Monthly Tax Webinar December 2015 Martyn Ingles Agenda Autumn Statement 2015 Draft Finance Bill 2016 Clauses Recent Tax Cases and other developments Tax planning when is expenditure incurred for capital allowances? Before 1.1.2016 if possible 1
Autumn Statement 2015 Autumn Statement Overview Tax credit U- Turn Tax Free Childcare to proceed Apprenticeship Levy extra 0.5% on payroll for large employers 3% Supplementary SDLT for buy to lets and second homes from 6 April 2016 CGT to be paid within 30 days of property sales (2019) Company distributions liquidations to be taxed as income? 2
George s U-Turn on Tax Credits Clawback rate to remain at 41% Not 48% Income threshold for tax credits to remain at 6,420 a year not 3,850 But: Income increase disregard reduced to 2,500 not 5,000 Overall benefits cap to be reduced from 26,000 to 23,000 (London) and 20,000 (outside) No additional tax (universal) credits for more than 2 children from 2017? Tax Free Childcare From 2017-30 hours per week free childcare (3 yo) Also new tax free childcare account - 10,000 per child (save 8,000 Govt. adds 2,000) Only available where income per parent < 100,000, not 150,000 Minimum income level per parent increased from the equivalent of 8 hours to 16 hours at the national living wage. 3
Further Pain for Buy to Let Landlords Additional SDLT 3% extra from April 2016 Also applies to second homes 175,000 purchase price: = 3% up to 125,000 = 3,750, plus 5% on next 50,000 = 2,500 = 6,250 Currently 50,000 @ 2% = 1,000 CGT to be paid 30 days after completion from 2019 Payment on account finalise in SA Return And SDLT within 14 days of completion SDLT on Buy to Lets from April 2016 Purchase price SDLT rate Buy to Let and second homes Up to 125,000 NIL 3% 125,001-250,000 2% 5% 250,001-925,000 5% 8% 925,001-1,500,000 10% 13% 1,500,001 and over 12% 15% 4
Further Pain for Buy to Let Landlords Additional 3% will not apply to: purchases of caravans, mobile homes or houseboats corporates or funds making significant investments in residential property = more than 15? residential properties The government will consult on the policy detail Annual Tax on Enveloped Dwellings (ATED) Applies to UK residential property owned by companies, partnerships with corporate members, and collective investment vehicles ATED rates increased previously applied to properties valued over 2 million at 1 April 2012 Starts at 1m MV for 2015/16-7,000 p.a. and 500,000 MV for 2016/17-3,500 p.a. Use value at 1 April 2012 Numerous reliefs but still need to file a return 5
Do we need to file an ATED return? Even if a relief applies still need to file a return: Property rental businesses Dwellings open to the public Property developers Property traders Dwellings used for trade purposes Farmhouses New reliefs added equity release, demolished houses New ATED Relief Declaration Return Company liquidations Company Liquidation or Reduction in Share Capital currently taxed as Gain = 10% with entrepreneurs relief Where income accumulated in company may be taxed as income in future? Profits 100,000 Less corporation tax 20% (20,000) Retained profit 80,000 CGT @ 10% (8,000) Net cash to shareholder 72,000 28% tax 6
Benefit in kind changes Diesel cars 3% supplement to stay until 2020/21 Fuel scale charge 22,200 X CO2 % Vans - 3,170 + 598 for fuel Changes to termination payments from 2016/17? Disguised remuneration schemes blocked from 25 November 2015 note Glasgow Rangers case Rangers - EBT Loan Scheme COMPANY TRUST LOANS Taxable Sub Trusts 7
HMRC 1 Glasgow Rangers 0 HMRC v Murray Group at Scottish Court of Session Payments to Footballers via EBT Scheme FTT had held that not emoluments Trustee of the Principal Trust had a genuine discretion as to how to apply the funds No PAYE or NICs due Now overturned - Held to be taxable as employment income Other EBT schemes? Apprenticeship Levy From 6 April 2017 raises 3 Billion a year by end of Parliament ½% on payroll What is payroll? Salaries/wages/bonuses Benefits in kind? Share based payments? Subject to a credit of 15,000 ( 3 Million payroll) About 100 120 employees on average salaries 8
Capital Taxes announcements CGT entrepreneurs relief FA 2015 restriction affecting partnerships and joint ventures went too far? Deed of variation use in tax planning reviewed and continue to be effective No IHT on transfer of undrawn pension funds in drawdown Tax Administration Changes RTI 9 or fewer employees FPS due on or before each payment from 6 April 2016 Simple tax affairs HMRC will assess taxpayers based on information they hold from 2016/17 Quarterly reporting of earnings and expenses for self employed and landlords when? 9
Finance Bill 2016 Draft Clauses Savings Changes Personal savings allowance - 1,000 tax free for basic rate taxpayers, 500 for HR taxpayers 2016/17 Banks, building societies to pay interest gross - P2P? 0% Starting rate for 5,000 savings to remain New dividend rules in draft Finance Bill: 5,000 tax free 7.5% up to basic rate limit 32.5% for higher rate taxpayers 38.1% for additional rate taxpayers Current system of tax credits to be repealed 10
Other personal tax changes No increases in ISA limits for 2016/17 Bad debt relief for Peer to Peer loans Pension lifetime limit reduced to 1m from 2016/17 Renewals basis starts 2016/17 but Wear and Tear allowance ends Sporting testimonials new 50,000 limit Diesel company cars 3% supplement to remain Trivial benefits in kind (< 50) to be exempt but 300 limit for directors of close companies IR35 and relief for travelling expenses 'C lie n t' 'In te rm e d ia ry ' S e rv ic e c o m p a n y /p a rtn e rs h ip 'W o rk e r' 11
Travel expenses HMRC Example 1 Retailer contracts with agency to supply them with IT consultant to design, build and release website on-line IT consultant meets client to explain requirements IT consultant given a free reign to undertake the work as they choose. IT consultant works at the retailer s premises and completes the job after which the engagement ceases No supervision, direction, control over IT consultant Thus he may claim relief for travel and subsistence Travel expenses HMRC Example 2 A local authority need an IT consultant for 4 months The local authority contract with an employment agency The IT consultant works within the local authority s IT department, same duties as permanent employees IT manager assigns the work to the IT consultant and gives instructions as to how that work must be done. IT manager monitors the IT consultant s work, IT manager supervises, directs and controls the work No relief for travel and subsistence expenses 12
Business and corporate tax changes Farmers averaging over 5 (or 2) year period Partners to be entitled to fixed rate deduction for use of home as office Corporate debt and derivatives further changes S455 loans to participators rules not to apply to loans by close companies to charitable trusts New orchestra tax relief to start 1 April 2016 Patent Box to be linked to R&D spend Capital tax changes CGT on UK houses sold by non-residents minor corrections IHT deemed domicile: 17 year rule to be reduced to 15 years for long term residents If born in UK and establish domicile of choice abroad then deemed UK dom for IHT if resident in 1 out of 2 previous tax years IHT residence nil band - downsizing relief (extra 175,000) included in Finance Bill 2016 13
Anti-Avoidance Mixed partnerships intangible rules Hybrid mismatches tax deduction in one entity, tax free in another entity, or double deduction Capital allowances balancing allowance adjusted to reflect actual consideration for asset GAAR penalty 60% if scheme counteracted New penalties for Serial Avoiders and Promoters Offshore Tax Evasion 4 consultations this summer: 1. Strengthening civil deterrents for offshore evaders 2. Civil sanctions for enablers of offshore evasion 3. A new corporate criminal offence of failure to prevent the facilitation of evasion 4. A new criminal offence for offshore evaders 14
Recent tax cases and other developments Property Investor or Property Developer? CIS applies to Property Developers But NOT property investors HMRC have updated CIS12080 guidance when an property investor might cross the line: If investor enters into multiple or substantial contracts relating to construction operations for the purposes of development 15
New Advisory Fuel Rates from 1 December 2015 Engine Petrol Diesel LPG < 1400 cc 11p 7p < 1600cc 9p 1400 2000 13p 9p 1601-2000 11p > 2000 cc 20p 13p 13p Can HMRC Challenge True and Fair Accounts? GDF Suez Teeside Ltd v HMRC FTT 413 Tax legislation for companies requires that the profits of a trade are calculated in accordance with generally accepted accountancy practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes Section 46 Corporation Tax Act 2009 Apparently they can! But this case involved a tax avoidance scheme 16
Accounts and tax General rule: Tax treatment follows accounting treatment, GAAP, unless tax law overrides Main exceptions/overrides: Tangible fixed assets capital allowances Share based payment Pension costs Provision for bonuses/ commissions Capital allowances Use 500,000 AIA before its too late! 17
Buy before 1 January 2016 to maximise AIA AIA reduces to 200,000 from 1.1.2016 Watch periods straddling 1.1.2016 Year ended 31.3.2016: Maximum for 12m period 425,000 9/12 x 500,000 = 375,000, plus 3/12 x 200,000 = 50,000 Maximum for expenditure 1.1.16 to 31.3.16 50,000 Date expenditure incurred When obligation to pay becomes unconditional Not necessarily date on invoice, when paid, title passes Hire Purchase brought into use? End of AP - if unconditional within 1 month of AP end Watch extended credit - if > 4 months - when payment due 18
1 month rule Y/E 31.12.15 1 MONTH Date of expenditure 15.1.16 Obligation to pay 4 month rule Y/E 31.12.15 4 MONTHS 15.12.15 Payment due15.6.16 = Date incurred 19
The End Merry Christmas! And a Happy New Year! 20