Monthly Archives: March 2017

Spring Budget 2017 edition of Tax Tips & News, from Howard & Co.

 


Welcome to the Spring Budget 2017 edition of Tax Tips & News.
In this analysis we have mainly concentrated on the tax measures that will directly affect individuals, employers and small businesses.

We are committed to ensuring all our clients don’t pay a penny more in tax than is necessary.

Please contact us for advice in your own specific circumstances.

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Spring Budget 2017
· Summary
· Individuals
· Businesses
· VAT
· Indirect taxes
Summary top
Chancellor Philip Hammond has delivered his first, and seemingly last, Spring Budget Statement.  At the 2016 Autumn Statement, the Chancellor announced that, following the spring 2017 Budget, the government would be moving to a single major fiscal event each year. Future Budgets will be delivered in the autumn, which means there will now be a second Budget before the end of 2017 to switch to the new timetable. The aim of the new system is for the Finance Bill, which is normally published after the annual Budget, to reach Royal Assent stage in the spring of each year, before the start of the following tax year. The change in timetable is designed to help Parliament to scrutinise tax changes before the tax year where most take effect.

In line with pre-Budget speculation, the Chancellor said that, as the government starts its negotiations to exit the European Union, this Budget would take forward its plan to prepare Britain for a brighter future, providing a strong and stable platform for those negotiations.

The Office for Budget Responsibility (OBR) has reported that last year, the British economy grew faster than the United States, Japan, and France. Unemployment in the UK is at an 11 year low with over 2.7 million more people in work than in 2010. The Chancellor was also pleased to report on International Women’s Day, that there is now a higher proportion of women in work than ever before. But, Mr Hammond said, there is ‘no room for complacency’ and ‘we must focus relentlessly on keeping Britain at the cutting edge of the global economy’. Whilst the deficit is down, debt is still reportedly too high. This Budget therefore focused on taking ‘the next steps in preparing Britain for a global future’.

There was much focus on measures designed to promote fairness within the tax system, ensuring that ‘those with the broadest shoulders bear the heaviest burden’. The Chancellor said that as a result of the changes made since 2010, the top 1% of income tax payers now pay 27% of all income tax. However, he went on to say that ‘a fair system will also ensure fairness between individuals, so that people doing similar work for similar wages and enjoying similar state benefits pay similar levels of tax’. This led on to proposed changes concerning the dividend allowance (to be reduced from its current level of £5,000 a year to £2,000 a year from April 2018); and increases in the rate of Class 4 National Insurance Contributions (a proposed increase of 1% to 10% from April 2018 and a further increase of 1% in April 2019).

The Chancellor said that whilst the government believes that people should have choices about how they work, those choices should not be driven primarily by differences in tax treatment. That said, he confirmed that Matthew Taylor, Chief Executive of the RSA, has been asked to consider the wider implications of different employment practices, with a final report expected this Summer. This may indicate that there will be further announcements in this area later this year.

Regarding tax, highlights from this Spring Budget Statement, most of which were originally announced in the 2016 Autumn Statement or earlier, include:

– confirmation that the main rate of corporation tax will be 19% for the 2017 financial year, reducing to 17% in 2020;
– confirmation that the tax-free personal allowance will be £11,500 in 2017/18 and that it will rise to £12,500 before the end of the current Parliament;
– from September 2017, free childcare for three and four year olds will increase from 15 to 30 hours, worth up to £5,000 for each child;
– the rollout of tax-free childcare will be completed by the end of the year;
– as promised, the R&D tax credit regime has been reviewed and the government has concluded that it is globally competitive;
– for businesses with turnover below the VAT registration threshold, the introduction of quarterly reporting will be delayed by one year; and
– from 1 April 2017 the VAT registration threshold will rise to £85,000 and the deregistration threshold will be £83,000.

This newsletter provides a summary of the key tax points from the 2017 Spring Budget based on the documents released on 8 March 2017. It also provides a reminder of some of the main points announced at the 2016 Autumn Statement, which will be legislated for in Finance Bill 2017. We will keep you informed of any significant developments.

Individuals top

Personal allowance and income tax threshold

The personal allowance for 2017/18 is set at £11,500 (£11,000 in 2016-17), and the basic rate limit will be increased to £33,500 (£32,000 in 2016-17). The additional rate threshold will remain at £150,000 in 2017/18. The government intends to increase the allowance to £12,500 by the end of Parliament.

The marriage allowance will rise from £1,100 in 2016/17 to £1,150 in 2017/18.

Blind person’s allowance will rise from £2,290 in 2016/17 to £2,320 in 2017/18.

 

Dividend allowance reduction

The tax-free allowance for dividend income is to be reduced from £5,000 to £2,000 from April 2018. The government states that this change is designed to reduce the tax differential between the employed and self-employed on one hand and those working through a company on the other, and raise revenue to invest in public services.

 

Dates for ‘making good’ on benefits-in-kind

Finance Bill 2017 will include provisions, effective from April 2017, to ensure an employee who wants to ‘make good’, on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. ‘Making good’ is where the employee makes a payment in return for the benefit-in-kind they receive. This reduces its taxable value.

 

Assets made available without transfer of ownership

Existing legislation is to be clarified, with effect from 6 April 2017, to ensure that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017.

Currently if an asset is made available for private use, the cash equivalent is set at 20% of the market value when the asset was first provided plus the amount of any additional expenses. This rule will remain. However, new supplementary rules will allow the cash equivalent to be reduced for days when the asset is not available for private use. There will also be provisions to allow a reduction in the level of the taxable benefit when the asset is made available to more than one employee for their private use in the same tax year.

This measure will also allow for the reduction in the level of the taxable benefit if the asset is first made available part way through the year or permanently ceases to be available part way through the year.

These rules will apply only to assets which do not currently have specific charging provisions elsewhere in the legislation.

 

Treatment of termination payments

The rules for tax and secondary NICs are to be aligned by making an employer liable to pay NICs on termination payments they make to their employees. The following changes will take effect from 6 April 2018:

An employer will be required to pay NICs on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in ‘real-time’, as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC.

In addition, the scope of the exemption for termination payments is to be clarified. Broadly, all payments in lieu of notice (PILONs) will be both taxable and subject to Class 1 NICs. The legislation requires the employer to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. The amount will be treated as earnings and will not be subject to the £30,000 income tax exemption. All other termination payments will be included within the scope of the £30,000 termination payments exemption.

Following consultation on the draft legislation, the government has now confirmed that Foreign Service Relief will be abolished from April 2018.

 

Changes to bands for ultra-low emission vehicles in company car tax

To provide stronger incentives for the purchase of ultra-low emissions vehicles (ULEVs), new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point. The changes, which will take effect from 6 April 2020 are as follows:

– The graduated table of company car tax bands will include a differential for cars with emissions of 1 to 50 gCO2 per km based on the electric range of the car;
– For cars with an electric range of 130 miles or more, the appropriate percentage will be 2%; for cars with an electric range of between 70 to 129 miles, the appropriate percentage will be 5%; for 40 to 69 miles, the appropriate percentage will be 8%; for 30 to 39 miles, the appropriate percentage will be 12%, and for less than 30 miles, the appropriate percentage will be 14%;
– For cars that can only be driven in zero-emission mode, the appropriate percentage will be 2%.
– For all other bands with CO2 emissions of 51 gCO2 per km and above, the appropriate percentage will be based on the CO2 emissions only. For cars with emissions of 51 to 54 gCO2 per km the appropriate percentage will be 15%. For cars with emissions above 54 gCO2 per km, the bands will be graduated by 5g CO2 per km and the appropriate percentage will increase by 1% for each 5 gCO2 per km band, up to a maximum of 37%. For cars with emissions above 90 gCO2/km, the appropriate percentage will increase by 1% in comparison to 2019/20 levels.

 

Van benefit charge and the car and van fuel benefit charges

The following changes to company car and van benefits take affect from 6 April 2017:

– the car fuel benefit charge increases from £22,200 in 2016/17 to £22,600;
– the van benefit charge increases to £3,230 (from £3,170 in 2016/17); and
– the van fuel benefit charge increases from £598 in 2016/17 to £610.

For vans that do not emit CO2 when driven, the cash equivalent is calculated based on the tapered appropriate percentage rate, which is 20% for 2017/2018.

 

Deduction of income tax from savings income

The obligation on banks and building societies to deduct tax at source from payments of interest on accounts was generally removed from 6 April 2016. The provisions have now been extended so that, from 6 April 2017, the deduction of tax at source will also end for interest distributions from open-ended investment companies (OEICs), authorised unit trusts (AUTs) and investment trust companies (ITCs), and for interest on peer-to-peer lending.

 

NS&I Investment Bond

National Savings and Investments (NS&I), the government-backed investment organisation, will offer a new three-year Investment Bond with an indicative rate of 2.2% from April 2017. The bond will offer the flexibility for investors to save between £100 and £3,000 and will be available to those aged 16 or over.

 

Limitation of salary sacrifice

The tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle to work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. The measure will fix the taxable value of those benefits-in-kind (BiK) provided through salary sacrifice at the higher of the amount of cash forgone or the amount calculated under the existing BiK rules.

The changes will have effect for all contracts for BiKs involving salary sacrifice arrangements entered into on or after 6 April 2017.

A transitional rule will protect employees who are in contractual arrangements before 6 April 2017 until the earlier of a variation or renewal of the contract or 6 April 2018, except for cars with emissions above 75g CO2 per kilometre, accommodation and school fees for which the final date is 6 April 2021. Employer-provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries, cycle to work schemes and ultra-low emissions cars, with emissions not exceeding 75g CO2 per kilometre will be excluded from this measure.

 

Individual Savings Accounts

As previously announced, the annual subscription limit for Individual Savings Accounts (ISAs) will rise to £20,000 for 2017/18 (from £15,240 in 2016/17). The limit for Junior ISAs and Child Trust Funds will also rise to £4,128 from 6 April 2017 (from £4,080 in 2016/17).

Other minor amendments will also be made to the regulations governing the way in which ISAs operate, for example to take account of changes to other legislation referred to in the ISA regulations concerning the regulation of certain financial institutions, child protection and terminal illness.

 

Lifetime ISAs

As announced at Budget 2016, the new Lifetime ISA will be launched from 6 April 2017 and will be available to most UK-resident adults under the age of 40. Account holders will be able to save up to £4,000 each tax year in their Lifetime ISA until they reach 50, and amounts they pay into their account will be eligible for a 25% government bonus. Account holders may withdraw their savings at any time, but from 6 April 2018, any withdrawals made other than in specified circumstances (such as when the account holder reaches 60, is withdrawing their savings for a first-time residential purchase, or is terminally ill) will be subject to a 25% charge.

Any amount held by a saver in a Help-to-Buy ISA on 5 April 2017 can be transferred to a Lifetime ISA during 2017/18, without this counting towards the £4,000 Lifetime ISA limit. Any type of investments which would currently qualify to be held in a cash ISA or a stocks and shares ISA can be held in a Lifetime ISA.

 

Child Trust Funds: ‘lifestyling’ of accounts, annual subscription limits and other updates

A number of changes are being made to the rules governing child trust funds (CTFs), which will take effect from 6 April 2017. The changes are:

– an increase in the annual investment limit to CTFs from £4,080 to £4,128;
– the requirement on account holders to apply a lifestyling investment strategy for stakeholder STFs will be removed; and
– other minor changes and updates to the CTF rules, such as in relation to the information that account providers are required to supply on the transfer of an account.

 

Employer-provided accommodation

A consultation will be launched shortly covering proposals to bring the tax treatment of employer-provided living accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and support taxpayers during any transition.

 

Streamlining the tax-advantaged venture capital schemes

As announced at Autumn Statement 2016, the government will amend the requirements of the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). These amendments:

– clarify the EIS and SEIS rules for share conversion rights – the rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016;
– provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017; and
– introduce a power to enable VCT regulations to be made in relation to certain share-for-share exchanges to provide greater certainty to VCTs, which will take effect from the date of Royal Assent to Finance Bill 2017.

 

Employer-arranged pensions advice exemption

A new income tax exemption is to be introduced with effect from 6 April 2017, to cover the first £500 worth of pensions advice provided to an employee in a tax year. It will allow advice not only on pensions, but also on the general financial and tax issues relating to pensions. The changes replace existing provisions which limited the exemption solely to pensions advice and were capped at £150 per employee per tax year.

 

Deemed domicile rule

From April 2017, non-domiciled individuals will be deemed UK-domiciled for income tax, capital gains tax, and inheritance tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin and return to the UK having obtained a domicile of choice elsewhere.  This means that anyone deemed UK domiciled by virtue of either condition will not be able to access the remittance basis.

Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.

As previously announced at Summer Budget 2015 and following further consultation on draft legislation published in December 2016 on charging inheritance tax  on UK residential property, the limit below which minor interests in UK property are disregarded has been increased from 1% to 5% of an individual’s total property interests.

From April 2017 inheritance tax will be charged on all UK residential property even when indirectly held by a non-dom through an offshore structure.

Non-doms will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation this will be extended by government amendment to income, gains and capital held in mixed funds from years before 2007/2008, as well as those from subsequent years.

Those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to treat the cost base of their non-UK based assets as the market value of that asset on 5 April 2017.

These changes will be introduced in Finance Bill 2017 and will take effect from 6 April 2017.

 

Foreign pensions

The tax treatment of foreign pensions is to be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

Legislation will take effect from 6 April 2017, so that:

– where a foreign pension or lump sum is paid to a UK resident, 100% of the pension arising will be chargeable to UK tax (to the same extent as if they had been paid from a registered pension scheme);
– no new pension schemes can be established under ICTA 1988, s 615 (specialist pension schemes for those employed abroad), and no further contributions can be made to existing schemes. Funds accrued in a section 615 scheme before 6 April 2017 will continue to be paid out using the existing rules;
– the tax treatment of funds in registered pension schemes (RPSs) based outside the UK will be more closely aligned with that of UK-based RPSs;
–  UK tax charges can apply to a payment by a relevant non-UK schemes (RNUKS) to an individual who has been resident outside the UK for less than 10 tax years; and
– the 70% rule will be removed from the conditions that a pension scheme has to meet to be an ‘overseas pension scheme’ or a ‘recognised overseas pension scheme’ and the pension age test is revised so that additional payments may be made and the test still be met. As a result if a non-occupational pension scheme is not regulated and the provider of that scheme is not regulated, it will not be able to be a QOPS or QROPS.

 

Qualifying recognised overseas pension schemes (QROPS): introduction of a transfer charge

A 25% tax charge will be applied to pension transfers made to QROPS. Exceptions will be made to the charge, allowing transfers to be made tax-free where people have a genuine need to transfer their pension, where:

– both the individual and the pension scheme are in countries within the European Economic Area (EEA); or
– if outside the EEA, both the individual and the pension scheme are in the same country; or
– the QROPS is an occupational pension scheme provided by the individual’s employer.

If the individual’s circumstances change within 5 tax years of the transfer, the tax treatment of the transfer will be reconsidered. The changes will take effect for transfers requested on or after 9 March 2017.

The government will also legislate in Finance Bill 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a qualifying recognised overseas pension scheme. UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.

 

Social Investment Tax Relief (SITR)

Certain changes are being made to enlarge the social investment tax relief (SITR) scheme, including an increase in the amount of money newer social enterprises may raise and provisions to better target the scheme on higher risk activities and deter abuse. The changes, which will apply retrospectively to qualifying investments made on or after 6 April 2017 will:

– increase the amount of investment a social investment may receive over its lifetime to £1.5 million for social enterprises that receive their initial risk finance investment no later than 7 years after their first commercial sale, the current limit will continue to apply to older social enterprises;
– reduce the limit on full-time equivalent employees to below 250 employees;
– exclude certain activities, including asset leasing and on-lending, to ensure the scheme is well targeted – investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future;
– exclude the use of money raised under the SITR to pay off existing loans;
– clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise; and
– introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.

 

Life insurance policies

The rules governing the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments are to be amended. Broadly, this will allow applications to be made to HMRC to have the charge recalculated on a ‘just and reasonable’ basis. The changes take effect from 6 April 2017 and are designed to lead to fairer outcomes for policyholders.

 

Reducing the money purchase annual allowance

The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA). It has now been confirmed that the money purchase annual allowance will be reduced to £4,000 from April 2017.

 

Personal Portfolio Bonds: reviewing the property categories

The government will legislate in Finance Bill 2017 to take a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.

 

Rent-a-Room relief

HMRC are to undertake a consultation on rent-a-room relief to ensure it is better targeted to support longer-term lettings. This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings.

 

Patient Capital review

A consultation is to be launched covering existing tax reliefs aimed at encouraging investment and entrepreneurship to make sure that they are effective, well targeted, and still provide value for money as part of the Patient Capital review.

 

Reduction in Universal Credit taper

Under the Universal Credit system, as a person’s income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person’s salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. The 2017 Spring Budget confirmed that, from April 2017, the taper will be lowered to 63p in the pound, so the claimant will keep 37p for every £1 earned over the income threshold.

 

National Insurance contributions

As previously announced, from 6 April 2018 Class 2 contributions will be abolished and Class 4 contributions will be reformed to include a new threshold (to be called the Small Profits Limit).

Class 2 NICs currently give the self-employed access to certain contributory benefits. From April 2018, those with profits between the Small Profits Limit and Lower Profits Limit will not be liable to pay Class 4 contributions but will be treated as if they have paid Class 4 contributions for the purposes of gaining access to contributory benefits. Individuals with profits at or above the Class 4 Small Profits Limit will gain access to the new State Pension, contributory Employment and Support Allowance (ESA) and Bereavement Benefit. Those with profits above the Lower Profits Limit will continue to pay Class 4 contributions.

Class 2: For 2017/18, Class 2 NICs will be payable at the weekly rate of £2.85 (rising from £2.80) above the small profits threshold of £6,025 per year (rising from £5,965 in 2016/17).

Class 3: Class 3 voluntary contributions will rise from £14.10 to £14.25 per week for 2017/18.

Class 4: For 2017/18, the lower profits limit for Class 4 NICs will be £8,164 and the upper profits limit will be £45,000. Contributions remain at 9% between the two thresholds and at 2% above the upper profits limit.

 

Aligning the primary and secondary National Insurance Contributions thresholds

The primary (employee) threshold and the secondary (employer) thresholds for Class 1 National Insurance Contributions are to be aligned from April 2017. From that date, both the primary and secondary thresholds will be £157 per week, having been raised from £155 and £156 per week respectively for 2016/2017.

 

Increase the rate of Class 4 National Insurance contributions

The main rate of Class 4 NICs will be increased from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019. Since April 2016, the self-employed also have access to the same State Pension as employees, worth £1,800 a year more to a self-employed individual than under the previous system.

Businesses top

Making Tax Digital for Business

The provisions for the government’s Making Tax Digital project will be legislated for in Finance Bill 2017. However, the mandatory start date for unincorporated businesses and landlords with gross income (turnover) below the VAT registration threshold will be deferred until April 2019. This means that only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to income tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.

 

Increasing the cash basis entry threshold

As announced in January 2017, the trading cash basis threshold for unincorporated businesses is to be increased to £150,000 for 2017/18 onwards. For Universal Credit claimants, the entry threshold will be increased to £300,000. The exit threshold will be increased to £300,000 for all users of the trading cash basis.

 

Simplified cash basis for unincorporated businesses

As announced in January 2017, the government will legislate in Finance Bill 2017 to provide a simple list of disallowed expenditure in order to simplify the rules for allowable deductions within the cash basis. Following consultation, the legislation has been revised slightly to make certain that specific items are clearly excluded from the list, and to ensure the rules for moving between the cash basis and accruals accounting are robust. Minor amendments have also been made to improve clarity. These changes will have effect from April 2017, though for the 2017/18 tax year trading profits can be calculated using either the new rules or the existing rules.

 

Simplified cash basis for unincorporated property businesses

From 6 April 2017, most unincorporated property businesses (other than limited liability partnerships, trusts, partnerships with corporate partners or those with receipts of more than £150,000) will be allowed to calculate their taxable profits using a cash basis of accounting. Landlords will continue to be able to opt to use Generally Accepted Accounting Principles (GAAP) to prepare their profits for tax purposes.

Those with both a UK and an overseas property business will be able to choose separately whether to use the cash basis or GAAP for each. Those with a trade as well as a property business both eligible for the cash basis, will be able to decide separately for each of these, and persons other than spouses or civil partners who jointly own a rental property will be able to decide individually.

To align the treatment with those who opt to use GAAP, the initial cost of items used in a dwelling house will also not be an allowable expense under the cash basis. The existing ‘replacement of domestic items relief’ will continue to be available for the replacement of these items when the expenditure is paid. Interest expense will be treated consistently between those using the cash basis and those using GAAP.

 

New tax allowance for property and trading income

Two new income tax allowances of £1,000 each, are to be introduced for trading and property income. These new allowances will take effect for 2017/18 onwards. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will also apply to certain miscellaneous income from providing assets or services.

The trading allowance will also apply for Class 4 National Insurance contribution purposes.

The allowances will not apply in addition to relief given under the rent-a-room relief legislation.

Following the publication of the draft legislation on this measure, it has been confirmed in the 2017 Spring Budget that revisions will be made to prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership. Minor revisions will also be made to improve clarity and correct errors.

 

Disposals of land in the UK

Existing legislation is to be amended to ensure that all profits from dealing in or developing land in the UK are brought into charge to UK tax. The original legislation took effect for disposals made on or after 5 July 2016, with an exception where the contract for disposal was entered into before 5 July 2016. The intention was to exclude the standard property disposal arrangement where the parties are committed on making the contract, but the transfer takes place a short time later. However, some contracts are entered into at an early stage in the development with transfers being made over an extended period of months or years. The result is that some profits from these long term contracts are not within the charge. This was not the intention when the legislation was enacted and the measure announced in the Spring 2017 Budget ensures that the rules set out in FA 2016 work as intended.

 

Simplifying the PAYE Settlement Agreement process

The process for applying for and agreeing Pay as You Earn Settlement Agreements (PSAs) is to be simplified.  Broadly, a PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees. Finance Bill 2017 contains provisions which will enable HMRC to accept a PSA without the need for prior agreement. In turn, this will allow HMRC to design and implement a new automated process for employers to apply for a PSA. Consequential changes will be made to the ‘PAYE Regulations’ covering the making, form and timing of a PSA. The changes will have effect in relation to agreements for the 2018/19 tax year and subsequent tax years.

 

Tackling disguised remuneration – restricting tax relief for contributions to avoidance schemes

As announced at Autumn Statement 2016, the government will continue with its pledge to tackle existing and prevent future use of disguised remuneration avoidance schemes. Legislation in Finance Bill 2017 is designed to ensure that scheme users pay their fair share of income tax and NICs and the future use of schemes will be prevented by strengthening the current rules. The existing use of schemes will be tackled by the introduction of a new charge on disguised remuneration loans that were made after 5 April 1999 and remain outstanding on 5 April 2019. Legislation will also be introduced to ensure there is no double taxation.

Following consultation, the legislation has been revised to ensure the loan charge and the exclusions operate as intended. Broadly, the close companies’ gateway will now be introduced in Finance Bill 2017 to commence from 6 April 2018 and this will allow for further consultation to ensure it is appropriately targeted at disguised remuneration schemes. Proposals on how the tax and NICs arising from the changes will be collected will be set out in a technical consultation later in 2017.

Legislation will also be introduced in Finance Bill 2017 to tackle existing and prevent future use of similar schemes used by the self-employed.

Finally, legislation will be also introduced to prevent employers claiming a deduction when computing their taxable profits for contributions to a disguised remuneration scheme unless income tax and NICs are paid within a specified period. This will have effect for contributions made on or after 1 April 2017 for corporation tax purposes, or 6 April 2017 for income tax purposes.

 

Corporation tax: reform of loss relief

Initially announced at the time of the 2016 Budget and following a period of consultation, Finance Bill 2017 contains provisions to reform the tax treatment of certain types of carried-forward loss for corporation tax purposes with effect from 1 April 2017.

Losses arising from 1 April 2017, when carried forward, will have increased flexibility and can be set against the total taxable profits of a company and its group members (referred to as the ‘loss relaxation’).

For all carried-forward losses, whenever they arose, companies will be able only to use the losses against up to 50% of profits (known as the ‘loss restriction’). Each standalone company or group will be entitled to a £5 million annual allowance. Profits within the allowance will not be restricted, ensuring 99% of companies are unaffected by the restriction.

Both the loss restriction and loss relaxation will apply to:

– trading losses;
– non-trading deficits on loan relationships;
– management expenses;
– UK property losses; and
– non-trading losses on intangible fixed assets.

Whilst pre-April 2017 trading losses will not be relaxed, companies will have the flexibility to choose whether or not to use pre-April 2017 trading losses before other available losses.

If a company’s trade ceases and the company has unused carried-forward losses of that trade, those losses can be set without restriction against profits arising in the final 36 months of the trade. Post-April 2017 losses will be able to be set against total profits, whilst pre-2017 losses trading losses will only be able to be set against profits of the same trade. The profits on which losses can be carried-back against will be limited to those generated from 1 April 2017.

The legislation contains loss buying rules which will mean that where a company or group of companies is acquired, any post-April 2017 carried-forward losses that arose before the company or group’s acquisition will not be available to the purchaser’s group for five years.

The legislation also contains a targeted anti-avoidance rule which will prevent any arrangements being entered into with a main purpose of obtaining a benefit from the loss reform rules.

 

Tax treatment of appropriations to trading stock

A new measure will remove the option for businesses to elect for capital losses, which would otherwise arise where an asset is appropriated to trading stock to be treated as trading deductions which can be offset against the total trading profits of the business. This measure will have immediate effect by preventing the election being made for appropriations into trading stock made on or after 8 March 2017.

 

Hybrid and other mismatches – permitted taxable periods of payees and deductions for amortisation

Two minor changes will be made to the hybrid and other mismatch regime introduced by Finance Act 2016. The first change removes the need to make a formal claim in relation to the permitted time period rules for mismatches involving financial instruments. The second change provides that deductions for amortisation are not treated as relevant deductions for the purposes of these provisions. The measure will have effect from the commencement of the hybrid and other mismatch regime, which came into effect on 1 January 2017.

 

Tax deductibility of corporate interest expense

From 1 April 2017, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. The provisions proposed to protect investment in public benefit infrastructure are also to be widened. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.

 

Corporation tax deduction for contributions to grassroots sport

The circumstances in which contributions to grassroots sports can be deducted from the taxable profits of corporation tax payers will be extended in relation to qualifying expenditure incurred on or after 1 April 2017. Companies will be able to make deductions for all contributions to grassroots sports through recognised sport governing bodies, and deductions of up to £2,500 in total annually for direct contributions to grassroots sports. Sport governing bodies will be able to make deductions for all their contributions to grassroots sports. The Spring 2017 Budget confirmed that the treatment of a sport governing body will be extended to its 100% subsidiaries.

 

Patent Box rules

Specific provisions are being added to the Finance Act 2016 Patent Box rules, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’. The provisions will ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. The Spring 2017 Budget confirmed that the draft legislation for this change will be revised to narrow the definition of a cost-sharing arrangement and to better align the treatment of payments into, and payments received from, a cost-sharing arrangement by the company. These changes will have effect for accounting periods commencing on or after 1 April 2017.

 

Co-ownership authorised contractual schemes: reducing tax complexity

As announced at Budget 2016 and following a period of consultation, amendments are to be made to the legislation to reduce tax complexity in relation to co-ownership authorised contractual schemes (CoACS). Broadly, the measures will:

– clarify the process for calculating any capital allowances which may be claimed by investors in CoACS;
–  introduce new requirements for information which the operator of a CoACS must provide to investors and to HMRC;
–  introduce new rules to clarify what is to be treated as an investor’s income when a CoACS has invested in an offshore fund; and
– clarify the rules for investors to calculate capital gains arising from the disposal of units in a CoACS.

The new rules on calculating capital allowances will apply for those electing to apply them on or after Royal Assent to Finance Bill 2017 for accounting periods beginning on or after 1 April 2017. The new rules on information to be provided to investors and to HMRC and on investments in offshore funds will come into force at Royal Assent to Finance Bill 2017. The streamlined rules for investors to calculate capital gains on disposal of units in a CoACS will apply to disposals on or after an operative date in summer 2017.

 

Reform of the substantial shareholdings exemption

As announced at Autumn Statement 2016 and confirmed at Spring Budget 2017, the government will legislate in Finance Bill 2017 to simplify the rules, remove the investing company requirement within the substantial shareholdings exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors. Following consultation, certain amendments have been made to provide clarity and certainty. The changes take effect from 1 April 2017.

 

Gift Aid and intermediaries

Intermediaries are to be given a greater role in administering Gift Aid, with the aim of simplifying the Gift Aid process for donors making digital donations. Currently a donor has to complete a Gift Aid declaration (GAD) each time they give to a new charity when giving through an intermediary. A new process will allow a donor to give permission to an intermediary to create GADs on their behalf for all subsequent donations made in that tax year. The changes, which take effect from 6 April 2017, will require intermediaries to:

– keep a record of the donor’s authorisation allowing them to complete declarations on the donor’s behalf;
– keep a record of the date on which the Gift Aid regime was explained to the donor;
– keep a record of any cancellations of the donor’s authorisation;
– issue an annual statement to donors who use the new process; and
– keep a record of an annual statement sent to donors who use the new process.

Penalties may be imposed on intermediaries for any breaches of these obligations.

 

Promoters of Tax Avoidance Schemes: associated and successor entities rules

Existing legislation is to be amended to ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business so that they either share control of a promoting business or put a person or persons between themselves and the promoting business.

Broadly, the amendments introduce the term ‘significant influence’ to ensure promoters cannot reorganise their business so that they put a person or persons between themselves and the promoting business. The amendment also ensures that the control definitions apply where two or more persons together have control or significant influence over a business.

This change takes effect from 8 March 2017.

 

Plant and machinery leasing – response to lease accounting changes

The government will consult in summer 2017 on the legislative changes required following the announcement of the International Accounting Board’s new leasing standard – IFRS16, which comes into effect on 1 January 2019. The tax treatment of a lease, in some important respects, is determined by its treatment in the accounts. Following the discussion document published in summer 2016, the government intends to maintain the current system of lease taxation by making legislative changes which enable the rules to continue to work as intended.

 

Research and development (R&D) tax review

Administrative changes are to be made to research and development (R&D) tax credits to increase the certainty and simplicity surrounding claims.

 

Withholding tax exemption for debt traded on a multilateral trading facility

The government is to consult on proposals for an exemption from withholding tax for interest on debt traded on a multilateral trading facility, removing a barrier to the development of UK debt markets.

 

Enterprise Management Incentives: continued provision of the relief

The government will seek State Aid approval to extend provision of this tax relief beyond 2018.

 

Extension of High-end TV, animation and video games tax reliefs

The government will seek State Aid approval for the continued provision of the reliefs beyond 2018.

VAT top

VAT registration threshold

The VAT registration and deregistration thresholds will be increased in line with inflation with effect from 1 April 2017 to £85,000 and £83,000 respectively.

 

VAT: ‘split payments’ model

As announced at Budget 2016, the government is considering alternative methods of collecting VAT. This is in addition to the measures it has already introduced to tackle the problem of overseas businesses selling goods to UK consumers via online marketplaces without paying VAT. At Spring Budget 2017, the government confirmed that it will consult on the case for a new VAT collection mechanism for online sales. This would harness technology to allow VAT to be extracted directly from transactions at the point of purchase. This type of model is often referred to as ‘split payment’.

 

VAT: use and enjoyment provisions for business to consumer mobile phone services

The government has announced that the VAT use and enjoyment provision for mobile phone services provided to consumers is to be removed. The measure will bring those services used outside the EU within the scope of the tax. It will also ensure mobile phone companies can’t use the inconsistency to avoid UK VAT. This will bring UK VAT rules in line with the internationally agreed approach.

 

VAT: fraud in the provision of labour in the construction sector

A consultation is to be launched on a range of policy options to combat supply chain fraud in supplies of labour within the construction sector. Options include a VAT reverse charge mechanism so the recipient accounts for VAT. It will also consider other changes including to the qualifying criteria for gross payment status within the Construction Industry Scheme.

 

Customs examination powers

Current customs and excise powers of inspection are to be extended enabling officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from Royal Assent of the Finance Bill 2017.

 

Fulfilment House Due Diligence Scheme

The government will introduce a new Fulfilment House Due Diligence Scheme from 1 April 2018, which is designed to ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. Broadly, fulfilment businesses in the UK will have to register with HMRC, keep certain records and carry out robust due diligence checks on their overseas customers. HMRC will publish the register to allow businesses to check whether they are dealing with compliant fulfilment businesses.

Existing fulfilment house businesses should apply to register with HMRC by 30 June 2018. New fulfilment house businesses, established after 30 June 2018, will need to apply to register 45 calendar days in advance of the date they intend to commence trading.

Indirect taxes top

Annual Tax on Enveloped Dwellings

The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2017/18 chargeable period.
– Property value £500,001 to £1 million – £3,500 (£3,500)
– Property value £1,000,001 to £2 million – £7,050 (£7,000)
– Property value £2,000,001 to £5 million – £23,550 (£23,350)
– Property value £5,000,001 to £10 million – £54,950 (£54,450)
– Property value £10,000,001 to £20 million – £110,100 (£109,050)
– Property value £20,000,0001 and over – £220,350 (£218,200)

 

Insurance premium tax

As announced at Autumn Statement 2016 and confirmed at Spring Budget 2017, the government will legislate in Finance Bill 2017 to increase the standard rate of Insurance Premium Tax (IPT) by 2% from June 2017. It will also repeal existing anti-forestalling legislation as it is no longer required.

 

Soft Drinks Industry Levy

As announced at Budget 2016 and confirmed at Autumn Statement 2016, the government will legislate in Finance Bill 2017 for the Soft Drinks Industry Levy. The two thresholds, at 5g and 8g of sugar per 100ml, have been designed so that, by taking reasonable steps to reduce sugar content, UK producers and importers of soft drinks can pay less or escape the charge altogether. The rates were announced at Spring Budget 2017 and will be 18 pence per litre (ppl) for the main rate and 24ppl for the higher rate. The levy will take effect from April 2018 and evasion of it will be a criminal offence.

Disclaimer

The information contained in this newsletter is of a general nature and no guarantee of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
Howard and Company is the trading name of GM Howard & Company Limited, a company registered in England and Wales. Reg No 5307665. Registered office, Unit 17, Park Farm Business Centre, Fornham St Genevieve, Bury St Edmunds, Suffolk IP28 6TS.

ALMR, Budget Report on Rates etc.

ALMR

Safeguarding of rates appeals a positive move by Government

The ALMR has welcomed the Government response to its consultation on business rates appeals and the discarding of plans to dismiss appeals on the grounds of reasonable professional judgement; but is inviting additional clarity on the proposed alternatives.

In its response published today, the Department for Communities and Local Government confirmed it will not introduce the measure following negative feedback.

The ALMR has responded to the consultation arguing against the introduction of the measure pointing to a potential £95m bill for the licensed hospitality sector. The dismissal of the measure was one of the ALMR’s key Budget asks in its submission to HM Treasury.

ALMR Chief Executive Kate Nicholls said: “The ability to dismiss appeals on the grounds of reasonable professional judgement was a vague and unworkable option that could have potentially cost the sector tens of millions of pounds. Figures published by the ALMR showed that as much as £95m may have been lost had the measure been introduced and it is great to see this potential, catastrophic misstep avoided. We are now looking towards the Government to provide additional reassurances to us and our members on how the appeals system will function and the proposed alternatives to RPJ.

“It is absolutely essential the businesses are guaranteed a right to appeal and that the system for appeals is accurate, transparent and fair. The ALMR liaised with the Government to ensure that this measure was not introduced and that appeals were safeguarded. It is good to see the Government listening to the concerns of businesses and acting to ensure fairness and protect investment.”

ALMR welcomes Budget steps to ease business burdens and encourage investment

Budget Statement delivers on key ALMR asks:

  • Sector-specific relief – introduction of relief for pubs
  • Help for businesses hardest hit – £300m pot for local authorities available to restaurants
  • Root and branch reform of rates system – a commitment to medium term reform of the system to address the imbalance between high street and “clicks and mortar” businesses

The ALMR has welcomed the Government’s Budget Statement and steps to address business rates inequality for pubs and bars and to promote growth and investment across the UK’s businesses.

The ALMR has been at the forefront of the campaign to reduce business rates burdens for licensed hospitality businesses and safeguard investment and jobs.

The ALMR has also urged the Government to follow up on its ambition of making the UK the most attractive place to invest with a detailed plan to address wider business costs.

ALMR Chief Executive Kate Nicholls said:

“The Chancellor has stated that he wants to make the UK the most attractive place in the world to do business. Cuts to Corporation Tax will help hardworking and successful businesses continue to grow and invest in their teams, but it must form part of a wider strategy on business tax.

“If the Chancellor is serious about encouraging investment then we need to see a detailed blueprint of how it is to be achieved and how this links with the Government’s wider industrial strategy.

“It is very encouraging to see the Government acknowledge and back the valuable work being carried out by the UK’s hardworking pubs, bars and restaurants. Sector-specific relief will help those businesses hardest hit by the revaluation. This much-needed Government support will save the sector over £24m and will help safeguard investment and jobs. We are pleased to see the Government acknowledge the issue and act positively to support a crucial growth champion and a sector with turnover of £60bn employing over 1.5 million. The £300m worth of relief made available to local authorities will also be crucial for addressing costs for hardworking, entrepreneurial restaurants also facing increased rates bills.

“The ALMR has been spearheading the campaign for business rates reform for a few years and we have been incredibly vocal on this issue over the past few months. The ALMR has been actively campaigning non-stop since September and helped coordinate a campaign as the voice of the sector at key meetings with Ministers and MPs. The ALMR’s Budget campaign focused on securing immediate support for those businesses hardest hit and facing the biggest increases and this is a good first step on the road to permanent reform.

“The next step is for the Government to instigate the long term, root and branch reform that is needed for pubs and bars. The Chancellor indicated that the Government will look at more frequent revaluations, something the ALMR has been pushing for, and we look forward to working with him going forward.”

A broader comment on the whole Budget will follow shortly.

ALMR Chief Executive Kate Nicholls: “It is very encouraging to see the Government acknowledge and back the valuable work being carried out by the UK’s hardworking pubs, bars and restaurants. Sector-specific relief will help those businesses hardest hit by the revaluation. This much-needed Government support will save the sector over £24m and will help safeguard investment and jobs. We are pleased to see the Government acknowledge the issue and act positively to support a crucial growth champion and a sector with turnover of £60bn employing over 1.5 million.

“The ALMR has been spearheading the campaign for business rates reform for a few years and we have been incredibly vocal on this issue over the past few months. The ALMR has been actively campaigning non-stop since September and helped coordinate a campaign as the voice of the sector at key meetings with Ministers and MPs. The ALMR’s Budget campaign focused on securing immediate support for those businesses hardest hit and facing the biggest increases and this is a good first step on the road to permanent reform

“The next step is for the Government to instigate the long term, root and branch reform that is needed for pubs and bars and the ALMR is keen to work closely with them to achieve this.”

Licensed hospitality worst affected by crippling rates increases, ALMR

ALMR

Licensed hospitality worst affected by crippling rates increases

 

The ALMR has repeated calls for sector-specific action on business rates and highlighted the problem being faced by the country’s pubs, bars and restaurants.

The move follows a suggestion by Centre for Cities that business will benefit from the recent business rates revaluation.

Telephone calls to the British Institute of Innkeeping’s (BII) helpline show examples of increases in rateable value across England.

ALMR Chief Executive Kate Nicholls said: “What the Centre for Cities’ report fails to acknowledge is exactly the point that we have been emphasising: that spiralling business rates is a sector-specific issue threatening the UK’s pubs, bars and restaurants. A number of other sectors such as offices, industrial and retail may be looking at average decreases, but licensed hospitality is the only sector facing an average increase in every region in England.

“The nature of a fiscally neutral revaluation means that wherever there are decreases in rateable value, there must also be increases to balance this. Pubs, bars and restaurants are the businesses set to shoulder this substantial and inequitable burden. Phone calls from licensees to the BII helpline underline the scale of the problem: with sample of 30 pubs reporting over £300,000 worth of increases in rateable value compared to just £28,000 worth of reductions. Pubs in areas that the Centre for Cities states will benefit most from the revaluation are still being hit hard. A pub in Blackburn, the town looking at the greatest decrease in rateable values is still facing an 8% increase, while a pub not far from Blackpool is facing a 29% increase. We are also seeing pubs near Huddersfield and Bradford looking at 40% and 9% increases respectively and a venue near Sunderland facing a 30% hike.

“A recent study by CGA Peach shows that 79% of business leaders are concerned about rising business rates. Many of our members tell us that they are looking at substantial increases and are concerned about how they will foot the increased bill. Clearly this is a real area of concern for our members and the wider sector. Our members are not exaggerating when they say that increased rates bills could potentially be ruinous for them and their concerns should not be ignored or dismissed out of hand.”

March’s Tax Tips & News, Howard & Company

Welcome…To March’s Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman.If you need further assistance just let us know or you can send us a question for our Question and Answer Section.

We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year.

Please contact us for advice on your own specific circumstances. We’re here to help!

March 2017· Changes to IR35 rules confirmed· Tax-free access to pension advice· Salary v dividend· Changes to company carry-forward of losses confirmed· March questions and answers· March key tax datesChanges to IR35 rules confirmedtop

HMRC have recently announced changes to the way the intermediaries legislation (known as the ‘IR35 rules’) will be applied to off-payroll working in the public sector. In particular, contractors who provide their services to a public authority through an intermediary will need to be aware of the changes, which take effect from 6 April 2017.

Broadly, from 6 April 2017, responsibility for deciding whether the legislation should be applied will move from the worker’s intermediary to the public authority the worker is supplying their services to.

Where the rules apply, the fee-payer (the public authority, agency, or other third party paying the intermediary) will be responsible for calculating income tax and primary National Insurance contributions (NICs) and pay them to HMRC. These amounts will be deducted from the intermediary’s fee for the work provided. The worker’s intermediary will be able to offset an amount equivalent to the income tax and NICs deducted from payments to it from the fee-payer against its own income tax and NICs liability in the tax year.

The changes will apply to:

– public authorities who hire off-payroll contractors;
– public sector tax managers, payroll managers, human resources managers and procurement managers;
– agencies and third parties who supply contractors to the public sector; and
– contractors who provide their services to a public authority through an intermediary.

Before the changes take effect, public authorities, agencies and third parties supplying contractors will need to consider existing contracts and make the appropriate preparations. Whilst it is for the public authority to determine whether off-payroll working rules apply when engaging a worker through a personal service company, anyone who believes they may be affected should seek further advice.

Tax-free access to pension advicetop

The Treasury has confirmed details of the new Pension Advice Allowance, which will take effect from April 2017, and which will enable people to withdraw £500, on up to three occasions, from their pension pots tax-free to put towards the cost of pensions and retirement advice.

Following an eight-week consultation period, the Economic Secretary to the Treasury, Simon Kirby, confirmed that the £500 allowance:

– can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement;
– will be available at any age, allowing people of all ages to engage with retirement planning;
– can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice; and
– will be available to holders of ‘defined contribution’ pensions and hybrid pensions with a defined contribution element, not ‘defined benefit’ or final salary type schemes.

According to recent research, UK savers with a pension pot of £100,000 save an average of £98 more every month and receive an additional income of £3,654 every year of their retirement if they take financial advice.

Salary v dividendtop

The questions surrounding the issue of how best to extract profits from a company in a tax-efficient manner remain as popular as ever. Despite the abolition of the non-repayable tax credit, the introduction of the dividend allowance, and the personal savings allowance, extraction by as remuneration and by way of dividend remain the two most widely used methods. The tax effects of these methods may be broadly contrasted as follows:

– Provided the amount is justifiable, remuneration is generally allowed as a deduction in arriving at the taxable profits of the company. The recipient is taxed on the remuneration through the PAYE system at the date of payment including a charge to NIC.
– Dividends are not deducted in arriving at the taxable profits.

It must be remembered here that payment of a salary will give rise to a liability to National Insurance Contributions (NICs), whereas payment of a dividend does not.

In considering the options, a number of other factors should also be taken into account:

– A full NIC contribution record must be maintained to ensure maximum social security benefits. Therefore, a reduction in salary may have the knock-on effect for reducing future entitlement to certain earnings-related social security benefits.
– The lack of a salary charge in the accounts may increase the value for capital gains tax (CGT) and inheritance tax (IHT) purposes of holdings valued on the basis of earnings. In addition, a higher dividend payment will increase the value of a holding calculated on a dividend yield basis, although it is unlikely to affect the valuation of a major interest.
– Dividends are payable rateably to shareholders in proportion to their holdings in the company, which may not necessarily correspond to the relative efforts of the directors in earning the profits. Dividend waivers may assist in these circumstances, but care must be taken – always seek advice on such matters.
– Dividends can only be paid out of distributable profits whereas, in theory, salaries may be paid out without reference to the level of profits.
– The national minimum wage legislation should be considered, as this applies equally to directors under contracts of employment as it does to employees.

In deciding how profits are to be extracted, the following aspects should be considered:

– The rates applicable to dividend income are currently the 7.5% ordinary rate, which applies up to the basic rate limit, the 32.5% dividend upper rate, and the dividend additional rate of 38.1% on dividends above the higher rate limit.
– From 6 April 2016, 10% tax credit attaching to dividends was abolished and the new dividend allowance took effect. This means that the first £5,000 of dividends will be tax-free in the hands of the recipient. Whilst these changes mean that most taxpayers will thereby pay less tax, people receiving dividend income over about £140,000 a year will pay more. This forms part of the government strategy to reduce the incentive to incorporate businesses and take remuneration in the form of dividends.
– Individual needs of shareholders may differ – some may require income, others may be more interested in capital appreciation. These conflicting interests may be met by the issue of separate classes of shares with differing distribution rights.
– Lower rates of corporation tax continue to apply where profits are retained or are distributed to other companies.

For income tax purposes, and within family-owned companies, it is generally desirable to spread income around the family to fully utilise annual personal allowances and to take full advantage of nil and lower rate tax thresholds, wherever possible. The term ‘family’ includes all individuals who depend on a particular individual (e.g. the owner of the family company) for their financial well-being. This may include not only the spouse, civil partner and children but also aged relatives, retired domestic employees, etc.

Distributions (usually dividends) from jointly owned shares in close companies are not automatically split 50/50 between husband and wife, but are taxed according to the actual proportions of ownership and entitlement to the income.

Possible methods of spreading income around the family include employing a spouse and/or children, waiving salary (to increase profits available as dividends) or dividends (to increase the amounts available to other shareholders), and transferring income-producing assets.

Some distributions of income to family members will not be beneficial for tax purposes. The following points require careful consideration:

– salaries and wages paid to spouse, civil partner, children or other dependants will be a tax deductible expense of the company only if they can be justified in relation to the duties performed;
– a salary paid to spouse, civil partner, children or other dependants will attract a liability to NIC if it is above the lower earnings limit; and
– the investment income of an infant child (i.e. an unmarried child below the age of 18) is taxed on his parents, where it arises from a gift by them.

In the longer term, there is a risk that, at some future date, the relative advantages of each extraction method might be reversed at a time when the flexibility to switch between the two methods is restricted. Currently though, using a mixture of salary, benefits and dividends, which can be varied according to individual circumstances, remains the most sensible option.

Changes to company carry-forward of losses confirmedtop

Initially announced at the time of the 2016 Budget and following a period of consultation, Finance Bill 2017 contains provisions to reform the tax treatment of certain types of carried-forward loss for corporation tax purposes with effect from 1 April 2017.

Losses arising from 1 April 2017, when carried forward, will have increased flexibility and can be set against the total taxable profits of a company and its group members (referred to as the ‘loss relaxation’).

For all carried-forward losses, whenever they arose, companies will be able only to use the losses against up to 50% of profits (known as the ‘loss restriction’). Each standalone company or group will be entitled to a £5 million annual allowance. Profits within the allowance will not be restricted, ensuring 99% of companies are unaffected by the restriction.

Both the loss restriction and loss relaxation will apply to:

– trading losses;
– non-trading deficits on loan relationships;
– management expenses;
– UK property losses; and
– non-trading losses on intangible fixed assets.

Whilst pre-April 2017 trading losses will not be relaxed, companies will have the flexibility to choose whether or not to use pre-April 2017 trading losses before other available losses.

If a company’s trade ceases and the company has unused carried-forward losses of that trade, those losses can be set without restriction against profits arising in the final 36 months of the trade. Post-April 2017 losses will be able to be set against total profits, whilst pre-2017 losses trading losses will only be able to be set against profits of the same trade. The profits on which losses can be carried-back against will be limited to those generated from 1 April 2017.

The legislation contains loss buying rules which will mean that where a company or group of companies is acquired, any post-April 2017 carried-forward losses that arose before the company or group’s acquisition will not be available to the purchaser’s group for five years.

The legislation also contains a targeted anti-avoidance rule which will prevent any arrangements being entered into with a main purpose of obtaining a benefit from the loss reform rules.

March questions and answerstop

Q. Will I have to pay stamp duty land tax on a property I am about to inherit?

A. Stamp duty land tax (SDLT) is generally payable on land transactions. There is a land transaction when land passes to a beneficiary under a will, or by virtue of the law on intestacy. However, the legislation governing SDLT (Finance Act 2003, Schedule 3, para. 3A) provides that the acquisition of property by a person:

– in or towards satisfaction of his entitlement under or in relation to the will of a deceased person,
– on the intestacy of a deceased person

is exempt from SDLT.

You should note though that this exemption does not apply where the beneficiary gives consideration other than the assumption of secured debt or the acceptance of an obligation to pay inheritance tax. Secured debt is debt that, immediately after the death of the deceased person, was secured on the land. The most common example of this is a mortgage to the extent that the mortgage is not paid off on death.

The exemption applies whether the transfer is to a sole beneficiary or to joint beneficiaries.

Q. I run a small business but I am registered for VAT. What are the advantages and disadvantages of using the annual accounting scheme?

A. The annual accounting scheme aims to help small businesses by allowing them to submit only one VAT return annually. During the course of the year, fixed sums are paid to HMRC – based on the previous year’s liability – and a balancing payment is made, if necessary, once the annual return has been prepared.

Key points of the scheme are as follows:

– A business can join the scheme providing its taxable turnover does not exceed £1,350,000 per annum.
– The business must stop using the scheme if its taxable turnover exceeded £1,600,000 per annum in the previous accounting year of the scheme.
– The business makes nine monthly payments of 10% of the total paid in the previous year or, if newly registered, the amount it is expecting to pay in the next 12 months. Alternatively, it can choose to pay 25% quarterly.
– HMRC may agree to alter the level of interim payments if the business trading pattern changes.
– A business may not obtain approval to use the scheme if it owes a significant debt to HMRC.
– Payments start on the last working day of the fourth month of the scheme’s accounting year and must be made by standing order, direct debit, or other electronic means.
– The annual VAT return, together with any balance due to HMRC, is submitted two months from the end of the scheme’s accounting year. This means that a business gets an extra month over the time limit applicable to a normal return.
– The scheme may assist some businesses with cash flow, particularly where the business is seasonal. For example, if the busiest trading period is in the summer, a scheme year ending, say, 31 January, will spread the payments, thus assisting cash flow. It may also be more convenient to produce both the annual VAT return and the annual accounts at a quieter time of the year.
– It is generally felt within the accountancy profession that the discipline of preparing a quarterly VAT return helps businesses to keep their records up to date and on top of their financial affairs.

Q. I live in a leasehold flat in a property in which there are six other leasehold flats. The opportunity has arisen for the leaseholders to buy the freehold reversion from the landlord and all of the leaseholders have agreed to contribute equally towards the purchase. Our solicitor has advised a limited company should be set up to buy the freehold. Are there any tax consequences involved here?

A. The Law of Property Act 1925 stipulates that a maximum of four persons can be the legal owners of land and property, which is likely to be the reasoning behind your solicitor suggesting the use of a company. This restriction, however, only applies for legal ownership, which means that named persons could hold the ownership as trustees for other persons too. Tax is usually based on beneficial ownership, not legal ownership and a ‘bare trust’ is often used in cases where one or more persons would hold the freehold reversion as bare trustee for all the leaseholders. For tax purposes, the tenants would be deemed to own their share of the freehold absolutely. A similar arrangement can exist in a company providing the company is a ‘nominee company’ which is the corporate equivalent of a bare trust. This too would have the same consequences as a bare trust.

March key tax datestop

8 – Spring Budget 2017

19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/3/2017

Disclaimer
The information contained in this newsletter is of a general nature and no guarantee of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

Howard and Company is the trading name of GM Howard & Company Limited, a company registered in England and Wales. Reg No 5307665. Registered office, Unit 17, Park Farm Business Centre, Fornham St Genevieve, Bury St Edmunds, Suffolk IP28 6TS.

March licensing update, from JG&Partners

JG & Partners

Welcome to the March licensing update

Another month passes; another monthly update.

We would particularly draw your attention to our further reminder on the Alcohol Wholesale Registration Scheme which goes live on 1 April.

Also our new CSE Awareness/Avoidance leaflet can be accessed below. We know of a number of operators who are looking to use the National Child Sexual Exploitation Awareness Day on 18 March 2017 as a trigger to engage with staff around this difficult issue. The aim of the day is to highlight the issues surrounding CSE by encouraging everyone to ‘think, spot and speak out against abuse’ and adopt a zero tolerance to abusive and inappropriate behaviour/relationships.

British Summer Time (and Easter) – be aware and be prepared! 

British Summer Time (BST) (or more properly Daylight Saving Time) starts at 1.00am Sunday 26 March 2017 when 1.00am immediately becomes 2.00am. If you are proposing and are able to trade beyond 1.00am, you need to be aware and have hopefully the position covered off either in your premises licence or have given a Temporary Event Notice in respect of the same.Read more here

Child Sex Exploitation (CSE) Avoidance – a brief

This is an area of increasing concern for society – but also for the leisure and hospitality industry in particular. We are seeing increased attention (including ‘test purchasing’) being given to operators by the authorities who expect robust avoidance due diligence measures to have been adopted and in place. Some operators are alert to and aware of this, others less so.

We have produced a briefing document on CSE avoidance and associated concerns and a copy is freely available here.

As mentioned above the National CSE Awareness Day on 18 March 2017. For more detail see http://www.stop-cse.org/national-child-exploitation-awareness-day/

Alcohol Wholesaler Registration Scheme (AWRS) – reminder

No apologies for mentioning this again. The scheme has been introduced by the Government to try and tackle alcohol fraud. If you sell alcohol to another business, the probability is that you should already have registered under AWRS. From 1 April 2017, if you buy alcohol to sell from a UK wholesaler, you will need to check that whoever you buy from has registered with HMRC and has an AWRS Unique Reference Number (URN). If you buy alcohol from a non-registered wholesaler when they should be approved and registered with HMRC, you may be liable to a criminal or civil penalty and your alcohol may be seized. Trade buyers will be able to use an online look-up service of approved wholesalers to check that the wholesalers they buy from are registered. This will be available from April 2017. Time to be putting systems in place perhaps.Read more here

Policing & Crime Act 2017 – Licensing Provisions to come into force 

Following conversations with the Home Office we can confirm that with the exception of the provisions on cumulative impact and the late night levy (LNL), the licensing provisions in part 7 of this Act will commence on 6 April 2017. Matters coming into force include clarification concerning expedited Reviews and the status of interim measures and the ability for a Licensing Authority to suspend or revoke personal licences (following convictions for relevant offences).Read more here

Cheltenham first Council to reverse LNL

Cheltenham Council have decided to abolish the Late Night Levy (LNL) which they had adopted in 2014.Read more now

New £1.00 coin is due in March – reminder 

As previously reported, a new £1.00 12 sided bimetallic coin is planned to be introduced in March. The Government has been encouraging industry to prepare for this and a Treasury website dedicated to such preparation and with further detail can be found here: http://www.thenewpoundcoin.com/. All machines which accept cash for example will need updating and it is intended that after a 6 month transition period, the existing £1.00 coin will be phased out.Read more here

Local Alcohol Action Areas (LAAA) phase 2 announced 

The Home Office has just released the list of the 33 regions comprising the second phase of the Local Alcohol Action Areas (LAAA) programme.

On 27 January the Home Office launched a new phase of the programme to tackle alcohol-related crime and health harms and create a more diverse night-time economy. The programme initially launched in February 2014 covering 20 areas.Read more here

Taxis – Access for wheelchair users to taxis and PHVs 

On the 6 April 2017 it will become a criminal offence for drivers of designated taxi and private hire vehicles to refuse to carry passengers in wheelchairs, to fail to provide them with appropriate assistance, or to charge them extra. Guidance on the implementation of this new law has been published.Read more here

Gambling – Advertising and its regulation in Great Britain- briefing paper 

A Commons Library briefing paper has been issued looking at the regulation of gambling advertising in Great Britain, providing a useful overview of the regulation in this area. Gambling and betting operators advertising to British customers must comply with the Advertising Codes administered by the Advertising Standards Authority.Read more here

Gambling – Betting shops: licensing requirements – briefing paper 

LThis Commons Library briefing paper, just released, looks at the licences needed by betting shops – and also provides a useful overview of the law in this area.

It can be found here – ‘Betting shops: licensing requirementsRead more here

Gambling – Commission service levels 

The Gambling Commission has published details of the service levels to which they will seek to adhere.

And finally…

Team JG&P had a great time at the Sheffield Best Bar None Awards, with Partner Tim Shield presenting the award for best chain to JD Weatherspoons’ Benjamin Huntsman.