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ONLINE ACCOUNTANTS & TAX ADVISERS

Budget November 2016



The Chancellor of the Exchequer presented his Budget to Parliament on 23rd November 2016.


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.


The proposals below are subject to change upon the passing of the actual legislation.


Rate and threshold changes


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The proposed rates and thresholds for 2017/18 onwards are also stated to facilitate longer term tax planning.


VAT flat rate scheme


From 1st April 2017, all businesses under the flat rate scheme will be required to determine whether they fall under the definition of a ‘limited cost trader’. A new 16.5 flat rate percentage will apply to limited cost traders.


A limited cost trader is one whose VAT inclusive expenditure on ‘goods’ is either:



Anti-forestalling legislation applies to prevent any trader continuing to use a lower flat rate by issuing an invoice or receiving a payment before 1 April 2017 for services supplied after that date.


HMRC will publish further instructions prior to 1st April 2017.


We will be contacting all applicable clients to assess and advise on the best course of action.


Public sector contractors


From 6th April 2017, individuals operating through a limited company in the public sector may be required to pay the same tax and NIC as a directly employed individual.


The new rules will require public sector employers, and those providing labour services to the public sector, to assess whether they are exercising control, direction or supervision over the worker. If that is the case, PAYE income tax and/or NIC will be withheld from the payments they make to the limited company.


The 5% tax-free allowance that is currently available to limited companies subject to IR35 will be removed for those working in the public sector subject to the new rules


The detailed guidance will shortly be issued and we will advise our applicable clients on the best course of action.


Termination payments


From 2018/19, termination payments in excess of the £30,000 exemption will be subject to employer’s national insurance contributions (NIC).


It is common for employers to structure termination arrangements so that there is no contractual payment in lieu of notice (PILON) so that the entire payment can be tax free.


Proposed new rules will apply so that if a termination payment is paid with no PILON, a deemed portion of the termination payment will be deemed to to be salary subject to income tax and NIC. The £30,000 income tax and NIC exemption can apply to the balance remaining.


Corporation tax rate


As we previously announced, the government have confirmed that the CT rate will be reduced from 20% to 19% from 01/04/17 and to 17% from 01/04/20.


Pension contributions


Under the current rules, contributions of up to £40,000 a year (plus any carried forward additions) to an individual’s pension funds obtain tax relief. There are restrictions on this amount for individuals aged 55 or over who have already accessed their pension fund via flexible drawdown where a Money Purchase Annual Allowance (MPAA) applies and tax relief is only given on the first £10,000 of pension contributions. The purpose of this restriction is to stop individuals ‘recycling’ tax relief by making contributions to obtain tax relief, withdrawing the funds, and then making further contributions that attract tax relief.


From 6 April 2017, the MPAA will be reduced to £4,000.


If an individual is resident in another jurisdiction when funds are drawn down from a pension fund (depending on the terms of the UK’s double tax treaty with that jurisdiction) the funds may be taxable in that jurisdiction at the local rate of income tax. There are a number of countries that have local taxing rights over pension income and have lower rates of income tax than the UK and individuals living in such countries have taken advantage of this to draw down all of their UK pension at a low tax rate. If such individuals return to the UK within five years, the drawn down income is taxable in the UK in the year of return. Under new rules, individuals who have taken this route will be taxable in the UK on the drawn down funds if they resume residence in the UK within ten years.


The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents. We expect that the current 10% tax relief which applies to offshore pension payments will be removed.


Loss relief


Tax losses arising after 1st April 2017 may be carried forward and offset against the profits of the company’s other income streams (e.g trading losses against non trading profits) and profits of other group companies.


Non-resident companies - UK income


The government is consulting on options to bring all non-resident companies receiving taxable income from UK sources into the UK corporation tax regime.


Currently, non UK resident companies (other than those with a trade in UK land) which trade in the UK without a permanent establishment are in general chargeable to UK income tax. UK income tax also applies to the rental income of non-UK resident companies holding UK real estate for investment purposes. Non UK resident companies currently within the charge to income tax are in general not chargeable to UK tax on capital gains other than those arising  from residential property.


National insurance contributions


From April 2018, Class 2 NICs will be abolished. Self-employed contributory benefit entitlement will then be accessible through the payment of Class 3 or Class 4 NICs.


All self-employed women will be able to access the standard rate of maternity allowance


The employee and employer class 1 NIC thresholds are to be aligned from 6th April 2017. Employees and employers will be liable to NIC on weekly earnings above £157.


NIC liabilities will be removed from the effects of the Limitation Act 1980 and Northern Ireland equivalent from April 2018 which will result in NIC debts being collected in the same manner as other tax debts.


Salary sacrifice arrangements


The Government will introduce changes to salary sacrifice arrangements from April 2017 (excluding pensions, childcare and cycle to work schemes). Benefits such as health screening, workplace car parking, and mobile phones for private use will lose their tax free status if they are provided via a salary sacrifice arrangement.


This will result in employers paying Class 1A NIC on such benefits (employees will still not be liable to employees NIC).


Arrangements already in place or implemented before April 2017 will not be impacted by these new rules until April 2018.


Company cars


For any new cars provided under arrangements implemented after 5 April 2017, the vehicle will be taxed on the higher of the tax payable on the cash sacrificed to obtain the car and the tax payable under the normal car benefit in kind charge. For car arrangements already in place or implemented before 6 April 2017, the changes will take affect from April 2021.


Ultra-low emission vehicles (ULEVs) with CO2 emissions below a level of 75g/km will not be subject to these salary sacrifice rules.


Benefits in kind


Employees / directors who decude to ‘make good’ (reimburse) the company for benefits in kind received will have to make the payment to their employer by 6th July in the following tax year.


Non-domicile status


From 6th April 2017 an individual who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for tax purposes.


Individuals who are born in the UK to parents who are domiciled in the UK will no longer be able to claim non domicile status whilst they are resident in the UK.


Non-doms who establish a non-UK resident trust before becoming deemed-domiciled in the UK under the new rules will not be taxed on foreign income and gains (including UK gains) retained in the trust.


Non-doms who become deemed domiciled in April 2017 can treat the cost of their non-UK based assets as being the market value of that asset on 6th April 2017


The government will make it easier for non-domiciled individuals assessed under the remittance basis to bring offshore funds into the UK to invest in UK businesses and to claim business investment relief.


Employers - National living wage and National minimum wage


The national living wage will increase from £7.20 to £7.50 per hour with effect from April 2017 for workers aged 25 and over.


New national minimum wage rates will apply from April 2017 will be as follows:



ISAs


The overall annual ISA subscription limit will also increase from £15,240 to £20,000 from 6 April 2017. The ISA subscription limit includes the total amounts added to an ordinary ISA, the Help To Buy ISA and the Lifetime ISA in the tax year.


Employee shareholder status


The income tax and capital gains tax advantages linked to shares issued under the ‘employee shareholder’ status will be abolished for arrangements entered into on or after 1st December 2016.


Insurance premium tax (IPT)


The standard rate of IPT will increase from 10% to 12% from 1 June 2017.


Patent box


The patent box rules will be amended for cases where R & D is undertaken collaboratively by two or more companies under an expenditure sharing arrangement. The new provisions will ensure that there is neither an advantage nor disadvantage for the companies involved from organising the R & D activity in this way. The change will take effect for accounting periods beginning on or after 1st April 2017

.

Substantial shareholdings exemption


To currently qualify for the exemption both the investor group and the investee subgroup must meet a trading status requirement. From April 2017 it is the trading status of the investee company that will need to be considered. This change could benefit UK companies which own at least 10% of the equity of another company when they sell at a gain.


PPB Life insurance


These policies allow for the deferral of tax on the income and growth within the policy until such time as a chargeable event occurs if the assets are within a defined list. The Government will consult on being given the power to amend the list of permitted assets.


Employee legal costs


Currently any employee called to give evidence in court that receives legal support from their employer has a taxable benefit in kind charged on the cost of that support. From April 2017 such a benefit in kind will no longer be taxable.


VAT groups - Consultation


HMRC will consult on making changes to extend VAT grouping to non-corporate bodies and create new rules to determine ‘close economic, financial and organisational’ links for corporate and non-corporate bodies, replacing the current ‘control’ test.


Registration of offshore structures


The Government will consult on introducing a new legal obligation for intermediaries arranging complex structures for persons holding money offshore. Intermediaries will be required to notify HMRC of the structures and the related client lists.This measure will affect anyone who has funds located offshore that are held via a structure rather than in their own name.


Tax free property and trading income


From 6th April 2017, tax free allowances of £1,000 each will be introduced for property and trading income (turnover before the deduction of expenses).


Those with income above the allowance can benefit by simply deducting the relevant allowance from their gross income instead of calculating and deducting their exact expenses.


Employer provided pensions advice


Tax relief available for employer-arranged pensions advice will increase from £150 to £500 per employee as of April 2017.