eNews – December 2014
In this month’s eNews we report on a number of issues including the Autumn Statement announcement of the changes to Stamp Duty Land Tax. We also include the latest advisory fuel rates and the EAT ruling on holiday pay and overtime.
Please do get in touch if you would like any further guidance on any of the areas covered.
The Chancellor George Osborne delivered his Autumn Statement on 3 December and said:
‘…to improve the productivity of our economy, we back business and we build infrastructure and we will support growth across the whole UK.’
‘But in the end, Britain’s future lies in the hands of its people and their aspirations.
The aspiration to save, to work, and to buy a home. Today we support each one.’
We have included details of some of the major announcements.
Internet link: gov.uk
Stamp Duty Land Tax (SDLT)
One of the Autumn Statement announcements is a major reform to SDLT on residential property transactions. Historically SDLT has been 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%|
The government believes that this reform makes SDLT more efficient and fairer, and ensures that SDLT will be cut for 98% of people who pay it.
Internet link: gov.uk
Incorporation – restriction of relief for goodwill and Entrepreneurs’ relief
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.
In the Autumn Statement 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.
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.
Internet link: gov.uk
Employment benefits changes ahead
In the Autumn Statement the government announced a package of measures which will impact the treatment of employee benefits in kind and expenses.
- 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.
Please contact us if we can help with employee benefits and expenses reporting.
Internet link: gov.uk
Personal allowances and tax bands 2015/16
For those born after 5 April 1948 the personal allowance will be increased from £10,000 to £10,600. 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.
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% were 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.
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.
Internet link: gov.uk
Holiday pay and overtime
In the judgment an Employment Appeal Tribunal (EAT) has decided that holiday pay should reflect non-guaranteed overtime.
Under the Working Time Regulations 1998 most workers are entitled to paid statutory annual leave. This is 5.6 weeks (28 days) if the employee works five days a week. A worker is entitled to be paid in respect of any period of annual leave for which they are entitled, at a rate of one week’s pay for each week’s leave.
The EAT considered three cases in which employees were required to work overtime if requested by their employees. The EAT referred to this type of overtime as non-guaranteed overtime. The Tribunal decided in the context of non-guaranteed overtime:
- overtime payments must be taken into account in the calculation of holiday pay if there is a settled pattern of work
- if the amount of overtime varies but is regularly paid, overtime payments must also be taken into account on an average basis.
Vince Cable has announced the setting up of a taskforce to assess the possible impact of the Employment Appeal Tribunal ruling on holiday pay.
Business Secretary Vince Cable said:
‘Government will review the judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.
Employers and employees can also contact the Acas helpline for free and confidential advice.
If you would like any help in this area please do get in touch.
Advisory Fuel rates for company cars
New company car advisory fuel rates have been published which took effect from 1 December 2014. The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 December 2014 are:
|1400cc or less||13p|
|1401 cc – 2000cc||16p|
|1400cc or less||9p|
|1401 cc – 2000cc||11p|
|1600cc or less||11p|
|1601cc – 2000cc||13p|
Please note that not all of the rates have been amended so care must be taken to apply the correct rate.
Other points to be aware of about the advisory fuel rates:
- Employers do not need a dispensation to use these rates. Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
- The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.
If you would like to discuss your car policy, please contact us.
Internet link: gov.uk
Do you employ anyone under the age of 21?
From the 6 April 2015, if any of your employees are under the age of 21 you may no longer need to pay employer Class 1 secondary National Insurance contributions (NICs) on their earnings.
The rate of employer Class 1 NICs for employees under the age of 21 will be 0% up to the new ‘Upper Secondary Threshold’ (UST) which, for the tax year starting 6 April 2015, will be the same as the Upper Earnings Limit (UEL). Class
1 NICs will however continue to be payable on all earnings above this threshold. The basic rules and calculations of National Insurance including how Class 1 NICs are assessed will not be changed by this measure.
For employees who are at, or over, the age of 16 and under the age of 21 there will be a range of new NI category letters to available. From 6 April 2015, when submitting PAYE information for employees under the age of 21 employers will need to use the new category letter appropriate to the individual.
Seven new National Insurance category letters have been introduced. The most commonly used one will be category M:- Not contracted-out standard rate contributions for employees under 21.
Employers (or their agents) are responsible for ensuring they report the correct category letter. To do this, employers will need to make sure they hold the correct date of birth for employees.
If you would like help with your payroll please do get in touch.
Internet link: Employer Bulletin
Gift Aid declaration to be improved – potentially saving charities billions of pounds
The Gift Aid model declaration form is to be improved, to stop charities potentially losing out on billions of pounds of Gift Aid.
The National Audit Office estimates there are donations of around £2.3 billion where Gift Aid is not used. Although not all of these donations will be eligible for Gift Aid, the government is working with charities to boost the number of eligible donations.
One way it hopes to do this is by improving the model Gift Aid declaration form, as research has identified that many donors do not understand Gift Aid and the link between the tax they have paid and Gift Aid claimed by the charity. Possible improvements include making the language used about Gift Aid more straightforward to enable donors to decide if their donations qualify for relief.
Exchequer Secretary to the Treasury, Priti Patel said:
‘Gift Aid is an important tax relief for charities which helps to provide essential revenue to charitable causes. This research shows that there is more that government can do to boost eligible donations which is why we are simplifying the declaration forms to make sure donors understand when they’re eligible so that charities can maximise the financial donations they receive.’
Internet link: gov.uk
Helping employers identify a pension scheme for automatic enrolment
The Pensions Regulator (TPR) has opened consultation on a proposal to publish a list of pension schemes that are available to any employer, regardless of the number or workers the employer has or their levels of pay.
According to research carried out by the Department for Work and Pensions 48% of small and 79% of micro employers currently have no pension scheme and will have to choose a new one as they prepare for automatic enrolment.
TPR state they are ‘aware of 30-40 providers who offer a scheme for automatic enrolment. Of these, a much smaller number of schemes have indicated they will not reject employers on the basis of size or low value. Even fewer schemes have indicated they will accept all employers who approach them.’
To read more about this issue and the consultation visit the link below.
Internet link: thepensionsregulator.gov.uk
HMRC warning ‘Ten things you need to know about tax avoidance’
HMRC have published a list of factors to consider before buying into a ‘scheme’. The list sets out the risks of entering into a tax avoidance scheme including the possible monetary costs and reputational damage of tax avoidance, but also a potential criminal conviction.
This list is being published as HMRC writes to the first promoters who will be caught by new High-Risk Promoters rules. If they don’t change their behaviour, HMRC could name them publicly and fines might be imposed of up to £1 million.
The Financial Secretary to the Treasury, David Gauke, said:
‘The government has taken unprecedented steps to clamp down on the selfish minority who practise tax avoidance, because we are firmly on the side of the vast majority of taxpayers who play by the rules. As a result, tax avoidance is now very high risk.
On top of a substantial fee to join a scheme that will almost certainly fail a challenge by HMRC, tax avoiders will also have to pay the tax they dodged, plus interest and penalties.
To help protect taxpayers from unscrupulous promoters we have put in place new High-Risk Promoters rules, but people need to be aware of the dangers. So I would strongly advise anyone thinking of signing up to a scheme which they have been told will legally reduce their tax bill to carefully consider today’s list of things a promoter may not tell you.’
Internet link: Gov News