United Kingdom: Budget 2012

Transcription

1 United Kingdom: Budget 2012 Introduction For detailed coverage and comment on the Budget visit Deloitte s dedicated website. URL: In his third Budget, the Chancellor, George Osborne referred back to Adam Smith s four key principles of an effective tax system: Simplicity Predictability Support for Work Fairness In this context, the Chancellor announced new measures relevant to employers, reiterated measures already announced and confirmed his commitment to counteracting tax avoidance. Key highlights include: A reduction in the top rate of tax to 45% The introduction of a General Anti-Avoidance rule Measures to restrict the funding of pensions for family members Abolition of ordinary residence All these are expected to take effect from 6th April Reduction in Top Rate of Tax The big focus of attention in the lead up to the Budget had been on the scope for the Chancellor to reduce the top rate of tax with debate on whether there would be a reduction, if so by how much and when. In line with the Government s ambition to create the most competitive tax system in the G20, the Government announced that the highest rate of tax will be reduced from 50% to 45% but only with effect from 6th April It is understood, that this reduced top rate will continue to apply to taxable income in excess of 150,000. The change in the rate of tax had been widely speculated in the last few days in the run up to this Budget. The deferral of the change in rate of tax to the 2013/14 tax year may provide employers with an opportunity to defer the receipt of income until this new tax rate comes into force. This change is recognised by the Treasury who have estimated the likely reduction in tax yields for tax year 2012/13 as a result of this change to be 2.4bn. Although deferral may appear an attractive option for existing 50% taxpayers, this has to be weighed against the possible commercial disadvantage of delaying the receipt of income and / or the risks of adverse movements in share price. As there is no tax benefit for employees paying tax at 40%, employers need to consider the impact of offering deferral across their entire employee population. 1.2 Pensions Another area where change had been expected was in relation to pension reliefs. Contrary to speculation, the Chancellor confirmed that he was not introducing any immediate changes to the main pension reliefs. The key features of the regime for registered pensions remain, allowing tax relief of 50,000 per year with a lifetime allowance in respect of the value of assets held within a registered pension scheme of 1.5m. There were nevertheless points of interest for employers: Global InSight Page 1 of 5 Copyright 2012, Deloitte Global Services Limited.

2 Family Pensions The Government will legislate to ensure that arrangements where an employer pays a pension contribution into a registered pension scheme for an employee s spouse or family member as part of their employee s flexible remuneration package cannot be used to obtain tax and/or NIC advantages for the employee or the employer. Unfunded Pensions There was confirmation that the Government will monitor the use of unfunded pension arrangements and will be ready to act to prevent the use of unfunded plans from creating a significant fiscal risk. QROPS There was also confirmation of changes to the tax regime for Qualifying Recognised Overseas Pension Schemes (QROPS) designed to strengthen the regime for the reporting of QROPs and powers of exclusion. In particular, pension schemes established in countries that enact legislation, or otherwise create or use a pension scheme to provide tax advantages which are not intended to be available under QROPS rules, will be excluded from the QROPS regime. The maintenance of the existing level of pension relief will be welcomed after the turbulence of recent legislative changes. There is no guarantee that the reliefs will continue in future years and it is likely that both employers and employees will wish to maximise the use of reliefs on an annual basis. The changes may also invite employers who believe that UK registered schemes no longer offer the required level of effective savings for retirement, to explore alternative arrangements including unfunded arrangements. In particular, the withdrawal of relief for the provision of pension benefits for the family of an employee (where this is provided as part of a company flexible benefits programme) may encourage their funding by employers up to 6th April Depending upon personal circumstances, this might allow the funding of a spouse s pension of up to 250, Residence and Domicile The Government announced its intention to proceed with the plans to implement the Statutory Residence Test (SRT) with effect from 6 April 2013 and confirmed the previously announced changes that are due to come into effect for nondomiciled individuals (increasing the Remittance Basis Charge to 50,000 for non-uk domiciled individuals who have been resident in the UK for 12 years or more). Further details relating to the SRT will be released in due course at which time draft legislation is expected to be published alongside a second consultation document. One significant announcement was that the Government will abolish ordinary residence for tax purposes from 6 April 2013 but will retain the tax-favourable overseas workday relief but put this on a statutory footing. As announced in the consultation on reform of non-domicile taxation in June 2011, the Government will also put the administrative relaxation relating to non-uk bank accounts held by Not Ordinarily Resident employees with duties carried out in the UK and overseas (called SP1/09) on a statutory footing from 6 April The existing practice will remain in force for the 2012/13 tax year. The confirmation of the plans to proceed with the SRT and changes to the taxation of non-domiciled individuals were anticipated albeit the increase in the remittance basis charge will not be welcomed by those that have to pay. These confirmed changes and the new changes to ordinary residence may encourage employers to review their existing practices and policies pertaining to international assignment programmes and any associated cost impact arising as a consequence. 1.4 Enterprise Management Incentive (EMI) The Enterprise Management Incentive (EMI) plan is a tax-advantaged share option plan, targeted at smaller, entrepreneurial businesses under which options can be granted over shares worth up to 120,000 (measured at the date of grant). The benefit is that the growth in value of the shares under option will be exempt from income tax and National Insurance Contributions (NIC) on exercise. Instead, the gains will be liable to capital gains tax (CGT) when the underlying shares are sold. Global InSight Page 2 of 5 Copyright 2012, Deloitte Global Services Limited.

3 It is proposed that the limit will be increased from 120,000 to 250,000 with a gain arising on disposal qualifying for Entrepreneur s Relief with a CGT rate of 10% on the first 5m of gains (as opposed to the normal CGT rates of 18%/28%). The effect will therefore be that gains on EMI options could be liable to a 10% tax rate rather than an effective rate of up to 52% (47% with effect from 6 April 2013). For companies which are eligible to grant EMI options, this change is a welcome boost to employee share ownership. With the increased quantum of tax-advantaged options that can be granted under EMI and the potential effective tax rate of 10%, EMI options will continue to be one of the most efficient ways to incentivise employees. 1.5 Cars and Private Fuel Company Car Tax Rates The company car tax rates have been announced for the three tax years until In , the appropriate percentage of a company car s list price subject to tax will increase by one percentage point over the prior year for cars emitting more than 75g/km of carbon dioxide, to a maximum of 35 per cent and by two percentage points, to a maximum of 37 per cent in both and The special rates that exist for zero emission and ultra-low carbon cars until will be replaced with 13% in and 15% in The 3% supplement for diesel cars will be removed from April Further, certain security enhancements will be excluded from being treated as accessories for the purpose of calculating the cash equivalent of the benefit on company cars made available for private use. These changes take effect retrospectively from 6 April Private Fuel Benefit The multiplier used to calculate the cash equivalent of the benefit of free fuel provided to employees will increase from 18,800 to 20,200 from April The Government has also announced that there will be a further increase to this multiplier for by 2% above the rate of inflation. Capital Allowances and Lease Rental Restriction The period through which 100% first year capital allowances are available on expenditure on cars will be extended until April However, from April 2013 the emissions threshold will decrease from 110g/km to 95g/km. From April 2013, the threshold for expenditure on cars to fall into the main pool (annual rate at 18%), rather than the special rate pool (annual rate at 8%) decreases from 160g/km to 130g/km. In alignment with this, tax relief available to employers is restricted (at 15%) on the lease rentals for cars with emissions over 130g/km. Vehicle Excise Duty (VED) It has been announced that VED rates will increase in line with the Retail Prices Index (RPI) from April There are a number of changes to the taxation of company cars, all aimed at increasing the tax charge suffered on cars with higher emissions. Changes to the capital allowance and tax relief rules will lead to an increase in the tax take in excess of 600 million on company cars over 4 years. This means that businesses should review their current fleet and private fuel arrangements and particularly the carbon footprint in order to manage costs. 1.6 Personal Service Companies and IR35 As part of its anti-avoidance strategy the Government will introduce a package of measures designed to tackle avoidance using personal service companies. Anti-avoidance legislation, known as IR35 already exists and the Government intends to make this easier to understand and operate. This will include strengthening specialist HMRC compliance teams, simplifying the way the rules are administered and (subject to consultation) requiring certain office holders and/or controlling persons to have PAYE/NIC deducted at source by the organisation to which they provide services. Global InSight Page 3 of 5 Copyright 2012, Deloitte Global Services Limited.

4 The determination of when the IR35 rules apply has always been difficult and enforcement by HMRC of these rules has not been consistent. Any simplification of the rules is to be welcomed. The potential requirement that certain organisations will need to operate PAYE where services are provided by individuals integral to the business may, however, provide further uncertainty. We await the start of any consultation process to understand better the criteria to be used by organisations in determining which individuals are integral to the running of a business. 1.7 General Anti-Avoidance Rule As part of his drive against tax avoidance, the Chancellor announced that the Government will proceed to introduce a General Anti-Avoidance Rule (GAAR) based on the report by Graham Aaronson QC. This would counteract abnormal arrangements aimed to achieve an abusive tax result and would be targeted at abusive, egregious or intolerable tax planning and not at the centre ground of responsible tax planning, although the dividing line for this may be difficult to find in practice. Where the GAAR applies, a tribunal or court would have the power to counteract the tax advantage achieved by the transaction. Recent cases show that the tribunals and courts already take a strong line against tax avoidance involving employment income. A GAAR would not inhibit them from continuing with this approach but might counteract avoidance schemes which rely on highly detailed and complex legislation. Matt Ellis (London) +44 (20) maellis@deloitte.co.uk James Macpherson (London) +44 (20) jmacpherson@deloitte.co.uk Stephen Woodhouse (London) +44 (20) swoodhouse@deloitte.co.uk Mark Williams (Reading) +44 (118) mvwilliams@deloitte.co.uk Craig Muir (London) +44 (20) cmuir@deloitte.co.uk Rosemary Martin (London) Director +44 (20) rosemartin@deloitte.co.uk Global InSight Page 4 of 5 Copyright 2012, Deloitte Global Services Limited.

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