Phils Last (Spring) Budget Future Budgets in Autumn More scrutiny - - PowerPoint PPT Presentation

• Future Budgets in Autumn
• More scrutiny to give better legislation?
• Class 4 increase – U Turn already – after next Election?
• Dividend allowance to be reduced to £2,000
• MTD going ahead but deferred to 2019 if < VAT limit
• £2bn extra for Social Care
• Lots of measures already announced

Phil’s Last (Spring) Budget

Income tax and NIC 2017/18

£150,000 £45,000 £11,500

45%, 38.1%(div) 20%, 7.5%(div)

I n c o m e t a x b a n d s £45,000 £8,164 UEL Earnings threshold 9%, 12%, 13.8% ? 2%, 2%, 13.8%? N I C b a n d s (SE, E’ee, E’er) Personal allowance

40%, 32.5%(div)

Falling corporation tax rates:

FY2016

• 20%

FY2017

• 19%

FY2018

• 19%

FY2019

• 19%

FY2020

• 17%

Income tax and NIC 2020/21

£150,000 £50,000 £12,500

45%, ?38.1%(div) 20%, ?7.5%(div)

I n c o m e t a x b a n d s £50,000 ???? UEL Earnings threshold 9%, 12%, 13.8% ? 2%, 2%, 13.8%? N I C b a n d s (SE, E’ee, E’er) Personal allowance

40%, ?32.5%(div)

Tax driven incorporation?

G20 Corporation Tax rates

• Government concerned about rise in new companies
• Just for tax reasons?
• Looking to level the playing field
• Possible introduction of “Look-through” entity?
• Budget 2017 in 2018/19:
• £5,000 dividend allowance cut to £2,000
• Increases in Class 4 NIC => 10% then => 11% XXXX

Huge increase in tax-driven incorporation

Employee Self-employed Own company Salary/ fees £40,000 £40,000 £40,000 Income tax 20% 5,800 5,800 NIC 3,833 3,020 350 NIC – ERs 4,401 (398) Corporation tax 5,721 Dividend tax 1,341 Total taxes 14,034 8,820 7,810 NET for worker £30,367 £31,180 £32,190

Employee v Self employed v Own co. 16/17

• Focus is on incorporated businesses with fewer than 10

employees (micro businesses)

• Key recommendations:
• New “Look-through” entity – shareholder/directors

taxed directly on share of profits

• Sole traders to have protected assets to limit their

liability

• Will provide level playing field at last?

OTS review of small company taxation

• £11,500 salary each
• Then dividends, say £33,500 each (£45,000)
• No tax on salary (just ‘EEs NIC – 2017/18 £400)
• Just £2,000 dividends tax free
• Then 7.5%? rate on £31,500 = £2,363 each
• £4,726 IT for the couple = £84,474 net
• Corporation tax on £67,000 PAT = £15,716 (19%)
• PBT £82,716 + salaries = £105,716 (20.1% tax and NI)
• Note: No £3,000 employment allowance for single

director companies

H & W companies – 2018/19?

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• £105,716 profit, say £52,858 each
• £11,500 @ Nil
• £33,500 @ 20% = £6,700 )
• £7,858 @ 40% = £3,143) IT £9,843 each
• Class 4 (NB Class 2 ends):
• 10% on (£45,000 - £8,164?) = £3,684 ) £3,841 each
• 2% on £7,858 up to £52,858 = £157 )
• Net, after income tax, NIC = £78,348 (25.9% Tax + NI)
• Same if company taxed on “Look Through” basis?

H & W partnership 2018/19

New Tax Free Allowances

• From 6 April 2017:
• £1,000 self-employed income
• £1,000 rental income
• In addition to £1,000 savings allowance if basic rate
• NB - £5,000 savings income taxed at 0% (up to £16,500)

• New tax relief for investment in Social Enterprises
• Modelled on EIS – 30% IT relief up front
• Plus CGT deferral
• Investment may be shares or loan to Social Enterprise
• Must not be “connected” with entity
• Must keep money invested for 3 years
• New limit: £1.5m per organisation over lifetime
• New 250 employee limit
• Not nursing homes or care homes
• Cannot use SITR fund to repay existing loans

Social Investment Tax Relief

• Qualifying social enterprises:
• Community interest companies
• Community benefit societies
• Charitable companies and trusts
• “Accredited social impact contractors”
• First approved scheme – Fareshare South West –

diverts food industry waste to charities

Social Investment Tax Relief

• EIS and SEIS relief denied if there is a disposal of

shares within 3 year qualifying period (or pre-arranged exit). Similar rules apply for VCTs

• The right to convert shares from one class to another

will be excluded from being an arrangement for the disposal of those shares

• Additional flexibility to allow follow-on investments made

by VCTs in companies, aligns with EIS provisions

• VCT regulations to be relaxed to allow certain share for

share exchanges

Venture Capital changes

• Date for “making good” BiK – 6 July
• Salary sacrifice rules changing
• Termination payment rules changing
• Public sector workers “off-payroll” – new rules

from 2017/18

• Disguised remuneration anti-avoidance

Employment tax changes

• Where a BiK is provided through salary sacrifice, it will be

chargeable to income tax and Class 1A employer NICs, even if it is normally exempt from tax and Class 1A NICs

• The greater of:
• the amount of salary sacrificed; and
• the cash equivalent set out in statute (if any)
• Note transitional rules – if in place at 5 April 2017
• 5 Exceptions…

Limiting tax relief on Salary sacrifices

• 5 Exceptions:
• employer pension contributions;
• employer-provided pension advice;
• employer-supported childcare and provision of workplace

nurseries; and

• cycles and cyclist's safety equipment
• Ultra – Low (< 75g) CO2 emission cars

Limiting tax relief on Salary sacrifices

• From April 2018:
• all PILONs will be subject to tax and NICs as earnings;
• all other post-employment payments which would have

been treated as general earnings if the employee had worked their notice period will be subject to tax and Class 1 NICs, including employer's NICs; and

• payments relating directly to the termination of the

employment will have a £30,000 income tax and employer NICs exemption. Unlimited employee NICs exemption on termination payments to continue?

Tax and NIC on termination payments

'Worker' 'Intermediary'

Service company/partnership

'Client'

Public sector workers “Off payroll”

• Government departments, legislative bodies, armed

forces

• Local government
• NHS ( but not GPs)
• Schools and further and higher education institutions
• Police forces
• Other public bodies (such as BBC, Channel 4)

Public sector workers “Off Payroll”

• From April 2017, individuals working through a

personal service company (“PSC”) in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies

• The public sector employer/agency will have to

decide if the rules apply to a contract and, if so, account for and pay the liabilities through RTI and deduct the relevant tax and NICs.

Public sector workers “Off Payroll”

• HMRC guidance issued 3 February 2017
• Example:
• PSC invoices £6,000 + £1,200 VAT = £7,200
• Public sector employer/ agency deducts £1,871 tax, NIC
• PSC gets £4,129 + £1,200 VAT
• £4,129 can be drawn tax-free from PSC
• No CT on this £4,129
• Employment status tool - on HMRC website
• ptional for the agency/ public sector body to deduct

the worker’s expenses when calculating the tax due.

Public sector workers “Off Payroll”

EBT Loan Scheme

COMPANY TRUST LOANS Sub Trusts Taxable

• Loan transfers – debts transferred to third parties to be

within the scope of the disguised remuneration rules.

• Close companies - rules to prevent schemes which claim

that the disguised remuneration received by director of a close company is not in connection with their employment.

• Release of disguised remuneration loan – will give rise to

an income tax charge (except on death of the employee).

• Denying CT deductions for employee remuneration
• Transfer of liability from the employer to the employee if it

cannot reasonably be collected from the employer

Disguised Remuneration Schemes

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• The loan charge will apply to disguised remuneration loans

still outstanding at 5 April 2019, but will not apply to loans made before 6 April 1999.

• Avoiding double taxation – where a charge applies to a

disguised remuneration loan, but there has also been an earlier income tax charge on the same amount

• Measures to apply to self employed and partnerships where

taxable income has been replaced by loans and other non- taxable amounts to avoid tax

Disguised Remuneration Schemes

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• Normal pension annual allowance £40,000 a year
• (plus unused relief from previous 3 years)
• But in flexible drawdown the limit was £10,000
• £10,000 limit dropping to £4,000 from 6 April 2017 on

contributions to money purchase fund where in flexible drawdown

Pensions - Money purchase annual allowance

• UK pension savings have benefited from tax relief
• If transfer to foreign scheme that is neither
• registered pension scheme; nor
• QROPS
• Then unauthorised payment charge 40%+
• New 25% overseas transfer charge on transfer to

QROPS after 9 March 2017

• Does not apply if pension fund and individual are in EEA

(further exclusions)

Pensions – 25% charge on transfer to QROPS

Corporate and Business Tax changes

• New anti-avoidance applies from 5 July 2016 (FA2016)
• Targeting overseas investors trading and developing

UK property through offshore structures

• Such profits will now be subject to UK corporation tax

irrespective of whether the property company is UK resident (similar rules for income tax)

• Concern – could catch buy to let landlords?
• Budget - All profits recognised in the accounts on or

after 8th March 2017 are taxed, regardless of the date the contract was entered into

Profits from trading in developing UK property

Profits from trading in developing UK property

Appoint Contractors Carry out works Non resident investors Offshore Propco UK property Contractors

Profit taxed as income not capital gain if:

• A. One of the main purposes in acquiring the land was to

realise a profit on its disposal; or

• B. One of the main purposes in acquiring the property

which derives its value from land was to realise a profit

• n its disposal; or
• C. The land is held as trading stock; or
• D. One of the main purposes of developing the land was

to realise a profit on its disposal when developed = Sale of property by Buy to let investor?

Profits from trading in developing UK property

CG EXEMPTION NO CAPITAL LOSS .

Substantial Shareholdings Exemption (SSE)

TRADE CO TRADE CO 10%

• Investing company = trading company or trading

group – to be relaxed from 1 April 2017

• Target - trading co or group
• Substantial = 10% issued shares
• Direct or indirect holding
• Must hold shares >1 year

Current conditions for SSE

• New corporation tax loss set-off rules from 2017
• For new losses incurred on or after 1 April 2017,

companies will be able to use carried forward losses against profits from other income streams or other group companies

• “Old” losses will still be streamed
• Limited to 50% of future profits where company

profits exceed £5m (1% of companies)

• 25% set off restriction in the case of bank losses

Changes to company loss relief 2017

• Trading losses b/fwd at 1 January 2017 £300,000
• Year ended 31 December 2017 the company incurred

further trading losses of £1,600,000

• Year ended 31 December 2018 - trading profit of

£500,000 and profits from a new trade of £2,000,000

New company loss relief rules – Smallco Ltd

Old trade New trade Carry forward Trading profits 500,000 2,000,000 Old losses (500,000) 200,000 New losses (1,200,000) Profits chargeable 800,000

New company loss relief rules – Smallco Ltd

• Applies to groups and companies under common

control

• First £5 million – full relief, subject to “streaming” rules
• Then only 50% relief
• “Old” losses relieved before “new” post 1.4.2017 losses
• E.g. Bigco has profits y/e 31 March 2019 £9million
• Losses brought forward £10 million
• Set-off restricted to £7 million (£5m + £2m)
• £2 million still chargeable

£5 million profit restriction

• N Ireland corporate tax rate – power to reduce to 12.5%
• Hybrid mis-match schemes – no deduction for expense

unless income taxed in other entity

• New CT relief for museums and galleries
• CT relief for contributions to grassroots sports
• Patent box rules relaxed where 2 or more companies

collaborate on R&D (cost sharing)

• Claims process for R&D tax credits to be simplified

Other corporate tax changes

PATENT INVENTION 230% relief for costs 10% corp tax (if SME)

Tax breaks for innovative company

R&D PHASE “Super” profits

interest

Borrower Lender Tax relief for interest Taxable at lower rate? Limited if > £2m p.a.

Interest relief restriction – 30% EBITDA

Parent UK Ltd Tax haven company

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• Stock => fixed asset = trading profit
• Use MV - Sharkey v Wernher
• Fixed asset => stock = gain
• Again use mv
• or elect – stock @ mv less gain (s161 TCGA)
• (or MV plus capital loss)

Appropriations to/from trading stock

• Buy property £500,000 (Fixed asset)
• Transfer to trading stock
• Mv – say £4m = £3.1m gain (IA £400k)
• Into stock at £4m
• Sell £6m = £1.25m trading profit
• Elect - mv less gain (plus loss)
• Into stock at £900k = £4.35m trading profit

Appropriation to trading stock – example

• Buy property £5m (Fixed asset)
• Transfer to trading stock
• Mv – say £3m = £2m loss
• Into stock at £3m
• Sell for £3m = 0 trading profit
• Elect - mv less gain (plus loss)
• Into stock at £5m = £2m trading loss
• New Angel Court case - £68 million!
• Now blocked for transfers on/after 8 March 2017
• Also applies to non-ATED capital losses

Appropriation to trading stock

• Buy property £20m April 2000 (Fixed asset)
• Transfer to trading stock April 2017
• MV – say £28.5m
• Mv – say £11.5m = £8.5m loss
• Pre-ATED loss = 12/17 = £6m
• ATED loss 5/17 = £2.5m (ATED started 1.4.2012)
• non-ATED capital loss – no s161 election

ATED capital gains/ loss

• Annual CGT exemption increased by £200 to

£11,300

• £5,150 available to trustees (Divide by trusts

created by same settlor)

• No change in rates of CGT
• No change in IHT nil rate band £325,000 nor

rates

• Additional nil rate band for family home

£100,000 starts 6 April 2017 => £175,000 2020

• Major changes to non-doms start 6 April 2017

Capital Tax Changes

• New “deemed domicile” rule – 15/20 years
• Will apply for IT,CGT and IHT (was 17/20)
• IHT to apply to UK residential property held by non-doms

through an overseas company or similar structure

• New rules for income tax and CGT for individuals who

are deemed to be domiciled in the UK,

• Protection for non-resident trusts set up before the settlor

became deemed-domiciled in the UK

• Business investment relief continues

Non-domiciles rules from 6 April 2017

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• Individual deemed domiciled if resident in the UK for at least

15 out of the previous 20 tax years (was 17/20) ending with the tax year in question.

• Also:
• If born in the UK with a UK domicile of origin and have

acquired a domicile of choice elsewhere - if at any time they are resident in the UK and have been resident in the UK in at least one out of the two previous tax years.

Deemed UK domicile for IHT

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• Excluded property – non UK situs property owned by non-

domiciled persons not charged to IHT

• UK residential property will be brought within the scope of

IHT where they are held by a non-domiciled individual through an overseas company or similar structure

• If property has been a dwelling in previous 2 years
• Draft legislation amends the definition of excluded property

such that an interest in those properties will be treated as part of a person's estate and thus liable to IHT in the event

• f a chargeable transfer – not if interest < 5%

Extending IHT charge to UK residential property held through offshore structures

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• Individual deemed domiciled if meets either of two

conditions:

• was born in the UK and has a UK domicile of origin. The

individual must also be UK resident in the tax year under consideration, OR

• must have been UK resident for tax in at least 15 out of the

20 years preceding the tax year under consideration.

Deemed UK domicile for IT and CGT

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• Individuals previously taxed on the remittance basis may

rearrange their overseas funds so that they will be able to bring money as “clean capital” to the UK without being taxed on a remittance basis purposes

• Provides certainty on how amounts remitted to the UK will

be taxed.

• Following consultation this will be extended to income, gains

and capital held in mixed funds from years before 2007/08, as well as those from subsequent years.

CGT deemed Doms – Mixed Funds

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• If person was a non-UK dom remittance basis user prior to

2017/18 and becomes treated as UK domiciled under the 15

• ut of 20 rule from 6 April 2017 - rebase to 5 April 2017 MV
• provided that during the person’s ownership the asset was

not situated in the UK in the period 16 March 2016 to 5 April 2017 (the “relevant period”),

• and the person remains deemed domiciled under the 15 out
• f 20 rule at all times until disposal.
• Person may elect for rebasing not to apply to a disposal.
• once made will be irrevocable.

CGT deemed Doms – Rebase to 5 April 2017

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• VAT registration limit £85,000 from 1 April 2017
• Deregistration limit £83,000
• Insurance Premium Tax (IPT) increases to 12% 1 June
• VAT “fulfillment house” due diligence scheme
• Soft drinks levy to start 1 April 2018
• Aggregates Levy and Alcohol Duty up in line with RPI
• New 16 ½ % Flat rate for “Limited Cost Traders”

VAT and other Indirect Taxes

• New 16 ½ % Flat rate for “Limited Cost Traders”
• VAT inclusive expenditure on goods:
• < 2% of VAT inclusive turnover
• Or >2% but less than £1,000 pa
• Excludes capex, food, fuel, vehicles, servicing etc
• To apply from 1 April 2017

Abuse of VAT Flat Rate Scheme

• Bill clients £100,000 + £20,000 VAT = £120,000
• 2% threshold = £2,400 on goods excluding capex, fuel

etc…

• If not – pay HMRC 16.5% = £19,800
• Better to do normal VAT returns if input VAT > £200

Abuse of VAT Flat Rate Scheme

• leave the scheme by writing to:
• HM Revenue and Customs - National Registration Unit
• Imperial House
• 77 Victoria Street
• Grimsby
• DN31 1DB, or e-mail:
• frsapplications.vrs@hmrc.gsi.gov.uk

Leaving the Flat Rate Scheme

Tax Administration and Avoidance

• Scheduled to start April 2018 – depends on y/e
• Most businesses, including landlords to update HMRC

quarterly – for income tax and NIC + PAYG *** Deferred to 2019 if below VAT threshold ***

• Threshold for using cash basis increased to £150,000
• Cash basis the default method for property businesses

if < £150,000

• New simple list of disallowed expenses if on cash basis

Making Tax Digital Changes

• New penalty for participating in VAT fraud
• Promoters of Tax Avoidance Schemes (POTAS) rules

extended to successor and connected businesses

• New penalties for enablers of defeated tax avoidance

schemes

• Cannot sidestep penalty for lack of reasonable care if

defence that relied on (unqualified) advice or from person connected with the avoidance scheme

• “Requirement to Correct” offshore non compliance – from

Royal Assent this summer

More Anti-Avoidance

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Finance Bill 2017

Measures previously announced

• Lower P11d benefits for electric cars – 2020/21 – linked

to zero emission range

• Private use of assets – 20% charge limited to period

available for use by employee

• Pensions advice up to £500 not taxable benefit
• Legal advice or indemnity insurance funded by

employer not a taxable benefit

• PAYE settlement agreement procedure simplified
• Gross interest extended to Peer to Peer loans, Unit

Trusts

More employment tax changes

CO2 g/km 2016/17 2017/18 2018/19 2019/20 Zero 7% 9% 13% 16% 1-50g 7% 9% 13% 16% 51-74g 11% 13% 16% 19% 75-94g 15% 17% 19% 22% Then each 5g +1% +1% +1% +1% 185-189g 34% 35% 36% 37% 190-194g 35% 36% 37% 37% 195-199g 36% 37% 37% 37% Max 200g + 37% 37% 37% 37%

Car Benefit Changes to 2019/20

CO2 g/km 0% Range (miles) % of list price Zero n/a 2% 1-50g >130 miles 2% 70-129 5% 40-69 8% 30-39 12% < 30 miles 14% 51-54g n/a 15% Then each 5g +1% Maximum at 160g+ 37%

Car Benefit Changes to 2020/21

Nissan Leaf £21,680 – CO2 Nil, Range 124 miles 2%

BMW i3 £30,980 – CO2 12g, Range 181 miles 2%

BMW i8 £104,550 – CO2 49g, Range 22 miles 14%

Tesla Model S £62,380 CO2 NIL,Range 248 miles 2%

100% FYA

And you’ll need one of these….

• 100% FYA for electric vehicle charging points
• Gross interest extended to Peer to Peer loans, Unit

Trusts

• Changes to Partial Surrenders of Life Insurance Policies
• Employee Shareholder Scheme closed
• New ATED rates from 1 April 2017 > £500,000

Further income tax changes

• Change following “unfair” decision in Lobler case
• Can withdraw 5% each tax year without charge
• Not tax free but a deferral of tax (s507 ITTOIA)
• £100,000 investment
• Withdraw up to £5,000 a year for 20 years
• Yr 1 NIL, Yr 2 NIL can withdraw up to £15,000 Yr 3
• Withdrawal in excess of 5% taxable

Partial Surrender of Life Insurance Policy/ Bond

• Lobler invested $1,406,000 with Zurich Life March 2006
• 28 February 2007 he withdrew $746,485 from the policy
• 29 February 2008 withdrew $690,171 to buy house
• = 97.5% of amount invested
• “Gain” in excess of 5% taxable as income in year

received! = $560,000 tax

• Now
• Policyholders

who generate a wholly disproportionate gain may apply to HMRC to have the gain recalculated on a just and reasonable basis.

Partial Surrender of Life Insurance Policy/ Bond

• Flagship policy 2013 - “Employee shareholder” shares
• minimum £2,000 worth of shares if give up certain

employment rights – tax free

• Unfair dismissal, working time directive
• Gains on £50,000 of shares (at issue) exempt CGT
• So if subsequently receive £5m tax free!!
• Being abused by some employers
• Tax free gain was limited to £100,000 where shares

acquired after 16 March 2016

• Tax advantages now abolished from 1 December 2016

Employee shareholder shares

Advisory Fuel Rates - 1 March 2017

Engine Petrol Diesel LPG < 1400 cc < 1600cc 11p 9p 7p 1400–2000 1601 - 2000 14p 11p 9p > 2000 cc 22p (21p) 13p 14p (13p)

The End Any questions?

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