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Budget 2015

The Chancellor of the Exchequer presented his Budget to Parliament on 18th March 2015. Summaries of the main announcements which affect Small businesses, Contractors / Freelancers, Private individuals and Landlords are outlined below.

All applicable clients will automatically receive an expert and bespoke review (not a standard mail shot) of their tax affairs to identify any specific and relevant tax planning opportunities or restrictions arising from the legislative changes.

Rate and threshold changes

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The proposed rates and thresholds for 2016/17 onwards are also stated to facilitate longer term tax planning.

Research and development tax credits

Legislation will be introduced to restrict expenditure in respect of consumable items that qualifies for R&D tax credits where a company sells the products of its R&D activity as part of its normal business. The revised definition of qualifying consumable items will confirm that the cost of materials incorporated in such products that are then sold will not be eligible for the relief.

The restriction will not apply where the product of the R&D is transferred as waste or where it is transferred but no consideration is received.

Advance HMRC assurance will be available for smaller companies making their first R&D tax credit claim.  It is envisaged that the advance clearance process (which will be voluntary) will enable companies to agree upfront the details of a claim.  The advance assurance will last for 3 years

Employment intermediaries

The government will consult on detailed proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.

Any legislative changes would take effect from 6 April 2016.

Savings rate

From 6th April 2015, the 10% ‘starting-rate’ of tax for savings income is to reduce to a new 0% rate. The amount of savings income that the new 0% rate applies to is increased from £2,880 to £5,000.

Transferable Tax Allowance

From 6 April 2015 a transferable tax allowance will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse. The option to transfer is not available to unmarried couples.

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

Registration is required by the end of the tax year (5 April 2016). Individuals can register at any point during the tax year to receive the full allowance. The registration process is done online at https://www.gov.uk/marriage-allowance.

Retirement planning

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

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

Any amounts that are taken will count as taxable income in the year of receipt. Income tax at the individuals' marginal rate will be payable in the year of access to the proceeds.

The tax effect will be:

   25% is tax free

   the remainder is taxable as income.

An annuity can be purchased with some or all of the fund.

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

Associated companies

The associated companies rules will be replaced in April 2015 with simpler provisions based on 51% group membership.

Tax-free childcare scheme

The childcare vouchers scheme is to be replaced with a new system to be phased in from 2015.

The new scheme will provide parents with support towards their childcare (provided that they are not receiving other support through Universal Credits) equal to 20% of their childcare costs up to £10,000 per child.

Some distinctions between the existing and new schemes are as follows:

CGT Entrepreneurs’ relief

Legislation will be introduced to prevent claims to entrepreneurs’ relief in respect of gains on disposals of privately-held assets used in a business unless they are associated with a disposal of at least a 5% shareholding in the company or of at least a 5% share in the assets of the partnership carrying on the business. These changes have effect for disposals on or after 18 March 2015.

The new rules will also prevent claims to entrepreneurs’ relief in respect of gains on shares in certain companies which invest in joint venture companies, or which are members of partnerships. The new rule will deny relief where the investing company has no trade (or no relevant trade) of its own.

There is scope for restructuring to ensure investors can continue to benefit from Entrepreneurs’ Relief on a future disposals (please contact us for immediate advice).

As announced at Autumn Statement, claims to entrepreneurs’ relief in respect of gains on business goodwill, where the goodwill has been disposed of to a limited company which is related to the claimant will be denied. Following consultation, the legislation has been revised to allow entrepreneurs’ relief to be claimed by partners in a firm who do not hold or acquire any stake in the successor company.

This measure will mean that ER will not be available to reduce Capital Gains Tax on disposals of the reputation and customer relationships associated with a business (the ‘goodwill’) to a close company to which the seller is related.

This change is made alongside a measure to restrict Corporation Tax deductions when goodwill is acquired from a related party on incorporation.

CGT Wasting assets exemption

The CGT exemption for certain wasting assets will only be available where qualifying assets have been used in the seller’s own business.

CGT on the sale of UK residential property by non resident individuals

From April 2015 non UK resident individuals, trusts, personal representatives and companies will be subject to Capital Gains Tax on gains accruing on the disposal of UK residential property on or after that date. The gain will need to be reported on a Non Resident Capital Gains Tax Return and the CGT is payable 30 days after the date the property sale is completed.  

Private Residence Relief will be restricted in circumstances where a property is located in a jurisdiction in which a taxpayer is not a tax resident. In those circumstances, the property will only be capable of being regarded as the person’s only or main residence for PRR purposes for a tax year where the person meets a 90-day test for time spent in the property over the year.

Inheritance tax and trusts

Legislation will provide new rules about adding property to trusts on the same day to target inheritance tax avoidance through the use of multiple trusts.

The rules for deeds of variation for tax purposes will be reviewed to enable a will to be changed after someone has died as long as all affected beneficiaries agree (up to two years after the date of death).

Capital Allowances

The Annual Investment Allowance of £500,000 was due to fall to £25,000 at the end of December 2015. This is now to be reviewed as the Chancellor announced an Annual Investment Allowance of £25,000 is insufficient to encourage significant investment by UK businesses in plant and machinery.

Enterprise Investment Scheme (EIS), Seed EIS and Venture Capital Trusts

Changes announced include:

Taxation of resident non-domiciles

An annual charge is payable by non-domiciled individuals resident in the UK who wish to retain access to the remittance basis of taxation.

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

The changes apply for 2015/16.

Class 2 National Insurance contributions (NIC)

From 6 April 2015 liability to pay Class 2 NIC will arise at the end of each year.

The amount of Class 2 NIC due will be calculated based on the number of weeks of self-employment in the year and will be determined when the individual completes their self assessment return and be payable alongside their income tax and Class 4 NIC. HMRC will retain a facility for individuals to make regular payments throughout the year.

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

The government has also announced that Class 2 NIC will be abolished in the future and Class 4 NIC will be reformed to include a contributory benefit test.

Corporation tax relief for goodwill on incorporation

Corporation tax relief may be available to companies when goodwill and intangible assets are recognised in the financial accounts. A restriction now applies where a company acquires internally generated goodwill and certain other intangible assets used in a business from 'related persons'. Related persons includes individuals who are shareholders in the company.

These measures apply to all transfers on or after 3 December 2014.

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

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

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

NIC Employment Allowance

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

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

Tax treatment of pension funds on death

If an individual has not bought an annuity, a defined contribution pension fund remains available to pass on to selected beneficiaries.

Inheritance tax can be avoided by making a 'letter of wishes' to the pension provider suggesting to whom the funds should be paid. However, currently there are other tax charges to reflect the principle that income tax relief would have been given on contributions into the pension fund and therefore some tax should be payable when the fund is paid out. In some situations tax at 55% of the fund value is payable.

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

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

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

Landlord's energy saving allowance (LESA)

LESA will not be extended beyond 31 March 2015 for corporate landlords or beyond 5 April 2015 for unincorporated landlords of let residential properties.

Company vans

The current van benefit in kind charge exemption for vans which do not emit CO2 will be removed

Expenses payments reporting

Legislation will be introduced to exempt certain expenses payments and benefits in kind provided to employees from reporting obligations to HMRC (typically on the form P11d). The exemption will not apply where expenses are paid as part of a salary sacrifice arrangement. These changes will have effect from 6 April 2016.

Working tax credits

Regulations will be introduced to tighten the eligibility conditions for those claiming WTC. This includes a new test and a requirement that anyone claiming Working Tax Credit as self-employed registers with HMRC.

The new test will be based on the principle of self-employment needing to be “commercial” and “profitable” or working towards profitability for it to qualify.

Personal savings allowance

From April 2016, a personal savings allowance will apply for up to £1,000 of a basic rate taxpayer's savings income and up to £500 of a higher rate taxpayer's savings income each year.

Deduction at source on interest

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

Bad debt relief on peer-to-peer lending

Individuals who make loans through peer-to-peer platforms (e.g Zopa) will be able to offset bad debts arising against the interest they receive from such loans when calculating their taxable income. These changes will have effect for loans made from 6 April 2015.

Individual Savings Accounts (ISAs)

From Autumn 2015, individuals will be able to withdraw funds from their ISA and subsequently replace the money without it counting towards their annual ISA subscription limit and whilst retaining the tax-free status of the account. The funds must be replaced in the same tax year as they were withdrawn. An additional ISA allowance for spouses or civil partners when an ISA saver dies will be introduced. The additional ISA allowance will be equal to the value of a deceased person’s savings at the time of their death and will be in addition to the normal ISA subscription limit. In certain circumstances an individual will be able to transfer to their own ISA non-cash assets such as stocks and shares previously held by their spouse.

The government has announced the introduction of a Help to Buy ISA, which will provide a tax free savings account for first time buyers wishing to save for a home. The scheme will provide a government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home. For every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. The government intends the Help to Buy ISA scheme to be available from autumn 2015 and investors will be able to open a Help to Buy ISA for a period of four years. Please contact us for the detailed provisions.

Pensions contributions

There will be a reduction to the pensions Lifetime Allowance to £1 million with effect from 6 April 2016. Transitional protection will be introduced alongside the reduction in the Lifetime Allowance to ensure the change is not retrospective and protect savers who think they may be affected. These protections will have the same effect as those introduced for previous changes to the Lifetime Allowance.

Business rate relief

Small business rate relief is changing. The main changes include:

HMRC Tax Enquiries

HMRC are set to receive powers enabling them to refer matters to the tax tribunal with a view to achieving early resolution of one or more aspects of a tax enquiry whilst still leaving other aspects of the tax enquiry open.