Just 111 days ago, George Osbourne was the darling of the Tory House. Lauded as the architect of the Election victory, clever magician of the national living wage rise and probably favourite to succeed David Cameron when he steps down to spend more time with his pig.
Yesterday however, the chancellor was tasked with coming to the House of Commons to concede that fantastic economy he has presided over for six years, and about which he was boasting only four months ago, is now performing materially less well than he had claimed. Never easy. However, with some artful media management, he made it through the day in one piece – helped by a distractionary but welcome sugary drink tax and the normal give-aways. Whether he survives today so easily is rather more moot. The OBR didn’t help by downgrading their forecasts forcing George to rely on a strange one-off corporation tax income of £10bn in 2020 to keep the only pledge he can still aim for from being broken. Still, what’s £10bn between friends?
The Independent said “You’d rather be the one lavatory attendant on duty at one of southern Mexico’s higher-capacity football stadiums during an amoebic dysentery pandemic, I think, than give the Leader of the Opposition’s Budget response.” Nice. Jezza did his best in a shouty sort of way. He doesn’t really like budgets or, it appears governments. Mostly reading from a pre-prepared speech he had a go at pretty much everything the government had ever done and a few that they probably hadn’t. At least he didn’t reach in his pocket for a copy of Mein Kampf to add to George’s personal library.
And so to the detail:
The “Business tax roadmap” (presumably sponsored by Google or Apple?) was the centre-piece of the corporate tax area. This document is designed to set out the changes which will be brought in up until 2020. The measures include:
A consultation on the substantial shareholdings exemption which has been around for 14 years now.
The Government has decided to put back to 2019, the proposal to have very large companies (whose profits exceed £20m) pay their corporation tax bills earlier.
HMRC “has an intention” (we all have intention don’t we? Whether they’re likely to do it is rather less certain) to recruit 800 new staff and open call centres seven days a week. In addition, for new small companies, there is to be a single registration service for Companies House and HMRC.
A restriction on the amount of interest companies can deduct for tax purposes will be introduced from 1 April 2017. The UK will be introducing a fixed ratio rule limiting interest tax deductions to 30% of a UK Group’s EBITDA. The proposed rule includes a de-minimis threshold of £2m net UK interest expense. This threshold will eliminate most small groups from compliance with the rules.
Tax losses arising after 1 April 2017 will be available for carry forward against profits from the company’s other income streams and profits of other group companies. If you thought that this would be useful, you would be right. That’s why it’s only a consultation documents which is aimed at Finance Bill 2017 – shall we see if they make it through?
For profits arising after 1 April 2017, only 50% of group profit can be sheltered by carry forward losses (subject to a £5m profit de minimis). Now this one’s not quite as good but as it’s aimed at a de-minimus of £5m profits, most small companies will not be affected.
There was a significant tightening of the rules surrounding royalties, with-holding tax and the snappily titled “hybrid mis-match arrangements” which I think has something to do with last weeks 6 nations match at Twickenham? Actually, it’s all aimed at multi-nationals diverting profits out of the UK.
The corporation tax rate continued its downward trend – The current rate of 20% corporation tax applicable to UK companies (large or small) will fall to 19% from 1 April 2017 and was due to be further reduced to 18% from 1 April 2020. The Chancellor has now announced that the rate from 1 April 2020 will instead be 17%. Obviously, if you’re a bank you get an extra kicking and will pay a rate of 25% in 2020…c’est la vie! It also appears that Northern Ireland will be moving to a devolved Corporation Tax rate of 12.5%.
What we might call overdrawn directors loan accounts, and George likes to call loans to a participator, will be brought in line with the tax rate for dividends to higher rate taxpayers on or after 6 April 2016 by a rise from 25% to 32.5%. Funds extracted by way of dividends or loans should now lead to similar tax burdens for shareholders who are higher rate taxpayers. Additional rate taxpayers may still have a marginal preference for loans, whereas basic rate taxpayers may prefer dividends. Individual circumstances need to be reviewed.
George “helped” the Scottish through a reduction in petroleum revenue tax and an increase in decommissioning relief for North Sea Oil. Obviously he didn’t make much of it at all and most of the crowing was over within half an hour or so…
To stop the transfer of UK land profits disappearing overseas without being taxed, George is going to change the basis of taxation of UK land so that profits from disposals of land from a “trade of dealing in or developing UK land” will be chargeable to UK tax irrespective of the residence status of the landowner and regardless of whether or not the activity is conducted through a permanent establishment.
The announcement of the 3% additional stamp duty charge on second homes and investment properties made in 2015 has been confirmed. In order to address periods where there might be an overlap or a gap in the ownership of a main residence, a period of 36 months will be permitted to allow a claim for relief from the additional charge to be made. Those that expected an exemption for “large-scale” owners or businesses were disappointed. It applies to everyone.
The ‘slab’ system for calculating the charge to SDLT on non-residential property transactions in England and Wales is to be changed to a banding system similar to that which applies for residential property such that tax is payable only on the amount of the purchase consideration falling within each band. The bands will be 0-£150k – 0%, £150,001 to £250k – 2%, anything above £250,001 – 5%. SDLT on lease is charged at slightly lower rates but on the same basis.
The renewals basis for the replacement of loose plant by residential landlords is being withdrawn from 1 April 2016 (for corporation tax) or 6 April 2016 (for income tax). This really is just to bring the rules in line with the removal of “wear and tear” allowance announced last year. From April 2016, landlords will be able to claim tax relief for the cost of replacement items but only to the extent that the replacement does not represent an improvement on what is being replaced. Semantically, this is a change of words from “renewal” to “replacement”
George announced new qualifying enterprise zones at Coleraine in Northern Ireland, Port Talbot in Wales, Brierley Hill in the West Midlands, Loughborough, Leicester and for a Marine Hub in Cornwall, together with an extension of the existing zone covering the Sheffield City region. These qualifying zones, along with any additional qualifying zones announced in the future, will also benefit from the 100% enhanced capital allowance for a period of eight years from the date they are announced.
To be honest, there were a number of pages relating to VCT’s (hardly any change), Insurance linked Securities (didn’t really understand this), Securitisation and annual payments (nothing to get excited about here) and State Aid Modernisation (lost the will to live) – but as they really are tedious, I thought I would save you the trouble.
There were three simple changes to deal with accounting anomalies introduced by FRS102 – you know you love it! Mainly aimed at discounts arising from interest-free loan relationships.
And that the end of the Corporate/Business taxes area…get up, stretch, make a cup of tea and get ready for the next thrilling instalment…
Personal taxes and allowances
George announced that the personal allowance for 2017/18 will be £11,500 (2016/17 – £11,000) and that he’s still aiming for £12,500 by 2020.
He has also committed to raising the level at which an individual pays tax at 40% to £50,000 by 2020. Working towards this aim, the basic rate band will be increased to £33,500 for 2017/18 (2016/17 – £32,000). This will result in an individual being able to earn up to £45,000 in 2017/18 before having to pay tax at 40%.
There’s no change to the £150k limit for the start of the 45% band.
The Chancellor has announced that from 6 April 2016 the 18% and 28% rates of CGT will be reduced to 10% and 20% respectively.
However, gains on the sale of residential property will specifically be excluded from the new reduced rates. The Government states that its policy objective here is to provide an incentive to invest in companies ahead of property.
The new reduced rates of CGT will also not apply to the receipt of “carried interest” which sounds like something you might have needed to get this far through the email but it really is a thing!
Legislation will be introduced to extend ER to individuals acquiring newly issued ordinary shares in unlisted trading companies on or after 17 March 2016. The individual will need to hold the shares for a continuous period of three years in order to claim ER. A lifetime limit of £10m of qualifying gains per individual will apply. It is not clear whether there will be a minimum percentage holding requirement as for ER, so the detail in Finance Bill 2016 will be key to the interpretation. Still, it’s a useful extension to the relief.
There was also some tidying up done in relation to the goodwill treatment on certain sales, a retrospective change to allow certain transactions to be revisited. Also new definitions are required to deal with the complexity of certain structures which George over-did last time he had a go and some clarification of what was intended by the application of the ER rules to certain succession planning scenarios. All sensible changes to correct clumsy drafting and rushed implementation.
There was some good news for Non-Doms, but then you might have expected that?
George announced a new flagship “lifetime ISA”. These can be opened by anyone between the ages of 18 and 40, with any savings paid into the ISA by the age of 50 receiving a 25% bonus from the Government. The maximum that can be paid into an account each year is £4,000 (meaning a £1,000 bonus would be received). You can use the money in a lifetime ISA to buy a first home, up to the value of £450,000(!), or to save until reaching the age of 60. If the money is withdrawn and not used for one of these purposes, any bonuses received (including any growth and interest thereon) will have to be repaid to the Government, along with a 5% charge. An existing help to buy ISA can be transferred into a lifetime ISA and the combined annual amount that an individual may invest into all their ISAs (including the new lifetime ISA) will be increased from £15,240 to £20,000 from 6 April.
In a move that appears it is likely to benefit those individuals generating small amounts of income trading via auction and trading sites such as ebay or listing their property for short terms lets via internet platforms such as Airbnb, George announced two new reliefs of £1,000 each. Individuals with £1,000 or less of trading or property income will have this income exempted from tax and there will be no need to report this income to HMRC.
The announcement in the Autumn Statement 2015 that the transactions in securities legislation would be amended and a new targeted anti-avoidance rule would be introduced with effect from 6 April 2016 has lead to a rush to complete members’ voluntary liquidations by 5 April 2016. It has now been announced that the Government will respond to the consultation later in March, and presumably legislation will be included in Finance Bill 2016, but further details are awaited.
Insurance Premium Tax is again on the rise and becoming a favourite target for George in recent years. From 1 October 2016, IPT will increase by 0.5% from 9.5% to 10% – an increase of more than 65% in 12 months.
Jamie Oliver got his way and George has introduced a new sugar levy with effect from April 2017 to try and address the problem of childhood obesity. The levy will apply to producers and importers of soft drinks which have had sugar added. Producers of fruit
juices and milk will be excluded from the levy. There will be two rates of the levy: a main rate for producers of drinks with more than 5g of sugar per 100 ml, and a higher rate for drinks with more than 8g per 100 ml. The levy will apply to the producer of the drinks and not to the drinks themselves so as not to breach EU legislation which prohibits member states from implementing additional taxes that are similar to VAT. I’m guessing that they’re expecting the levy to reduce over time. The levy will be hypothecated and will go towards supporting sport in primary schools, running breakfast clubs and allowing secondary schools to open for longer periods of the day.
From 1 April 2016, the VAT registration threshold will be increased from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000.
All schools in England will be required to convert to academies by 2020, or at least have plans in place for such conversion. This has required the introduction of a scheme to allow an academy to recover input VAT which would otherwise have been recovered through the local authority VAT return.
Look out for a new VAT penalty for participating in VAT fraud. We’re all guessing but it seems likely that the penalty will look beyond the business and take aim at the individuals involved – time will tell as again, it’s only a consultation. You’ve got to wonder who keeps track of these consultations. Some gravy train that is!
George introduced a major curb on his own tax relief. Employee Shareholder Status (ESS) was introduced in 2013 and provides an exemption from CGT on the disposal of shares where there had been a surrender of certain statutory employment rights. The relief is now limited to £100k.
There are further changes to the anti-avoidance rules applying to employee benefit trusts. Many are minor technical changes aimed at preventing the continued use of such arrangements where these ‘sidestep’ the rules. The Government will also broaden HMRC’s powers to impose a PAYE liability on an individual employee if the tax cannot be collected from the employer.
Additionally, the Finance Bill will impose a new charge that will tax certain historical loans from EBTs as earnings if they have either not been taxed or not been repaid by 5 April 2019. This seems to be part of HMRC’s long-running campaign to resolve what it views as outstanding cases where taxpayers have not chosen to settle with HMRC. How this will be applied in the context of historical cases where decisions in the courts have not supported HMRC’s view is unclear.
Carried Interest forms a major part of the remuneration of asset managers (including those in private equity). In a further exemption to the new CGT rules, where carried interest is subject to capital gains tax it will be taxed with an additional 8% ‘surcharge’, resulting in a rate of 28% (ie the pre-existing rate of tax).
In an attempt to align the tax and NIC treatment of qualifying termination payments of over £30k, from 6 April 2018 Class 1A NIC will be charged on the excess over the £30k limit.
The “payrolling” of benefits in kind is to be extended to cover non-cash vouchers and credit tokens (which are already subject to class 1 NIC via the payroll). These can now be voluntarily payrolled by registered employers from 6 April 2017 if they wish.
Increases have been announced to the company car tax rates for the three years to 2019/20: the appropriate percentage rates will increase by 3% up to a maximum of 37%. The BIK for zero emission vans will not be increased for 2016/17 or 2017/18 as previously announced, but will instead be held at 20% of the standard van benefit charge.
Those of you who are expecting their sporting testimonials this year should remember that all income arising in relation to sporting testimonials and benefit matches for an employed sportsperson, will be charged to PAYE and NIC. This is subject to a one-off exemption from 6 April 2017 of £100,000. So if you are the UK toe wrestling champion you know what to do.
You may have noticed that my old friends, the OTS haven’t had a mention yet. Well, the Government has asked the Office of Tax
Simplification (OTS) to review the impacts of moving employee NIC to an annual, cumulative and aggregated basis and moving employer NIC to a payroll basis. That should make for a storming read.
Offshore tax evasion got a number of increased penalties with a new criminal offence with low levels of proof of intent, civil penalties and fines. They really don’t want people to play offshore any more!
They’re also pretty serious about UK avoidance. Finance Bill 2016 will include legislation enabling HMRC to impose sanctions on those who persistently enter into tax avoidance arrangements that HMRC subsequently defeats. A slew of new penalties and disclosures will arrive from 6 April 2017.
And “the hidden economy”? Well, guess what…they’re going to consult on it. Who would have guessed?
The Scottish Government has launched a consultation which proposes to reduce and eventually abolish Air Passenger Duty (APD) in Scotland, should the tax be devolved to the Scottish Parliament. The consultation reveals plans to replace it with a new tax on the carriage of passengers from airports in Scotland, which is likely to be an adapted version of APD. You can’t make these things up!
As ever, please call Bernice or any other member of the Riley Tax Team if you have any questions or comments. You can get them on 01752 203651 or firstname.lastname@example.org
Replying to a budget speech that you haven’t seen is one of the more thankless tasks in British politics and when you’re up against a Chancellor who gets a lucky break in his cashflow forecast it is probably even less enviable. However, John McDonnell knew that he had the answer to all George’s manoeuvring because he had a copy of Chairman Mao’s Little Red Book in his pocket and what’s more, he knew how to use it…or rather he didn’t.
It’s not like he was lacking in ammunition was it? I mean George Osbourne (well actually the Independent Office for Budget Responsibility obviously) has managed to “find” £25bn in extra tax revenue since the last announcement in July 2015, just over four months ago. McDonnell had some fantastic targets in the massive U-turn on tax credits (Osbourne is hardly a man in Maggie’s mould of “not for turning”) and the fact that George had announced that he would breach the Welfare Cap and therefore fall into the exact trap that he so carefully laid for a possible Labour Government in the March Budget. However, he chose to ignore these elephants in the room and reach for the rabbit up his sleeve. Yes, the Little Red Book which he then began to quote from.
To quote from John Crace’s classic sketch in The Guardian…
“Having made his point, he threw the Little Red Book across the dispatch box towards the chancellor…
George skipped and dodged his way through the pools of moisture that were collecting on the floor of the house as he made his way out. Sensing the mood, Jeremy Hunt decided that now was as good a time as any to bury bad news and agreed to talks with Acas. David Cameron even wondered if it was time to come clean and say it hadn’t been a pig. It had been a sao. And all McDonnell had been left with was its ear.”
And so to the detail:
Large companies are being asked to enter into a ‘framework for cooperative compliance’, a form of voluntary code of practice to encourage transparency in tax practice – I hear Google and Starbucks are already drafting theirs…
A special measures regime will be introduced for the small number of companies which persist in entering into various tax avoidance schemes. However, as usual with these statements, the detail behind these legislative changes has yet to be released: the draft Finance Bill 2016 is published on 9 December 2015 so expect some humdingers to be contained in that bundle of pre-Christmas joy.
Due to the changes in capital allowances, a two part anti-avoidance regime was introduced to stop businesses manipulating (as if) disposal values and the form of consideration received when taking over lease obligations. These changes are also expected to apply in a similar way to individuals.
Legislation will clarify the effect of the recent changes to goodwill amortisation to block schemes relating to corporate partners in partnerships with intangible assets – it’s amazing how creative the professions have got over the last 6 months!
In the snappily named “rules addressing hybrid mismatch arrangements” further amendments have been made from January 2017 basically designed to stop companies such as multinationals exploiting low tax rates in countries such as Ireland by the use of cross-border business structures.
Changes have been made to the rules on loans to participators to exempt charitable trusts as no individual benefits from a loan.
There is to be a further consultation on the company distributions rules as George wants to “reduce opportunities for income to be converted to capital in order to gain a tax advantage” and, while we can’t imagine that anyone would want to do this (much), the publication date is 2015 so we won’t have to wait long to find out what thrills are in store…
Again, no details yet but there will be changes to the rules in Finance Bill 2016 to amend the treatment of interest free loans and loans on non-market terms to tie in with the changes being brought in by FRS 102 – it’s a cracker.
And, while a stop was announced to banker bashing on a global basis in the summer budget from 2021, George hasn’t allowed the UK operations off the hook entirely and he announced a consultation on the scope of a UK bank levy. Bet they can’t wait for that to report.
In the summer, George announced a new levy aimed at helping with the creation of 3 million apprenticeships. This levy will be introduced in Finance Bill 2016 and is set at 0.5% of an employer’s wage bill and collected via the PAYE regime. All employers are to be included in the scheme but each employer will get a £15,000 credit – this means that employers will only actually start paying the levy where their total payroll exceeds £3m pa – 98% of employers will be exempt.
There will be restrictions on the tax relief available for travel and subsistence costs where individuals are employed by agencies and umbrella companies. It may also catch workers who trade through personal service companies in certain circumstances up until 5 April 2016 when new legislation is introduced.
Our very favourite government body, the Office of Tax Simplification (OTS) has produced a report on status or in other words, employed or self-employed? Apparently, the report made a wide range of recommendations which include suggestions on further consultation, possible de minimis limits and potentially a statutory employment test. The Chancellor has now announced that the Government will take forward the majority of the recommendations. However, as at the time of writing, we have absolutely no idea what these will be!
If you’re operating a childcare voucher scheme for employees earning up to £150,000 you will have to restrict this from 6 April 2016 as the upper earning level is to be restricted to £100,000. There’s also going to be a minimum income level increase from 8 hours to 16 hours at the national living wage equivalent.
You may noticed a certain amount of furore in the press in recent months about certain diesel cars? Well, there had been some additional speculation about the possible removal of the diesel surcharge of 3% made on the cash equivalent of benefits in kind from April 2016. Just to ensure full punishment is taken, George announced that this will now remain in place until 2021 by which time Woody Allen may have brought out Sleeper 2 sponsored by VW, which will probably show that diesel is safer to drink than water…and before you point out to me that you weren’t watching films in 1973 when Sleeper was released…
“Dr. Melik: You mean there was no deep fat? No steak or cream pies or… hot fudge?
Dr. Aragon: Those were thought to be unhealthy… precisely the opposite of what we now know to be true.
Dr. Melik: Incredible.”
The OTS have been busy again reviewing accommodation provided for employees and they are now calling for evidence on the efficacy of this provision – any amendment is likely to result in a Class 1A NIC increase.
If you’re coming to the end of your professional sporting career and your employer offers a testimonial from 25 November 2015, all income will be subject to tax and NIC. However, there’s a £50k exemption if the testimonial is not contractual or customary in nature, but don’t ask Val about darts or yard-of-ale sporting competitions…
George is going to make some changes to employee share schemes in Finance Bill 2016 which will be about simplification. There are no details available at present so that’s simple then!
And for those of you who persist in participating in disguised remuneration schemes it’s time to put away your outfits. Anything not caught in previous action will now be legislated in “a future finance bill” and deemed to take effect from 25 November 2015.
6th form colleges in England can now become academies and therefore recover VAT on non-business supplies of education. This has long been a strange anomaly and is a welcome correction.
Because they lost a European Union case on the 5% reduced rate of VAT relating to energy saving materials, the government has now announced yet another consultation – it appears likely that the reduced rate can apply where there is a specific social purpose such as for elderly people or those on low incomes but that the rate will have to revert to the standard rate for all other supplies of this type.
Personal taxes and allowances
From April 2016, the purchase of property costing over £40,000 for investment or as a second home will incur a surcharge of 3% on the normal rate of stamp duty land tax (SDLT). An exemption to the surcharge is expected to be made available to companies and funds making significant investments in residential property which is considered to support Government policy increasing housing supply.
From April 2019 the due date for the payment of capital gains tax on the disposal of residential property will be accelerated so that it becomes payable 30 days from completion (compared with 31 January following the tax year, as now). This may present practical difficulties with regard to the calculation of tax due in connection with disposals of properties with complex ownership histories.
In the Summer Budget 2015, the Government had already announced a restriction in the tax relief given for interest incurred on buying investment property for private landlords (to be phased in over four years).
These additional measures are likely to lead to yet another reduction in the returns available from residential property investment.
The Innovative Finance ISA is coming in Autumn 2016 following the successful consultation on allowing equities available through crowdfunding to be included in ISA’s.
And as expected the government has decided to back off from preventing the use of deeds of variation for IHT purposes.
in 2017-18 it’s likely that there will be a reduction in the filing and payment terms of Stamp Duty Land Tax from 30 to 14 days.
A seeding relief will be introduced for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes (CoACS) which we think wins our “mouthful of the year award”.
You will fondly remember the annual tax on enveloped dwellings (ATED) which was a previous contender for the aforementioned award which is imposed where residential property is owned through corporate structures. A number of reliefs have been available particularly for property rental businesses and developers. These will now be extended to equity release arrangements which provide home reversion plans for owners in retirement.
HMRC is under increasing pressure to counter tax evasion and avoidance and to help with this process, George has allocated an additional £800m which is expected to deliver £7.2bn of additional tax revenue over the next 5 years. At the same time, it was announced that 200 staff will be transferred from local fraud investigations to local compliance activities, ready to be fully operational by October 2016. Although on the one hand this may appear to be a ‘dilution’ of HMRC’s fight against tax fraud, it could also be seen as an introduction of a
new, possibly more aggressive, mindset into the local compliance teams, coupled with the sharing of skills for tackling all forms of evasion. We’ll know in a year, or three!
George, still in a blue funk about evasion, confirmed that Finance Bill 2016 will include the following provisions, each of which were recently the subject of one of those trendy consultation jobs:
• A new criminal offence for tax evasion, which will remove the need for HMRC to prove that the taxpayer intentionally failed to declare offshore income and gains. It should be noted that a deminimis level of only £5,000 has been suggested in respect of this offence
• New civil penalties for offshore tax evasion, including a new penalty linked to the value of the undeclared offshore asset and increased use of ‘naming and shaming’
• New civil penalties for those who enable offshore evasion, again including ‘naming and shaming’
• A new criminal offence for corporates which fail to prevent tax evasion.
And that’s not the end of it either as there are new rules on anti-avoidance in the Finance Bill 2016 too:
• A special reporting requirement for those who continue to enter into tax avoidance schemes
• A surcharge levied on taxpayers whose latest return is inaccurate due to use of a defeated scheme
• A power enabling HMRC to publish the names of‘persistent’ avoiders
• Restrictions on taxpayers who are deemed to persistently ‘abuse’ tax reliefs, limiting their access to certain tax reliefs for a specified period
• Legislation to include promoters of schemes ‘regularly’ defeated by HMRC within the promoters of tax avoidance schemes regime
• An additional penalty of 60% of tax due to be imposed where any scheme is successfully challenged under the general anti-abuse rule.
On the basis that HMRC are absolutely crap at answering phone calls and currently don’t use email to contact accountants and tax payers, George has announced the desire to “transform HMRC into one of the most digitally advanced tax administrations in the world by
the end of the decade” – now, it’s true that he didn’t specify which decade or even century he was going to achieve this feat in but even so, it’s admirable that MP’s didn’t laugh more at this than John McDonnell’s deficient speech. Apparently, HMRC aims to ensure that free apps and software that link securely to its systems will be made available and they will provide support to those who need help using digital technology. That’s going to be some transformation…
Cocky Chancellor walks tall in UK, “the comeback country”?
George Osbourne delivered almost an hour of carefully honed political assassination in Parliament yesterday. Patrick Wintour writing in the Guardian said that “so much of the budget was nakedly political, devoted to wrong-footing Labour’s campaign, stealing their better-styled clothes and leaving shadow chancellor Ed Balls short of the cash he needed to fund their flagship projects. By the end of the speech so many Labour foxes lay dead, it looked as if David Cameron’s Heythrop Hunt had galloped through the chamber.”
Osborne skewered Labour’s flagship plans to fund its cut in university tuition fees from £9,000 to £6,000, by taking £600m to fund his savings package. And his increase in the bank levy leaves a question on how Balls would now fund his childcare package since it had been due to be funded by a rise in the bank levy.
Labour has already identified a way to fill the black hole, and appear relieved Osborne did not make their position worse. Their fear was that Osborne would take all of Labour’s pensions relief package set aside to fund the tuition fee cut, and then put all the money into the NHS. That would have left Labour spreadeagled.
Never a man to let truth spoil a good story, George’s strategy was a simple one: contrast his careful competence with the chaos that would arise were Labour to win the election, and show how his prudent management of the public finances has allowed him to help ordinary Britons improve their lives. He was at pains to show that the economy was working for all parts of Britain.
In the moment, it was easy to forget that his strategy has been a flop. The economy has grown much less than expected, deficit reduction has been much slower than forecast and borrowing this year will be £90bn, two-and-a-half times what was pencilled in five years ago even after being flattered by £20bn of asset sales.
How much of the detail of the budget delivered yesterday will survive the election in 45 odd days time is moot. However, there were some useful changes and an interesting shift in perspective away from the traditional approach you may feel that Labour would adopt. And so to the detail...btw, I apologise in advance for the gratuitous “balls” images but it was difficult to stop!
Diverted profits tax – sometimes called the “Google tax” this measure is aimed squarely at large multinational enterprises with business activities in the UK which enter into artificial arrangements to divert profits from the UK. Now I know that you’re all aware that this never happens but the rules do come in on 1 April 2015 – wonder if we’ll see any Starbucks shaped holes in the high street? Anyway, the tax will be charged at a rate of 25% of the identified diverted profits relating to UK activity arising on or after 1 April 2015.
Creative sector tax reliefs – these are being extended from 1 April 2015 to include children’s television programmes (including game shows and competitions). Having seen the behaviour of our MP’s in the house yesterday you may want to conclude that there is a measure of self-interest in this rule extension…I couldn’t possibly comment. From 1 April 2016, the Government will introduce a similar relief for live orchestral performances perhaps so that George can continue to blow his own trumpet? It is intended that 25% relief will be available for the qualifying costs of concerts. However, concerts with a competitive element or where the main purpose is advertising, recording or broadcasting and those of non-orchestral music (eg pop, rock) will not qualify – X-Factor, The Voice etc? That’s you. Orchestras will be able to claim for player and artist fees, rehearsal costs, hire or commissioning of scores and UK travel and subsistence costs but not normal running costs.
Loss relief – A new measure is being introduced to counter artificial arrangements which make corporation tax losses easier to relieve when they are carried forward into later accounting periods. This is aimed at a number of schemes which have been contrived to ease the claiming of tax losses where rules would normally have blocked this strategy.
Capital allowances – more measures are being introduced to prevent tax avoidance arising from disposals between connected parties and sale and lease back arrangements (including long funding leaseback and hire purchase arrangements) of plant and machinery. The new rules will apply to arrangements where the relevant transaction (eg leaseback or connected party transaction) occurs on or after 26 February 2015. If you’re in doubt about how a transaction will be treated, please give Bernice a call.
Previously announced intentions to change the loan relationship and derivative contact rules have been deferred.
Business rates review – As announced in the 2014 Autumn Statement, the Government is to conduct a wide-ranging review of business rates ‘to make them fit for purpose in a 21st century economy’. An important aim of the review is to make the system fairer, including levelling the playing field between online and more traditional property-based businesses. Responses should be sent to HMRC by 12 June 2015, and the findings will be reported at the time of the 2016 Budget.
Venture capital and Enterprise Investment Schemes – ostensibly to stay within the EU state aid rules, a number of changes were announced in the budget. New legislation will cap the total amount a company can receive at £15m, though ‘knowledge intensive’ (undefined at present) companies will be able to raise £20m. It appears that the £5m annual investment limit will remain though.
Investee companies will also need to be less than 12 years old at the time they first issue shares under the schemes, unless there is a major change in their activities and, in future, SEIS, EIS and VCT investment will only be available where the investment is intended to grow and develop a business – though quite how badly the legislation must have been written to allow anything else is bizarre! Changes are also being made to the rules regarding tax relief for investors who are connected to the investee company, which may be bad news for people investing in companies to which they have a link. Rules for companies raising money through SEIS who currently have to spend 70% before EIS/VCT shares can be issued will be removed, which is a welcome simplification. To be honest, without the draft legislation (which hasn’t been issued) it’s difficult to comment more – so I won’t.
Social Investments – in contrast with the lack of legislation above, the Government has published more details on the design of Social Venture Capital Trusts (SVCTs) even though their introduction date has yet to be announced. They confirm that, as with the existing social investment tax relief (SITR), investors will be able to claim 30% tax relief on their investment. In addition, there will be no tax on dividends paid or capital gains realised from the investment.
SVCTs will be required to list on the LSE, have restrictions on holdings and the same excluded activities as SITR. They must pay out at least 85% of their income in each accounting period. The rules for SITR are to be relaxed from 13 April 2015 to allow them to be marketed to the public in the same way as enterprise investment scheme funds.
Enhanced capital allowances – the list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated during summer 2015, subject to EU state aid approval.
For 2015, as a temporary measure, the limit of expenditure was increased from £25,000 to £500,000. Although no actual plans were announced in the Budget, in his speech the Chancellor indicated that in future the limit would be set at an amount higher than £25,000. The intention is that this will be addressed in the Autumn Statement 2015 so your guess is as good as mine and, as to who’ll be delivering it, well…
Income tax averaging for farmers – this has been available for farmers for years but George announced that the period over which self-employed farmers can average their profits for income tax purposes will be extended from two years to five years. The Government will engage with stakeholders later in the year on the detailed design and implementation of the extension. It’s going to happen from April 2016 and will be legislated for in a future Finance Bill…by someone…
Enterprise zones – the Government has announced two new enterprise zones for Devonport South Yard in Plymouth and Blackpool. They also announced plans to expand existing enterprise zones at Mersey Waters, MIRA, Humber, Manchester, Leeds, Oxford and the Discovery Park in Kent and change the designation of two sites in Leeds to include enhanced capital allowances.
Personal taxes and allowances
However much commentators speculate, some things won’t change. The personal tax allowance for 2015/16 will remain at £10,600 as announced in the 2014 Autumn Statement. George plans to increase the allowance to £10,800 in 2016/17, finally bringing the freeze in the so called ‘granny tax’ (age related personal allowances) to an end. He also punted a further increase to £11,000 for 2017/18 but then who knows…
Although the basic rate tax band will shrink to £31,785 in 2015/16, George has announced that it will rise in 2016/17 to £31,900 and then £32,300 in 2017/18. This will mean that the full benefit of the personal allowance increases in those years will be available to higher rate taxpayers (rather than being partially clawed back as in recent years). 2015/16 is the first year that married couples or civil partners can transfer unused personal allowances between them. However, this relief is only available where both individuals are taxed at the basic rate (20%) and only £1,060 can be transferred – giving a maximum potential tax saving of £212.
“Giveaway George” announced a new personal savings allowance will be introduced with effect from 6 April 2016. Up to £1,000 of a basic rate taxpayer’s savings income, and up to £500 of a higher rate taxpayer’s savings income, will be exempt from income tax each year. The allowance will not be available for additional rate taxpayers.
Because there aren’t enough houses and prices are rising, George announced a new “help-to-buy’ ISA. This will be made available for a four year period from autumn 2015 to help first time buyers save up for their first home (their only residence, not a buy-to-let). Individuals aged 16 or over will be able to save up to £200 per month, to which the Government will add a 25% taxfree bonus, from a minimum of £400 up to a maximum amount of £3,000 on £12,000 of savings. Savers will be able to make a £1,000 initial deposit in respect of savings between 18 March 2015 and the autumn launch date. The bonus will be available on UK home purchases of up to £450,000 in London and up to £250,000 outside London. Accounts will be available per person rather than per home, so those buying together can both receive a bonus.
More flexible ISAs – Regulations will be introduced in autumn 2015 to enable ISA savers to withdraw and replace money from cash ISAs without it counting towards their annual ISA subscription limit for that year. The list of qualifying investments for ISAs and child trust funds will be extended to include some listed bonds and SME securities 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. This will be good news.
There have been 2 changes to the ER rules for all disposals after 18 March 2015 which are relevant:
ER is available where an individual disposes of an asset held personally and which is used for the purposes of the business of a company of which he or she is a shareholder, or of a partnership or LLP of which he or she is a partner or member. The asset disposal needs to be made as part of a withdrawal from participation in the business concerned. There had previously been no guidance on what constituted a withdrawal from the business. This change will ensure that relief only applies to an asset disposal if the individual also disposes of a minimum of 5% of the company’s shares or a 5% share of assets in the partnership or LLP concerned. This will reduce the number of asset disposals qualifying for relief, but will also provide more certainty as to whether there has been a genuine withdrawal from the business.
Companies with interests in JVs and partnerships – ER applies where an individual disposes of shares in a trading company or the holding company of a trading group, provided other conditions are met. For the purposes of determining whether a company is a trading company or member of a trading group, it can treat a proportionate share of the business of a joint venture or partnership as if it had carried this on itself. This attribution of business activities will no longer apply from 18 March 2015. This means that a company would need to have its own trade in order to be treated as a trading company. While this measure is designed to counter avoidance structures, it will also affect the relief available to all shareholders involved in joint venture type arrangements where underlying trading businesses are financed by two or more corporate investors, irrespective of the existence or absence of a tax avoidance motive.
The end of the tax return?
HMRC has set out plans to modernise the administration of the UK tax system with the introduction of digital tax accounts which, in time they say, will remove the need for individuals and small businesses to submit annual tax returns. The digital tax account will be rolled out to five million small businesses and ten million individuals by early 2016 and will be made available to all such taxpayers by the end of the next Parliament. They produced a list of benefits which, to my cynical mind at least, appeared to already exist on the online services portal. However, there will be additional pre-populated fields, the “opportunity” to pay your taxes when you want (by which they mean in advance of the normal deadline obviously) and payments covering more than one tax at a time. We’ll see.
Lifetime allowances – The lifetime allowance (LTA) is the overall maximum an individual is permitted to accumulate in all pension pots before penal tax rates are applied. The LTA has been reduced consistently in recent years and will again be reduced from £1.25m to £1m from April 2016. It is expected that individuals who already have pension pots in excess of £1m at 5 April 2016 (but less than £1.25m), will be able to make a formal election to protect their personal limit. From 6 April 2018, the £1m limit will increase each year in line with the consumer price index of inflation.
Inherited annuities – new rules were introduced from April 2015, to mirror new pension freedoms for individuals taking a drawdown pension. Where individuals die under the age of 75 while receiving a joint life or guaranteed term annuity, their beneficiaries will be able to receive future payments from the annuity tax free. This will apply in all cases where the beneficiary starts to receive the payments after 6 April 2015. The new rules will also allow joint life annuities to be paid to any beneficiary. For annuities inherited from an individual who dies aged over 75, the tax rules will also mirror the rules for draw down pensions with the beneficiary paying income tax at their marginal rate for the tax year in which it is received.
There’s also a new consultation on removing the penal tax charges that currently apply where – after 6 April 2016 – individuals sell on a pension annuity that they have purchased. At present, tax charges of 55% of the capital value are levied on such transactions (although the charges can be up to 70% in some circumstances). The intention is to give existing pensioners similar freedoms to use their pension funds as those individuals (aged 55 or more) who have yet to buy a pension annuity will gain from 6 April 2015.
Surely George didn’t make this announcement just to have a go at Ed Milliband as some commentators are claiming? The Government intends to look at the use of deeds of variation for tax purposes. Deeds of variation allow the beneficiaries of a Will and the personal representatives of the deceased to jointly decide, within two years of a death, to distribute the assets in a different manner to that set out in the Will. The law currently allows this sensible and simple rearrangement of some legacies, even though it may lead to a reduction in the inheritance tax (IHT) due. It is an obvious target for a cash-strapped Government, as it is a generous relief.
There were some other minor changes to IHT for emergency and humanitarian aid workers killed during duty and to reliefs for medals and other decorations that are awarded for valour or gallantry – these will apply to all decorations and medals awarded to the armed services or emergency services personnel, and to awards made by the Crown for achievements and service in public life.
For peer-to-peer loans made from 6 April 2015, individuals will be entitled to offset bad debts against the interest they receive from these loans when calculating their taxable income. This measure will be included in a future Finance Bill but is a welcome change given the expansion of investors using peer-to-peer lending to generate income while bank rates are low.
CGT – the capital gains tax (CGT) exemption for certain wasting assets (ie tangible movable property with a predictable life not exceeding 50 years) will in future only be available where qualifying assets have been used in the seller’s own business. This will take effect from 1 April 2015 for corporation tax purposes and 6 April 2015 for CGT purposes. So all of you lending your Monet’s to businesses may as well hang them back on your own wall.
NIC – the Government has confirmed that employers’ NIC will be set at nil from 6 April 2015 for all workers aged under 21 who earn less than £42,385 a year/£815 per week. Employers will pay Class 1 NIC as usual on earnings over the new upper secondary threshold (UST). You’ll need to be careful on bonus and overtime payments as these may trigger a liability as the threshold is not applied cumulatively. The reduction continues until the last pay day before the employee’s 21st birthday.
From 6 April 2016, Class 1 secondary contributions for apprentices under the age of 25 will also be abolished on earnings up to the UST. As part of its planned reforms to tax administration, the Government will abolish Class 2 NIC in the next Parliament and will reform Class 4 NIC to introduce a new contributory benefit test. There will be a consultation on the detail and timing of these reforms later in 2015.
VAT – from 1 April 2015, the VAT registration threshold will be increased from £81,000 to £82,000 and the deregistration threshold from £79,000 to £80,000.
The Government has announced new restrictions on input tax recovery for partly exempt businesses with overseas branches. This change will affect primarily banks and other financial institutions with branch operations located outside the UK. Some commentators are pointing out that there seem to be some unforeseen losers in this area so if this affects you, please give Bernice a ring.
Tax avoidance and evasion
The ‘stick’ wielded by HMRC in the face of perceived avoidance and evasion is growing, whilst the ‘carrot’ of voluntary disclosure is getting smaller. That’s what happens when you need cash and you’ve run out of patience even with those who have been your traditional supporters. Today, details will be published of a new criminal offence for tax evasion and new penalties for those professionals who assist evaders.
A new disclosure facility is to be brought into effect from 1 January 2016. This is to be welcomed if it provides a general disclosure facility available to all, rather than just those with undeclared offshore assets, but the devil, as always, will be in the detail, and the terms are expected to be considerably less favourable than those of existing facilities. Serial avoiders of tax are to be hit harder, as are those who promote avoidance schemes. Penalties are to be applied under the terms of the general anti-abuse rule (GAAR) and an additional 21,000 accelerated payment notices (APNs) are to be issued. The regime for disclosing tax avoidance schemes (DOTAS) is also to be beefed up.
As already mentioned above, the announcement of the death of the tax return maybe premature – many thousands will choose to continue to file annual tax returns. However, the availability of a realtime electronic tax summary is a sign of things to come. Undoubtedly the information received by HMRC under the terms of the CRS will be fed into taxpayers’ electronic tax summaries. HMRC’s digital strategy envisages a future where tax returns are pre-populated and, presumably it will be up to individual taxpayers to audit their returns for mistakes made by HMRC – an occurrence which is all too familiar to our tax team here.
Banker bashing continues
George has again increased the bank levy from 0.156% to 0.210% from 1 April 2015. In addition, the Government intends to make compensation payments (eg in relation to Payment Protection Insurance) non-deductible for corporation tax purposes. They’re going to consult on this with the intention of legislating in a future Finance Bill. I wonder whether they will ever have paid their penance and be free from the deep-pocket raid of subsequent Chancellors?
Oil and gas get a reprieve
In the light of the massive fall in oil and gas prices and the increased levy imposed in 2011, the oil and gas industry in the North Sea has been having a torrid time and losing jobs at an alarming rate. To try to counteract the lack of investment, George announced reduced tax rates and increased investment incentives from 1 April 2015.
From the Daily Mail sketch writer comes a description so awful that I hesitated to share it with you but in the end, I couldn’t resist.
“David Cameron popped an Extra Strong Mint. Beside him sat Theresa May in a suit so orange, so low-cut, she could have been Samantha Fox at Guantanamo Bay.”
You decide…and just what is Cameron measuring? I never had him down as an angler!
Just as George launched into a traditional pre-election give-away, the journalist Sunny Hundall tweeted “Osborne: “If you are a maker, doer, saver, this budget is for you” The rest can bugger off? #budget2014” which, as it turns out, is a pretty good cynical summary. And if I can’t be slightly cynical here…
In fact, this budget may be even more focused than the original headline suggests. And while I can’t remember an election pledge of “Generational Jihad”, it’s pretty clear that this Budget was aimed squarely at the elderly. Jonathan Freedland, writing in the Guardian said “older Britons have already been insulated from the worst of the spending cuts and are no longer any likelier to be in poverty than any other age group. Osborne knows about the struggles of today’s young to find decently paid work or own their home. But they vote less – and so matter to him less.” And don’t forget, David Cameron once promised that this would be the “greenest government ever” and he’s always struggled to spell “grey”.George used an improving economic situation to deliver a speech with swagger. He took aim at the Scottish referendum by belittling North Sea Oil reserves but protecting Scotch Whisky, grabbed tabloid front pages by helping “booze and bingo” and “polished his halo” by giving money to scouts, guides, cathedrals, air ambulances and lifeboats.
Miliband’s response was seriously lacking in any coherence I could see and mostly appeared to relate to the budget of 2012. It appears that Labour has no economic plan of its own and because Miliband had no framework to refer to, he could only scream “you smell!” at the government front bench.
If you can’t be bothered to read the detail below, you could always have a look at the summary produced by The Huffington Post. And so to the serious bit…
The annual investment allowance (AIA) allows most businesses to claim 100% first year tax relief on their plant or machinery expenditure. The current allowance, which permits the first £250,000 of qualifying expenditure to qualify for the relief, was due to reduce to £25,000 from 31 December 2014. This revised measure will instead see the claimable allowance increase to £500,000 from 1 April 2014 (CT) or 6 April 2014 (IT) until 31 December 2015, before reducing to £25,000 from 1 January 2016. If you’re contemplating substantial capital expenditure make sure you get the timing right. A reduction from £500k to £25k at the end of next year is likely to catch out many business who do not accelerate expenditure to take advantage of this opportunity…unless of course the next government reinstates the relief?
There has been a change in the treatment of certain mineral extraction expenditure – now costs associated with gaining planning permission will be treated as expenditure on mineral exploration and access and receive tax relief at 25% rather than the previous 10%. Not much use to many of you unless of course you’re opening a Tungsten mine at Hemerdon…wait, some of you are?
The business premises renovation allowance (BPRA) was introduced to provide a 100% first year allowance for capital expenditure incurred on the renovation or conversion cost of business premises that have been unused for at least a year in disadvantaged areas of the UK. Now, the rules have been clarified because they were so badly written – “Such measures may impact upon development arrangements established solely to benefit from the generous tax reliefs afforded to their investors, but are unlikely to adversely impact normal business arrangements.”
Within those enterprise zones introduced in 2012 which were also announced as enhanced capital allowances (ECA) sites, businesses investing in new plant and machinery are entitled to claim a 100% first year allowance against their qualifying plant and machinery costs. This relief has now been extended for a further three years to 31 March 2020.
If you’re thinking of buying “active chilled beams and desiccant air dryers with energy saving controls” for your business, there’s some great news. These items have now been included in the list of items which qualify for Enhanced Capital Allowances (ECA).ECAs are available on energy-saving and environmentally beneficial technologies – at the rate of 100% in the year of investment, rather than at the 18% main rate or the 8% special rate per annum. The qualifying technologies, together with their relevant qualifying criteria, are listed by the Department of Energy and Climate Change (DECC) and the Department for Environment, Food and Rural Affairs (Defra). They make a cracking read if you’re thinking of doing this sort of work.
If you run a loss-making SME which is incurring eligible expenditure on research and development (R&D), you have a choice of two alternative tax
incentives in respect of that expenditure. You could claim an enhanced tax deduction, uplifting the deduction to 225% of eligible expenditure. However, there is no immediate tax benefit to this as it simply increases the size of the loss the company carries forward. Alternatively, provided the company is considered to be a going concern, it may surrender that loss for a cash-back credit currently equal to 11% of the loss surrendered. For qualifying expenditure on or after 1 April 2014 that credit will increase to 14.5% of the loss.
The Government has confirmed that it will continue to move ahead with the changes to partnership taxation announced in Budget 2013 which will take effect from 6 April 2014. The proposals are designed to counter the disguising of employment relationships in relation to salaried members of limited liability partnerships (LLPs). They also tackle tax-motivated allocations of business profits or losses of partnerships where the partners include both
individuals and companies (which would obviously never have happened) and tax-motivated disposals of assets through partnerships. To be honest, this was an area ripe for reform and pregnant with tax avoiding possibilities and is now a key focus for HMRC.
HMRC are taking the opportunity to correct a drafting error in the legislation and put beyond doubt that “where a company disposes of a tangible asset, it cannot rollover the resulting gain by reinvesting the proceeds into an intangible fixed asset.”
Farmers will be gratified to learn that even though the single payment scheme (SPS) is being replaced in 2014 with a new basic payment scheme (BPS), payment entitlements under the BPS will be included within the list of eligible rollover relief assets for acquisitions and disposals from 20
December 2013 as the SPS was previously.
Great news for “luvvies” is that the Government will introduce a new theatre tax relief at 25% for qualifying touring productions and 20% for other qualifying productions, with effect from 1 September 2014. Also, subject to EC clearance, the video games tax relief will be extended to goods and services provided from within the European Economic Area, and a cap on subcontracting of £1m per game will be applied.
There’s a whole section entitled “Modernising the taxation of corporate debt and derivatives” which is so exciting I thought I may leave that to another time…suffice it to say there are some changes which are designed to simplify the existing provisions, which have become increasingly complex, whilst making the rules more robust against aggressive tax avoidance.
Anti-avoidance rules were introduced in 2013 to stop companies from being acquired for the purposes of utilising certain unrealised losses in those companies either by setting them off against profits in the same company, or another company, by using the group relief rules. These have now been amended to exclude losses created by R&D allowances from the provisions.
George said last year that energy prices required a stable carbon price floor (CPF) to enable businesses to be able to plan and budget properly. A year on and he’s amended it but mainly because prices in Europe have fallen.
That’s the end of the business tax section so as a reward for your persistence,
here’s a gratuitous picture of George looking evil…
For a number of years, successive Governments have sought to encourage the use of energy efficient vehicles by companies, and this trend continues. Company cars with high emission levels can be expensive, but in many cases, alternative ‘greener’ models are available. It is likely we will see an increase in company car fleets especially with the use of alternative car supply arrangements using salary sacrifice arrangements. These can be a cost effective remuneration tool for both employers and employees, rather than an expansion on the traditional business need or ‘perk’ car fleets.
The percentage of a car’s list price subject to tax will increase by 2% for cars emitting more than 75 grams of CO2 per km to a maximum of 37%, in 2017/18 and 2018/19 – an increase of 2% over the previous maximum.
From 6 April 2015 the benefit in kind tax charge for provision of private fuel in company cars and vans will increase by RPI.
I know that you’ve all been waiting with bated breath for mention of the wonderous Office of Tax Simplification or, to simplify things, the OTS. Well, just to prove that they’ve been doing something they’ve announced a consultation. Did I hear a gasp of amazement? Anyway, they’re proposing abolishing the £8.5k exemption for benefits in kind (but mitigating the effects on vulnerable groups), introducing a statutory exemption for trivial benefits, introducing a system of “voluntary pay rolling” for benefits in kind and replacing the expenses dispensation regime with a reimbursed expenses exemption. Now to me, it would be better if the OTS said “these rules are stupid and we’re replacing them with this” but perhaps that would be taking simplification too far and it’s more important to allow a talking shop to develop. Excuse me while I get of my hobby horse.
Slightly more worryingly, the “Government will also review the rules underlying the tax treatment of travel and subsistence expenses, and issue a separate call for evidence on remuneration practices and patterns to inform any future reforms”. Any ideas what that means? Nope, me neither.
The OTS had also produced some new draft rules on employee share schemes. These were designed to create greater uniformity across the tax system, but, perhaps surprisingly for something produced by the Office of Tax Simplification, the draft legislation was very complex and they will have another go in 2015. Simple stuff this simplification!
In passing, it is worth noting that a whole raft of OTS recommendations is to be introduced from 6 April 2014. These include:
• changes to approved schemes to introduce online registration, self-certification and eliminate the need for approval
• an extension to the time limit for the Section 222 charge relating to a failure to collect PAYE accounted for by employers. This will move from the current period of 90 days to 90 days from the end of the relevant tax year in which the chargeable event occurred;
• the corporation tax relief rules on takeovers are to be relaxed
• changes are to be made to facilitate the rollover of restricted securities and partly paid shares on company reorganisations
• additional reliefs are to be introduced in connection with Employee Ownership Trusts, particularly the ability to pay sums of up to £3,600 tax-free to
Most of these changes represent relaxations in tax legislation. However, companies will need to take great care when creating new tax-favoured share schemes since these will no longer be signed off by HMRC.
A consultation document will be released in May 2014 on options to improve the operation of the CIS for smaller businesses and to introduce mandatory on-line filing for contractors.
HMRC have been focused on “false” or “disguised” self-employment for some time and from 6 April 2014 new rules have been brought in to counter the use of onshore intermediaries (what we would generally call “agencies” in English) to avoid paying PAYE/NIC on income. The Finance Bill changes will strengthen existing legislation relating to employment agencies by removing the obligation for ‘personal service’ and focusing on whether the work is subject to supervision, direction or control as to the manner in which the duties are carried out. The likely consequence is that many more individuals
who are currently being supplied to end users through intermediaries will be treated as employees. The legislation will published on 27 March 2014. The new rules will also be extended to offshore employment through intermediaries.
There are significant changes to the legislation related to the artificial use of dual contracts by non-uk domiciliaries. However, since the Government’s
estimate is that this measure will have an impact on only 350 non-UK domiciled individuals who are currently seeking to use artificial tax arrangements, I don’t think we’ll bother exploring this further.
More Evil George? Go on…
One of the few things to be expected in this budget was the change in personal allowances. The personal allowance will increase from £10,000 for 2014/15 to £10,500 for 2015/16. Basic rate taxpayers will get the full benefit of the increase, but
higher rate taxpayers will lose some of the benefit as the
higher rate threshold will be reduced from £31,865 for 2014/15 to £31,785.
Increases in the personal allowance will benefit basic rate taxpayers by £112 in 2014/15 and a further £100 in 2015/16. Higher rate taxpayers with total annual income of less than £100,000 will benefit by £195 in 2014/15 and £184 in 2015/16. Individuals with total annual income of more than £100,000 will continue to have their personal allowance reduced so will benefit less. And those with incomes over £120,000 (£121,000 in 2015/16) will see no benefit at all.
From 6 April 2015, for couples where neither spouse (or civil partner) is a higher rate taxpayer, one spouse or civil partner can claim to reduce his or her personal allowance by up to £1,050 and transfer this to the other person. Clearly, it’s only going to be worthwhile where the transferor is not able to use the allowance against taxable income. The transferee can set the allowance against his or her income and claim a tax reduction of up to £210.
From the same date, the 10% starting rate of tax on savings will be abolished and replaced by a nil rate band covering up to £5,000 of savings income. Individuals who are taxed at the savings rate will benefit by up to £712 in 2015/16 but the precise amount of benefit will depend on the level of their taxable savings income and how much of it consists of deposit interest.
Fancy a nicer ISA? Seriously, the Government have recognised that ISA’s aren’t really very nice and replaced them with a nicer ISA called a NISA. From 1 July 2014 all ISA’s will become NISA’s and the annual maximum subscription rate will be increased to £15k, an increase of £3,480 from 2013/14. And NISA savers will now be able to invest the entire £15,000 limit in cash, stocks and shares, or any combination of the two. Currently, only 50% of the overall ISA limit can be saved in cash (£5,940 for 2013/14). The current prohibition on transferring investments from a stocks and shares ISA to a cash ISA will be lifted giving individuals new rights to transfer investments between accounts. The classes of assets that ISA funds can invest in will also be broadened under the new NISA regime.
The limits for junior ISAs and child trust funds will also be raised from £3,720 to £4,000 from 6 April 2014.
It was confirmed that the proposed childcare allowance will increase to £2,000 per child per tax year, accelerated so that all children under 12 will qualify from autumn 2015. Free nursery care for three and four year olds will be available for up to 15 hours a week and will also be extended to cover disadvantaged two-year-olds.
In a move straight from “Back to the future”, the Government intends to introduce legislation to charge capital gains tax on future gains (anticipated to be those arising after April 2015) made by non-residents disposing of UK residential property. This probably means that if you’re non-resident, you will need to get a valuation of UK property in April 2015 but as the details are so scarce, we’ve really not got a true picture of what this means yet.
The fantastically named “annual tax on enveloped dwellings” (ATED) currently applies to residential properties valued at over £2m held by companies and other “non-natural” persons, which are not covered by the reliefs for investment and property development companies. The starting point for ATED will be reduced to £500,000. There will be two new bands: residential properties worth over £1m and up to £2m will be brought in with effect from 1 April 2015. The charge for these properties in 2015/16 will be £7,000. Properties worth over £500,000 and up to £1m will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016/17 will be £3,500. These charges will be increased by CPI each year.
Just to add to the punishment, the special 15% rate of stamp duty land tax (SDLT) currently applies to the acquisition of residential properties worth more than £2m by companies unless covered by the reliefs mentioned before. From 20 March 2014 the threshold for such acquisitions is reduced from £2m to £500,000. Capital gains tax at 28% will similarly be extended to disposals of residential properties liable to ATED: for those worth between £1m and £2m with effect from 6 April 2015; and for those worth between £500,000 and £1m with effect from 6 April 2016.
The seed enterprise investment scheme (SEIS) has proved extremely popular, helping start-up companies raise capital. Originally, it was intended to last for just five years, but the SEIS will now be a permanent fixture in the UK tax regime. Additionally, the 50% capital gains tax exemption, which was due to expire on 5 April 2014, has also been made permanent.
Venture capital trusts (VCTs) encourage investment in small to medium sized trading companies by offering individuals 30% income tax relief on sums invested. In order to ensure that this tax incentivised investment is well targeted, there will be two small changes to the VCT scheme.
A new tax relief is available for anyone who wishes to help a social enterprise or charity. Up to £1m can be invested by an individual in any tax year, either in shares or as a loan. The rate of income tax relief is at just 30%, compared to 45% for Gift Aid, however, unlike Gift Aid, sums invested can be repaid. There will be a capital gains tax deferral mechanism and a capital gains tax free exit too, and a carry back facility. It is certainly an interesting alternative to Gift Aid for anyone with a philanthropic outlook.
George looked in his hat and found not just one rabbit but a whole bunch of fluffy baby rabbits which all seemed to be wearing a pensions bonnet. Here’s how he looked when he saw them…
The drawdown rules limit the amount of pension income that an individual who has yet to buy a pension annuity can take from their pension fund in one pension year. The maximum is currently set at 120% of the amount of annual income the individual could get if the pension fund had been used to buy an annuity. This limit will increase to 150% for pension years after 27 March 2014.
Individuals who have sufficient pension savings in one fund to guarantee them total annual pension income (including the state pension) of at least £20,000 are allowed under the ‘flexible draw down’ rules to take capital out of other pension pots at any time (all in one year if wanted). Under the new rules, flexible draw down will be allowed when the individual has a guaranteed annual pension income of £12,000.
Individuals with small pensions (currently defined as up to £18,000) can take the whole amount as a lump sum under the trivial commutation rules. This limit rises to £30,000.
The Government has issued a consultation document “Freedom and choice in pensions” on much more radical reform on the taxation of individuals drawing pension benefits from April 2015 which will require a new pensions act to implement.
The current rules are designed to prevent and deter individuals from drawing out all their pension capital in one go or over a short period – so that individuals have spread their pension income across the whole of their retirement. The core of the proposals is give individuals more choice and to offer them a bribe before the next election should that be necessary…which it will be.
The major headline is to remove the current requirement to buy a pension annuity. The Government also wishes to remove the penalty taxes within the current rules that are applied when cash withdrawal limits are exceeded: under the proposals, all funds withdrawn would be taxed at the individual’s marginal rate of tax. The old options will still be available but the key point is that it will be up to the individual to choose when and how much they take from the fund. George expects that this easier access to funds will result in an increased tax-take to the Treasury in the short-term. However, the policy isn’t without risk and because of this the Government will guarantee free face to face financial guidance from pension providers from April 2015. No doubt this will increase the cost of the services already paying extra for auto-enrolment. But then you expected that didn’t you!
In reality, this means individuals can continue to use pensions to defer income and income tax, save those funds in a tax-free environment and then pay the tax at a time when they choose – ideally when their marginal tax rate is lower. This makes pension contributions all the more attractive.
Well, there was plenty of this…
“Follower notices” are the latest wheeze to attack individuals and companies which have participated in a disclosed tax scheme which has been found to fail. The Notice to Pay will require the taxpayer to pay the tax in dispute within 90 days, although there is scope for the taxpayer to ask HMRC to reconsider the Follower Notice. The new proposals will remove the ability for affected taxpayers to postpone any disputed tax whilst the matter is under appeal and penalties will apply for late payment.
George is making a substantial financial investment in HMRC’s infrastructure and staffing while cutting costs in many other departments. The Government intends to extend HMRC’s debt collection powers including enabling HMRC to recover funds directly from the bank accounts (including ISAs/NISAs) of individuals who owe over £1,000 in tax or tax credit overpayments. HMRC will only be able to take money from individual’s accounts where they have the ability to pay. And that means that they will be left with a balance of £5,000 in the account after the recovery action.
New rules have been introduced from 19 March 2014 to prevent companies transferring profits within a group for tax avoidance purposes. The measure will apply to payments made between group companies where one is typically resident in say a tax haven which cause all, or a significant part, of the profits to escape UK tax. This is allegedly not designed to catch genuine commercial arrangements between group companies. Instead, it is targeted at payments which “in substance” represent a distribution of the profits of which have been ‘dressed up’ as an expense of the trade. I wonder how this will affect many of our “tabloid tax targets” such as Amazon, Starbucks and the like…no change?
VAT and Duties
The VAT rules are to be amended in situations where a discount is offered for prompt payment that will result in VAT being due on the price that is actually paid. Currently VAT is calculated on the discounted amount, even if the discount offered is not taken up. From 1 April 2014 this will apply only to telecoms and broadcasters but it will be extended from 1 April 2015 to bring in all circumstances where a prompt payment discount is offered.
George sneaked a higher rate of machines games duty (MGD) of 25% through without mentioning it in his speech – it will apply to machines where the stake for playing the machines can be more than £5.
After considerable lobbying, the rate of bingo duty will be reduced from 20% to 10% for accounting periods beginning on or after 30 June 2014.
Air Passenger Duty has been simplified from six bands into two and the rate which applies to private flights will be six times that of standard commercial flights.
Various exemptions were announced to the aggregates levy and the climate change levy but to be honest, they were pretty dull.
Grant Schapps (Tory Chairman) tweeted an advert which was derided online and labelled a “PR disaster”: “Bingo! Cutting the bingo tax and beer duty to help hardworking people do more of the things they enjoy.” Simon Blackwell, a co-writer of The Thick of It, said the line would have been rejected as “too far-fetched” if it was suggested as an idea for the BBC Two political satire.
You couldn’t make this stuff up!
As ever, please call Bernice or any other member of the Riley Tax Team if you have any questions or comments. You can get them on 01752 203651 or email@example.com
On the day that the Tory benches undid Ed Balls by shouting at him until he shouted back, red-faced and as spittle-flecked as an attack dog, Osbourne must have thought he had done enough to win the front page headlines in all the papers on Friday. Unfortunately for him, he was completely undone by the death of Nelson Mandela; The Autumn Statement for 2013 sunk with barely a ripple into the morass of “and in other news…”
To be honest it was never going to be a long runner anyway because even though George had a bit of “wriggle room” due to a fast-improving economic situation, he still presented a fiscally neutral budget, nicking a bit here, giving a bit there but never really showing any imagination or vision. It was full of phrases like “long-term economic plan”, “responsible recovery” and “discipline with public finances”.
As ever, not all of the anti-avoidance legislation was published in detail and there will be more to say after the release of the Draft Finance Bill 2014 on 10 December. So in the meantime I will give a brief run-through of the major points that George got out prior to being so rudely pushed from the front pages.
The majority of the measures announced relate to large companies only. There are some new incentives for the film and theatre industry, changes to the bank levy rate, amendments to the rules on loss reliefs, and new incentives for oil and gas companies including and new exemption for onshore shale gas companies which will exempt profits worth up to 75% of a companies capital expenditure from the supplementary charge. There were measures to tidy up the rules for controlled foreign companies (CFC’s) and intra-group lending but, given the furore about the level of taxes paid by the likes of Amazon, Apple et al, no real attempt to curtail the obvious abuse of boundaries by the multi-national groups. They seem to more frightened of the moral stand of individuals (See Starbucks) rather than the legislation provided by governments.
There’s a definite focus on “manufactured partnerships” – where there are individuals in partnership with companies predominantly. The charge is that profits are being shared on a “tax motivated basis” – who would have thought it? From 5 December 2013, if significant amounts of profit are allocated to the non-individual partner, HMRC will have the power to reallocate the profits to the individual member for tax purposes. However, before they can do that they have to meet “a number of conditions”. First, the individual member must have the power to enjoy the non-individual’s share (here they will apply their usual connected person test;) the profit allocated to the non-individual member must be excessive (they define this as beyond the appropriate notional return on capital or payment for services). The final condition is that it is reasonable to suppose that some or all of the non-individual’s share is higher than it would have been had there not been profit allocation arrangements in place. Now obviously this has caused a little bit of consternation and some understandable structure reviews are taking place in the festive season. Just in case you thought you could have a non-UK chargeable individual in a partnership and avoid tax that way, HMRC will introduce the same rules to them from 6 April 2014.
Apparently some people have been using LLP’s to disguise employment as self-employment – really? The automatic presumption of self-employment for LLP members will cease and status will depend on “badges of partnership” which will be first shown in the draft Finance Bill later this week.
Transfer-pricing rules are also being amended from 25 October 2013 to remove an anomaly that allowed differential tax rate benefits to be realised by individuals with service company connections. There are also amendments to the rules on lending money to companies where transfer pricing rules also apply for connected persons.
VAT and indirect tax
HMRC recently lost a First-Tier tribunal case where it was decided that the compulsory online filing of VAT returns infringed the human rights of individuals who may have a disability or live in a rural area where broadband service precluded the use of the internet for filing – that would obviously never happen anywhere in the South West would it? Consultations will now be held so that VAT returns can be filed by smoke signal.
The government announced measures to combat the illicit trade in alcohol in much the same way that it tackled mobile phones and computer chips. This means that wholesalers will be required to register with HMRC from 2014 and take steps to ensure that they only deal with legitimate traders.
The main headline was the abolition of Employer’s NIC starting from April 2015 on employees below the age of 21 who are earning below the Upper Earnings Limit of £40,285. George also announced a new Class 3A NIC starting in October 2015 for those that reach pensionable age (which might be 75 by then…who knows!) before 6 April 2016. This will apparently be a “time limited opportunity” to top up their additional pension records – sounds like a great gig to me but not one which will be a mainstream activity I suspect.
There are three new tax reliefs to encourage indirect employee ownership of company shares:
if a disposal of shares results in the controlling interest in a company being held in an employee ownership trust no CGT will be charged
No IHT will be charged on the transfer of assets or shares to an employee ownership trust (providing certain conditions are met)
From October 2014, bonus payments made to employees of indirectly employer-owned companies controlled by employee ownership trusts will be exempt from income tax up to a limit of £3,600 per annum. At present it’s a bit unclear whether these bonus payments can be made in cash or are restricted to shares. We’ll have to wait for the legislation to be published before we can firm up on this.
There will be increases in the limits for Share Incentive Plans (SIP) and Save As You Earn (Sharesave) share option schemes from April 2014. The SIP annual limit will increase to £3,600 for “free shares” and £1,800 for “partnership shares”. The maximum monthly limit for Sharesave contributions has doubled to £500.
There are various new anti-abuse rules to deal with false self-employment through intermediaries and legislation will be strengthened from April 2014. Company cars are also a target with new rules to enforce payment for private use of a car or van within the tax year and changes to ensure that where a company leases a car for an employee this is taxed as company car not as earnings.
There’s also new anti-avoidance legislation on the way to deal with artificial contract splits of duties where part is performed overseas to ensure that all income is taxed in the UK.
A new transferable personal allowance will be introduced from April 2015 which will allow up to ┬ú1,000 to be transferred between partners earning no more than the basic rate.
The Big Society got a push too through a new social investment tax relief which means that the purchase of shares, certain loan investments┬áand social impact bonds made in social enterprises (charities, community interest companies, community benefit societies) will qualify for income tax relief. The consultation document suggests that 30% relief will be given up to maximum annual investment of ┬ú1m per individual.
The annual ISA subscription limit is to rise to £11,880 for 2014/15 with the Junior ISA limit increasing to £3,840.
There were predictable changes to CGT on property – from April 2015, non-UK residents will be subject to CGT on future gains on sales of UK residential property. The Chancellor also announced that he will halve the final period exemption for capital gains tax private residence relief. This refers to the current exemption for the final 36 months of ownership of a residential property that has previously been used by the owner as his or her main residence. This was originally intended to cover home owners who struggled to sell their property after moving to another. However, the Government is now concerned that the relief is being abused by property investors – would that really be the case? Surely not?
To help with the changes above, the annual CGT exemption will be £11,000 for 2014/15 and £11,100 for 2015/16 and subsequent years. The exemption for most trustees will be £5,500 and £5,550 respectively. There were also various changes to trust taxes particularly trust income being treated as capital if undistributed after 5 years and the clarification of the IHT limit of £325k for all trusts created by the same settlor regardless of date.
George announced that in future, the state pension age will be formally linked to increases in life expectancy so that individuals spend no more than a third of their adult life as pensioners. The first consequence of this is that by the mid 2030’s the state pension age is likely to rise to 68. The second is that if you’re in your early teens, good luck with getting any pension at all. For those of you already receiving the state pension, look forward to your weekly increase of £2.95 from April 2014.
Tax avoidance and aggressive tax planning
This deserves a section all by itself these days as George is relying on new rules to plug all the black holes in the budget. He’s expecting to raise £6.8bn over this budget period and protect even more. There was continuing focus on what George calls “unacceptable” tax avoidance while obviously not telling us what they consider to be acceptable and legitimate avoidance.
Following a consultation earlier in the year, the Government is to introduce “objective criteria” for identifying high-risk promoters of tax avoidance schemes. They say that a higher standard of “reasonable excuse” and “reasonable care” will then apply to these firms. And, while these are both cornerstone concepts in the field of tax compliance that have been in place for many years, it is difficult to see how different standards of reasonable behaviour can apply and we look forward to seeing the details. In a clear effort to deter people from using high-risk promoters, the clients of these firms will be required to identify themselves to HMRC (and wear a T-shirt with “Tax Avoider” across the front). Can’t wait for details of how this will work in practice – it will rely on the promoter identifying themselves to the taxpayer as being in the high-risk category. “Come and talk to us, we’re high risk” probably isn’t that great a strap line is it?
Oh, and if you’re a user of a tax scheme which HMRC have successfully litigated against, you will have to pay across any tax due even if you were not party to the litigation. You’ll have to amend your tax return, and, if you’re so impertinent as to pursue your own further litigation, you will will face further penalties, a night in the stocks in front of parliament and a good spanking – OK, so I made that last one up but I think you get the picture…George isn’t happy!
And don’t think just because you have an offshore element to your tax planning that you’re safe. The No Safe Havens approach has generated enormous amounts of data for HMRC and they’re now working out how best to use it all. Don’t look now, the bogey man is coming.
George Osborne has admitted his new hairstyle is an attempt to cover up the fact he is going bald. He says that his new, brushed-forward image was an extension of his economic policy – because he had “turned it round to stop the recession”.
Harvard Business Review recently published an article┬áwhich focused on the uses that retailers and others may find for mobile data. One paragraph rang particular bells with me following a conversation I had last week with a retailer lamenting the rise in smart phone usage in his stores…
“But retailers shouldn’t despair when shoppers whip out their smartphones among the product displays. Smartphones could be a retailer’s best friend not just because they can open up new buying opportunities. We believe that the smartphones’ greatest benefit for retailers is that they provide a treasure trove of insights into customers’ in-store behavior.”
The article starts to explain why we must ride waves of technological change rather than fighting them. How can we use the changes in behaviour to enhance the customer experience – not just in shops but hotels, service industries and other businesses.
Go on, think positively and feel good about the opportunities which you might uncover.
If you need some help getting there, give us a call.
We’ve been talking to a number of clients who have had the following message – all were impressed by it’s potential legitimacy but none luckily clicked on the attachment which is a zip file and very probably contains a virus – be careful out there…….
To: XXXXXXXX (there was a proper address here….)
Subject: Tax Refund New Message Alert!
TAX RETURN FOR THE YEAR 2013
RECALCULATION OF YOUR TAX REFUND
LOCAL OFFICE No. 3819
TAX CREDIT OFFICER: Lisa Frank
TAX REFUND ID NUMBER: 381716209
REFUND AMOUNT: 244.79 GBP
The contents of this email and any attachments are confidential and as
applicable, copyright in these is reserved to HM Revenue & Customs.
Unless expressly authorised by us, any further dissemination or distribution
of this email or its attachments is prohibited.
If you are not the intended recipient of this email, please reply to inform
us that you have received this email in error and then delete it without
retaining any copy.
I am sending this email to announce: After the last annual calculation of
your fiscal activity we have determined that you are eligible to receive a
tax refund of 244.79 GBP
You have attached the tax return form with the TAX REFUND NUMBER
complete the tax return form attached to this message.
After completing the form, please submit the form by clicking the SUBMIT
button on form and allow us 5-9 business days in order to process it.
Our head office address can be found on our web site at HM Revenue &
HMRC Tax Credit Office
TAX REFUND ID: UK381716209-HMRC
C Copyright 2013, HM Revenue & Customs UK All rights reserved.
The Chancellor said that the British economy was on a┬árocky road┬átowards health. No one is ever going to complain about having rocky road in their lunchbox. It’s excellent for a quick, snatched burst of energy at any time. I’m pretty sure that’s not exactly how George might have intended us to interpret his statement but what I do think is that much of this Autumn statement was intended as┬ádistraction therapy to give at least certain sectors a quick, snatched burst of positivity.
Whilst it’s not really my role to comment on the economic information presented so carefully yesterday, it’s clear that George may have adopted the old accountants definition, “what number do you want it to be?” when dealing with the many variables such as the timing of 4G licence sales income, Royal Mail pension scheme treatments and the old “whose money is that?” game from the Asset Purchase Facility. Luckily for him, it is so┬áfiendishly┬ácomplicated that many commentators still can’t properly agree what growth, borrowing, deficit and other key numbers might actually be. I’m therefore not even going to try, I’ll only make an Ed Ball’s of it!
Mini-Budget not Autumn Statement?
This was really a mini-Budget which produced some good news and surprises for business and some expected bad news for personal taxation.
From 6 April 2014, the annual allowance for pension contributions will reduce from ┬ú50,000 to ┬ú40,000. This is an excellent reason for individuals to maximise pension contributions before 5 April 2013 where income tax relief at 50% is available.
Also from 6 April 2014, the lifetime allowance for pension savings will be reduced from ┬ú1.5million to ┬ú1.25 million.Individuals with pension savings near ┬ú1.25m will face a difficult choice about how to manage excesses (which could be taxed at 55%) and which of the new forms of protection to elect for. Another form of fixed pension protection is apparently on its way and also mooted is personalised protection. Since 2006, five different forms of pension protection have been created – nothing like a bit of complexity.
The personal income tax allowance will increase by an additional ┬ú235 to ┬ú9,440 from 6 April 2013 which gave the Government benches something to cheer about.
For the tax years 2014/15 and 2015/16, the increase in the higher rate threshold will be capped at 1%.The increases in the personal allowance will mainly benefit basic rate taxpayers, though most higher rate taxpayers will also benefit to some extent in 2014/15. However, capping the increase to the higher rate threshold at 1% per year, (less than the rate of inflation) will result in an additional 400,000 higher rate taxpayers by 2015/16. And that, my friends, is how a squeezed middle actually gets bigger!
For 2014/15 and 2015/16, the capital gains annual exempt amount will increase by 1% each year. The annual exempt amount for 2014/15 will be ┬ú11,000 increasing to ┬ú11,100 in 2015/16.
The inheritance tax nil-rate band will also increase by 1% in 2015/16. This means that the nil rate band will then apply to estates and transfers valued up to ┬ú329,000.Small beer maybe, but this is the first increase in the nil-rate band since 2009 so best to give thanks now.
The Government will consult on permitting direct ISA investments into SMEs, such as AIM listed companies, and will increase the ISA limit to ┬ú11,520 from 6 April 2013.
Corporation and business tax
The mainstream rate of Corporation Tax will be reduced to 23% from 1 April 2013 as already announced, then 21% (previously 22%) from 1 April 2014. This would give the UK the lowest mainstream CT rate in the G20 with the exception of the likes of Turkey and Russia. It’s got to be a good bet that there will be a future announcement of a further reduction to 20%, to harmonise with the small profits rate.
But don’t think that George has forgotten the public perception of the bank’s role in the financial disaster. The reduction in the CT rate has been countered for them by an increase in the Bank Levy to 0.130%. And this takes effect from 1 January 2013 rather than 1 April 2014. Banks get a further kicking from legislation designed to ensure that foreign bank levies paid by a foreign banking group trading in the UK cannot be claimed as a deduction against UK tax.
Remember when the Annual Investment Allowance (AIA), which has provided 100% capital allowances was ┬ú100,000 of qualifying plant and machinery? And then George reduced it to ┬ú25,000? Well now this will increase ten-fold to ┬ú250,000 for expenditure incurred in the 24 months from 1 January 2013. Up and down like the proverbial “drawers”!This will require careful planning for businesses to maximise the cashflow benefit.
Updated corporation tax reliefs for the creative sector, specifically in video games, animation and high-end television, have been announced. From 1 April 2013, qualifying companies will be able to choose between an enhanced deduction of 100% of qualifying expenditure or a payable credit of 25% of qualifying losses surrendered.
Following the campaigns to discredit multi-nationals such as Google, Starbucks and Amazon, new resources have been given to HMRC to counter abuse and specifically “risk identification and assessment capability for large multinationals”. Good luck with that – the results lately appear to be more to do with pressure from the public boycott of Starbucks than the ability of HMRC inspectors.
HMRC are also getting new transfer pricing specialist resources to accelerate the identification, challenge and resolution of these issues. Some might say that multinationals will conveniently need to review their transfer pricing policies and documentation at a time when the UKÔÇÖs tax rates are set to become some of the lowest in the G20 but I obviously wouldn’t comment on that sort of cynical speculation.
The Government has confirmed the introduction of a new cash basis for small unincorporated businesses. From April 2013, businesses with annual receipts of up to ┬ú77,000 (the VAT threshold)┬áwill be given the option to account for taxable profits on a cash receipts and payments basis. These businesses will also┬ábe allowed to remain on the cash basis as long as their turnover remains below ┬ú154,000.In addition, unincorporated businesses will also be able to use flat rates to calculate some types of expenses rather than have to calculate the actual amounts.
Reduction of the administrative burden faced by very small businesses is always useful. However, some aspects of the proposal, which had been consulted on earlier in 2012, were controversial. It is not yet clear whether any changes have been made to those aspects and consequently how beneficial the proposals are likely to be.
For the last year or so, the Government has been consulting on a new ÔÇÿemployee shareholderÔÇÖ status. This is suggested to combine tax relief on employee shares (where no CGT would be payable on the disposal of shares acquired under the scheme) with the connected surrender of certain employment rights. It’s intended to create a more flexible labour market and to exploit employee share ownership as a way of boosting productivity by means of a more “engaged” workforce.
This is obviously sensible but it does rely on making the package as a whole is attractive to potential employees – and that has so far been announced piecemeal. The proposed relief from CGT came in October 2012 – todayÔÇÖs announcement merely reiterates this. (Didn’t the last government do this with “new money for this and that”? Thought so.) We’re going to have to wait for the draft Finance Bill to see the details of these rules, and hope that they do not introduce crazy tax complexity for employees who hold shares in what will be, in many cases, small and medium sized businesses.
Many in business have questioned whether the up-front charges to income tax created by employment-related securities legislation will act as a┬ápotential deterrent when shares are acquired. To help, George announced today that he is considering a┬áverylimited income tax relief for this up front charge. How big does the first ┬ú2,000 of value sound? Small change when shares of between ┬ú2,000 and ┬ú50,000 can actually be acquired under the arrangement. Obviously it’s great that they noticed but this would severely limit the attractiveness and scope of application of employee shareholder status.
Employers are still waiting for detailed rules on the terms of such shares. There is nothing new here – carry on.
The Government has cancelled the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The increase planned for April 2013 will now be deferred until September 2013. Future escalations will be implemented in September each year rather than April.
Tax avoidance measures
There was much trumpeting of the┬áfiscal benefit of the UK-Swiss tax repatriation agreement. This has now been agreed in both parliaments and is calculated to be more than ┬ú5 billion over six years, including settlements, penalties and withholding tax revenues.
Four further specific avoidance schemes were targeted and George reiterated a commitment to introducing the General Anti Abuse Rule in 2013. He also listed a wide range of other initiatives designed to address the recent media furore mentioned above with Starbucks, Google and Amazon. A formal offshore evasion strategy will be published in 2013 – no, not how to do it, rather how they will stop it. Issues as widely disparate as evasion, avoidance and aggressive planning will be covered.
As a measure of how seriously he takes this issue, George announced that HMRC would escape the general cut in other Whitehall budgets and awarded them an extra ┬ú1bn of resources. With this they are expected to do great things including establishing a Centre of Excellence on offshore tax evasion. Strange that – the recent Select Committee sessions appeared to suggest that the UK already had one of those!
George announced that the Government won’t proceed with their 2012 proposal to deal with personal service companies. Apparently ┬áthey believe that HMRC’s new approach to policing IR35, together with the measures introduced in the public sector, are sufficient to prevent any tax loss resulting from employment which is disguised in this way. So no problem there with any public sector “employees” who are using companies? Yeah, right.
The Government will set up the “Office for Unconventional Gas” – you heard it here first! This is part of its “drive to maximise economic production from natural gas resources, and consult on the tax regime for shale gas”. At least that’s what George said – but I think we all know better.
During December Princess Bernice, our tax partner has offered to wear her tiara in the office and to client meetings. Normally only known to wear her tiara and wand at weekends, Bernice has agreed to do this in exchange for donations to Hannah’s from members of the Riley team.
Princess Bernice with tiara & wand for December
Anyone who would like to support Princess Bernice, please donate through the link above and let us know you have done so. We’d like to know that she┬áhasn’t been ridiculed in vain.