would be welcome but the government is also proposing to remove the option of verifying subcontractors by telephone.

Class 2 National Insurance contributions (NIC)

From 6 April 2015 liability to pay Class 2 NIC will arise at the end of each year. Currently a liability to Class 2 NIC arises on a weekly basis.

The amount of Class 2 NIC due will still be calculated based on the number of weeks of self-employment in the year, but will be determined when the individual completes their self assessment return. It will therefore be paid alongside their income tax and Class 4 NIC. For those that wish to spread the cost of their Class 2 NIC, HMRC will retain a facility for them to make regular payments throughout the year. The current six monthly billing system will cease from 6 April 2015.

Those with profits below a threshold will no longer have to apply in advance for an exception from paying Class 2 NIC. Instead they will have the option to pay Class 2 NIC voluntarily at the end of the year so that they may protect their benefit rights.

Corporation tax relief for goodwill on incorporation

Corporation tax relief is given to companies when goodwill and intangible assets are recognised in the financial accounts. Relief is normally given on the cost of the asset as the expenditure is written off in accordance with Generally Accepted Accounting Practice or at a fixed 4% rate, following an election.

An anti-avoidance measure has been announced to restrict corporation tax relief where a company acquires internally-generated goodwill and certain other intangible assets from related individuals on the incorporation of a business.

In addition, individuals will be prevented from claiming Entrepreneurs’ Relief on disposals of goodwill when they transfer the business to a related company. Capital gains tax will be payable on the gain at the normal rates of 18% or 28% rather than 10%.

These measures will apply to all transfers on or after 3 December 2014 unless made pursuant to an unconditional obligation entered into before that date.

Comment
Prior to this announcement it was possible, for example, on incorporation of a sole trader’s business to a company which is owned by the sole trader, for the company to obtain corporation tax relief on the market value of goodwill at the time of incorporation. The disposal by the sole trader would qualify for a low rate of capital gains tax.The government considers this is unfair to a business that has always operated as a company.

Corporation tax reliefs – creative sector

Two new reliefs and a change to an existing relief are proposed:

  • Children’s television tax relief – the government will introduce a new tax relief for the production of children’s television programmes from 1 April 2015. The relief will be available at a rate of 25% on qualifying production expenditure.
  • Orchestra tax relief – The government will consult on the introduction of an orchestra tax relief from 1 April 2016.
  • High-end television tax relief – the government will explore with the industry whether to reduce the minimum UK expenditure for high-end TV relief from 25% to 10% and modernise the cultural test, to bring the relief in line with film tax relief.

Overarching contracts of employment and temporary workers

The government will review the increasing use of overarching contracts of employment by employment intermediaries such as ‘umbrella companies’. These arrangements enable workers to obtain tax relief for home to work travel that would not ordinarily be available. The government will publish a discussion paper shortly which may result in new measures at Budget 2015.

Banks – loss relief restriction

The government will restrict the amount of a bank’s annual profit that can be offset by the carry forward of losses to 50% from 1 April 2015. The restriction will apply to losses accruing up to 1 April 2015 and will include an exemption for losses incurred in the first five years of a bank’s authorisation.

Diverted profits tax

A new tax to counter the use of aggressive tax planning techniques by multinational enterprises to divert profits from the UK will be introduced. The Diverted Profits Tax will be applied using a rate of 25% from 1 April 2015.

 

Employment Taxes

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. The percentage applied to each band has typically gone up by 1% each year with an overriding maximum charge of 35% of the list price of the car. From 6 April 2015, the percentage applied by each band goes up by 2% and the maximum charge is increased to 37%.

Comment
These increases have the perverse effect of discouraging retention of the same car. New cars will often have lower CO2 emissions than the equivalent model purchased by the employer, say three years ago.

Employer National Insurance contributions (NIC) for the under 21s

From 6 April 2015 employer NIC for those under the age of 21 will be reduced from the normal rate of 13.8% to 0%. For the 0% rate to apply the employee will need to be under 21 when the earnings are paid.

This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The weekly UST is £815 for 2015/16 which is equivalent to £42,385 per annum. Employers will be liable to 13.8% NIC beyond this limit.

Comment
The UST is a new term for this new NIC exemption. It is set at the same amount as the Upper Earnings Limit, which is the amount at which employees’ NIC fall from 12% to 2%.

NIC for apprentices under 25

The government will abolish employer NIC up to the upper earnings limit for apprentices aged under 25. This will come into effect from 6 April 2016.

NIC Employment Allowance

The Employment Allowance was introduced from 6 April 2014. It is an annual allowance of up to £2,000 which is available to many employers and can be offset against their employer NIC liability.

The government will extend the annual £2,000 Employment Allowance for employer NIC to care and support workers. This will come into effect from 6 April 2015.

Review of employee benefits

The Office of Tax Simplification has published a number of detailed recommendations on the tax treatment of employee benefits in kind and expenses. In response the government launched:

  • a package of four related consultations on employee benefits in kind and expenses
  • a longer term review of the tax treatment of travel and subsistence expenses
  • a call for evidence on modern remuneration practices.

The government has now announced:

  • From 6 April 2015 there will be a statutory exemption for trivial benefits in kind costing less than £50.
  • From 6 April 2016, the £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. This threshold adds unnecessary complexity to the tax system. There will be new exemptions for carers and ministers of religion.
  • There will be an exemption for certain reimbursed expenses which will replace the current system where employers apply for a dispensation to avoid having to report non-taxable expenses. The new exemption for reimbursed expenses will not be available if used in conjunction with salary sacrifice.
  • The introduction of a statutory framework for voluntary payrolling benefits in kind. Payrolling benefits instead of submitting forms P11D can offer substantial administrative savings for some employers.

 

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 rate for disposals qualifying for Entrepreneurs’ Relief is 10% with a lifetime limit of £10 million for each individual.

CGT – Entrepreneurs’ Relief (ER)

The government will allow gains which are eligible for ER, but which are instead deferred into investments which qualify for the Enterprise Investment Scheme or Social Investment Tax Relief to remain eligible for ER when the gain is realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into either scheme on or after 3 December 2014.

CGT – non-residents and UK residential property

At present a non-resident individual or company is not liable to CGT on residential property even though it is located in the UK. This is in marked contrast to many other countries that charge a capital gains tax on the basis of the location of a property rather than on the location of the vendor.

Therefore from 6 April 2015 a CGT charge will be introduced on gains made by non-residents disposing of UK residential property. The rate of tax for non-resident individuals will be the same as the CGT rates for UK individuals. Non-resident individuals will have access to the CGT annual exemption.

The rate of tax for companies will mirror the UK corporation tax rate.

The charge will not apply to the amount of the gain relating to periods prior to 6 April 2015. The government will allow either rebasing to a 5 April 2015 value or a time-apportionment of the whole gain, in most cases.

The government has decided that some changes are required to the rules determining the circumstances when a property can benefit from Private Residence Relief (PRR). The changes will apply to both a UK resident disposing of a residence in another country and a non-resident disposing of a UK residence.

From 6 April 2015 a person’s residence will not be eligible for PRR for a tax year unless either:

  • the person making the disposal was resident in the same country as the property for that tax year, or
  • the person spent at least 90 midnights in that property.

Comment
The main point of the changes to the PRR rules is to remove the ability of an individual who is resident in, say, France with a property in the UK as well as France to nominate the UK property as having the benefit of PRR. Any gain on the French property is not subject to UK tax anyway and, without changes to the PRR rules, the gain on the UK property could be removed by making a PRR election.The good news is that the latest proposals retain the ability of a UK resident with two UK residences to nominate which of those properties have the benefit of PRR.

Changes to the tax treatment of pensions on death

IHT and pension funds

If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries. Inheritance tax (IHT) can be avoided by making a ‘letter of wishes’ to the pension provider suggesting to whom the funds should be paid. If an individual’s intention has not been expressed the funds may be paid to the individual’s estate resulting in a potential IHT liability.

Other tax charges on pension funds – current law

There are other tax charges to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. For example:

  • if the fund is paid as a lump sum to a beneficiary, tax at 55% of the fund value is payable
  • if the fund is placed in a drawdown account to provide income to a ‘dependant’ (for example a spouse), the income drawn down is taxed at the dependant’s marginal rate of income tax.

There are some exceptions from the 55% charge. It is possible to pass on a pension fund as a tax free lump sum where the individual has not taken any tax free cash or income from the fund and they die under the age of 75.

Other tax charges on pension funds – changes

The government has decided to introduce significant exceptions from the tax charges.

Under the new system, anyone who dies under the age of 75 will be able to give their remaining defined contribution pension fund to anyone completely tax free, whether it is in a drawdown account or untouched.

The fund can be paid out as a lump sum to a beneficiary or taken out by the beneficiary through a ‘flexi access drawdown account’ (see the personal tax section of this summary for an explanation of this term).

Those aged 75 or over when they die will be able to pass their defined contribution pension fund to any beneficiary who will then be able to draw down on it as income at their marginal rate of income tax. Beneficiaries will also have the option of receiving the pension as a lump sum payment, subject to a tax charge of 45%.

The proposed changes take effect for payments made from 6 April 2015.

Tax treatment of inherited annuities

The Chancellor has announced further changes to the pension tax regime. From 6 April 2015 beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.

Comment
Without this change in tax treatment of inherited annuities, individuals had a potential prospective tax advantage in choosing not to purchase an annuity. If an individual died relatively early, their fund would pass tax free to beneficiaries. If the individual would prefer the financial comfort of a guaranteed payment of income, beneficiaries would be taxed on the income at their marginal rate of income tax under current rules. From 6 April 2015, the beneficiaries will be able to receive any future payments from such policies tax free.

Changes to the trust IHT regime

Certain trusts, known as ‘relevant property trusts’, provide a mechanism to allow assets to be held outside of an individual’s estate thus avoiding a 40% IHT liability on the death of an individual. The downside is that there are three potential points of IHT charge on relevant property trusts:

  • a transfer of assets into the trust is a chargeable transfer in both lifetime and on death
  • a charge has to be calculated on the value of the assets in the trust on each ten-year anniversary of the creation of the trust
  • an exit charge arises when assets are effectively transferred out of the trust.

The calculation of the latter two charges is currently a complex process which can take a significant amount of time to compute for very little tax yield.

A third consultation on proposed changes was issued in June 2014. It proposed that an individual would have a ‘settlement nil rate band’ which would be unconnected to their personal nil rate band.

The government has now announced that a single settlement nil rate band will not be introduced. The government will introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules.

IHT – exemption for emergency services personnel and humanitarian aid workers

Following consultation since Budget 2014, the government will extend the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services and humanitarian aid workers responding to emergency circumstances. It will have effect for deaths on or after 19 March 2014.

Stamp Duty Land Tax (SDLT)

The Chancellor has announced a major reform to SDLT on residential property transactions. SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. From 4 December 2014 each new SDLT rate will only be payable on the portion of the property value which falls within each band. This will remove the distortion created by the existing system, where the amount of tax due jumps at the thresholds.

Where contracts have been exchanged but not completed on or before 3 December 2014, purchasers will have a choice of whether the old or new structure and rates apply. This measure will apply in Scotland until 1 April 2015 when SDLT is devolved to the Scottish Parliament.

The new rates and thresholds are:

Purchase price of property New rates paid on the part of the property price within each tax band
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
£1,500,001 and above 12%

 

Comment
Purchasers of residential property valued at £937,500 or less will pay the same or in most cases less tax than they would have paid under the old rules.

Annual Tax on Enveloped Dwellings (ATED)

The ATED is payable by those purchasing and holding their homes through corporate envelopes, such as companies. The government introduced a package of measures in 2012 and 2013 to tackle this tax avoidance. One of the measures was the ATED.

The government has now announced an increase in the rates of ATED by 50% above inflation. From 1 April 2015, the charge on residential properties owned through a company and worth:

  • more than £2 million but less than £5 million will be £23,350
  • more than £5 million but less than £10 million will be £54,450
  • more than £10 million but less than £20 million will be £109,050
  • more than £20 million will be £218,200.

 

Other Matters

Devolved tax powers to Scottish Parliament

Following the referendum on Scottish independence, the main political parties in Scotland have agreed on new devolved powers. The UK government will publish draft clauses in January 2015 for the implementation of these powers.

For income tax:

  • the Scottish Parliament will have the power to set income tax rates and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers
  • all other aspects of income tax will remain reserved to the UK Parliament, including the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income
  • HMRC will continue to collect and administer income tax across the UK.

For other taxes:

  • VAT – Receipts raised in Scotland by the first 10 percentage points of the standard rate of VAT will be assigned to the Scottish government’s budget. All other aspects of VAT will remain reserved to the UK Parliament.
  • Air passenger duty – The power to charge tax on air passengers leaving Scottish airports will be devolved to the Scottish Parliament, with freedom to make arrangements with regard to the design and collection of any replacement tax.
  • Aggregates levy – The power to charge tax on the commercial exploitation of aggregate in Scotland will be devolved to the Scottish Parliament, once the current European legal challenges are resolved.

Devolution to Northern Ireland

The government recognises the strongly held arguments for devolving corporation tax rate-setting powers to Northern Ireland. HMRC and HM Treasury have concluded that this proposal could be implemented provided that the Northern Ireland Executive is able to manage the financial implications.

The parties in the Northern Ireland Executive are currently taking part in talks aimed at resolving a number of issues. The government will introduce legislation in this Parliament subject to satisfactory progress on these issues in the cross-party talks.

Devolution of non-domestic rates to Wales

Agreement has been reached with the Welsh government on full devolution of non-domestic (business) rates policy. The fully devolved regime will be operational by April 2015.

Offshore tax evasion

In 2014, the government announced its intention to introduce a new strict liability criminal offence of failing to declare taxable offshore income and gains. This means that HMRC would need only demonstrate that a person failed to correctly declare the income or gains, and not that they did so with the intention of defrauding the Exchequer. This will complement existing offences, such as the common law offence of cheating the public revenue, with less serious sanctions than existing criminal offences.

The government is consulting on the design of the new offence.

The government considers the majority of cases are still likely to be investigated and settled through civil means. Another consultation is seeking views on strengthening the existing civil penalty regime on offshore evasion.

The offshore penalties regime has applied to liabilities arising from 6 April 2011. The level of penalty is based on the type of behaviour that leads to the understatement of tax, and is linked to the tax transparency of the territory in which the income or gain arises. The underlying premise is that where it is harder for HMRC to get information from another territory, the more difficult it is to detect and remedy non-compliance and therefore the penalties for failing to declare income and gains arising in that territory will be higher.

Direct Recovery of Debts (DRD)

At Budget 2014, the Chancellor announced HMRC would be given the power to recover tax and tax credit debts directly from the bank and building society accounts (including NISAs) of debtors. A consultation on DRD set out the process and safeguards but many commentators considered the safeguards were not robust enough. In response to concerns about the risk of DRD being used in error and the potential impact on vulnerable individuals, the government will introduce further safeguards.

It is now proposed the main features of the DRD process will be:

  • only debts of £1,000 or more will be eligible for recovery through DRD
  • HMRC will always leave £5,000 across a debtor’s accounts, as a minimum, once the debt has been held
  • guaranteeing every debtor will receive a face-to-face visit from HMRC agents, before their debts are considered for recovery through DRD
  • extending the window to 30 calendar days, from the start of the DRD being initiated to the earliest point at which funds could be transferred to HMRC
  • an option for debtors to appeal against HMRC’s decision to a County Court on specified grounds, including hardship and third party right.

Scotland will be removed from the scope of DRD as HMRC already has summary warrant powers in Scotland to recover debts in a similar, though not identical, manner to DRD.

In order to allow for an extended period of scrutiny, the government intends to legislate in 2015, during the next Parliament.

Comment
HMRC state that the vast majority of people pay their taxes in full and on time and DRD will only affect individuals and businesses who are making an active decision not to pay. HMRC also state they will use the power in a very small minority of cases.Last year, HMRC collected £505.8 billion from about 35 million taxpayers. About 90% was paid on time but around £50 billion was not, and became a debt. They made around 16 million contacts with debtors by letter, phone, text message or other means to collect the debt. This included making more than 900,000 visits to follow up on around 400,000 debt cases. HMRC estimate they will use DRD 17,000 times a year.

Air Passenger Duty (APD)

The Chancellor announced an exemption from reduced rate APD from 1 May 2015 for children under 12 and from 1 March 2016 for children under 16. The government has reviewed how to improve tax transparency in ticket prices and will consult on whether the APD needs to be displayed on airline tickets.

Disclaimer – for information of users

This publication is published for the information of clients. It provides only an overview of the regulations in force at the date of publication 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 publication can be accepted by the authors or the firm.

 

Newsletter – March 2011

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In this month’s enews we report on several employment related issues. Please browse through the articles and get in touch if you have any further queries or would like more information.

 

eNEWS quicklinks
Budget Statement Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)
Corporation tax rates Approved mileage allowance payments (AMAP)
Entrepreneurs’ Relief (ER) Research and Development (R&D) Tax Credits
Enterprise Zones £1.3 million tax credits identity thief jailed
HMRC launch business records tools Plumbers Tax Safe Plan
Fuel Prices Help for small businesses
HMRC online services unavailable Standard rate of VAT- updated guidance
Retirement and the removal of the Default Retirement Age

 

Budget Statement

George Osborne presented his second Budget on Wednesday 23 March 2011.

In his statement he said that the ‘Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future’.

The Main Budget proposals

The government had previously announced changes which apply from April 2011. However the Statement also included several new announcements, some of the more significant of which are set out below:

An additional 1% cut in the main rate of corporation tax to 26% from April 2011.

  • Enhanced tax incentives for investment in higher risk companies and for SMEs investing in research and development.
  • Reintroduction of Enterprise Zones.
  • Entrepreneurs’ Relief limit doubled to £10 million.
  • An increase in the mileage rate payable to own car drivers.
  • Consultation on integrating income tax and national insurance contributions.
  • Reduced inheritance tax rates for those giving one tenth of their estate to charity.

Some of these items are covered in more detail in the following articles. To access the full Budget information visit the Treasury website using the link below.

Internet link: Treasury Website Budget

Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs)

EIS and VCTs are designed to encourage private individuals to invest in smaller unquoted trading companies which may be perceived as higher risk. While the EIS requires an investment to be made directly into the shares of the company, VCTs operate by indirect investment through a mediated fund.

Currently EIS investors may be given income tax relief at 20% on their investments of up to £500,000 a year. Legislation will be introduced to increase the rate of tax relief to 30% for shares issued on or after 6 April 2011, subject to State aid approval.

Future changes

Subject to State aid approval, legislation will be introduced to make the following changes to the EIS and for shares issued on or after 6 April 2012.

The thresholds for the size of the company which may benefit from both types of investment will be increased to fewer than 250 employees and £15 million gross assets before the investment.

The annual amount which can be invested in an individual company is to rise to £10 million.

The annual amount that an individual can invest through EIS is to increase to £1 million.

Internet link: Budget TIIN

Corporation tax rates

Legislation will be introduced in Finance Bill 2011 to reduce the main rate of corporation tax from 28% to 26% for the Financial Year commencing 1 April 2011 and then to 25% for the Financial Year commencing 1 April 2012. The main rate of corporation tax generally applies to companies with profits of more than £1.5 million. It had previously been announced that the main rate would reduce from 28% to 27% followed by further 1% graduated reductions until it reached 24% by 1 April 2014. Instead the main rate is set to reduce to 23% by 1 April 2014.

The small profits rate of corporation tax, which generally applies to companies with up to £300,000 of profits, is to reduce from 21% to 20% also with effect from 1 April 2011. This had already been announced.

The effective marginal corporation tax rate for profits between £300,000 and £1.5 million will be 27.5% from 1 April 2011.

Internet link: Budget TIIN

Approved mileage allowance payments (AMAP)

The AMAP rates can be used to claim the cost of business mileage in an employee’s own vehicle. The rates cover cars, vans, motorcycles and bicycles. Where an employer pays less than the published rates, employees can make a claim for tax relief for the shortfall.

With effect from 6 April 2011 the rate of the AMAP for cars and vans will be increased from 40p per mile to 45p per mile for the first 10,000 miles of business travel in the tax year. The rate for mileage above 10,000 miles will remain at 25p per mile.

This may mean that drivers receiving mileage allowances in excess of the AMAP will see a reduction in their tax and NICs liability. For those drivers who receive less than the AMAP their claim for tax relief on the shortfall will be increased.

An allowance for passenger payments currently in place for employees at 5p per passenger per mile will be extended to volunteers who carry passengers as part of their volunteering duties. This extension will apply with effect from 6 April 2011.

Internet link: Budget TIIN

Entrepreneurs’ Relief (ER)

ER was introduced in April 2008. Subject to satisfying certain conditions, including the current lifetime limit of £5 million, capital gains on qualifying business disposals by individuals and certain trustees are eligible for ER. Qualifying gains are liable to CGT at 10%.

The lifetime limit is applied to the aggregate of gains that benefit from ER, whatever the year in which the disposal took place. Any gains in excess of the lifetime limit are liable to CGT at the same rates as other chargeable gains.

The lifetime limit will increase to £10 million with effect for qualifying business disposals on or after 6 April 2011.

Where individuals or trustees make qualifying gains above the £5m limit before 6 April 2011, no additional relief will be allowed for the excess.

Internet link: Budget TIIN

Research and Development (R&D) Tax Credits

Subject to State aid approval, legislation will be introduced in Finance Bill 2011 to increase the rate of the additional deduction for expenditure on R&D for companies that are small or medium-sized enterprises (SMEs) from 75% to 100% for expenditure incurred on or after 1 April 2011, giving a total deduction of 200%. The rate of Vaccine Research Relief for SMEs will be reduced to 20% from the same date.

The government also plans to introduce further changes subject to consultation and State aid approval in Finance Bill 2012 in respect of expenditure incurred on or after 1 April 2012 as follows:

  • to abolish the rule limiting a company’s payable R&D tax credit to the amount of PAYE and NICs it pays
  • to abolish the £10,000 minimum expenditure condition
  • to change the rules governing the provision of relief for work done by subcontractors under the large company scheme
  • to increase the rate of the additional deduction for expenditure on R&D for SMEs by a further 25% to give a total deduction of 225%
  • Vaccine Research Relief will not be available for SMEs.

Internet link: Budget TIIN

Enterprise Zones

The government announced the location of ten new urban Enterprise Zones within the following Local Enterprise Partnership areas: Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; and Derby, Derbyshire, Nottingham and Nottinghamshire. In addition, London will have an Enterprise Zone and be able to choose its site.

The government will make a range of policy tools available to all zones including:

  • a 100% business rate discount worth up to £275,000 over a five year period for businesses that move into an Enterprise Zone during the course of this Parliament
  • government and local authority help to develop radically simplified planning approaches in the zone.

It will consider, in a limited number of cases, the scope for introducing enhanced capital allowances.

Internet link: Treasury Budget document

£1.3 million tax credits identity thief jailed

Olaide (John) Taiwo, aged 35, has been jailed for his part in stealing the identities of at least 350 people and using the identities to submit over 300 fraudulent tax credit claims.

A woman who also took part in the fraud was also convicted. She will be sentenced in April.

Richard Young, Senior Investigating Officer for HMRC said:

‘This pair blatantly hijacked the identities of over 350 innocent people and stole from British taxpayers by submitting over 300 fraudulent tax credit claims between June 2004 and July 2008. They deliberately attacked and abused a system designed to provide financial help to the most vulnerable people in our society. The sentences given will be a warning to anyone considering committing this type of fraud – it will not be tolerated. HMRC will pursue, prosecute and reclaim the financial gain from those found to commit these types of crime. I urge anyone who has information about Tax Credits fraud, to call the National Benefit Fraud Hotline on 0800 854 440 and help us stamp this fraudulent activity out.’

Upon sentencing Taiwo, His Honour Judge Simon Davis said:

‘This is a fraud on a substantial scale. You lied and sought to manipulate with ease and confidence and with an arrogance that was astonishing. You were intimately connected with every aspect of the fraud, stealing real details of real people to commit identity fraud on the large scale.’

As part of the investigation, a search of his home uncovered evidence of the fraud taking place, including details of numerous bank accounts held in the defendants’ names and aliases, plus documentation which held hundreds of innocent people’s identities. HMRC investigators also seized £70,000, which is believed to be proceeds of the crime.

Internet link: Press release

HMRC launch business records tools

HMRC are making available on their website checklists and toolkits which they believe are suitable for the self employed, sole traders and small businesses. The tools have been released in advance of the launch of HMRC’s programme of Business Record Checks scheduled for later this year, which will impose penalties for significant record keeping failures.

Brian Redford, HMRC’s Acting Director, Business Customer Unit, said:

‘In these tough times, keeping good records makes sound business sense.’

‘It may seem like a challenge, particularly when you’re starting out, but keeping good records will bring real advantages to your business. Get a proper system in place and you’ll not only be confident that you are paying the right tax, but you’ll keep up-to-date with how much you owe suppliers and how much you are owed.’

‘Later this year, HMRC will start a programme of Business Records Checks that will look at the adequacy and accuracy of business records in SMEs to bring about a major improvement in the standard of record-keeping. Now is the time to invest a bit of effort to make sure your business records are perfect.’

The toolkits and checklists can be found on the Business Link website. However if you are unsure what records you should be keeping or would like a reminder please do get in touch.

Internet link: Press release

Plumbers Tax Safe Plan

HMRC have introduced the Plumbers Tax Safe Plan. This is the latest of HMRC’s disclosure opportunities and follows on from the doctors and dentists disclosure facility.

According to the HMRC website:

‘The Plumbers Tax Safe Plan (PTSP) is designed for people working within the plumbing industry who have not told HM Revenue & Customs (HMRC) about all their income in the past and who now want to get back on track. It is intended to cover people who work (or worked) in the plumbing, heating or gas installation trades and this includes anyone who installs and repairs pipes and fixtures for water, drainage or gas systems in a building.’

If you would like any more information on the PTSP please do get in touch.

Internet links: HMRC disclosures Guidance Pack

Fuel Prices

George Osborne presented his second Budget Statement and said:

‘Today’s Budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future.

And it’s about doing what we can to help families with the cost of living and the high oil price.

We understand how difficult it is for so many people across our country right now.

That we are able now to set off on the route from rescue to reform, and reform to recovery, is because of difficult decisions we’ve already taken.’

One of the measures announced was a cut in fuel duty by 1 pence per litre together with scrapping the escalator for the rest of this Parliament. Duty on fuel was due to rise by inflation plus 1 pence from 1 April 2011, which would have added around 5 pence in cost to each litre of fuel.

Internet link: BBC news

Help for small businesses

Another Budget announcement was that as part of a raft of measures to help small businesses the current business rates holiday will be extended until October 2012.

During his statement George Osborne said:

‘The last government planned that the current rate relief holiday for small businesses should end in October this year. I don’t think that would be right. So I can announce that, at a cost to the Exchequer of £370 million, I will extend the rate holiday for small businesses for another year – to October 2012.’

David Gauke, Exchequer Secretary to the Treasury, has also issued a letter to small businesses setting out the measures designed to support for enterprise and small business. To read more about the measures visit the link below.

Internet link: Business link letter

HMRC online services unavailable

HMRC are advising taxpayers that unfortunately their online services will be unavailable from Saturday 2 April until 06.00 Wednesday 6 April 2011. This is to allow for IT upgrades. All services will be affected including Corporation Tax, Self Assessment, PAYE and VAT.

Internet link: HRMC services unavailable

Standard rate of VAT- updated guidance

HMRC have updated their guidance on how to deal with the change in the standard rate of VAT which happened on 4 January 2011. The guidance covers such issues as deposits, credit notes and services which span the change in rate. If you would like any further information please get in touch.

Internet link: HMRC VAT guidance

Retirement and the removal of the Default Retirement Age

Acas have updated their guidance on the transitional arrangements which are in place to abolish the default retirement age (DRA).

According to the Acas website:

‘The new regulations now make it clear that the transitional arrangements apply to anyone who is 65 or over by 30 September 2011 regardless of when they reached the age of 65.

The new regulations also provide for the notice of retirement to be extended up to a maximum of 6 months if the employee requests this before 5 January 2012 and the retirement takes place on or before 5 October 2012’.

To read the updated employer guidance and the article visit the links below.

Internet links: Acas article Acas guidance