‘Budget 2016’

Budget 2016 – corporate, business and property taxes

Wednesday, March 16th, 2016

Corporate & Business Taxes

In 2010 the government set out a corporate tax road map which outlined plans to back business through lower corporation tax rates and the modernisation of tax rules and administration, whilst ensuring a crack- down on avoidance and aggressive tax planning.

In this budget we have seen substantial changes announced to reform our corporate tax system.

 

Corporate Tax Rates

Announced previously has been the reduction in corporation rates to 19% for all companies with effect from April 2017. In this budget we saw the Chancellor further extend his policy to have one of the lowest corporation tax rates in the G20 by announcing to decrease further to 17% in 2020.

The Government also previously announced that corporation tax payment dates for businesses with profits in excess of £20m would be brought forward to make payments during the tax period in the third, sixth, ninth and twelfth month. The implementation of this regime has been delayed until April 2019 to allow businesses further time to prepare. Although these business will already be in the payment on account regime this will bring forward the tax payment date by 3 months.

 

Corporate Tax Losses

Currently in the UK we have a very restrictive loss system, trading losses generated are only able to be carried forward and offset against future trading profits arising from the same trade in that company. In addition if during the period the company has had a change in ownership further restrictions on the utilisation of losses can also apply. When a company is part of a group we can only surrender losses for the same period leaving losses stranded in certain companies whilst other group member are profitable unable to offset.

The Chancellor announced from April 2017 a more flexible system where businesses will be able to use carried forward losses against other business streams and not restricted to the same trading profits and group surrender in later periods. This is a welcomed change which is more suited to the current commercial environment as we see increase us of group, specifically given the recent reforms on associated companies and the uniform corporate tax rate.

As is usual in the tax world, where you see a benefit there is always a restriction. Although we see the manner in which we can utilise losses being extended we are also seeing the amount of this being restricted to 50% of the losses for profits in excess of £5 million. For the majority of businesses this should ensure the flexibility remains in place as well as full relief.

Loan to Participators

The rules on loans to participators have seen a large degree of reform over recent budgets to try to stop the abusive of the rules which apply mainly to owner-managed businesses and partnerships who are shareholders. From April 2016 we see the rate increased from 25% to 32.5% for loans, advances and arrangements made on or after 6 April 2016. This aligns the rate with the higher rate tax on dividends to ensure loans are not left outstanding.

Capital Allowances

We have seen the annual investment allowance being moved up and down regularly in budgets as the government tries to boost plant investment. Today it was announced that the £200k which has been in place since January 2016 is to remain permanently. Diverted profit tax to target contrived arrangements so that multinational enterprises pay more tax on their UK profits.

Company cars first year allowance will also be extended for a further three years to April 2021 with new co2 emission levels to be announced.

 

Business Rates

We have seen major reform in business rates in recent budgets and the Chancellor has continued with his theme to help smaller business by further extending the Small Business Rate Relief properties with a rateable value of £12,000 or under receiving 100% relief, a tapered relief will also apply to properties with a rateable value up to £15,000.

Also announced were:

  • Increase the threshold for the standard business rates multiplier to a rateable of £51,000
  • From April 2020 taxes for all businesses paying rates will be cut as they switch from RPI to CPI
  • Increase of business rate revaluations to at least every 3 years.
  • Business rate systems to be linked with HMRC digital tax accounts

 

Business rates cuts – extending the doubling of business rate relief to April 2017, giving 100% relief.

 

Commercial Stamp Duty

Previously we saw the radical reform of the residential stamp duty system to a layered system of rates. In this budget we see the commercial stamp duty rules aligned with the residential stamp duty with a slice system.

  • For properties up £150,000 – 0% rate of tax
  • For properties between £150,001 and £250,000 – 2% rate of tax
  • Above £250,001 – 5% rate of tax

In addition we will also see a new 2% rate of stamp duty for leasehold rent transactions where the net present value is above £5 million.

 

Anti- Avoidance

As we have now come to expect in every budget we have further announcements regarding tax anti-avoidance announced. Today’s budget was no exception with several announcements:

  • Interest relief – a cap is being placed on interest relief to 30% of taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. The rule will include a threshold limit of £2 million net UK interest expense.
  • Royalty payments – rules to be changed regarding the withholding tax on the royalty payments to avoid profit shifting by groups.
  • Offshore property developers – new rules will be introduced which will prevent offshore structures being used by property developers who are involved in developing property in the UK. HMRC are also creating a new task force to target offshore structures to ensure tax compliance on profits and rental income from property development in the UK.

 

VAT

No major headlines for VAT in this budget but here are some of the items in the small print;

  • VAT registration threshold to increase to £83,000 and deregistration to £81,000
  • Tackling of overseas traders who trade on-line and avoid UK VAT
  • Further due diligence scheme where traders store their goods in the UK.

Budget 2016 – capital gains tax

Wednesday, March 16th, 2016

Capital Gains Tax

From 6 April 2016, the higher rate of Capital Gains Tax (CGT) will be reduced from 28% to 20%, and the basic rate will be reduced from 18% to 10%. The reduction in rates will not apply to residential property and carried interest. This will ensure that CGT provides an incentive to invest in companies over property.

Private Residence Relief will continue to ensure that an individual’s main home is not subject to CGT. This measure will disappoint those who were hoping a reduction in CGT would free up the housing supply. In addition, there have been several small changes to entrepreneurs’ relief including a 10% rate of CGT for qualifying gains on newly issued shares in unlisted companies purchased on or after 17 March 2016

Budget 2016 – personal tax

Wednesday, March 16th, 2016

Personal Tax

Rates and Allowances

The personal allowance will be increased from £11,000 in 2016-17 to £11,500 in 2017-18. This continues to ensure that no-one working 30 hours per week on the National Minimum Wage (NMW) will pay income tax in 2017-18. As a result of the increase, a typical basic rate taxpayer will pay over £1,000 less income tax in 2017-18 than they did in 2010-11.

The higher rate threshold will increase by £2,000 to £45,000 from 2016/17 to 2017-18, resulting in there being 585,000 fewer higher rate taxpayers in 2017-18 than there were at the start of the parliament.

 

ISA Savings

The ISA allowance will rise from £15,240 to £20,000 in April 2017

The Lifetime ISA

The Government have announced a new Lifetime ISA which is designed to help young people save for the long term and ensure they do not have to choose between saving for retirement and saving for their first home. From 6 April 2017 any adult under the age of 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government on every pound they put in. Contributions can continue to be made with the bonus paid up to the age of 50. Funds can be used to buy a first home up to the limit of £450,000 with the government bonus at any time from 12 months after opening the account, and can be withdrawn from the Lifetime ISA with the government bonus from age 60 for use in retirement. Savers will be able to make withdrawals at any time for other purposes, but with the bonus element of the fund plus any interest or growth on it returned to the government along with a 5% charge.

Help to Save

The scheme will be open to 3.5 million adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit. It will work by providing a 50% government bonus on up to £50 of monthly savings into a Help to Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200.

 

Insurance Premium Tax

The standard rate of IPT will be increased from 9.5% to 10% with effect from 1st October 2016.

Stamp Duty on Additional Properties

As part of the Autumn Statement 2015 it was announced that from 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) will apply to purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3% above the current SDLT rates and will apply to purchases of additional residential properties in England, Wales and Northern Ireland.  Purchasers will now have 36 months rather than the originally proposed 18 months to either claim a refund from the higher rates or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. However, there will be no exemption from the higher rates for significant investors, and the higher rates will apply equally to purchases by individuals and corporate investors

Employment Taxes

National Minimum Wage

The main rate of the NMW, which applies for workers aged between 21 and 24, will be set at £6.95 from October 2016.

Salary sacrifice

Salary sacrifice arrangements enable employees to give up salary in return for benefits in kind. The government is concerned about the growth of salary sacrifice schemes and clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010. The government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.

Off-Payroll Engagement in the Public Sector

Some individuals work through their own limited company and undertake jobs that would ordinarily mean they are employees of the business that they are working for. In these circumstances, there is existing legislation which requires them to pay broadly the same tax as they would do as an employee. However, non-compliance with these rules is costing the taxpayer around £440 million a year. From April 2017, where the public sector engages an off-payroll worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether the rules should apply, and for paying the right tax. This is designed to strengthen the public sector’s role in ensuring that the workers it engages comply with the rules.

 

 

Anti- Avoidance

Termination Payments

Currently, some termination payments are exempt from employee and employer National Insurance contributions and the first £30,000 is income tax free.  From April 2018, the government will align the rules so employer National Insurance contributions are due on those payments above £30,000 that are already subject to income tax.

Employee Shareholder Status

To ensure that the benefits for individuals are proportionate and fair, the government have introduced an individual lifetime limit of £100,000 on gains eligible for Capital Gains Tax exemption through ESS. This limit will apply to arrangements entered into on or after 17 March 2016, and will not apply to arrangements already in place.

 

Self Employed

Property and trading income allowances

From April 2017, a new £1,000 allowance will be introduced for property income and trading income. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.

Class 2 NIC

From April 2018 Class 2 NICs will be abolished which represents an annual tax cut for 3.4 million self-employed people of £134 on average. The government will reform Class 4 NICs, so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits, following the abolition of Class 2 NICs.