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Autumn Budget 2018 – Office dullard seizes the karaoke microphone

October 30th, 2018

At the Tory party conference in Birmingham, Theresa May confidently declared that the years of austerity were well and truly over. We had never had it so good she said. Hammond quickly distanced himself from becoming his prime minister’s hostage to fortune by opening his statement with a mumbled statement that austerity was merely coming to an end. Although he couldn’t say exactly when. All he could do was acknowledge things were still fairly rubbish but he would do his best to make things appear slightly less bad than they already were by spending money he couldn’t say for certain that he definitely had. And he aimed to distract us by delivering a series of third rate stand-up gags that were so appalling that both sides of the house (and all the listeners on the radio) were squirming in their seats with embarrassment and his attempt to replace austerity with hilarity was greeted with a chorus of groans across the UK.That was a joke right

In the Guardian, John Crace said “So often cast as the Undertaker, Hammond was now reinvented as the Clown. The chancellor’s self-regard is astonishing. It’s bad enough that he imagines himself to be an economic wunderkind, but he’s borderline delusional in believing himself to be a raconteur with comic timing. His only public speaking gift is to make 75 minutes feel like 150.”

And in the Mail, Quentin Letts imagined “As he stood at the despatch box, vulpine, licking his lips with self-pleasure, he plainly thought himself the dog’s dandies…Westminster’s prize bore, fancies himself Mister Showbiz. Lugubrious grey heron imagines it is a peacock. Office dullard seizes the karaoke microphone.” 

He even spent £10m of our money setting up a “wooden zinger” on John MacDonald – “The shadow chancellor’s recent accident has reminded us all how dangerous abandoned waste can be…So I will provide £10m to deal with abandoned waste sites, although I can’t guarantee to the House that £10m is going to be enough to stop him falling flat on his face in the future.” No, I’m sorry, it wasn’t even funny at the time.

And what of Brexit you ask? Well, he used the word once in over an hour of “prose” and tried to gloss over itElephant as quickly as possible. If all went well and the prime minister got her deal, then he set aside £4bn to pay for the issues arising. If she didn’t…well, all bets were off and things would be so catastrophic that an emergency budget would be needed; a budget that he hadn’t yet got round to writing as the mere thought of it gave him nightmares. The no-deal contingency planning was to have no contingency plans. Can you even hide an elephant in the long grass or was this a can rattling down the road…whatever your chosen metaphor, he ignored it. So that’s all OK then. At Halloween aren’t we supposed to imagine monsters under the bed?

And the actual budget? Well Nick Robinson suggested to Hammond that he had “found a magic money tree, chopped it down and then burnt it”. Of course he denied it saying that it was all down to fiscal strictures and the hard work of the British people. “Austerity was over (almost)”, he said but has been replaced by discipline – now that sounds like a Tory BDSM evening!

And so to the fascinating detail:

Corporate taxes

  • Corporation tax rate still planned to fall to 17% in 2020
  • One of Phil’s early rabbits was a temporary increase in the Annual Investment Allowance (AIA), with a rise in the limit from £200k to £1m for a period of two years after many demands for it to encourage investment in plant and machinery by businesses. The plan is to implement this from 1 January 2019, with transitional rules to be put in place where your year end does not coincide with these dates. Of course, this is great for businesses that will spend over £200k pa on kit but it will probably mainly benefit large businesses. It’s welcome nonetheless.
  • A Structures and Buildings Allowance (SBA) for new commercial structures and buildings was announced (didn’t we have this in the old days of the noughties as the old Industrial Buildings Allowance which was phased out in 2008?). This will allow eligible construction costs incurred on or after 29 October 2018 to qualify for relief at 2% per annum on a straight-line basis. This is in addition to the capital allowances already available for plant and machinery within new buildings (which may well qualify for AIAs subject to the above limits), which should encourage capital investment in new commercial buildings. The catch is that this is not available for physical construction works which have been entered into before 29 October 2018.
    The relief will be available regardless of ownership changes, periods of disuse or periods where the building is being used for non-qualifying purposes. The benefit will pass between each owner at the written-down value. This includes offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses but specifically excludes residential property, land, legals and stamp duty costs.
    SBA expenditure will not qualify for the AIA, so businesses seeking to maximise tax relief should contact us to identify separately the costs that will qualify for capital allowances.
  • To pay for this, the writing down allowance of plant and machinery that qualifies for the reduced special rate capital allowances will reduce from 8% to 6% from April 2019. These assets include long-life assets; thermal insulation; integral features and expenditure on cars with CO2 emissions of more than 110 g/km – there go the big engines.
  • Writing down allowances for expenditure on assets in the main pool (currently 18%) and special rate pool allowances for ring-fenced trades (you’ll know if you’ve got one) (currently 10%) remain as they were.
  • Phil announced that the Enhanced Capital Allowance (ECA) for energy- and water-efficient plant and machinery will end from April 2020. The measure will also end the first-year tax credit available on such qualifying technologies from April 2020. This also removes the beneficial first year tax credit which was available to loss-making businesses and which might now remove the incentive for such businesses to focus on environmentally beneficial plant and machinery. Contact us for more details on this if this is applicable to you.
  • There’s some action on losses – from 1 April 2020, it is intended to restrict the proportion of annual capital gain that can be relieved by brought forward capital losses to 50% for larger companies and the restriction will not apply to the first £5m of carry forward loss utilisation.
    There are the usual elements of anti-forestalling legislation to counteract “schemes” and legislation is intended for Finance Bill 2019-20.
  • The Government is seeking to prevent the abuse of the R&D tax relief for loss-making Small and Medium-sized Enterprises (SMEs) by re-introducing a PAYE and NIC limit from 1 April 2020. This could restrict total cash tax credits claimed from HMRC. No amendments were made to the rates of R&D relief but the SME tax credit available to loss-making SMEs will be subject to a restriction mainly aimed at loss-making SMEs who outsource the majority of their R&D activities offshore and therefore have limited UK employees. The Government will consult on how the cap will be applied to ensure the focus is on the prevention of abuse.
  • There is confirmation that tax relief will be once again made available for the amortisation of goodwill on the acquisition of businesses with ‘’eligible’’ intellectual property with effect from 1 April 2019. We will have to wait and see what that actually means.
  • It was also announced that the rules for intangible fixed assets will now be aligned with the chargeable gains regime, which should enable a more flexible approach to transact the reorganisation, purchase or sale of businesses. If you’re buying or selling a business, please make sure you speak to us.
  • In the Autumn Budget in 2017, it was announced an intention to tax income derived from intangible property held in low-tax jurisdictions to the extent that it related to UK sales. This will have effect from 1 April 2019. The collection of tax will be via a direct assessment to tax on the owner of the intangible property, rather than the application of a withholding tax on payments made to the intangible property-owning company by other persons.
  • Following a consultation exercise last spring, the Government has decided to delay introducing a new Enterprise Investment Scheme (EIS) fund structure for Knowledge Intensive Companies (KICs) until 2020. And that’s after Brexit…so I won’t bother you with it now.

Personal taxes and allowances

  • The personal allowance will increase to £12,500 (from £11,850) from 6 April 2019. The basic rate band will rise to £37,500 (from £34,500) so if you have personal income of less than £50,000 a year, you will only pay 20% income tax. For someone earning exactly £50k, this equates to a reduction in their income tax liability of £860 per year. For employees though, this will be clawed back in part by an increase in employee’s NIC.
    The personal allowance and basic rate band will remain at these new levels for 2020/21, and thereafter will increase annually in line with the Consumer Price Index. The personal allowance will also continue to be tapered for those with incomes in excess of £100,000. The level at which the additional rate of income tax of 45% applies will remain at £150,000.
  • Two important changes were announced to Entrepreneurs’ Relief (ER).  ER reduces the rate of capital gains tax (CGT) on disposals of certain business assets from 20% to 10%. There had been some talk of more radical changes even speculating abolishing ER altogether but essentially these changes make ER a bit more difficult to claim.
    Firstly because there has been an  increase to the holding period for business assets and shares held by individuals for disposals made after 6 April 2019 to at least two years, as opposed the current one year so you will need to carefully plan any disposal if this change affects you.
    The second change introduces two additional tests that must be satisfied before ER is available – both take effect from yesterday (29 October 2018). These changes mean that the existing condition that an individual holds 5% of the ordinary share capital and votes will be extended to them holding 5% of distributable profits (dividends); and also 5% of assets available on a winding up of the company. In other words, to qualify for ER, an individual must have a 5% ‘economic interest’ in the company. The change affects the eligibility for ER of those who hold shares that have voting rights but no economic interest. These further conditions are added to the conditions for relief on associated disposals and the withholding of relief on goodwill.
  • If you gain ER by holding options over shares granted under the Enterprise Management Incentive (EMI) regime, the holding period will again be extended from 6 April 2019 to two years for such option holders as opposed to the current one year.  Based on the draft legislation, the changes to the 5% rule outlined above do not appear to affect EMI option holders but whether this will come out in the detail remains to be seen?
  • A transfer of trade in exchange for shares should now benefit from ER, if a trade existed for at least two years prior to incorporation. This is a change from the current regime that would have required the resulting shares to be held for two years before disposal. The change benefits sole traders who incorporate the trade shortly prior to selling the business.
    The current legislation could catch other transactions that involve transfers of business but the full impact of this is yet to be revealed.
  • A useful change was also confirmed to allow minority shareholders to retain their ER in certain circumstances where their shareholding falls below 5% because of equity investment. Under the new rules, a shareholder can elect to claim ER on the gains accrued before the dilution below 5% provided the dilution resulted from an issue of new shares for cash. ER may be claimed on the eventual disposal of qualifying shares.

Principal Private Residence (PPR) relief

  • A consultation was announced on two elements of PPR. The first centres around the allowance of the last 18 months of ownership being classed as occupation. It is proposed that this period will be reduced to the last nine months of ownership for property disposals after 6 April 2020. If the changes come in as planned, individuals buying a new home, before selling their old one, will need to ensure a sale of the old property takes place within nine months to avoid a potential CGT charge.
  • Secondly, the Government is also proposing a big change to lettings relief. This relief applies where an individual sells a property that has been their main home and which has also been let out for a time. Currently letting relief can exempt up to £40,000 of any gain on disposal. the proposal is that from 6 April 2020, lettings relief will only apply in situations where the owner of the property is in shared occupancy with the tenant. As a result of the proposed changes, the relief currently worth up to £11,200 of CGT, would be lost unless the individual selling the property lived in the home at the time it was let out.
  • Despite consultation, there are no changes to the Rent-a-Room Relief.Philip-Hammond-as-Dracula-MAIN

If you’ve got to this point you deserve some light relief…did you know that Phil was at school with Richard Madeley who told Newsnight: “He used to wear, as memory serves, quite a long black leather coat and black leather boots, and he had very long jet black hair that kind of hung like crow’s wings down past his shoulders.

“He was very distinctive to look at, very tall, very aquiline, very thin, very beaky and super confident.” One of the girls said “Who’d have thought Philip Hammond was such a good kisser?”

Trust & IHT tax changes

  • The Government will clarify the inheritance tax (IHT) treatment of additions of assets to existing trusts. HMRC regards such additions by UK-domiciled (or deemed domiciled) individuals to trusts made while they are non-domiciled as not covered by the excluded property rules – others dispute this. The new clauses will formally confirm HMRC’s position and, regardless of the date of the addition, will apply to IHT charges arising on or after the date of Royal Assent to the Finance Bill 2019-20.
    The Chancellor has also announced that a consultation will be launched to examine the taxation of trusts and how this can be made ‘simpler, fairer and more transparent’. Surely something that the Office of Tax Simplification should have had in its sights for years?
  • Since April 2017, an additional nil rate band has been available where an individual leaves the family home to their direct descendants. In addition to having the usual nil rate band of £325,000, a RNRB of £125,000 may also be available. It had already been announced that the RNRB will increase to £150,000 from 6 April 2019 and £175,000 from 6 April 2020. There were a couple of technical changes to the RNRB relating to lifetime gifts and exempt beneficiaries.

Indirect taxes

  • The VAT registration threshold will be frozen at £85,000 for two more years until 31 March 2022. The deregistration threshold will also remain frozen at £83,000.
  • From 1 April 2019, VAT grouping will not be restricted to incorporated entities. An individual or a partnership will be allowed to join a VAT group, provided it controls the companies it is grouped with and is entitled to register for VAT in its own right. That condition does not apply to companies who may join even if they are dormant or wholly exempt.
  • A change will be made to the VAT treatment of deposits on services or goods that have been paid for in advance but which the customer does not use/collect. This change is due to take effect from 1 March 2019. Currently there is no further information on this but it should be available before the end of the year. The change may mean that only fully refundable deposits paid as security will be outside the scope of VAT. This would result in some businesses paying more VAT than at present, but it will ensure that a consistent treatment will be applied to deposits.
  • The Government has confirmed its previous intention to introduce a domestic reverse charge on the supply of certain construction services made in the UK with effect from 1 October 2019. Under the new rules, a VAT-registered business which supplies construction services to another VAT-registered business will be required to issue a VAT invoice stating that the service is subject to the reverse charge. If you’re still with me at this point this could be interesting to you…please call the tax team for more detail. The rest of you, back to sleep!
  • Gaming Duty will increase from 15% to 21% with effect from 1 October 2019. Partially to deal with the reduction in FOBT maximums to £2.
  • The Government is continuing to explore the introduction of a split payment mechanism to combat loss of VAT on sales of goods through online platforms by businesses in the UK. Under the split payments proposal, one party in the payment chain would be required to pay the VAT on each sale directly to HMRC and pay only the balance (ie the net price) to the vendor. This proposal involves using payment technology to enable real-time extraction of VAT, which would then be deposited with the tax authority. Exciting stuff eh?
  • Legislation will be introduced that will significantly affect the VAT treatment of all vouchers issued on or after 1 January 2019. Many more vouchers will become what are called Single Purpose Vouchers (SPVs), where the VAT is accounted for when the voucher is sold and not when the goods or services are purchased using the voucher. This change means that many more businesses will have to account for VAT earlier than at present and will also have to account for VAT even if the voucher is not used fully. A business will not therefore be able to benefit from non-redemption or expiry of these vouchers.

Employment taxes

  • In April 2017, the Government changed the rules for public sector bodies engaging workers through Personal Service Companies (PSCs) this is commonly known as IR35. This shifted the responsibility for establishing whether IR35 applied to the engagement from the worker and their PSC to their engager. If the engager thinks IR35 applies, it is required to deduct PAYE from the payment it makes to the PSC and pay employer’s NIC on that payment. Following a consultation, the Government has announced its intention to extend the rules that currently apply in the public sector to the private sector from April 2020. Small organisations will be exempt, but no details of which organisations will qualify for this exemption have yet been released. Phil expects to gather some serious wonga from this change – £1.1bn in 2020-21.
  • A further delay was announced to the proposed employer’s NIC charge on termination payments over £30,000. It is now intended that the proposed reform will take effect from 6 April 2020. The delay will be a welcome surprise for those employers who were looking to implement any larger redundancy packages before 6 April 2019.
  • The Government remains committed to its original ambition of creating three million new apprenticeships by 2020 and has introduced a number of reforms to strengthen the role of employers. These are mainly aimed at levy paying companies.
  • It’s clear that the value of Employment Allowance (EA) to larger businesses is marginal but it is still very meaningful for smaller businesses, providing them with up to £3,000 off their employer’s NIC bill.  Therefore, from April 2020, the Government plans to make EA available only to employers with an employer’s NIC bill below £100,000 in their previous tax year.

Other taxes

  • For the next two years all retail properties in England with a rateable value of up to £51,000 will receive a one third reduction in their business rates. This relief will then be superseded by the rates revaluation due to take place in 2021. In addition, special reliefs will apply for local newspapers and public lavatories.
  • A new tax on the production and import of plastic packaging is to be introduced. The new tax is intended to encourage a change in behaviour so that plastic packaging that contains less than 30% recycled content is no longer utilised. Subject to consultation, packaging that does not contain enough recycled content will be taxed from 1 April 2022. It was widely expected that there would be some action to tax disposable cups but this has been left alone at present which is a shame as I was looking forward to calling it the “Latte levy”.
  • In insolvency situations, a new measure was introduced which is designed to make directors and others personally liable for business taxes owed when a company has deliberately entered insolvency to avoid or evade tax. And from 6 April 2020, HMRC is to become a preferred creditor for taxes paid by the business’s employees and customers (ie PAYE, employee NIC, VAT and CIS deductions). The rules will remain unchanged for taxes owed by businesses directly to HMRC, such as corporation tax and Employer NIC.
  • On Stamp Duty, a surcharge of 1% to SDLT rates is proposed for the purchase of residential property in England and Northern Ireland by non-residents. It is uncertain however when this would be brought in. And the Government are extending first-time buyers relief in England and Northern Ireland so all qualifying shared ownership property purchasers can benefit. This change will apply on or after 29 October 2018. This change will also be backdated to 22 November 2017 to enable purchasers who have not previously claimed to get a refund.
  • A technical correction was made to extend the time limit within which it is possible to reclaim the 3% higher stamp duty land tax rate when an individual sells their old home within three years of making the subsequent purchase. This change took effect from 29 October 2018.
  • A more straight forward system will be introduced for local authorities to obtain Section 106 contributions from developers towards local infrastructure.
  • The Government has announced that it intends to publish an updated offshore tax compliance strategy. This is expected to set out how HMRC will in future tackle tax evasion and non-compliance related to income, profits and assets located outside the UK on which UK tax is payable. I bet you all can’t to get hold of that – guaranteed to make it onto the Amazon Best Sellers list – not sure whether that’ll be the fact or fiction section though.
  • And he’s having another go at Google, Facebook, Amazon and the like. Due to the difficulties associated with concerted International action, the Government has decided to move unilaterally to introduce a Digital Services Tax (DST) at 2% from 1 April 2020 on revenues derived from search engines, social media platforms and online marketplaces, where those activities are linked to the participation of UK users. There will be a £25m allowance, and the tax will only apply to businesses who generate revenues from in-scope activities of more than £500m per annum.

To be honest, after a point I began to wonder whether this is all a charade. A list of wishes which will have to be revisited in the Spring whatever happens with Brexit? Who knows and frankly, who cares? After all we can only play on the field he’s laid out for us.

And finally:

The Government is cutting taxes for public loos, well business rates actually.

“It’s virtually the only announcement in this budget that hasn’t leaked,” the Chancellor “wisecracked”.

“Finally, local authorities can relieve themselves.”

It’s a shame, then, that he still refuses to “spend a penny” where it’s really needed. If Phil’s betting his fortune on a future as a comedian once he’s inevitably booted out of Number 11, he might want to invest a little more in Universal Credit first.

He might just need to sign on.

You can’t make this stuff up!

You can get the tax team on the following numbers:
Bernice 01752 203651, Nicola 01752 203600, Jenna 01752 203645 & Belinda 01752 203658

We look forward to hearing from you.

Fiscal Phil – high gag to policy announcements ratio…Budget speech Autumn 2017

November 24th, 2017

For a man better known for his “hawkish-ness” than his humour, the Chancellor wasn’t slow to deliver his first “gag”. Within minutes of taking to the Despatch Box he delivered a mawkish, poorly-worked double-act with Theresa May who ended up waving her cough sweets like Excalibur behind his head. This was like Budget Panto with the pair exchanging props. It didn’t matter; this was fluff of the first order, a performance masking a budget that tinkered with many things but made no major difference to anything…apart from maybe his own employment prospects?

To be honest, it was a pretty terrible gig to get. The economy is flatter than a carpenter’s dream, Brexit is a story without an end (or maybe even a middle) and some even think the first chapter needs rewriting, the previously helpfully compliant OBR have turned against him and his party wanted him sacked. Apart from that, everything smells of roses! Despite such pressure, having little cash to splash and no Commons majority to force through anything even slightly controversial, Hammond made the best of a bad job.

Given the situation he was in, this was a surprisingly “give-away” budget. Not in any big way, but I did find myself asking how he was paying for all the pledges, spending promises and tax changes. Only when I got into the detail did it become obvious that there were a number of “non-speech announced” tax changes and anti-avoidance measures that provide the additional tax take required to pay for the more glitzy headlines.

The Independent said that with all the giveways, “Fiscal Phil had become Handout Hammond” – there was renewed focus on housing, a cash boost for the NHS, investment in teachers, a possible pay rise for nurses, money for scientific research. It was probably a recognition by the Tories of Corbyn’s appeal to the younger generation and the risk of their further demise if they didn’t at least begin to deal with it and the effects of continued austerity. This influence may of course be the closest that Corbyn gets to power but it seems that he has the Tories playing, at least partially, on his pitch.

In response, Jezza himself again proved he is utterly humourless. As he attempted to pick-apart the Chancellor’s statement merely by shouting, he suddenly erupted into that angry-Jez alter-ego. In the most extreme outbreak of Angry-Jez yet witnessed, he almost mounted the Despatch Box as he roared about the Conservatives’ “uncaring, uncouth attitude.” And that is when all Hammond’s crap jokes finally landed.

And so to the (short) detail:

Corporate & business taxes

  • Boost for EIS & VCT investment in knowledge-intensive companies (KICs) – this has been doubled to £10m pa. This, coupled with a relaxation in the age criteria for KICs which mean they measure their age from first attaining turnover of £200k pa rather than first sale means that there is a much expanded opportunity for investment in these companies. The amount individuals can invest each year into EIS companies has been doubled to £2m pa provided that they invest in at least one KIC. This was only the first element of the focus on R&D, knowledge development and science in the budget. To ensure that investment really is aimed at high-growth potential companies, a new “risk to capital” condition has been introduced to disqualify companies where there is a low risk to investors capital.
  • Non-resident companies have long been a focus of ire for the Treasury and this year was no different. Corporation tax will be chargeable on gains on commercial property for the first time and there will be an extension to the tax of gains on residential property. It appears that gains on the disposal of shares in companies holding properties could also be brought into the charge to tax. These changes apply from April 2020 but there are anti-forestalling measures taking effect from 22 November 2017 to stop schemes dodging the change.
  • Business rates – The key change announced was that from 1 April 2018 the indexation of business rates will be based on inflation using the Consumer Price Index (CPI) rather than Retail Price Index (RPI). This was already planned but has been brought forward. Surprisingly, retrospective legislation will be brought in to end the so-called ‘staircase tax’ where different business rates apply depending on whether office staircases are communal or private. Affected businesses will be able to request that bills are recalculated, with backdating to April 2010.
    A £1,000 business rate discount for pubs with a rateable value of up to £100,000 will be extended for a further year from 1 April 2018.
    The next revaluation for business rates is due in 2022. Thereafter, revaluations will take place every three years. This is meant to smooth the previous steps in business rates but may actually accelerate the payment of business rates at higher levels. This is subject to one of the myriad of consultations announced in the budget speech.
  • Increase in R&D relief – From 1 January 2018, the rate of the Research & Development expenditure credit (RDEC) will increase from 11% to 12%, primarily affecting large companies. Furthermore, the Government will introduce a new Advanced Clearance Servicefor RDEC claims.
  • Indexation allowance frozen for companies – The corporate indexation allowance will be frozen from 1 January 2018. No relief will be available
    for inflation after this date for chargeable gains made by companies. The indexation allowance for assets disposed on or after 1 January 2018 will therefore be calculated up to 31 December 2017.
  • For those of you with Enveloped Dwellings, the annual chargeable amounts for the annual tax (ATED) will rise by 3%. The new charges will apply to the 2018/19 chargeable period, which begins on 1 April 2018.
  • For all you electric and LPG fuelled lorry drivers (that’s the lorry fuel not the Yorkie bars) – First year allowances for zero-emission goods vehicles and gas refuelling equipment have been extended for a further three years to 31 March/5 April 2021.
  • There was also a new position paper published on the digital economy – this is aimed at ensuring multi-national group’s profits are taxed in the countries in which the value is generated – we’re looking at you Google, Apple, Amazon, Starbucks etc etc. Unfortunately, this is not a simple issue and will need to be achieved through the OECD Digital Task Force. They’re going to have a go though and the first element of this is to tax multinational groups which hold international property offshore, by extending the scope of withholding tax to royalty payments and payments for certain other rights made to nil or low tax jurisdictions in connection with sales to UK customers. Still with me? This change will take effect from 1 April 2019 and is expected to raise £800m over the first four years.
  • There are new measures to ensure that UK companies only get relief for losses once – surely a pretty basic requirement? They will be required to track the overseas treatment of losses of their overseas branches for double-taxation relief – no wonder they try it on with a name like that!
  • There are what are called “technical amendments” to the rules on Corporate Interest Restrictions. They are all about the treatment of derivatives, R&D interaction with interest relief and public infrastructure exemptions – many of the changes relate to correcting unintended cock-ups created by the first drafts!
  • Listen up! There have been some exciting changes to the “hybrid and other mismatches regime”, if you didn’t know this is designed to “tackle mismatches in tax treatment for entities, permanent establishments and financial instruments.” “The measure introduces a number of
    technical changes. These have been identified after extensive, informal consultation with stakeholders on the regime’s practical impact and
    the extent to which specific rules and conditions might cause results contrary to the original intentions. Consequently, more groups will find
    themselves caught by the hybrid mismatch rules.” Nope, I didn’t get anything either.
  • More anti-avoidance – when claiming a capital loss on the disposal of shares in a group company, previously there was only a need to
    look back six years to identify below market value intra-group transfers of assets and other similar transactions. From 22 November 2017, companies must adjust for all “depreciatory” transactions.
  • In an attempt to extend the life of the UK oil and gas fields, the tax history of late life fields will be able to be transferred on sale so that decommissioning costs can be offset against previous profits.

Personal taxes

  • Personal allowances and tax rates – For the tax year 2018/19 the personal allowance will increase by £350 to £11,850 and the basic rate band will increase by £1,000 to £34,500, meaning individuals will only pay 40% tax once their income is above £46,350. This will result in a tax saving of up to £70 for basic rate taxpayers, £340 for higher rate taxpayers and £250 for 45% taxpayers. Income tax rates are unchanged. Hammond reaffirmed the manifesto commitment to increase the amount at which 40% tax becomes payable to £50,000 by the end of this Parliament. I wonder how many years they think that they have left if the increases are £1k pa?
  • CGT – The CGT annual exemption will increase by £400 for 2018/19. From 6 April 2018 the first £11,700 of gains will, for most individuals, be exempt from CGT. The maximum exemption for most trustees will increase by £200 to £5,850. The rates of CGT will not change.
  • Hammond suspects that rent-a-room relief is being abused…surely not? Currently an individual who rents out a room in their own home to a lodger can claim the relief so that they do not pay any tax on rents of up to £7,500 per year. The Government have “called for evidence on how this is being used in practice”.
  • There were many changes to the treatment of non-doms and trusts – The overall aim of the policy is that any gain made by a non-resident on a disposal of UK immovable (including commercial) property will be chargeable to UK tax. The Government has pointed out that UK tax legislation is out of sync with most other major jurisdictions who already tax the disposal of real property situated in their country. Some of the changes were quite significant and, given the individuals involved, I suspect that the lobbying efforts will be significant!
  • The marriage allowance rules have been amended to allow claims to be submitted by surviving spouses/civil partners for up to four years post-death. The relief is 10% of the unused annual allowance and is worth £230 for 2017/18 but only where the recipient is a basic rate tax payer.
  • Despite continued media speculation about the possible restriction of pension tax relief, Phil confirmed that the lifetime allowance will increase in line with CPI to £1,030,000 for 2018/19. Although this allowance has reduced from £1.8m in 2010/11 to £1m this year, claims can be made to protect against reduction. These are critical claims as exceeding the lifetime allowance can lead to 55% tax charges on the excess when withdrawals are made from schemes.
  • CGT on the sale of residential property – You may remember that this was proposed to start in April 2019? However, the proposed change to the due date for payment of CGT on the sale of UK residential property has been put back by one year. From April 2020, CGT will be payable to HMRC within 30 days of completion. Currently, CGT is due by 31 January following the tax year of disposal. The change will result in the due date for CGT being brought forward by up to 635 days.
  • There has been a change to the rules on “carried interest” which relates mainly to private equity and hedge funds. The change removes some transitional provisions relating to disposals prior to 2015 but paid after 22 November 2017.

Employment taxes

  • Off-payroll working – As widely anticipated, there will be a consultation on extending the off-payroll working rules to the private sector. IR35 is supposedly designed to ensure that an individual who provides their services via an intermediary body (usually a company) but is in effect working as an employee, is taxed as an employee. Significant public sector reform was brought in from April 2017 and they’re keen to extend this to the private sector but only after they “understand the views of the businesses and individuals who would potentially be affected by
    any changes” given the significance of this sector to the “employment” and the economy.
  • Benefits-in-kind – Fuel benefit charges will increase by RPI for 2018/19 onwards. The multiplier for the car fuel benefit charge will rise to £23,400 whilst for vans, the charge will move to £633. The van benefit charge will also increase by RPI from 6 April 2018 to £3,350.
  • Air quality & ‘Lectric cars – there will be no benefit in kind charge if employers provide workplace electric charging points for electric or hybrid vehicles for employees (don’t ask them about charging phones or that might be an issue). There will also be a rise in the diesel supplement used in company car and car fuel benefit calculations. The supplement will increase from 3% to 4% from April 2018 for diesel cars which do not meet the Real Driving Emissions Step 2 (RDE2) standards. Strangely, this supplement will not affect diesel vans or hybrid cars.
  • The NIC bill which was due to be brought in from 6 April 2018 has been delayed by a year – this is due to affect the self-employed, termination payments and sporting testimonials.

Indirect taxes

  • The Government has proposed three measures that will further extend the joint and several liability provisions applying to online marketplaces, such as Amazon or eBay. The new provisions, which are designed to make it more difficult for vendors to evade VAT on goods sold through those marketplaces, will apply from the date of Royal Assent in 2018. The current provisions allow HMRC to make an online marketplace jointly and severally liable for VAT on sales of goods located in the UK that are made by a business established outside the UK.
    These three changes will help to ensure that VAT is being accounted for on all goods sold in the UK. It will also mean that selling online does not offer any VAT advantage over selling on the high street. Marketplaces will need to verify the VAT status of all businesses that trade on them and ensure that they are correctly accounting for VAT.
  • The Government has been consulting on a “split-payments” mechanism which would require an online marketplace to pay the VAT on each sale directly to HMRC and only pay the net price to the business. A split payments model is expected to involve real time extraction of VAT, using payment technology, which would then be deposited with the tax authority. Understandably, this has proven to be a pretty tricksy problem to address but HMRC is being “urged” to speed it  up by the Public Accounts Committee – good luck with that!
  • Another thorny problem is the proposal for a “domestic reverse charge” on the supply of labour in the construction industry which means that the recipient of the labour would account for the VAT due rather than the supplier. They’re aiming for this to be working by 1 October 2019 – given the fact that it’s difficult enough to work out the VAT liability of certain building contracts anyway, I can see some pretty serious issues with a party other than the supplier making decisions on what rate of VAT applies – again, good luck!

Other taxes

  • The mythical rabbit was found in the depths of the milliners garment – With effect from 22 November 2017, first-time buyers paying £300,000 or less for a house will pay no SDLT, and those paying between £300,000 and £500,000 will pay SDLT at 5% on the excess over £300,000. There were immediate rumours about whether SDLT returns which had not been filed due to the 30 days deadline would benefit from the reduction. However, it was announced that the effective date of a property purchase for this purpose will usually be the completion date. Due to devolved legislation this relief will not apply in Scotland and will only apply in Wales until 1 April 2018. It was interesting to see that his buddies in the OBR didn’t share Hammonds enthusiasm for this change saying that they thought that this measure would increase prices by 0.3% and therefore mainly benefit existing property owners.
  • There were some tinkering changes to SDLT to cut out anomalies and clamp down on perceived avoidance.
  • Offshore tax non-compliance – HMRC have extended the time limits that they have to assess additional tax from 4 years to 12 years for non-deliberate errors. This rises to 20 years if the error was deliberate. They now receive data automatically under cross-border information exchanges.
  • The Government has published a new policy paper with the catchy title; ‘Tackling tax avoidance, evasion, and non-compliance’. This summarises measures introduced since 2010 targeting this area with the aim of reducing the ‘tax gap’, and includes new measures which the Government forecasts will raise an additional £4.8bn between now and 2022/23. They also say that they are “committed to tackling the hidden economy” but as they have said this a lot over the past few years we can only assume that they have yet to find it!

And finally:

Mr Hammond gave an interview with The Sunday Times this week, in which he hit out at house builders who are sitting on hundreds of thousands of undeveloped plots of land which have planning permission for new homes. He said: “We are generating planning permissions at a record rate.“It’s builders banking land, it’s speculators hoarding land, it’s local authorities blocking development.” In the Budget speech, he promised action through funding, compulsory purchase and planning controls to deal with land-banking and ensure that planning permission was not “banked” but built through as quickly as possible.

On the Today Programme this morning while being grilled by John Humphrys over the Budget, Hammond was asked about Castlemead Limited, a property company which was co-founded by the Chancellor in 1984 (and in which he is a beneficiary of the trust which controls it), which builds new homes and doctor’s surgeries. The company was granted permission to build four homes in north Wales in June 2010 on the condition work on the site would begin within five years. The Times reports (behind paywall) that the plots are still not developed.

You can’t make this stuff up!

You can get the tax team on the following numbers:
Bernice 01752 203651, Nicola 01752 203600, Belinda 01752 203658

Spring Budget 2016

March 17th, 2016

The fizz just went out of it…

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:

Corporate taxes

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.

Indirect taxes

  • 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!

Employment taxes

  • 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.

Anti-avoidance

  • 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?
And finally…..

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 berniceconstantine@rileycom.co.uk

Jon Stacey

The Chancellor’s Autumn Statement 2015 – They think it’s all over, it is Mao!

November 26th, 2015

They think it’s all over, it is Mao!

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:

Corporate taxes
  • 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.
Employment taxes
  • 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.
Indirect taxes
  • 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.
Other measures

  • 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.

And finally…..

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…
You couldn’t make this stuff up!

Riley Budget Summary 2015

March 19th, 2015

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!

Corporate taxes

  • 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.

Business Tax

  • Annual Investment Allowance (AIA) – the limits up to which the 100% AIA can be claimed have been subject to more change than Ed Ball’s facial expression.

    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.

Savings

  • “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.

Entrepreneur’s relief

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.

Pension changes

  • 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.

Inheritance tax

  • 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.

Other measures

  • 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.

And finally…..

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!

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 orberniceconstantine@rileycom.co.uk

Jon Stacey

Family business & non-family managers

January 16th, 2015

This is a really interesting article from the Harvard Business Review – “Surviving in a family business when you’re not part of the family”. on the issues facing non-family managers in family-owned businesses. It’s a situation that we come across regularly and there are some useful tips in the article.

If you would like to talk through a scenario in your family business, please give us a ring.

Budget 2014- “If you are a maker, doer, saver, this budget is for you”

March 20th, 2014

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…

Business tax

  • 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…

Employment tax

  • 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
    employees.
    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…

Personal tax

  • 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.

Pension changes

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.

Anti-avoidance

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.

And finally…..

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 berniceconstantine@rileycom.co.uk

Jon Stacey

Autumn Statement 2013

December 10th, 2013

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.

Corporation tax

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.

Partnership taxes

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.

Employment taxes

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.

Personal taxes

A new transferable personal allowance will be introduced from April 2015 which will allow up to £1,000 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 and 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 £1m 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.

And finally…..

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”.

You couldn’t make this stuff up!

As ever, please call Princess 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 berniceconstantine@rileycom.co.uk

Shopping – how you could utilise mobile data

June 20th, 2013

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.

Be careful out there…..

February 27th, 2013

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
HMRC 2010-2011
LOCAL OFFICE No. 3819
TAX CREDIT OFFICER: Lisa Frank
TAX REFUND ID NUMBER: 381716209
REFUND AMOUNT: 244.79 GBP

Dear Applicant,

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
ID: 381716209,
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 &
Customs: http://www.hmrc.gov.uk

Sincerely,

Lisa Frank
HMRC Tax Credit Office
Preston
TAX REFUND ID: UK381716209-HMRC

C Copyright 2013, HM Revenue & Customs UK All rights reserved.

 
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