2015 BUDGET UPDATE. 15 April 2015

Transcription

1 2015 BUDGET UPDATE 15 April 2015

2 MEET THE TEAM Jill Kaur Senior Tax Manager t: +44 (0) e: Joanna McDowell Tax Director t: +44 (0) e:

3 AGENDA Context for Budget 2015 Personal taxes Business taxes Employment taxes VAT Anti-avoidance Pre-election pledges Questions

4 CONTEXT FOR BUDGET 2015 GDP growth expected to be stable at around 2.5% Unemployment at 5.3% and falling Lowest inflation on record Business investment and output all increasing Focus remains on reducing borrowings General election in May 2015

5 BUDGET 2015 HEADLINES This year s Budget theme. Headlines: Tax incentives for first-time buyers, workers and savers Relaxing pension rules from April 2016 but lifetime allowance reduction Annual tax returns to be scrapped and replaced with digital tax accounts A fresh crackdown on tax avoidance and evasion 1.3bn in tax cuts for North Sea oil exploration and continued production in older fields.

6 PERSONAL TAXES Jill Kaur

7 PERSONAL TAXES Changes announced Abolition of Annual Tax Return (April 2016) Abolition of Class 2 National Insurance contributions Farmer s Averaging increased to 5 years 5 million pensioners to have access to annuities (consultation) Lifetime Allowance reduced from 1.25m to 1m indexed 2018 Savings: - 15,240 into an ISA (flexible) - PSA (Personal Savings Allowance) April Help to Buy ISA (Autumn 2015) Inheritance Tax consultation on avoidance using Deed of Variation

8 ABOLITION OF ANNUAL RETURN (April 2016 April 2020) Secure digital accounts linked to devices of choice (phone, tablet) HMRC will populate with information held (eg banks) Use account to declare sources of income and pay tax in year at a time convenient to taxpayer Small businesses link accounting software to digital account and pay tax as they go to manage cash flow Agents can manage digital accounts if taxpayers wish Will in time offer access to other services eg how National Insurance contributions affect pension More details later in 2015

9 PERSONAL SAVINGS ALLOWANCE April 2016 April 2015 no tax on interest if income < 15,600 April % will pay no tax on the first 1,000 ( 500 higher rate) April 2016 abolition of 20% tax deduction from interest deduction at source

10 HELP TO BUY ISA From Autumn 2015 Initial deposit 1,000 Save up to 200 per month Government will contribute up to 25% (ie up to 50 per month) when used to buy a first house Minimum bonus is 400 and maximum is 3,000 per person Includes home purchases up to 450k (London) and 250k outside London

11 PERSONAL (SIN) TAXES Tobacco duty will remain subject to its existing 2% above inflation increase from today Beer down 1p per pint Wine prices frozen per 75cl bottle Whisky down 2% per 70cl bottle Cider down 2% per 275 ml bottle Fuel duty frozen until September s planned increase scrapped

12 INCOME TAX RATES AND ALLOWANCES 2014/ /16 Personal allowance 10,000 10,600 Personal allowance (D.O.B ) 10,500 10,600 Personal allowance (D.O.B before ) 10,660 10,660 Rates: Savings only 10%/0% Divs 10% (net nil) /0% Basic 20% Higher 40% Additional 45% Divs 10% (net nil) Divs 32.5% (net 25%) Divs 37.5% (net 30.55%) 0-2, , , ,785 31, ,000 31, ,000 Over 150,000 Over 150,000

13 TRANSFERABLE ALLOWANCE FOR SPOUSES FROM 6 APRIL 2016 If neither spouse / civil partner is a higher rate taxpayer: One spouse can claim to reduce his or her personal allowance by 1,060 The other can claim a tax reduction of 212 (ie 1,060 x 20%) Married couples where at least one of the spouses, or civil partners, was born before 6 April 1935 can claim and transfer the existing married couples allowance but will not be able to transfer their personal allowances as well An administrative headache for a relatively small amount We may see election manifesto pledges to increase the 1,100 limit

14 OTHER ALLOWANCES / BANDS 2014/ /16 ISAs 15,000 15,240 JISAs 4,000 4,080 Annual CGT exemption 11,000 11,100 EIS - 30% relief 1m 1m SEIS 50% relief 100, ,000 VCT - 30% relief 200, ,000 Pension annual allowance 40,000 40,000 IHT nil rate band 325, ,000

15 REMITTANCE BASIS CHARGE FOR NON-DOMICILES Years for which UK resident Remittance basis charge 2014/ /16 Less than 7 out of previous 9 Nil Nil At least 7 out of previous 9 30,000 30,000 At least 12 out of previous 14 50,000 60,000 At least 17 out of previous 20 50,000 90,000 Consultation on changing annual election to a three year election (ie once made applies for three tax years)

16 USE YOUR PENSION ANNUAL ALLOWANCE B/WFD Mr B is self-employed paying gross contributions in recent years as follows: CARE 2011/12 Standard AA 50,000 Unused AA b/fwd 0 Total AA available 50,000 Pension inputs (gross) 20,000 Total c/fwd 30, /13 50,000 30,000 80,000 20,000 60,000 Individual must have 120,000 relevant earnings in 2014/ /14 50,000 60, ,000 30,000 80,000 Individual must be a member of a pension fund in each year to use brought forward allowance from that year Must add together contributions from all sources (eg self-employed and employers ) 2014/15 40,000 80, ,000

17 PENSION BENEFITS CHANGES FROM 6 APRIL 2015 Access from age 55 Pension fund Income and gains tax free until paid out Part taxed Uncrystallised fund pension lump sum - 25% is tax-fee, - 75% is taxed at your marginal rate Tax free Lump sum Can take max 25% of fund Must then designate Draw down Pension income Provided by Taxed at marginal rate Annuity Funds held at death (new rules) Existing capped 150% of GAD Trf in option Flexi-access drawdown fund No minimum pensions income needed, no annual cap applies Dependants options broadly the same as member

18 PENSIONERS WHO ALREADY HAVE AN ANNUITY To be allowed to sell annuities they purchased on retirement on a secondary insurance marketplace to realise cash lump sums Consultation to be launched during 2015 with any changes from April 2016 Restrictions and safeguards likely to focus on: how the capital value of an existing annuity is calculated how a competitive market is established how much consumers would pay in advisory costs Changes will also allow pensioners to restructure an annuity where their income needs have changed

19 PENSIONS ON DEATH IHT SAVINGS Death Over 75 Under 75 Lump sum payment before 6 April 2015 Lump sum payment after 5 April 2015 Drawdown payments after 5 April % charge 45% charge Taxed at marginal income tax rate of beneficiary in year No tax on lump sums ALL payments after 5 April 2016 (intended) Taxed at marginal income tax rate of beneficiary in year No tax on lump sums (including FAD) or dependents pensions Pension companies must allocate lump sums/start dependent pensions within two years of notification of death CARE - so may affect pensions of those who died before Sept 2014

20 DEATH TAX RULES AND IHT PLANNING Funds at death passing by letter of wishes are outside the IHT net Lifetime allowance charge can still apply (excess only) Funds where member dies under age 75 pass to beneficiaries tax free Whether paid out in cash or kept in flexi-access drawdown Funds where member dies over age 75 are effectively in a large flexiaccess drawdown fund for beneficiaries Grow tax free (so keep them there!) Do not affect beneficiaries own lifetime allowances Can be passed on again to successors on beneficiary s death tax free Can draw down in years of low income / no income (grandchildren) = potential IHT saving is up to 40% of total pension fund value ALWAYS take advice from an IFA on pension planning

21 CAPITAL GAINS TAX Entrepreneurs Relief restriction on associated disposals From now disposal of asset personally owned but used in a trading company or partnership will only get relief if the associated disposal of the business is at least of a 5% stake. Entrepreneurs Relief management companies blocked To increase the number of people who may benefit from ER, management companies with up to 20 shareholders have been used. Until now they could qualify through joint venture rules in relation to a relatively small holding in the trading business. From now onwards the management company would need to have a trade of its own. This will affect many Private Equity management teams who invest via a management company. Non-UK residents - where non-uk residents sell a UK residential property there may be UK CGT on the gain the gain will only apply on increase in value after April 2015.

22 BUSINESS TAXES Jo McDowell

23 CORPORATION TAX RATES AND ALLOWANCES 2014/ /16 Corporation tax rates - Main rate 21% 20% - Small companies rate 20% n/a Diverted profits tax n/a 25% Bank levy - from 1 Jan Apr Annual investment allowance Up to 31 Dec Jan ,000 25,000 1 New limit to be announced later in 2015

24 DIVERTED PROFITS TAX 25% tax charge from 1 April 2015 on profits from Sales > 10 million to customers in UK, connected with UK activity but no taxable presence in UK Small or medium sized companies not caught Targets transactions involving: Avoided permanent establishment UK Co (or PE) transaction/entity with lack of substance Supported by new country-by-country reporting rules to be introduced from 2016 (will consult on implementing these during 2015)

25 DIVERTED PROFITS TAX Who is likely to be affected Large multinational enterprises with business activities in the UK who enter into contrived arrangements to divert profits from the UK by avoiding a UK taxable presence and/or by other contrived arrangements between connected entities lacking economic substance Assessment and collection procedure The assessment and collection procedure is based on a requirement of the company to notify HMRC within three months of the end of the accounting period that a DPT might arise. Tax-geared penalty for failure to notify

26 R&D AND CREATIVE SECTOR - FROM 1 APRIL 2015 R&D tax relief SME rate increases to 230% from 1 April 2015 Large company above the line credit increases to 11% from 1 April 2015 Revise definition for consumables Animated children s TV tax relief Lower of 80% of the total core spend or 100% of UK spend - given as additional deduction from taxable profits Loss making companies can claim a repayable tax credit of 25% of the surrendered loss Film tax relief Increase the rate of film tax relief to 25% for all films from 1 April 2015 or the date of state aid approval if later High-end television tax relief Reduce the minimum UK spend requirement from 25% to 10% Modernise the culture test, subject to state aid approval

27 BUSINESS RATES Wide-ranging review of the business rates system launched with consultation to report by 2016 Small business relief continues until April 2016 Retail business relief (rateable value below 50k) set at 1,500 for 2015/16 Increases capped at 2% until 2016 Anti- avoidance Current rates reliefs to be retained. Insolvency exemption adjusted to pass debt on to business owners New penalties for avoidance where: Failure to notify change in circumstances Active damage to property Phoenix companies

28 EMPLOYMENT TAXES Jill Kaur

29 EMPLOYMENT TAX Changes announced National minimum wage 6.50 to 6.70 ( 8 by 2020) Apprentice rate to be increased (April 2016) Car tax increased by 3% to encourage lower emissions (2019/20)

30 EMPLOYERS NIC FOR WORKERS AGED UNDER 21 Employers NIC 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 NI as usual on earnings over this UST Bonus and overtime payments may trigger a liability as relief as threshold is not cumulative 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

31 MAIN NIC RATE CHANGES FOR 2015/ / /16 Lower earnings limit 111 pw Nil 112pw Nil Employees - primary threshold 153 pw Nil 155 pw Nil Over % Over % Upper earnings limit Over 805 pw 2% Over 815 pw 2% Employers - secondary threshold Employers - above secondary threshold 153 pw Nil 156 pw Nil Over 153 pw 13.8% Over % - employees aged under 21 - above upper secondary threshold (aged under 21) Employment allowance (per qualifying employer) pw Over 815 pw Nil 13.8% 2,000 2,000

32 COMPANY CARS AND VANS From April 2015 CO 2 bands increase as usual, all rates over 75g increase by 2% to new max of 37% 2 new bands g CO 2 (5%) and 51-75g CO 2 (9%) So electric cars will trigger a benefit in kind Fuel multiplier rises 400 (despite price drops!) Van benefit rises to 3,150 ( 630 for electric vans) From April % diesel supplement will be abolished

33 TRIVIAL BENEFITS - STATUTORY EXEMPTION From 6 April 2015, a statutory exemption was to cover trivial benefits costing 50 or less so that they need not be reported on P11Ds. This measure was announced in the Chancellors Budget but has now been deferred until the new Parliament. Four conditions must all be met for the exemption to apply: The benefit is not cash or a cash voucher The cost (in some circumstances the average cost per person) does not exceed 50 The benefit is not provided under salary sacrifice arrangements or any other contractual obligation The benefit is not provided in recognition (or in anticipation) of particular services performed by the employee in the course of the employment

34 PENSION AUTO ENROLMENT All workers aged between 22 and pension age Will need to be automatically enrolled into their employer s qualifying pension scheme (can opt out) Mandatory minimum contributions for all employers/employees (unless opted out) Starting at 2% with 1% mandatory from employer Rising to 8%, with a mandatory 3% from the employer once all employers have completed enrolment in late 2018 PAYE scheme size Staging date 54 to 57 employees 1 March to 53 1 June to 49 1 August to 39 1 October 2015 <30 employees - exact date depends on PAYE reference number

35 SALARY EXCHANGE Exchange salary in return for pensions/benefits (eg car) is highly effective in saving tax and NIC HMRC does not dispute savings if implemented correctly Pensions Employees get tax relief at highest rate at source Employers may offer to share their NIC savings Cars NIC savings for both employer and employee Car benefit is taxable but group leasing discounts make scheme attractive Low emission cars more tax-efficient

36 INTERNATIONALLY MOBILE EMPLOYEES SHARE OPTIONS CHANGES FROM APRIL 2015 Current rules Where a share option is granted (or restricted shares are awarded) to a non-uk resident employee, later vesting or exercise can be UK tax free (even if the individual has become UK resident by that time) From 6 April 2015 Securities and options held by employees working in the UK during any part of the tax year of vesting or exercise may have income tax consequences Instead of exemption or full tax charge based on individual s status at the date of grant, a time apportionment relief can apply if certain conditions are met All internationally mobile employees with unexercised share options (or non-vested shares) in their employer should seek advice

37 AGENCY WORKERS Reporting from April 2015 Employment intermediaries will be required to return details of payments made without operation of PAYE & NI to HMRC on a quarterly basis from April 2015 Evidence will be required to support the reason for gross payment Rules apply both to what HMRC term as disguised employment within the UK and offshore engagements which seek to circumvent UK social security legislation Travel expenses Individuals employed by umbrella companies or otherwise under overarching contracts will always be deemed to have once place of work (regardless of where the agency sends them to work) Therefore, costs of normal home to work travel will not be deductible

38 TAX-FREE CHILDCARE To be phased in from autumn 2015 Families must pay into a childcare account (NS&I) and will receive the equivalent of basic rate tax relief on costs of up to 10,000 per child per annum Worth up to 2,000 a year for each child Will extend to children aged up to 12 years old within 12 months Disabled children up to age 16 eligible from commencement Only for parents who both work and earn less than 150,000 (each) Tax credits or universal credit will include a childcare costs element Old childcare voucher schemes will continue, with an option to opt for the new allowance

39 VAT DEVELOPMENTS Jill Kaur

40 BUDGET ANNOUNCEMENTS VAT: Overview of main changes VAT rates remain unchanged VAT registration threshold increased to 82,000 from 1 April 2015 Business will no longer be allowed to take account of foreign branches when calculating how much VAT it can recover on its overhead costs in the UK (only relevant to partly exempt businesses with establishments both within and outside the UK) New refund scheme for hospice charities, search and rescue charities and blood bike charities to come into effect from 1 April 2015.

41 PROMPT PAYMENT DISCOUNTS Affects both suppliers and customers from 1 April 2015 Currently VAT is calculated on discounted amount - even if the discount is not taken up New rules VAT must be calculated based on amount actually paid

42 ANTI-AVOIDANCE Jo McDowell

43 OFFSHORE TAX EVASION STRATEGY New criminal offence of helping tax evaders to be created to target intermediaries Automatic tax information exchange agreements using OECD template 58 jurisdictions exchanging data by 2017 LDF remains open until April 2016 A tougher last chance disclosure facility will be offered between 2016 and mid 2017 Full transparency for overseas assets

44 NEW DETERRENTS More moves to target high risk promoters Monitoring notices and promoter reference number (PRN) Promoters must notify clients when they are subject to monitoring GAAR related penalties Applies only where tax adjusted under the GAAR rules Specific penalty based on the tax that would have been lost without GAAR adjustment Serial avoiders new special measures rules Naming and shaming avoiders where user is issued with a tax surcharge for repeated use of tax avoidance schemes which ultimately fail Taxpayers to certify whether or not they have used a tax scheme in a specified period Requiring more info to be sent with tax returns Ultimate threat might be to send Margaret Hodge round!

45 NEW POWERS Disclosure of tax schemes (DOTAS) New penalties Publishing the scheme details Naming the scheme promoters Tax enquiries - closure notices Powers to enable HMRC to pick single aspects of a wider tax enquiry to refer to tax tribunal Idea is to sort that issue out quickly Means faster tax payment on that issue (even if repayments eventually due from other areas of the enquiry)

46 MORE ON ANTI AVOIDANCE Accelerated payment notices (APN s) Government has already removed the cash flow advantage for users of tax avoidance schemes by the introduction of APN s HMRC to issue an additional 21,000 APN s over and above their original estimate (43,000) Payments due within 90 days of date of APN Corporation Tax Loss Refresh Prevention This measure will prevent companies from obtaining a tax advantage by entering contrived arrangements to convert brought forward reliefs into more versatile in-year deductions

47 PRE- ELECTION PLEDGES Jo McDowell

48 TAX INCREASES TEND TO FOLLOW ELECTIONS Source: Institute for Fiscal Studies. Options for Increasing Taxes by Barra Roantree :45

49 COMPOSITION OF GOVERNMENT REVENUE 2015/16 Source: Institute for Fiscal Studies. Options for Increasing Taxes by Barra Roantree :45

50 ELECTION PLEDGES Conservatives and UKIP Conservatives Increase personal allowance to 12,500 by 2020 Raise threshold for paying 40% tax to 50,000 in next Parliament Increase Inheritance Tax nil rate band UKIP Increase personal allowance to 13,500 New 35% income tax rate for those earning 42,000-55,000 Scrap 45% income tax rate Abolish Inheritance Tax Design a turnover-based corporation tax system

51 ELECTION PLEDGES Labour Restore 50% top rate of income tax for those earning over 150,000 Restore 10% starting rate Abolish transferrable married couples allowance Restore bankers bonus tax Abolish Employee Shareholder Status Increase charges on non-domiciles Review Entrepreneur s Relief (extend to reduce tax on dividends?) Restrict pension relief to 20% for those earning > 150,000 Mansion tax where value exceeds 2 million Lowest CT rate in G7, but not as low as 20% (ie hold at 21%) Examine ways of improving targeting of R&D reliefs Windfall tax on tobacco companies and various anti-avoidance measures

52 ELECTION PLEDGES Liberal Democrats Increase personal allowance to 12,500, align NIC threshold Increase charges on non-domiciles Raise CGT rates to 35% and cut annual exemption to 2,500 Refocus Entrepreneurs Relief on genuine entrepreneurs Mansion tax where value exceeds 2million Scrap Employee Shareholder Status Restrict pension lifetime allowance and tax relief for pension contributions

53 ELECTION PLEDGES Action points 1. Consider remuneration strategy for 2014/15 or 2015/16 2. If a business sale is anticipated, consider timing 3. Ensure brought forward annual pension allowances are fully utilised in 2014/15 or 2015/16

54 QUESTIONS?