BUDGET 2015 Key announcements for businesses, individuals and trustees
We have reviewed the detailed Budget information and have put together a snapshot of the measures that we believe will have most impact and relevance to our clients. It has been indicated that further legislation applying to a variety of taxes will be introduced in due course, and we will comment on that as the final details are released. As always, if you require any further information, or have any queries regarding issues raised by the Budget, please contact our Tax Manager, Carolyn Byrne, on 01522 541181 or email email@example.com
Once again, the Budget contained measures (or confirmation that appropriate legislation will be introduced in the future) designed to counter tax avoidance including:-
- Strengthening of the regime for the disclosure of tax avoidance schemes
- Extending the high risk promoters scheme
- Imposition of further sanctions on serial tax avoiders
- Tax geared General Anti Abuse Rule (GAAR) penalties
- Increased numbers of accelerated payment notices
- New criminal offences for tax evasion
- New penalties for professionals who assist with tax evasion
Anti-avoidance measures have been very much a part of recent Budgets and no doubt we shall continue to see such announcements - no matter who is successful in the forthcoming election. The line between tax avoidance and tax evasion is becoming increasingly blurred and therefore it is essential that the tax consequences of any transaction are fully considered and appropriate advice taken.
As previously announced, the main rate of corporation tax will reduce to 20% - effective from 1st April 2015. This means that there is now a universal rate of tax for all companies subject to UK taxation.
Research and Development (R&D) tax credits
The rate of the “above the line” credit will increase from 10% to 11%, and the rate for the SME scheme will increase from 225% to 230% - both take effect from 1st April 2015. From the same date, the cost of materials incorporated into products that are to be sold will not count as qualifying expenditure for R&D credits.
Diverted profits tax
Effective 1st April 2015, new diverted profits tax (DVP) legislation will be introduced to combat schemes whereby multinational enterprises move profits offshore using “artificial” arrangements in order to avoid taxation within the UK.
Construction Industry Scheme
Changes are to be made to the Construction Industry Scheme (CIS) with effect from 6th April 2015:-
- There will no longer be a requirement to submit Nil monthly returns
- There will be a relaxation of the requirement for gross status to be required for joint ventures where one member already has that status, and that business has a right to at least 50% of the assets or income, or holds at least 50% of the shares or voting rights in the joint venture
There are further changes to be implemented from 6th April 2016:-
- Mandatory online filing of CIS returns
- The initial and annual compliance tests will no longer include reference to directors’ self assessment filing requirements
- The turnover test threshold for multiple directorships will reduce to £100,000
From 6th April 2017 there will be a mandatory requirement for contractors to verify their subcontractors online.
As announced in the Autumn Statement, there is now a restriction in place to prevent corporation tax relief being claimed where internally generated goodwill and certain other intangible assets are acquired from “related persons” - which includes individuals who are shareholders in the acquiring company.
Effective 6th April 2016, farmers who are not trading via a limited company will be able to average their business profits for tax purposes over five years, an increase from the current two years. The full details of this measure and how it will be implemented will be released later in the year.
Benefits in kind and expenses payments
The percentage of the list price of a company car on which the car benefit charge is calculated will increase by 2% from 6th April 2015; at the same time the standard van benefit charge increases to £3,150. From the same date the car fuel benefit charge multiplier will increase to £22,100 and the van fuel benefit charge will increase to £3,150.
Zero emission vans will have a gradual phasing in of the van benefit charge as from 6th April 2015 starting at 20% of the full benefit charge of £3,150, and increasing by 20% per annum until the full scale rate is reached.
Other benefits and expenses
From 6th April 2015 a statutory exemption will be introduced that will exempt from tax certain non-cash benefits in kind of up to £50; for office holders of close companies, and employees who are family members of those office holders, there will be an annual cap of £300.
On the same date there will be the removal of the £8,500 threshold at which employees do not pay tax on certain benefits, with new exemptions to be put in place for carers and ministers of religion.
There will also be an exemption from tax for employees in receipt of certain reimbursed expenses and benefits in kind, if the employee would have been entitled to tax relief had they met the cost of the expenses or benefits themselves.
Employers will also be able to volunteer to have certain benefits taxed via their payroll which will avoid them having to be reported on forms P11D.
The effective date for these final two measures is once again 6th April 2015.
Employer’s National Insurance Contributions (NIC)
As from 6th April 2015 employers will be exempt from paying secondary NIC, usually levied at 13.8%, on earnings paid to employees up to the Upper Secondary Threshold (USH) of £815 per week. In order to qualify, the employee must be aged under 21 at the time of payment. This scheme will be extended from 6th April 2016 to include employer’s NIC for apprentices aged under 25.
The Employment Allowance of up to £2,000 per annum was introduced from 6th April 2014 to enable eligible employers to set this against their NIC liability. As from 6th April 2015 the scheme will be extended to include householders who employ care and support workers.
Construction businesses will no doubt welcome the CIS reforms as these should enable them to obtain, and retain, gross payment status. This in turn will help alleviate issues caused by delays in receiving refunds of CIS tax from HMRC.
Company vehicles continue to be taxed punitively and businesses should review whether they should continue the provision of these – especially in light of the attendant Class 1A NIC considerations.
Voluntary payrolling of benefits together with the trivial benefits relaxation may offer some employers less paperwork in connection with the reporting of benefits and expenses payments - forms P11D and P9D; however, the removal of the £8,500 benefits threshold may lead to additional compliance obligations. Employers may need to consider applying to HM Revenue & Customs for a dispensation.
Capital gains tax (CGT)
Annual exemptions and rates of tax
The annual exemption for individuals will increase from 6th April 2015 to £11,100, and for general trustees to £5,550. The rates of CGT will remain at 18% to the extent that there is available income tax basic rate band, with a charge at 28% on any remaining balance of the gain. Trustees and personal representatives are charged CGT at 28%.
Gains qualifying for Entrepreneurs’ Relief (ER) are charged at 10% to the extent that the individual making the gain has not exceeded their £10 million lifetime allowance for ER.
Entrepreneurs’ Relief (ER)
As announced in the Autumn Statement, effective from 3rd December 2014, ER can no longer be claimed in respect of sales of goodwill to a related company. An exemption is provided for partners in a firm who sell goodwill to a company in which they do not hold, or acquire, any stake.
There is a further restriction on ER claims in respect of disposals of personally owned assets that have been used in a trading business carried out by a company or a partnership, unless there is a connected disposal of at least a 5% shareholding in the company, or a 5% share in the partnership assets. This is effective for disposals on or after 18th March 2015.
From the same date, a company will not qualify as a trading company for ER purposes simply by virtue of being involved in a joint venture or partnership. The company will need to have a significant trade of its own.
As from 1st April 2015 for corporation tax and 6th April 2015 for capital gains tax, there will be a restriction on the tax relief in connection with the disposal of a wasting asset, so that it must have been used in the business of the person making the disposal.
As from 6th April 2015 non-UK resident persons, including individuals, trustees, personal representatives and certain companies, who dispose of UK residential property will incur a CGT charge. Tax will be charged at the same rates as for UK resident taxpayers, however, the gain for the period prior to the introduction date remains exempt from CGT.
From the same date, new rules will be introduced for a person disposing of a residence and claiming principal private residence relief (PPR). The new legislation will apply equally to a UK resident disposing of a residence in another country and to a non UK resident disposing of a UK residence. PPR will not apply to a disposal unless either:
- The person making the disposal was resident in the same country as the property for the tax year of the disposal, or
- The person spent at least 90 midnights in that property
It is fortunate that the new provisions to charge CGT on the disposals of residential property by non-UK residents have not resulted in the withdrawal of the availability for owners of more than one residence to elect which of their properties should be exempt for PPR. There are strict time limits for making a valid PPR election and taxpayers do need to be aware of this when acquiring, or acquiring the tenancy of, an additional residence.
Inheritance Tax (IHT)
Annual exemptions and rates of tax
The nil rate band for IHT remains unchanged at £325,000, and the rates of tax remain at 20% for chargeable lifetime transfers and 40% for chargeable transfers on death.
Extended and new IHT exemptions
Effective for deaths on or after 19th March 2014, the IHT exemption for members of the armed services who die, or whose death is hastened by injury, whilst on active service is to be extended to include emergency service personnel and humanitarian aid workers responding to emergencies.
The IHT exemption for medals and other decorations for valour or gallantry will be extended to cover all medals and decorations awarded to members of the armed services, or emergency personnel, and to awards made by the Crown for service and achievement. This was brought in to effect from 3rd December 2014.
IHT and Wills
There will be a review of the use of deeds of variation for tax purposes with the results to be reported in the Autumn.
The IHT advantages of “pilot trusts” are to be curtailed with new legislation that will take effect where a settlor adds property valued in excess of £5,000 to more than one relevant property trust on the same day. The new rules will not apply to a trust to which the settlor’s only addition on or after 10th December 2014 was an addition made on his death, prior to 6th April 2017, by virtue of a provision in a Will that had not changed in substance since 10th December 2014.
We will be monitoring the use of deeds of variation carefully, and will keep our clients updated as announcements are made.
The use of pilot trusts has come under review by HM Revenue & Customs and this may be an indication of further IHT reforms to follow. It is essential that taxpayers take advice to ensure that they do not miss out on planning opportunities whilst they still exist.
Annual exemptions and rates of tax
The personal allowance will rise to £10,600 for those born after 5th April 1938, and to £10,660 for those born before 6th April 1938, effective from 6th April 2015. The personal allowance will continue to be abated where the taxpayer’s adjusted net income exceeds £100,000.
The rates of income tax from 6th April 2015 continue to be 20% (10% for dividend income) within the basic rate band, for taxable income of up to £31,785; 40% (32.5% for dividend income) within the higher rate band, for taxable income of between £31,786 and £150,000; and 45% (37.5% for dividend income) within the additional rate band, for taxable income in excess of £150,000.
Effective from 6th April 2015 married couples and civil partners may claim to transfer up to £1,060 of their unused personal allowance to their spouse or civil partner. This option is not available if either partner is a higher rate taxpayer; or where the married couple’s allowance is being claimed; or if both partners have already utilised their personal allowance. To be eligible to make a claim the couple must have been married or civil partners at some point in the tax year.
Personal savings allowance
From 6th April 2016 a personal savings allowance is to be introduced exempting from tax the first £1,000 of savings income for a basic rate taxpayer and the first £500 of savings income for a higher rate taxpayer. Additional rate taxpayers will receive no exemption. As part of the implementation of this measure basic rate tax will no longer be automatically deducted at source from savings interest.
Individual Savings Accounts (ISAs)
From 6th April 2015 the overall ISA savings limit will increase to £15,240. Where an ISA saver has died their spouse or civil partner will be entitled to an additional ISA allowance equivalent to the value of the deceased person’s ISA savings at the date of their death.
Junior ISA and Child Trust fund subscription limits will increase to £4,080 from 6th April 2015.
A Help to Buy ISA is to be introduced from autumn 2015. This will enable individuals who have saved in this type of ISA to receive a government bonus when they use their savings to purchase their first home. There will be a monthly maximum of £200 of savings, which will attract a bonus of £50 up to a maximum bonus of £3,000.
The Help to Buy ISA will no doubt be welcomed by first time buyers and will be an important addition to funds when purchasing a first home. ISAs can form part of an effective investment strategy and taxpayers should take regular advice regarding their investment portfolios.
Whilst tax rates have remained static, the basic rate tax band has decreased slightly for 2015/16, so taxpayers should consider making pension contributions to minimise the effect.
The introduction of the personal savings allowance is also good news for taxpayers but the abolition of automatic basic rate tax deduction at source from interest may cause issues for those with taxable interest receipts that exceed their personal savings allowance. Such taxpayers may need to register with HM Revenue & Customs for Self Assessment and should therefore seek advice.