www.taxjournal.com
Insight and analysis
Report
The UK tax changes taking
effect in April 2016
Also on that date, measures came into force extending
the scope of reliefs available from ATED and 15% higher
rate of SDLT. They apply to companies, partnerships with
company members, and collective investment schemes,
which acquire and own residential property in the UK
valued over £500,000. Benefits in kind
Speed read
For individual taxpayers this month’s main changes are the
introduction of the dividend tax and personal savings allowance,
together with further restrictions to the sums that can be invested
in pensions and a reduction in the capital gains tax rates. On the
corporate side we have seen a further restriction to 25% of the amount
of profits banking companies can offset through brought forward
losses. Meanwhile, employers will now need to determine whether
expenses incurred by their employees are covered by a new exemption
and the rates for a number of indirect taxes have increased by RPI.
Patricia Mock
Deloitte
Patricia Mock has many years’ experience in
advising private clients and is a director in
the tax policy group at Deloitte. In addition to advising in
all areas of taxation matters affecting wealthy individuals,
she also provides technical resource and training to the
national private client services group in Deloitte. Email:
pmock@deloitte.co.uk; tel: 020 7007 3595.
Mark Groom
Deloitte
Mark Groom is an employment tax partner
in Deloitte’s compensation and benefits
group, with over 20 years’ experience. He advises clients
in all sectors on key employment related issues. Email:
mgroom@deloitte.co.uk; tel: 020 7007 2770.
Stephen Barnfield
Deloitte
Stephen Barnfield is a director at Deloitte.
He works in Deloitte’s tax policy group, in
particular on tax administrative law and EU direct tax.
Email: sbarnfield@deloitte.co.uk; tel: 020 7007 0614.
Donna Huggard
Deloitte
Donna Huggard is an indirect tax senior
manager at Deloitte, based in London. She
works in Deloitte’s tax policy group. Email: dohuggard@
deloitte.co.uk; tel: 020 7303 7914.
T
he main tax changes that came into effect this month are
as follows (please note that references to Finance (No. 2)
Bill 2016 are referred to as FB 2016).
Air passenger duty (APD)
APD rates for flights over 2,000 miles were increased by RPI
on 1 April.
Annual tax on enveloped dwellings (ATED)
On 1 April, the ATED entry threshold was lowered to £500,000.
10
From 6 April 2016, it is farewell to the £8,500 threshold that
separates lower and higher paid employees for the purposes
of benefits in kind (FA 2015 s 13). While this is a welcome
simplification, some employers and employees may see
an increase in tax and NICs liabilities, e.g. employees in
cleaning or catering who might benefit from, say, a late night
taxi home could lose out.
Ministers of religion are excluded. Where a care and
support employer provides an employee with board and
lodging, that will also be exempt. Importantly, HMRC has
confirmed that volunteers will not be impacted for as long as
they are not employees.
CGT rates
The rate at which individuals, trustees and personal
representatives pay CGT was reduced from 6 April 2016.
The 18% rate for gains falling within a basic rate band was
reduced to 10%; and the 28% rate fell to 20%. The existing
rates will continue to apply to gains from disposals of
residential property and from carried interest investments.
The rates for ATED related CGT and non-resident CGT
(which are only relevant to residential property) will also
remain at 28%.
Carried-forward losses
From 1 April 2016, Finance Bill 2016 further restricts to 25%
the proportion of a banking company’s annual taxable profit
that can be offset by carried-forward losses arising before 1
April 2015 (FB 2016 cl 53).
Climate change levy (CCL)
The main rates of CCL increased by RPI on 1 April.
Company car taxation
The percentage to apply to the list price to calculate the
taxable company car benefit has increased by 2% for all cars
up to the absolute cap of 37%. The fixed amount to which
the percentage is applied to calculate private fuel benefits
has increased from £2,100 in 2015/16 to £2,200 in 2016/17.
Company distributions
FB 2016 contains revised draft legislation (cl 35) for the
targeted anti-avoidance rule (TAAR) to apply to certain
distributions received by individuals in a winding up. This
is to prevent income being converted into capital to obtain
a tax advantage. If the TAAR applies, affected individuals
will be liable to income tax, instead of CGT, on the gain
realised on liquidation of the company. The gain chargeable
under the TAAR is capped at the gain realised, based on
the uplift compared to the CGT base cost of the individual’s
interest in the company. Very broadly, the TAAR will apply
if the winding up is tax motivated, and if the individual has
at least a 5% interest in the company being wound up, the
company is (or was) a close company, and the individual
15 April 2016 |
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Insight and analysis
becomes involved in the same activity within two years of
the winding up. These rules apply to distributions on or
after 6 April 2016. The transactions in securities legislation
is also being amended.
Corporate debt and derivative contracts
On 1 April, legislation (FB 2016 cl 45 Sch 7) came into
force to address three situations where the interactions with
accounting rules or other parts of the tax rules may lead to
unintended outcomes in the context of interest-free loans
and other loans on non-market terms. The three situations
are:
notional finance costs that can arise on interest free
loans and other loans on non-market terms; credits that arise on reversal of debits which were
previously denied for tax under the transfer pricing
rules; and
amounts excluded from taxation under the transfer
pricing rules where the loan or derivative is part of a
hedging relationship intended to mitigate foreign
currency risk.
Dispensations
On 6 April 2016, existing P11D dispensations became
obsolete. Instead, new ITEPA 2003 s 289A provides an
exemption for tax business expenses reimbursed on an
actual basis, without the need for a dispensation, to the
extent they are tax deductible. However, reimbursements
by way of allowances/scale rates/per diems can only be
paid free of tax/NICs if they are exempted by regulations
under s 289A(6); or if they are covered by a new approval
notice granted by HMRC under s 289B, to support the level
of allowance requested. Employers will also need to install
checking systems to validate that the expenses claimed are
being incurred and qualify for a tax deduction.
Dividend allowance
In 2016/17 the dividend allowance of £5,000 (again a 0%
tax rate) is available for all individual taxpayers (FB 2016 cl
5 Sch 1). As part of these changes, the dividend tax credit
ceased to apply from 6 April 2016 and dividend income
over the £5,000 dividend allowance will be taxed at a higher
rate than before. Comparative rates are set out below:
Income band
Current
rate on
gross
dividend
Effective
current
rate on net
dividend
New rate on
dividend received
(after £5,000
exemption)
Basic rate
10%
0%
7.5%
Higher rate
32.5%
25%
32.5%
Additional
rate
37.5%
30.6%
38.1%
Whether or not people see a reduction in their tax
liability on dividend income will of course depend on the
amount of income received and the tax band into which
such income falls. Basic rate taxpayers will be worse off
if they receive dividend income of more than £5,000 per
annum, whereas for higher rate taxpayers the break even
point is £21,667.
However, these figures can be misleading. The
allowances were originally referred to as exemptions;
however, it is now clear that although the tax rate on the
amounts exempted will be 0%, they will use up the relevant
| 15 April 2016
income tax band, potentially pushing any remaining
taxable amount into higher rates. Thus, a taxpayer with a
salary of, say, £39,000 and dividends of £7,000 in 2016/17
will have a personal allowance of £11,000 and a basic rate
band of £32,000. The personal allowance and £28,000 of
the basic rate band will be set against the salary of £39,000.
The taxpayer might expect that £5,000 of the dividends
would be exempt and the balance of £2,000 would be taxed
at 7.5%, as they fall into the remaining basic rate band of
£4,000. Instead, they will be taxed at the higher rate of
32.5%, as although the £5,000 is taxed at 0% it uses up all
the remaining basic rate band of £4,000, so that the £2,000
falls into the higher rate band.
Employee shareholder status (ESS)
A new lifetime limit has been introduced, meaning that
individuals will only receive CGT relief on the first £100,000
of gains arising from the disposal of ESS shares. The
measure applies to all ESS shares acquired under employee
shareholder agreements entered into on or after 17 March
2016. ESS shares acquired under existing arrangements will
not be affected and gains made on existing ESS shares will
not count towards the relevant limits (FB 2016 cl 77).
Employment intermediaries
Since 6 April, tax relief for travel and subsistence expenses
is denied where a worker personally provides services
to another person, under arrangements involving an
‘employment intermediary’ (FB 2016 cl 14).
Employment intermediaries are persons carrying on a
business of supplying labour (whether or not with a view
to profit and whether or not in conjunction with any other
business). These rules are not intended to apply to business
services groups providing broader services to their clients
which happen to involve people delivering those services.
They will not apply to any worker, if it can be shown that
the manner in which the worker provides his/her services
is not subject to supervision, direction or control (SDC) by
any person. Where the intermediary is a personal service
company (PSC), they will only apply to engagements
subject to IR35.
Entrepreneurs’ relief
A number of other changes have been introduced for
entrepreneurs’ relief (FB 2016 clauses 73–75 Sch 13). These
follow earlier changes in FA 2015 to restrict the relief in
certain circumstances in relation to associated disposals,
certain disposals of goodwill and joint venture companies/
partnerships. The changes were intended to prevent
avoidance, but their broad application meant that relief was
denied in some commercial circumstances. These changes
are backdated to apply from the dates the previous changes
took effect, i.e. in order to enable ER to be claimed in
certain commercial circumstances where it had previously
been denied.
Evasion and avoidance: increased sanctions
Higher penalties will apply for tax evasion and avoidance
(FB 2016 clauses 144–154), including:
a new criminal offence for tax evasion, which removes
the need to prove that there was an intention to evade
tax;
new civil penalties for deliberate offshore tax evaders
and those who enable offshore tax evasion, including
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Insight and analysis
increased public naming of evaders and enablers;
a requirement to correct historic non-compliance in
relation to offshore assets within a specified period of
time;
new measures targeted at individuals who repeatedly
enter into tax avoidance schemes that are successfully
challenged by HMRC. These include special reporting
requirements and penalties for these ‘serial avoiders’, as
well as publication of their names; and
an increased penalty of 60% of the tax due where
arrangements are successfully challenged under the
general anti-abuse rule.
These changes will come into force at future dates to be
determined. In addition various increased penalties in
respect of offshore matters set out in FA 2015 come into
force on 1 or 6 April 2016.
Farmers
On 6 April, the averaging period for self-employed farmers
was extended from two years to five years. Farmers now
have the option of averaging over either timeframe (FB
2016 cl 25).
Gaming duty
Gross gaming yield bands for gaming duty increased by RPI
on 1 April.
Income tax
The income tax personal allowances, basic rate limit and
higher rate threshold for the 2016/17 tax year have already
been announced and included in F(No. 2)Act 2015 (ss 5
and 6). The amounts are:
Tax year
Personal
allowance
Basic rate
limit
Higher rate
threshold
2015/16
£10,600
£31,785
£42,385
2016/17
£11,000
£32,000
£43,000
From 2016/17, the Scottish rate of income tax will be set
separately for Scottish taxpayers; however, for 2016/17 the rate
will be the same as for those resident elsewhere in the UK.
Investors’ relief
A new relief for investors, which bears similarities to
entrepreneurs’ relief (ER), has been introduced (FB 2016 Sch
14 cl 76). The new relief applies to individual non-employee
or director investors in unlisted trading companies. The new
relief applies a 10% rate of CGT to gains accruing on the
disposal of qualifying shares up to a lifetime limit of £10m of
qualifying gains. The issuing company must be an unlisted
trading company (or the holding company of a trading
group). This relief applies in addition to the existing ER
limit. The relief is designed to encourage outside investment,
so is only available for non-employees and directors. Unlike
entrepreneurs’ relief, there is no requirement that the
investor has a shareholding of over 5%.
The shares must be newly issued, issued on or after 17
March 2016, and held for at least three years from 6 April
2016 for the relief to be available.
Landfill Communities Fund
The cap on contributions by site operators into the Landfill
Communities Fund was reduced from 5.7% to 4.2% on 1 April.
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Landfill tax
Landfill tax rates increased by RPI on 1 April.
Loans to participators
The charge to tax on loans to participators in close
companies increased from 25% to 32.5% from 6 April
2016 (FB 2016 cl 46).
National insurance
The upper national insurance threshold is linked to the
higher rate threshold but the starting threshold remains
at £155 per week (£8,060 per annum) in 2016/17, as this
threshold is linked to the CPI rise to September 2015,
which was negative. Therefore many taxpayers, despite
moving out of income tax, will continue to pay national
insurance contributions. Higher rate taxpayers benefit more than basic rate
taxpayers from the increases in personal allowance and
basic rate limit, but some of the benefits will be clawed
back in the form of extra NICs because of the increase
in the upper earnings limit. Basic rate taxpayers will see
a saving of £80 in 2016/17 compared to 2015/16, and
higher rate taxpayers an overall £141. Those with income
of over £100,000 whose personal allowance is tapered
away will see extra cost of up to £19.
The ‘triple lock’ means that the main rate of income
tax and the rates of VAT and class 1 NICs will not
increase for the duration of this parliament. NICs rebate
Employers with contracted-out salary related (defined
benefit) pension schemes have been enjoying a 3.4% NICs
rebate for employers and 1.4% for employees. Pensions
Act 2014 s 24 brought the rebate to an end on 5 April
2016, costing private sector employers an estimated
£0.6bn in employer NICs, and £0.2bn in employee NICs;
and public sector employees a further £1.4bn. The change
is part of the introduction of the new state pension from
6 April 2016.
NICs and apprentices under 25
A zero rate of employer’s class 1 NICs for apprentices
under 25 was introduced on 6 April 2016 (SSCBA 1992
s 9B). To qualify, trainees must be taken on under an
approved apprenticeship framework.
This is separate from the new apprenticeship levy
being introduced in 2017, for which draft legislation was
published on 4 February. As currently drafted, the levy
will apply to everyone with a ‘pay bill’, which is defined
as anyone that would incur a liability to employer’s class
1 NICs ignoring the secondary threshold! The levy is
currently proposed to be 0.5% of a person’s total pay bill in
excess of their allowance (currently proposed to be £3m).
Orchestra tax relief
The new orchestra tax relief came into force on 1 April
(FB 2016 cl 50 Sch 8). This new tax relief for orchestral
production allows qualifying companies engaged in
the production of concerts to claim an additional
deduction in computing their taxable profits and,
where that additional deduction results in a loss, to
surrender those losses for a payable tax credit. Both
the additional deduction and the payable credit are
15 April 2016 |
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calculated on the basis of ‘EEA core expenditure’ up to
a maximum of 80% of the total ‘core expenditure’ by the
qualifying company. The additional deduction is 100%
of qualifying core expenditure and the payable tax credit
is 25% of losses surrendered. The credit is based on the
company’s qualifying expenditure on the production of a
qualifying orchestral concert. This expenditure must be
on activities directly involved in producing the concert,
such as rehearsal costs. Qualifying expenditure does not
include indirect costs such as financing, marketing and
accountancy and legal fees.
At least 25% of the qualifying expenditure must be on
goods or services that are provided for from within the
EEA. Concerts whose main purpose, or one of whose
main purposes, is to advertise goods and services, include
a competition or the primary purpose of which is to make
a recording will not qualify for relief. Payrolling benefits
The Income Tax (PAYE) Regulations, SI 2003/2682, have
been amended, with new chapter 3A allowing employers
to register for payrolling online, specifying which
benefits to payroll and to which employees receiving
those benefits payrolling will apply. The deadline for
2016/17 was 5 April 2016, beyond which it will not be
possible to register for next tax year, unless the employer
is registering to payroll a benefit which it is providing for
the first time.
Registered employers will be relieved not to have to
file P11Ds for formally payrolled benefits, but a summary
of payrolled benefits must still be provided to employees
by 31 May following each tax year. This is less formal than
a P11D and can be provided in any reasonable format.
Peer-to-peer (P2P) lending: relief for losses
Income tax relief has been introduced for losses made on
P2P lending (FB 2016 cl 32). The purpose of the relief is
to ensure that people who invest in P2P loans are subject
to income tax on the return they actually make (i.e.
interest received less the outstanding amount of loans
that become irrecoverable). Relief will be available on
losses realised from 6 April 2015. Relief for any losses
made in 2015/16 will need to be claimed. Relief will be
available automatically in some cases through the lending
platform from 6 April 2016. In order for relief to be
available, the loan must be made based on market rates
and conditions on an arm’s length basis.
Pensions: annual allowance
Since 6 April 2016, there are new restrictions for annual
pension contributions, which scale available relief from
£40,000 to £10,000 for those with income over £150,000
(including income covered by the dividend allowance
and personal savings allowance, and including employer
pension contributions). Those with income of over
£210,000 will receive the minimum allowance of £10,000
(F(No. 2)A 2015 s 23 Sch 4).
Pensions: lifetime allowance
The lifetime allowance is being further reduced to £1m
(FB 2016 cl 19, Sch 4). This means that it has been
reduced three times since the ceiling of £1.8m in 2011/12.
The limit of £1m applies equally to defined
contribution and defined benefit schemes. However for
| 15 April 2016
Insight and analysis
final salary schemes, the overall limit is calculated by
multiplying the pension payable by 20, which means that
the lifetime allowance of £1m equates to a final salary
pension of £50,000, ignoring any lump sum rights. This
is more than is likely to be generated from a defined
contribution ‘pot’ of £1m, which would for example
generate an annuity of around £27,000 with 5% growth. Personal savings allowance (PSA)
From 2016/17, the PSA is available (FB 2016 cl 4 Sch 6).
The PSA provides an exemption (a 0% tax rate) of £1,000
of interest received on an individual’s savings for basic
rate taxpayers, and £500 for higher rate taxpayers, giving
an equal saving for both of £200 per annum. Additional
rate taxpayers will not receive the allowance. From April 2016, tax is no longer withheld on interest
received from certain bank and building society accounts.
The PSA will mean that 95% of taxpayers will no longer
have a tax liability on this income but those who do will
need to understand the changes and budget to pay the tax
due in due course. This may mean that they will need to
file a self-assessment tax return for 2016/17.
R&D expenditure
From 1 April, qualifying R&D expenditure that does not
fall under the SME regime only qualifies for an R&D
expenditure credit (and not a super deduction) (FA 2013
s 35 Sch 15).
Scottish rate of income tax
Employers must make sure they apply S codes, which
indicate those employers who are Scottish taxpayers, if
notified by HMRC. Although income tax rates in 2016/17
are the same for Scottish taxpayers and taxpayers in the
rest of the UK, the use of S codes is required to ensure the
correct allocation of revenues.
Simple assessments
HMRC will have the power to make an assessment of an
individual’s income tax or capital gains tax, whether or
not they are within the self-assessment system (FB 2016
cl 155 Sch 23). The procedure allows HMRC to withdraw
the notice to file a self-assessment return if one has been
given and replace this with the simple assessment, which
will use information already available to HMRC, such
as details of employment income and savings income
provided by banks. This simple assessment will replace
the self-assessment normally provided by the taxpayer,
and the tax under it will be payable by 31 January
following the year of assessment, as for self-assessment
tax generally. If the individual considers the assessment
is incorrect, it will have to be appealed, otherwise it will
become binding. There will be a 60 day appeal period.
Stamp duty land tax (SDLT)
The additional 3% rate of SDLT for those purchasing
‘additional residential properties’ in England and Wales,
such as second homes and buy-to-lets, is due to apply
to completions from 1 April 2016, subject to some
transitional relief (FB 2016 cl 117).
The increased SDLT rate will apply where, at the end
of the day on which a property is acquired, the individual
concerned owns two or more residential properties and is
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not replacing his or her main residence, which has been
sold within the last 18 months. Married couples and civil
partners (unless they are separated in circumstances likely
to be permanent) will be treated as a single unit for this
purpose.
The 3% additional SDLT rate will also apply where an
individual has sold their main residence and it takes them
more than 36 months to complete the purchase of a new
one, provided of course that the individual has more than
one property at the end of the day the new property is
acquired.
Where property is being purchased jointly, the
additional 3% SDLT rate will apply to the entire value of
the additional property if any of the joint owners already
own a residential property.
In Scotland a supplementary transaction tax of 3%
(now called the additional dwelling supplement (ADS))
will apply to second homes or buy-to-let properties.
Transfer pricing
The transfer pricing guidelines were updated on 1 April
2016. The OECD published revisions to the 2010 version
of the OECD transfer pricing guidelines on 5 October
2015. Legislation introduced in FB 2016 cl 71 updates
references to the new guidelines for corporation tax
purposes for accounting periods beginning on or after 1
April 2016 and for income tax purposes for 2016/17 and
later years of assessment.
Trivial benefits exemption
It looks like the new exemption for trivial benefits will
finally make it into statute, at ITEPA 2003 s 323A (FB
2016 cl 13). Although it’s a small amount, at £50 per
benefit per person, the administrative saving this brings
to employers is considerable.
There are of course conditions, including that:
the benefit cannot be cash or a cash voucher (non-cash
vouchers are acceptable);
TJ topics: Brexit
Examining the potential
impact of a UK exit from the
EU on the UK tax system.
it must not be provided pursuant to a relevant salary
sacrifice arrangement; and
it must not be provided in recognition of or
anticipation of an employee’s particular services.
As a safeguard, s 323B will impose an annual limit
of £300 on officers (past or present) of close companies.
This limit will also extend to employees of close
companies who are members of the family or household
of such officers.
VAT thresholds
From 1 April, the VAT registration threshold and the
VAT threshold for intra-Community acquisitions
increased from £82,000 to £83,000. The VAT
deregistration threshold increased from £80,000 to
£81,000.
Vehicle excise duty (VED)
VED rates increased by RPI on 1 April.
Wear and tear allowance
In April 2016, legislation came into force to repeal
the wear and tear allowance provisions and make
new provision for a deduction for the replacement of
domestic items such as furnishings and appliances in
a let dwelling house (FB 2016 cl 70). The changes will
apply for expenditure from 6 April 2016 for individuals
and 1 April 2016 for companies. Those involved will now
need to keep accurate records of such expenditure in
order to claim the allowance correctly. ■
For related reading visit www.taxjournal.com
!
Your guide to Finance Bill 2016 (Claire Hooper, 30.3.16)
!
Budget 2016: A to Z guide of the key tax announcements (17.3.16)
!
Review of Finance (No. 2) Act 2015 (Claire Hooper, 18.11.15)
!
Finance Act 2015: overview (Claire Hooper & Chris Sanger, 23.4.15)
With the outcome of the referendum
currently too close to call, there is a
strong chance that ‘Brexit’ may become a
reality. The resulting tax impact may not
rank as highly as immigration or trade
concerns, but it is an important issue
nonetheless.
These three must-read articles,
written by leading experts, examine the
potential impact of a UK exit from the EU
on the UK tax system:
What ‘Brexit’ could mean for the UK
tax system – What will have to change,
and what will stay the same?
VAT and customs duty considerations
– The potential changes to bottom line
costs; new compliance issues and
requiring changes to businesses’
systems.
UK tax policy considerations – If Brexit
does takes place, will the UK’s tax
regime face greater competition as a
holding company and business
jurisdiction, and how should it
respond?
To view these articles, visit www.taxjournal.com/tj/Brexit
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15 April 2016 |