Have you done you tax return?

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Of the 11.2m tax returns expected to be submitted to HMRC, only 6m have gone in so far, so it will be a busy month! Tax returns must be filed by 31 January 2015, but there are some things you will need to take into consideration when filing them.

Points to look out for:

i) You have to register to file your tax return online, this takes up to 10 days.  However, if you miss this deadline, we can still file online using an agent reference without having to wait – so if you’re concerned, remember that we can assist.

ii) If you haven’t had your record set up so cannot file a tax return (so if you started trading in 2013/14) we can still calculate your tax – most penalties are based on unpaid tax – so long as the tax is paid on time, penalties will be much lower when the tax return is eventually submitted.

iii) Payments on Account – taxpayers making payments on account towards the 2014/15 tax liability can reduce these payments if income levels have reduced (or more tax is withheld at source).  This is relevant to people who have retired/ sold rental properties/ gone from being self employed to employed etc.

Tax is a great prompter for you to review your finances e.g. rental properties could be moved into joint names to access lower rate tax bands, surplus wealth could be gifted or put into trust to mitigate inheritance tax, sole traders or partnerships may look to incorporate. If you would like to speak to someone about your options with tax please do not hesitate to contact us.

 

ATED: increase for residential properties worth more than £2 million

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The rates of annual tax on enveloped dwellings (ATED) for residential properties worth more than £2 million will be increased by 50% above inflation. The ATED filing obligations and information requirements will also be simplified.

The new rates, that will be included in the Finance Bill 2015 and will apply for the chargeable period 1 April 2015 to 31 March 2016, are:

  • £23,350 for properties with a taxable value of over £2 million up to £5 million.
  • £54,450 for properties with a taxable value of over £5 million up to £10 million.
  • £109,050 for properties with a taxable value of over £10 million up to £20 million.
  • £218,200 for properties with a taxable value of over £20 million.

The announcement refers to properties owned through a company and does not mention properties owned by other non-natural persons.

It was announced in the 2014 Budget that the government would consult on possible options to simplify the administration of ATED. The Autumn Statement announcement does not provide details on how the filing obligations and information requirements will be simplified. It is, therefore, expected that the detail will be included in the draft Finance Bill 2015 clauses

Research & Development: increased rates, restricted qualifying expenditure and improved process

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The Autumn Statement (delivered on 3 December 2014) has confirmed that Research & Development tax credits will be extended in broad terms, with the following changes being announced:

i)      Increase in the Finance Bill 2015 the rate of:

  • the “above the line” credit to 11% from 1 April 2015; and
  • the R&D credit for small and medium-sized enterprises (SMEs) to 230% from 1 April 2015.

ii)     Exclude in the Finance Bill 2015 the costs of materials incorporated in products that are sold from qualifying expenditure attracting R&D credits from 1 April 2015.

iii)    Launch a package of measures to streamline the application process for smaller companies investing in R&D. This is to involve introducing an advance assurance scheme for small businesses making their first claim and developing new guidance for R&D credits. The government intends to launch a consultation on the issues that smaller businesses face when claiming R&D credits in January 2015.

Autumn Statement 2014: Property

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SDLT: revised structure, rates and thresholds for residential property

The government has published draft legislation that jettisons the current so-called “slab” system, under which SDLT is levied at a single rate on the chargeable consideration for a transaction (old rules), and replaces it with a “progressive” system, under which SDLT is charged at several rates according to the portion of the total consideration falling within each of several bands (new rules). This is aimed at correcting market distortions for properties with a value close to the existing borders separating SDLT rate increments.

The new rules will apply only to residential property transactions with an effective date on or after 4 December 2014, subject to transitional arrangements. Non-residential, mixed property and enveloped dwellings are unaffected by these changes.

The residential SDLT rates applicable under the old rules will be replaced with the following bands.

Property value band SDLT rate
£0 to £125,000 0%
Over £125,000 to £250,000 2%
Over £250,000 to £925,000 5%
Over £925,000 to £1.5 million 10%
Over £1.5 million 12%

 

For example, under the old rules, the SDLT charge on a residential property bought for £450,000 would be £13,500 (the entire consideration would be taxed at 3%). Under the new rules, the SDLT charge would be £12,500 (the first £125,000 would be taxed at 0%, the next £125,000 at 2% and the final £200,000 at 5%).

The effective rate of tax for properties with a chargeable consideration of £937,500 or less will be lower, or the same as, the effective rate of tax under the old rules. However, there will be an increase in the effective rate for most higher value properties. For example, a residential property bought for £1.25 million under the old rules would attract SDLT of £62,500 (effective rate 5%). Under the new rules, the charge would be £68,750 (effective rate of 5.5%).

Under transitional rules, buyers may elect to pay SDLT under the old rules in either of the following cases:

i)              The transaction is effected under a contract substantially performed before 4 December 2014.

ii)             The transaction is effected under a contract entered into before 4 December 2014 unless:

  • the contract (or assignment of rights under the contract) is varied on or after 4 December 2014;
  • the transaction is consequent on the exercise of an option (right of pre-emption or similar right) on or after 4 December 2014; or
  • there has been an assignment, sub-sale or other transaction relating to the whole or part of the subject matter of the contract resulting in another person having the right to call for a conveyance of the subject matter.

If a person has the right to choose to account for SDLT under the old or new rules, this is done simply by including the amount of SDLT in box 14 of the land transaction return (calculated according to which rules have been selected). Pending the development of HMRC’s IT systems, a stand-alone online calculator is available.

SDLT: multiple dwellings relief to be extended

The scope of multiple dwellings relief (MDR) will be extended to lease and leaseback arrangements of shared ownership properties entered into with a qualifying body (for example, a housing association).

Currently, the acquisition of a superior interest subject to a lease for an initial term of more than 21 years does not attract MDR. The amending legislation will be included in the Finance Bill 2015 and will take effect from the date that the Finance Bill 2015 receives Royal Assent.

 

Autumn Statement 2014 – Personal tax and investment

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Personal allowance and higher rate threshold to increase from April 2015

The personal allowance for those born after 5 April 1948 will increase to £10,600 and the higher rate threshold will increase to £42,385 for 2015-16.

It was also announced that the:

i)      Blind person’s allowance, married couple’s allowance and the income limit will be increased in line with the retail prices index.

ii)     National insurance upper earnings and upper profits limits will be increased in line with the higher rate threshold.

iii)    The government’s new goal is to raise the personal allowance to £12,500.

2. ISAs: transfer to spouses on death and subscription limit

When an individual who has an individual savings account (ISA) dies, their spouse or civil partner will receive an additional ISA allowance equal to the value of the deceased’s ISAs. ISA status ends on the account holder’s death. It appears that this will still be the case in relation to the deceased’s own ISAs, but that the surviving spouse or civil partner will be able to use the additional allowance in relation to their own ISAs, regardless of whether they have inherited the funds in the deceased’s ISAs. This measure will apply in relation to deaths on or after 3 December 2014, but the surviving spouse or civil partner’s allowance will only be increased from 6 April 2015.

On 6 April 2015, the ISA subscription limit will increase to £15,240 and the junior ISA limit to £4,080. The current limits are £15,000 and £4,000 respectively.

3. Remittance basis charge to increase

The annual charge paid by some non-UK domiciled but UK resident individuals who use the remittance basis of taxation is to increase from April 2015. The charge for those who have been UK resident for at least seven out of the nine tax years before the relevant tax year will remain at £30,000. The charge for those who have been UK resident for at least 12 out of the previous 14 tax years will increase from £50,000 to £60,000. There will be a new charge of £90,000 for those who have been UK resident for at least 17 out of the previous 20 tax years.

The government will also consult on making an election to use the remittance basis effective for a minimum of three years, so as to prevent taxpayers from arranging their affairs so as to only pay the charge occasionally. Eligible taxpayers can currently make an election for a specific tax year. If introduced, this measure would also make it more difficult for taxpayers to assess whether it would be beneficial to claim the remittance basis for any given period.

4. Further consideration of the personal allowance restriction for non-residents

There will be continued discussion about the proposal to restrict the income tax personal allowance for non-residents. A more detailed consultation will be undertaken if the government decides to proceed, although no changes will be introduced before April 2017.

5. CGT: online calculator

The government is to provide an online calculator that will allow taxpayers to calculate their chargeable gains for capital gains tax (CGT) purposes. Taxpayers will also be given the opportunity to pay any CGT liability ahead of the self assessment due date. This may be attractive to those who are concerned that they may otherwise spend their tax liability, and the policy costing anticipates that a number of taxpayers will indeed take up this option. This facility will be available from October 2016.

Autumn Statement 2014 – Owner-managed businesses

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1. No entrepreneurs’ relief on goodwill transferred to related company

Individuals, partners and trustees who transfer a business to a related close company will no longer be able to claim entrepreneurs’ relief on the value of reputation and customer relationships (goodwill). This measure will apply to disposals of goodwill to related close companies on or after 3 December 2014.

The change has been introduced to stop the perceived abuse of entrepreneurs’ relief on incorporation of a business, particularly where the previous owners of the business sell it to the company and leave the consideration outstanding as a credit to the director’s loan account with the new company. By claiming entrepreneurs’ relief, the seller could pay tax at the rate of 10% on the value of the goodwill and make future withdrawals from the loan account free of tax.

2. Corporation tax relief restricted on transfer of goodwill to related company

The government has published draft legislation restricting corporation tax relief on internally generated goodwill and customer relationships transferred to a company by an individual who is a related party in relation to that company, or by a partnership, of which any individual member is a related party in relation to that company. The legislation to be included in the Finance Bill 2015 amends Part 8 of the Corporation Tax Act 2009, which provides for the corporation tax treatment of intangible fixed assets.

The draft legislation provides that where part of the goodwill (or other assets) transferred by the individual or partnership were originally acquired from (broadly) a third party, and there was no main tax avoidance purpose, the company will be able to claim only a proportion of the debit that would previously have been allowed. Where none of the assets transferred were acquired from a third party, no debit will be allowed. The legislation will also require the debit arising on a subsequent disposal by the company of the goodwill (or other assets) to be apportioned in the same way, with the part that relates to the internally generated goodwill being treated as a non-trading debit, thus restricting the amount than can be set against the company’s other income.

The legislation will have effect for accounting periods beginning on or after 3 December 2014, and will apply to assets transferred to a related company on or after that date, unless the transfer is made under an unconditional contract entered into before that date.

3. Entrepreneurs’ relief extended to gains deferred into EIS or SITR

With effect from 3 December 2014, individuals and trustees who are eligible for entrepreneurs’ relief will no longer have to forego this entitlement if they defer their gain into investments that qualify for Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR). Gains reinvested before this date suffer tax at the full capital gains tax rate (18% or 28%) when they come back into charge on disposal of the EIS or SITR investment. Gains deferred on or after 3 December will be eligible for entrepreneurs’ relief when they come back into charge, reducing the tax rate to 10%.

4. Close company loans to participators rules to remain unchanged

Following a review of the tax charge imposed by section 455 of the Corporation Tax Act 2010 on loans from close companies to individuals, trusts and partnerships that are participators, the government has decided to make no changes to its structure or operation.

The government initially consulted on reforms to the close company loans tax regime on 9 July 2013, but watered down its original proposals in a consultation response published on 10 December 2013. The proposals for minor change that remained involved excluding commercial transactions where no avoidance motive exists, imposing a higher tax rate for loans made to additional rate taxpayers and the introduction of a non-statutory form clarifying the information required for a repayment of tax paid under the regime.

The prevailing view amongst practitioners has always been that, as close company loans are rarely used to avoid tax, the regime should either remain as it is or be completely abolished. Therefore, this announcement does not come as a surprise.

 

Business Tax Reliefs

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1. Consortium relief: removal of location of link company requirements

The requirements regarding the location of link companies for the purposes of consortium relief will be removed with effect from 10 December 2014.

A company that is owned by a consortium may surrender losses to another company that is in the same group as a member of the consortium (a link company). Section 133 of the Corporation Tax Act 2010 (section 133) currently provides that a link company must be resident in the UK, a non-UK resident carrying on a trade in the UK or established in the European Economic Area (EEA). Where the link company is established in the EEA, the consortium relief provisions only apply if the link company is a 75% member of the same group of companies as the surrendering company or the claimant company without the involvement of a company that is not established in the EEA. Legislation will be included in the Finance Bill 2015 amending section 133 to remove the location requirements, thereby removing the differences in UK treatment of link companies.

2. Stamp duty on take-overs: prohibition on schemes of arrangement by reduction of share capital

Reductions of share capital as a means of mitigating stamp duty or SDLT on a take-over effected by a scheme of arrangement will be prohibited. Historically, schemes of arrangement have been carried out by cancelling the target’s share capital and issuing new shares to the acquiring company to avoid the stamp duty liability that would arise on a transfer of shares.

The government will, by early 2015, introduce regulations amending section 641 of the Companies Act 2006 to prohibit reductions of share capital in these circumstances.

3. R&D: increased rates, restricted qualifying expenditure and improved process

In relation to research and development (R&D) credits, the government intends to:

i)      Increase in the Finance Bill 2015 the rate of:

  • the “above the line” credit to 11% from 1 April 2015; and
  • the R&D credit for small and medium-sized enterprises (SMEs) to 230% from 1 April 2015.

ii)     Exclude in the Finance Bill 2015 the costs of materials incorporated in products that are sold from qualifying expenditure attracting R&D credits from 1 April 2015.

iii)    Launch a package of measures to streamline the application process for smaller companies investing in R&D. This is to involve introducing an advance assurance scheme for small businesses making their first claim and developing new guidance for R&D credits. The government intends to launch a consultation on the issues that smaller businesses face when claiming R&D credits in January 2015.

4. Tax relief for contributions to flood defence projects

From 1 January 2015, business contributions to flood and coastal erosion risk management (FCERM) projects will be fully deductible for corporation tax and income tax purposes. Legislation will be included the Finance Bill 2015.

 

 

Autumn Statement 2014 – Employer Taxes

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1. Employee benefits and expenses: OTS recommendations to be implemented

The government is to implement the Office of Tax Simplification’s recommendations to simplify the taxation of employee benefits and expenses. In particular, legislation (expected to be in the Finance Bill 2015) will be introduced to implement the following:

i)              A tax exemption for non-taxable expenses reimbursed by an employer. This will replace the current system of reporting the expense to HMRC or seeking a dispensation. The exemption will take effect from 6 April 2016 but will not apply if expenses are paid in conjunction with a salary sacrifice arrangement.

ii)             Abolition of the £8,500 “higher paid” threshold coupled with a new exemption for certain benefits for carers and ministers of religion. These will take effect from 6 April 2016.

iii)            A tax exemption for trivial benefits costing less than £50. This will take effect from 6 April 2015.

iv)           Voluntary payrolling of benefits. This will take effect from 6 April 2016.

2. Overarching contracts of employment and temporary workers

The government is planning to publish a discussion paper shortly on the use of umbrella companies and other employment intermediaries that enable workers to obtain tax relief on home to work travel to which they would otherwise not be entitled. The government has long been concerned that some temporary workers are paid travel expenses free of income tax and NICs by working under an overarching employment contract with the aim of changing a series of permanent workplaces (for which there is no tax relief) into temporary workplaces (for which relief is due). It is likely that the discussion paper will result in legislation to be announced in the 2015 Budget. This is part of an ongoing review of employment status and the use of employment intermediaries.

3. Employment intermediaries returns: penalties

There will be an amendment in the Finance Bill 2015 to correct the legislation underpinning the penalty regime for the late filing of or non-submission of quarterly returns by employment intermediaries. The quarterly returns are required to show details of all workers supplied by the intermediary to an end client to whom payments have been made without deduction of tax under PAYE. The first return, covering the period from 6 April to 5 July 2015 must be submitted by 4 August 2015.

4. Employer NICs to be abolished for young apprentices

The Chancellor announced that, with effect from 6 April 2016, no employers’ national insurance contributions will be payable on earnings below the upper earnings limit paid to apprentices who are under the age of 25.

This measure will further reduce the cost to businesses of employing young people. Employers will no longer pay national insurance contributions for any employees under the age of 21 from April 2015.

2014 Autumn Statement –Business Tax Compliance

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1. Strengthening civil penalties for offshore tax evasion

Civil penalties for offshore tax evasion will be enhanced. The Chancellor confirmed that the offshore penalties regime will be extended to include inheritance tax, and to apply to domestic offences where the proceeds of the offence are kept offshore. The government will also update its territory classification system to reflect the adoption of the new global standard for the automatic exchange of tax information. These measures will take effect from April 2016.

The government intends to introduce a new aggravated penalty of up to 50% of the unpaid tax for moving funds hidden offshore, to take effect from Royal Assent to the Finance Bill 2015. The government’s original proposal to introduce a new criminal offence of failing to declare taxable offshore income and gains appears to have been dropped. HMRC will also review its existing framework for offering information on offshore tax evaders, particularly those who remain outside international efforts to achieve tax transparency.

2. Closure of one or more aspects of tax enquiry to be allowed

There will be a consultation on a new power to enable HMRC to close one or more aspects of a tax enquiry while leaving other aspects open.

The proposed introduction of the new power should be welcomed to facilitate the speedier resolution of enquiries.

3. Direct recovery of debts: safeguards confirmed

Confirmation that the direct recovery of debts (DRD) legislation to be introduced in a Finance Bill in 2015 will include a number of safeguards to protect against errors and to improve independent oversight.

4. Integration of debt collection

The government will work with the private sector to introduce a single, co-ordinated approach to debt collection, using a variety of debt collection services. Although HMRC already employs private sector debt collection services, going forwards, it will do so using a single “debt market integrator”.

5. OTS recommendations on competitiveness of UK tax system

The government has adopted the vast majority of the recommendations made by the Office of Tax Simplification (OTS) to improve the competitiveness of the UK’s tax system. The report, made 50 “key” and a number of “other” recommendations over a wide range of taxes.

The government has adopted 51 out of 58 of the OTS’s recommendations and has already started work on a number of them. No details of which recommendations have been adopted have been announced, but further details will no doubt be published in due course.

6. Improvements to HMRC processes

HMRC is to introduce a new mid-size business unit, which will provide a gateway to the specialist tax help needed by mid-size businesses. This is to include temporary access to a named individual for mid-size businesses going through a key business change with significant tax implications. HMRC is testing this approach and intends to launch it in 2015. HMRC is also piloting a new model to support the fastest growing businesses.

The government is also to increase HMRC’s resources within its Large Business Directorate to improve compliance by the UK’s “largest and riskiest” businesses. This is to take the form of the recruitment of additional staff, working in the Large Business Directorate, from April 2015.

 

Tackling business tax avoidance

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A number of measures were announced to target business tax avoidance.  These include:

1. Diverted profits tax

There will be a new diverted profits tax on companies that will apply at a rate of 25% from 1 April 2015. It will apply to business activities between connected entities that are set up to achieve an “unfair tax advantage”.

The purpose of the tax is to counter multinational enterprises using aggressive tax planning techniques to divert profits from the UK and reduce their UK corporation tax liability.   The announcement contains little detail and does not specify how the charge will be calculated.

The draft legislation is to be included in the Finance Bill 2015.

2. Promoters and users of tax avoidance schemes

Six announcements concerning promoters and users of tax avoidance schemes:

i)              High-risk promoters. Changes to “clarify” the high-risk promoters regime. These include widening the persons connected with the promoter and clarifying the time limits within which HMRC can issue conduct notices.

ii)             GAAR. HMRC is to consult in early 2015 on whether and, if so, how to introduce GAAR-related penalties. Currently, there are no GAAR specific penalties if the GAAR applies and counteraction adjustments are required to be made (although penalties for errors and late payment under the existing penalty regimes may apply).

iii)            Publishing DOTAS scheme details and naming scheme promoters. The government will empower HMRC to publish information about scheme promoters and schemes that are notified under DOTAS. Legislation to implement this measure is expected in the Finance Bill 2015.

iv)           Strengthening the DOTAS regime. Following a consultation in the summer it is confirmed that legislation will be introduced in the Finance Bill 2015 to strengthen the current regime. This will include introducing new, and widening existing, hallmarks and removing the grandfathering provisions, which have allowed promoters to argue that new arrangements that rely on existing arrangements as building blocks, need not be disclosed. Further, penalties for failing to disclose are to be increased and the information disclosure requirements amended. The legislation will take effect from Royal Assent to the Finance Bill 2015.

v)            DOTAS taskforce. A new taskforce will be created to ensure the effective policing of the DOTAS regime.

vi)           Serial avoiders. HMRC is to consult in early 2015 on introducing further deterrents (penalties, reporting obligations and “naming and shaming”) on repeat users of known avoidance schemes.

3. Miscellaneous income tax loss relief: restrictions

Two changes to the miscellaneous loss relief rules will be introduced in the Finance Bill 2015 to counter avoidance of income tax involving losses from miscellaneous transactions. (Miscellaneous loss relief arises on a transaction if, assuming a profit had been made, it would have been chargeable to income tax under any of the provisions listed in section 1016 of the Income Tax Act 2007 (section 1016).

The first change, which applies to miscellaneous income or miscellaneous losses arising on or after 3 December 2014, denies loss relief if the loss or the income arises “directly or indirectly in consequence of, or otherwise in connection with” relevant tax avoidance arrangements. Relevant tax avoidance arrangements are arrangements to which the taxpayer is a party and a main purpose of which is to reduce a tax liability.

The second change, which applies from 6 April 2015, restricts loss relief to income of the same type. Currently, miscellaneous losses can be set against any income type falling within section 1016. Thus losses from intellectual property rights can be set against interest income. From 6 April 2015, the loss can only be set against income of the same type and any unrelieved loss must be carried forward and set against income of the same type in the next tax year.

3. Accelerated payments and group relief

Extension of the existing accelerated payment rules to cater for avoidance schemes giving rise to losses to be surrendered by way of group relief.  This extension will apply if the existing criteria for issuing an accelerated payment notice are met but the company undertaking the avoidance arrangements does not have any tax to pay itself. In these circumstances, the notice can prevent the company from making a group relief surrender of the disputed amount.

This measure is to be included in the Finance Bill 2015 and to have effect from Royal Assent.