Budget 2015 update Impact on business and individuals and tax planning 19 th March 2015 Encouraging business investment Business can obtain tax relief for plant and machinery costs No relief for land or building work unless renovating a vacant building in a disadvantaged area Business Premises Renovation Allowances ( BPRA ) BPRA gives 100% on qualifying renovation costs Already know that category of costs have been tightened up 100% tax relief in year of expenditure on plant up to 500,000 before 31 December 2015 Expect it to drop to 25,000 from 1 January 2016 but may not and will be discussed in the Autumn statement Important to watch timing see example 1
Straddling periods Straddling rules can be extremely complex Date of expenditure crucial Example Year ended 31 March 2016 Maximum allowance: 381,250 (being 9/12 x 500,000 = 375,000 plus 3/12 x 25,000 = 6,250). New asset 350,000 Buy pre 31 December 2015, max AIA = 381,250 Buy post, max AIA = 6,250 Capital Gains tax changes Entrepreneur s relief provides a 10% rate of capital gains tax where a partnership interest is being sold, a sole trade or shares in a trading company To benefit, need to have at least 5% of share capital in a company and be an employee Exploited this where management team say each held less than 5% but got together to invest via another company Now stopped from 18 th March 2015 Impact: restructure existing investments and structures? No change where employee has a EMI share option and exercises this just before a sale even if he has less than 5% -he still obtains a 10% rate of capital gains tax EMI share option plans becoming more popular 2
More capital gains tax changes Another Entrepreneur s relief change Where a person or partner disposes of an asset used by the company or by the partnership, 10% Capital Gains Tax on the asset sale Did not need to sell a minimum number of shares or minimum partnership stake to benefit But, from 18 th March 2015, need to sell at least a 5% shareholding or at least a 5% partnership share to benefit Policy intention is to allow the 10% rate of CGT where they are significantly withdrawing from the business the 5% sale/withdrawal threshold is low though! Further capital Gains tax changes From 6 April 2015 non-residents will have to pay UK capital gains tax on sale of UK residential property This is new, not previously the case, they may pay local taxes though People affected: non-uk resident individuals, non UK resident companies, Non-UK resident trusts Rules for determining UK residence tighter from April 2013 Its only the gain made from April 2015 that is charged Can either re-base or time apportion the gain Non-UK resident can claim principle private residence relief if this is his main or only residence but only if he is there for at least 90 nights during the tax year. 3
Even further capital gains tax changes From 3 December 2014, where a partnership or sole trader incorporates (transfers the business to a company), there will be no 10% rate of capital gain tax on goodwill value and no corporation tax relief for goodwill amortisation where the two are connected This puts an end to a much used tax planning technique Businesses can still incorporate and benefit from a 20% rate of corporation tax, useful maybe to clear debt more quickly. But capital gains tax will usually be 28% rather than 10% and less tax efficient overall Budget announced a further change to allow 10% capital gains tax where partners in a partnership take no shares in the company e.g. retiring partners Income tax rates and allowances 2014/15 2015/16 2016/17 2017/18 Tax free band 10,000 10,600 10,800 11,000 20% band on income of 31,865 31,785 31,900 32,300 40% tax on income between : 41,865 42,385 42,700 43,300 and 150,000 Personal allowance removed at 120,000 121,200 121,600 122,000 45% tax on income above 150,000 150,000 150,000 150,000 4
Personal Savings Allowance From 6 April 2015, no tax on all interest income if taxable income is below 15,600 p.a From April 2016, no tax on all interest income if taxable income is below 16,800 p.a. From April 2016, no tax on first 1,000 of interest income if your income is less than 42,700 p.a From April 2016, no tax on first 500 of interest income if you earn between 42,701 and 150,000 p.a From April 2016, all interest income taxed if you earn over 150,000 p.a From April 2016, banks will stop automatically deducting 20% tax on non-isa savings Transfer savings account to lower taxed spouse? Remember, income on savings transferred to minor children still regarded as that of parents For employers From April 2015, there is an exemption from income tax for trivial benefits of 50 or less. Trivial would be non-cash items and those paid irregularly Annual cap of 300 for office holders and family members of close companies Certain qualifying expenses paid to employees will be tax free (where employee would have claimed it was tax free anyway) Removes requirement to apply for a dispensation and maybe to prepare P11Ds For example, travel, subsistence, entertaining etc. In essence there will be a new set of rules for travel and subsistence to accommodate changing work practices home to work travel will never be allowed though! No employers NICs for under 21s from April 2015 saves NICs of 13.8% 5
Tax saving investments The Enterprise Investment Scheme ( EIS ) encourages investment into SME companies by giving upfront income tax relief at 30%, tax free sale of the EIS shares after 3 years and capital gains tax deferrals For example, invest 10,000, obtain 3,000 back from HMRC Seed EIS is the little brother but this gives 50% income tax back rather than 30% Seed EIS applies for new businesses (operating for less than 2 years) which have gross assets of less than 200,000 Very useful way for companies to raise finance and for individual to save tax! Budget changes on next slide. Tax saving investments Individuals need to be independent to obtain EIS/SEIS remove quirk for certain management buy outs or for existing unpaid directors? Companies will need to be less than 12 years old (except where total investment is > 50% of average turnover) to benefit from EIS/SEIS funding The amount a company can raise in total under EIS/VCT is capped at 15m shouldn't be a problem for most companies At the moment, 70% of SEIS money must be spent before EIS funds can be raised this requirement will be removed. This was a real problem as EIS funding needed quickly 6
Inheritance tax ( IHT ) The tax free limit is still 325,000 per person For a married couple, generally no IHT if combined estate is 650,000 or less 325,000 allowance to be raised by inflation only but will Conservatives increase significantly? Change in budget: Government wish to change the use of Deeds of variation ( DoV ) DoVs used by beneficiaries after death to alter the wishes of the deceased this can mean less IHT is paid over by diverting assets with relief to next generation DoVs effective is carried out within 2 years of death No detail on the changes as yet For companies Rate of corporation tax confirmed at 20% from April 2015 All companies large and small will pay this from that point Companies being used increasingly as the vehicle for business and property investment Still no national insurance on dividends, making this more tax efficient generally 7
Encouraging Innovation Research and development tax credits SMEs can obtain relief at 230% for R&D expenditure. E.g. spend 100,000 obtain a tax deduction of 230,000 or a tax rebate if loss making Budget confirmed that qualifying expenditure excludes certain consumables unless wasted or unless sold for no proceeds, if sold. HMRC to help smaller companies obtain R&D tax relief and process claims more quickly Remember; only companies qualify for the R&D tax relief The Patent Box regime allows companies to enjoy a 10% rate of tax on profits in the box to be changed in 2016 to satisfy EU challenges (particularly the Germans!) Anti-avoidance Applies to the use of company losses At the moment, trading losses brought forward can be used against future profits of same trade Management expenses can be used against non-trading profits Excess interest deductions against future interest receipts But, ability to deny the use of company brought forward losses Losses denied if there is an arrangement to use the loss where tax benefit outweighs economic impact Applies from 18 th March 2015 8
Anti-avoidance Diverted Profits Tax will apply from April 2015. Charges tax at 25% on profits artificially diverted to other countries by multinationals Government already have transfer pricing requirements but these rely on OECD guidelines OECD encouraged to tighten these up. New rules expected Medium sized and large companies need to ensure intercompany pricing done on an arm s length basis. Need documentation to support prices penalties can be 100% of the tax adjustment Advance Payment Notices ( APNs ) are being issued already and will continue Government tax windfall! Tax administration and collection Annual personal Tax Return to be abolished in favour of Digital Tax Accounts New tax payment process to be introduced also a pay as you go system to ease cash-flow Roadmap for this to be published later this year HMRC likely to pre-populate the tax return using P60, P11d etc Still need to provide HMRC with details they do not already have HMRC promise that we can view tax account online, plan to reduce taxes and see how NICs affect our pension entitlements Class 2 NICs (paid by the self employed) will be abolished in the next Parliament Class 4 NICs (also paid by the self-employed) will be reformed to introduce a new benefit test don t know the detail yet 9
Any Questions? Contact me: Leighton.reed@broomfield.co.uk 10