Technical and Insight
The Chancellor is finally thinking small first
ACCA gives its view on the Chancellor’s eighth budget.

ACCA gives its view on the Chancellor’s eighth budget 

Any bad news was kept to a minimum with the referendum so close, but there was a clear focus on small businesses and young people, although it is less clear where the money will come from, says Chas Roy-Chowdhury, ACCA head of taxation. 

'The Chancellor expects to raise an extra £12bn from tax avoidance and evasion, which will be a stretch given the lack of extra resources for HMRC. It may well be that the Autumn Statement later in the year becomes 2016 Budget number 2.' 

Personal allowances
'This was one small giveaway he couldn’t resist. Raising the personal allowance is actually a little bit of smoke and mirrors. With the new living wage being introduced in April, raising the point at which people start paying tax is pretty much retaining the status-quo when you remember that the lowest paid would have had an increased tax bill due to the increase wage. It’s another example of the Chancellor trying to make people feel better about their finances but actually it’s pretty much no change from before his speech. The raise in the 40% threshold was to be expected, since 1990 the numbers of people being dragged in to the higher tax bracket has increased from 500,000 to 5m.' 

Pensions
'We are very pleased that he chose not to make too many changes to the pensions system. The introduction of the pension ISA for the under 40s won’t make a huge difference to the system and may well encourage more people to save. The danger is that he will use this in the future to replace the existing system.'  

Business rates review
'Finally we’ve seen some movement on this, with business rates relief more than doubled to £15,000, meaning more than 600,000 small businesses will pay not business rates at all. This will be welcomed by the high street. The decision to devolve business rates to the Greater London Authority in London by 2017 is interesting. It is right that rates are retained by the area in which they are paid, although we could end up with areas of the same countries competing against each other, and when you have competition there is always a loser.' 

Business tax road map
We are pleased the government is doing more to support businesses. We welcome the proposed 17% Corporation Tax rate by 2020, as it will help move more multinational company headquarters to the UK. The government needs to ensure that the debate around the patent box and a BEPS++ (Base Erosion and Profit Shifting) position coming out of the EU are dealt with effectively and do not create uncertainty in the UK.

North Sea
'We are pleased that the Chancellor has cut the Supplementary Charge from 20% to 10% and all but abolished the Petroleum Revenue Tax, but he could and should have gone further and abolished it completely, rather than ‘all but abolishing it’.' 

Stealth taxes
The Chancellor is very fond of a stealth tax, they tend to be slipped in quietly, the rise in insurance premium tax of 0.5% was ushered in under the guise of flood defences and will affect anyone who has home or car insurance wherever they live. 

Fuel Duty freeze 
'The Chancellor has been lobbied hard by his back benchers and the transport sector, so it’s no surprise he’s chosen not to return to the pattern of fuel duty rises, set in place by the previous Labour government. Until last year we’d seen continually rising oil prices. The fall, combined with a continued freeze in duty, has provided welcome relief to domestic and commercial drivers.' 


All quotes are from Chas-Roy-Chowdhury, ACCA head of taxation. Chas also appeared on Radio 4's Money Box programme to discuss the Budget.

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Property taxes
The measures impacting landlords are significant, affecting the purchase price and allowable deductions.

The measures impacting landlords are significant, as they affect the purchase price and allowable deductions. 

In summary these are: 

Restriction on mortgage interest deduction
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their rental profits. The relief in respect of finance costs will be restricted as follows:

2017/18

75% allowed

25% basic rate

2018/19

50% allowed

50% basic rate

2019/20

25% allowed

75% basic rate

2020/21

Nil

100% basic rate


You can view an example of the tax implications for a basic and higher rate taxpayer. 

The end of wear and tear allowance
From 5 April 2016, the wear and tear allowance, and the renewable allowance for property business, will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected. 

Higher stamp duty land tax (SDLT) to additional residential properties
The higher rates (3% above the current SDLT) will apply to additional residential properties purchased in England, Wales and Northern Ireland on or after 1 April 2016.
 

Band                     

Existing residential SDLT rates

New additional property SDLT rates

Up to £125K

0%

3%

£125k - £250k

2%

5%

£250k - £925k

5%

8%

£925k - £1.5m

10%

13%

Over £1.5m

12%

15%

 
There are currently four exemptions from the additional rate: 

  • replacing a main residence
  • transactions under £40,000
  • purchase of a non-residential property
  • bulk purchase of at least 15 residential properties.


Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. 

SDLT: for non-residential property
The measure changes the rules for calculating the SDLT charged on purchases of non-residential properties, and transactions involving a mixture of residential and non-residential properties. At present, for purchases of freehold, the assignment of an existing lease – and for the upfront payment (premium) on a new leasehold transaction – SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. 

On transactions on and after 17 March 2016, SDLT will be charged at each rate on the portion of the purchase price that falls within each rate band. 

The new rates and thresholds for freehold purchases and leases premiums are:
 

Transaction value band

Rate

£0–£150,000

0%

£150,001–£250,000

2%

£250,000+

5%


The new rates bands and thresholds for rent paid under a lease are:
 

Net present value of rent

Rate

£0–£150,000

0%

£150,001–£5,000,000

1%

£5,000,000+

2%

Directors’ overdrawn loan account tax increase
Rate of tax charged on loans to participators will increase.

Rate of tax charged on loans to participators will increase. 

From 6 April 2016 the rate of tax charged on loans to participators (currently 25%) will increase to 32.5%. 

The current law is contained in section 455 and section 464A of Corporation Tax Act 2010. 

The new rates will apply to loans made and benefits conferred by close companies on or after 6 April 2016. 

There is an unclear statement which says that for ‘accounting periods which straddle 6 April 2016 different rates will be applied to separate loans made or benefits conferred before, and on or after, 6 April 2016’.

Capital gains tax reduction
Legislation will be introduced to reduce the 18% and 28% rates of CGT.

Legislation will be introduced to reduce the 18% and 28% rates of CGT. 

Legislation will be introduced in the Finance Bill 2016 to reduce the 18% and 28% rates in those provisions to 10% and 20% respectively. It has been stated that this ‘will be subject to exclusions for chargeable gains on disposals of residential property that do not qualify for private residence relief and receipt of carried interest.’ 

Rules are promised on how mixed-use property will be taxed. 

Provisions will make clear that a residential property interest includes an interest in land that has at any time in the person’s ownership consisted of or included a dwelling and an interest in land subsisting under a contract for an off-plan purchase. 

Rules will set out how gains should be calculated in the case of mixed-use properties.

Coming soon – new tax on dividends
Tax free allowance of £5000 to be introduced next month.

Tax free allowance of £5000 to be introduced next month. 

April 2016 sees the (non-reclaimable) 10% tax credit that has been carried with dividends since April 1999 scrapped and replaced with a new tax-free dividend allowance. The allowance of £5,000 is available to anyone who has dividend income. 

Tax is payable on dividends over £5,000 at the following rates: 

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band


Things to remember:

  • dividend income paid within an ISA remains tax free and does not form part of the £5,000 allowance
  • dividends may be partially taxed at 0% but will still be included in the total taxable income, and so may affect the tax rates for dividends received in excess of £5,000 and other non-dividend income.


Examples of how the new dividend tax will work
Where appropriate to the calculations, the examples use the limits that will apply from April 2016: 

  • personal allowance: £11,000
  • basic rate limit: £32,000


Example 1
Dividend income less than £5,000
There will be no tax on the dividend income as it is within the new dividend allowance. 

Example 2
General taxable income of £20,000 and dividend income of £6,000
Dividend income of £1,000 (£6,000–£5,000) will be at 7.5% (basic rate band) 

Example 3
General taxable income of £40,000 and dividend income of £9,000
General income                                           £40,000
Less personal allowance                             £11,000
Leaving amounts taxable at basic rate      £29,000 

This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed (£32,000– £29,000). 

The dividend allowance is then used:
Dividend income: £9,000
Less dividend tax allowance: £5,000
Leaving: £4,000 of dividend income to be taxed at higher rate (32.5%)

Treatment of tax interest changing
From April interest will be paid to savings accounts gross.

From April interest will be paid to savings accounts gross. 

At present, in general, banks and building societies deduct 20% tax from the interest earned on non-ISA savings before paying the interest to the account holder. 

From 6 April 2016 banks and building societies will not deduct tax from interest received, so all interest will be paid or credited to the savings accounts gross. 

Personal savings allowance
From 6 April 2016 personal savings allowances are being introduced as follows:  

  • a basic rate taxpayer will be able to receive up to £1,000 of interest per year tax free on their savings
  • a higher rate taxpayer will be able to receive up to £500 of interest per year tax free on their savings
  • an additional rate tax payer will not have a personal savings allowance.


Examples
                             

Earnings             Interest Received         Treatment from 6 April 2016
£20,000                £250                                No tax to pay on interest as £250 within the £1,000 personal savings allowance
£20,000                £1,400                            Interest exceeds personal savings allowance by £400, so tax on this at the taxpayers’ marginal rate of 20% would amount to £80
£70,000                £450                               No tax to pay on interest as £450 within the £500 personal savings allowance
£70,000                £2,100                            Interest exceeds personal savings allowance by £1,600, so tax on this at the taxpayers’ marginal rate of 40% would amount to £640.


Effect on notice of coding
For taxpayers under the PAYE regime, in general they will have their tax code adjusted to collect tax due on interest received in excess of their personal savings allowance. However, many taxpayers have received adjustments that are not applicable. 

HMRC has produced a brief guide with further information.

 

 

Lifetime ISA for first home purchases

Young savers can save £4,000 per annum and get 25% bonus from the government.


Young savers can save £4,000 per annum and get 25% bonus from the government. 

Up to £4,000 can be saved each year. The government will pay in a 25% bonus on these contributions at the end of the tax year. 

Savers will be able to make Lifetime ISA contributions and receive a bonus from the age of 18 up to the age of 50. 

Tax free funds, including the government bonus, can be used to buy a first home worth up to £450,000 at any time from 12 months after opening the account. The funds, including the government bonus, can be withdrawn from the Lifetime ISA from age 60 for any other purpose.

Individuals will be able to transfer savings from other ISAs as one way of funding their Lifetime ISA. In line with existing rules, transfers from previous years’ ISA contributions do not affect that year’s £20,000 overall ISA limit. During 2017/18 only, additional transfers may be made and matched from the Help to Buy ISA. 

The Help to Buy ISA will be open for new savers until 30 November 2019, and open to new contributions until 2029. Savers will be able to save into both a Help to Buy ISA and a Lifetime ISA, but will only be able to use the government bonus from one of their accounts to buy their first home. 

Full or partial withdrawals can be made from age 60 and used for any purpose and will be free of tax. Funds may remain invested and any interest and investment growth will be tax-free. 

Tax free withdrawals will also be allowed where people are diagnosed with terminal ill health. 

Upon the death of the account holder, the funds will form part of the estate for inheritance tax purposes. Their spouse or civil partner can also inherit their ISA tax advantages and will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance. 


Other ISAs
The total amount which can be saved each year into all ISAs will increase from £15,240 to £20,000 from April 2017. Therefore if someone saves £4,000 in a Lifetime ISA in 2017/18 that person will also be able to save up to £16,000 in other ISAs in that year.

Entrepreneurs’ relief on goodwill on incorporation

Entrepreneurs’ relief amended to allow increased relief in joint ventures and partnerships.


Entrepreneures' relief amended to allow increased relief in joint ventures and partnerships.

This will apply to disposals on or after 3 December 2014 and will be introduced in the Finance Bill 2016. Entrepreneurs’ Relief (ER) can be claimed in respect of gains on goodwill where the claimant holds less than 5% of the shares, and less than 5% of the voting power in the acquiring company. 

This ‘holding condition’ will replace the requirement in section 169LA of the Taxation of Chargeable Gains Act 1992 that the claimant must not be a ‘related party’ in relation to the company. 

Relief will also be due where the claimant holds 5% or more of the shares or voting power if the transfer of the business to the company is part of arrangements for the company to be sold to a new, independent owner.

Making tax digital
Comments on ‘making tax digital’ were vague. Find out the latest, plus the thoughts of one ACCA practitioner.

Comments on ‘making tax digital’ were vague. Find out the latest, plus the revealing thoughts of one ACCA practitioner.  

Hidden away there was a comment that ‘from 2018 businesses, self-employed people and landlords who are keeping their records digitally and providing regular digital updates to HMRC will, if they wish, be able to adopt pay-as you-go tax payments – this will enable them on a voluntary basis to choose payment patterns that suit them and better manage their cashflow.’ 

Let’s hope that ‘if they wish’ and ‘voluntary’ extends to reporting for all business. 

ACCA has highlighted the findings of the government report Digital Exclusion & Assisted Digital Research to understand digital access, use and skills among the UK population

These clearly show that the majority of the 1.95m taxpayers who need their hand held is a lot of somebody’s non-productive time. The digitally excluded population of around 800k will take significantly more resource per taxpayer for a workaround, especially the 62% of them who say ‘nothing would make them more likely to use the internet for government services’. 

HMRC cites success with its volunteers, but they are not going to affect success of adoption of a compulsory filing regime. They are by definition early adopters and digitally aware. 

What matters is what would break a compulsory quarterly return policy, and whether the government adopts a constructive, caring and supportive approach or just ploughs on without the regard or understanding on how this impacts businesses and business growth. 

Case study
We continue to receive feedback that reinforces the burden of compulsory quarterly returns. Last week a member highlighted that of his 400 self-assessment clients, the vast majority were small businesses or landlords. Most will fall within the proposed making tax digital regime. Of these, only two use bookkeeping software which would require no significant adjustment, although they would still like the practice to help them. 

Of the remaining clients, approximately: 

  • 10% have their VAT return prepared by the practice – mainly using Excel then by manually logging into HMRC’s online services and keying in the VAT returns
  • 40% maintain their own VAT records using spreadsheets and log into HMRC online to manually input their VAT returns
  • 50% maintain their own VAT records on paper. Of these:
    • 25% phone their figures to the practice, which manually logs into HMRC and inputs the VAT return figures
    • 65% log into HMRC online themselves and manually input their VAT returns.
    • 10% rely on friends/neighbours/relatives to manually log into HMRC online on their behalf to manually input their VAT return figures. 


Less than 1% of clients maintain data in a digital format that can seamlessly be transmitted to HMRC. 

The key thoughts expressed by this practitioner are: 

  • HMRC is missing the key point that most records are not currently maintained digitally
  • HMRC is naïve thinking clients will maintain their own records using smartphones. Clients don’t have the time
  • Businesses cannot afford making tax digital and I for one oppose it.


Your thoughts
What do you think? Please share any thoughts on the policy with ACCA via email

 

IR35 – the end of the flexible workforce
Are the changes announced just the first phase and what more can we expect?

Are the changes announced just the first phase and what more can we expect? 

On 14 March David Gauke said: ‘The government is considering responses to the discussion document published last July on how to improve the effectiveness of the existing intermediaries’ legislation (IR35). As set out in the discussion document, the government’s objective is to find a solution that protects the Exchequer and improves fairness in the system without creating disproportionate burdens on businesses.’ 

This is what was said in the discussion document issued in July: ‘The government, therefore, wants to consider options to reform the legislation with the following objectives: 

  • the need to protect the Exchequer
  • levelling the playing field between those who are employed directly and those who would be employed directly if they were not operating through their own company.


Making the legislation as straightforward to comply with as possible – and not creating disproportionate burdens on businesses or individuals – will be core principles in designing any change. It is also not the government’s intention to widen the scope of IR35.’ 

The government also said before the above ‘many PSCs would not fall within the legislation because the worker would properly be regarded as self-employed’. 

Julie Deane, in her report to government on self-employment, highlighted that the ‘lack of a formal definition of self-employment should not be an issue for individuals seeking to set up their own business.’ She suggested that ‘The description of “self-employed” applies to a wide variety of individuals and sectors and there is currently no clear understanding of the employment status within many of these groups. The lack of a legal definition of self-employment is causing an issue. Simplification and clarification with a single definition for tax and employment law is desired and should be considered.’ 

With evidence and calls from business what did the chancellor decide?
The decision was made to reform IR35 legislation for public sector engagements – by moving the liability to pay the correct employment taxes from the worker’s own company to the public sector body or agency / third party paying the company. HMRC will also work in partnership with stakeholders to develop a new tool that will make the decision on whether or not the rules should apply as simple as possible and provide certainty. This will be following consultation in the Finance bill 2017. 

The public sector is defined under broad categories (this is not an exhaustive list):
 

  • government departments, legislative bodies, armed forces
  • local government
  • NHS
  • schools and further and higher education institutions
  • police
  • other public bodies (listed in a schedule including bodies such as The British Museum, BBC, Channel 4)
  • publically-owned companies (wholly owned by the Crown and/or the wider public sector such as Transport for London).


The chancellor has sent out a message that for public sector engagements it is those who engage the ‘worker’ who will be responsible. So no legal definition – just more information to gather for these entities and those with whom they do business. 

It is a long way from the simplicity that is needed! 

 

Capital Gains Tax: Entrepreneurs' relief for a long term investor
Good news! Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies.

Good news! Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. 

This new investors’ relief will apply a 10% rate of Capital Gains Tax (CGT) to gains accruing on the disposal of ordinary shares in an unlisted trading company held by individuals, that were newly issued to the claimant and acquired for new consideration on or after 17 March 2016, and have been held for a period of at least three years starting from 6 April 2016. 

In order to qualify for relief, a share must: 

  • be newly issued, having been acquired by the person making the disposal on subscription for new consideration
  • be in an unlisted trading company, or unlisted holding company of trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continually for a period of three years before disposal.


The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10m per individual. Rules will ensure that this limit applies to beneficiaries of trusts. 

Because the relief is designed to attract new capital into companies, avoidance rules will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes. 

Entrepreneurs' Relief on associated disposals
Legislation will be introduced in Finance Bill 2016 to allow Entrepreneurs’ Relief to be claimed on an ‘associated disposal’ of a privately-held asset when the accompanying disposal of business assets is to a family member. Relief can also be claimed in some cases where the disposal of business assets does not meet the present 5% minimum size condition.

ISAs and the next year
Savers will be able to re-invest withdrawals into ISAs.

Savers will be able to re-invest withdrawals into ISAs.  

The announcement about a lifetime ISA for first home purchases is covered separately. 

From 6 April 2015 to 5 April 2016 the annual amount which can be paid into an Individual Savings Account (ISA) has been £15,240. This can be in a cash ISA, a stocks and shares ISA or any mix of both types of ISA. Withdrawn funds cannot be replaced by paying more into an ISA unless still within the £15,240 annual allowance. For example, if during the year to 5 April 2016 £14,000 was paid into an ISA then £5,000 was withdrawn only a further £1,240 would be able to be paid into the ISA (i.e. £15,240 less £14,000). 

Changes from 6 April 2016
From 6 April 2016 savers will effectively be able to re-invest withdrawals into ISAs if within the same tax year. For example, if during the year to 5 April 2017 £14,000 was paid into an ISA then £5,000 was withdrawn a further £6,240 would be able to be paid into the ISA (i.e. £15,240 less (£14,000 less £5,000)). Each tax year will be considered in isolation so for the following year to 5 April 2017 withdrawals and contributions in the previous tax year will be ignored. 

Not all banks and building societies may be able to offer this additional flexibility, even though they are allowed to under the new regulations. 

Help to Buy ISAs
These were introduced from 1 December 2015 and are available to first-time residential property buyers. Such savers, when saving for a deposit, receive a £50 contribution from the government for every £200 the individual contributes subject to a maximum government contribution of £3,000. Savers can pay up to £200 per calendar month into a help to buy ISA except for the first month the account is opened when an extra £1,000 can be paid in making £1,200 in total for that month. These are only available to first time home buyers, so are not available to people who already own a property or have done in the past. 

The government bonus is only paid when the property is purchased so will not be paid if the money is used for another purpose. It is not limited to newly built homes although the property should cost no more than £250,000 or £450,000 if buying in London. 

If purchasing a property with other first time buyers, each first time buyer is entitled to this account and the government bonus. So if two first time buyers purchasing a home together, each would be entitled to a bonus of up to £3,000 making £6,000 in total.

State pension - and the over 50s
The government is advising that ‘if you’re 50 or over, you should apply for your pension statement’.

The government is advising that ‘if you’re 50 or over, you should apply for your pension statement’. 

The new state pension is based on National Insurance contributions or credits on your National Insurance record before 6 April 2016. Those who up to April have ‘contracted out’ will in the main find that they receive a lower state pension. 

The online service to check your pension is accessed via the government gateway where you can check your state pension and find out what can be done to improve it. 

One of the areas to consider is if it would be beneficial to make extra contributions, with extended time limits to ‘fill in gaps in tax years which are not already qualifying years’. Instead of payment filling in gaps in the previous six years, there are special arrangements if you reach state pension age on or after 6 April 2016. 

You have until 5 April 2023 to pay voluntary contributions to make up gaps between April 2006 and April 2016.

Pension Input Period (PIP) changes
PIP to be aligned with tax year from April.

PIP to be aligned with tax year from April. 

The annual allowance applies to the total pension contributions made to an individual’s schemes and/or benefits built up over a period called the pension input period that ends during the tax year. 

A pension input period normally lasts for one year, but doesn’t necessarily cover the same dates as a tax year. The pension input period is specific to each pension arrangement so an individual with a number of pension schemes may have different PIPs for each. The pension provider or scheme administrator should be able to provide the amount of contributions or value of accrued benefits during the pension input period. 

From 6 April 2016 the pension input period will be aligned with the tax year as explained in more detail in this guidance from HMRC.  

Residence nil-rate band
Changes to the nil-rate band when an individual downsizes their property.

Changes to the nil-rate band when an individual downsizes their property. 

Legislation in the Finance Bill 2016 provides that where part of the main residence nil-rate band might be lost because the deceased had downsized to a less valuable residence – or had ceased to own a residence on or after 8 July 2015 – that part will still be available provided the deceased left that smaller residence, or assets of equivalent value, to direct descendants. However, the total amount available will not exceed the maximum available residence nil-rate band. 

Transferable main residence allowance
Everyone in the 2016/17 tax year has a tax-free inheritance tax (IHT) allowance of £325,000. The allowance has remained the same since 2010/11, and will stay frozen until the end of 2020/21. 

The chancellor announced a new transferable main residence allowance, which will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21. This is in addition to the main nil-rate band. It will effectively raise the IHT-free allowance to £500,000 per person. 

The value of the main residence nil-rate band for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such a mortgage) or the maximum amount of the band. The maximum amount will be phased in so that it is: 

  • £100,000 for 2017/18
  • £125,000 for 2018/19
  • £150,000 for 2019/20
  • £175,000 for 2020/21.


Where married couples jointly own a family home and want to leave this to their children, the total IHT exemption will be £1m. 

The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify, if there is more than one in the estate. A property that was never a residence of the deceased, such as a buy-to-let property, will not qualify. 

A direct descendant will be a child (including a stepchild, adopted child or foster child) of the deceased and their lineal descendants. 

A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred. 

If the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2m, the additional nil-rate band will be tapered away by £1 for every £2 that the net value exceeds that amount. The taper threshold at which the additional nil-rate band is gradually withdrawn will rise in line with CPI from 2021 to 2022 onwards. 

IHT – domiciled
From 5 April 2017, individuals who are born in the UK to parents who are domiciled here, and who have acquired a domicile of choice elsewhere, will be treated for IHT purposes as domiciled in the UK if at any time they were resident in the UK in at least one of the two previous tax years. 

The government will also legislate so that from April 2017 anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for all tax purposes. This is being reduced from the current 17 year deemed domicile rule for IHT. 

IHT – resident but non-domiciled
The chancellor announced a number of important changes to the tax treatment of individuals who are resident but not domiciled in the UK. Such individuals currently benefit from a number of tax advantages, such as exemption from UK IHT on assets situated outside the UK and, in some cases, only being taxed on overseas income and gains if those amounts are remitted to the UK. 

From April 2017, IHT will be payable on all UK residential property owned by non-domiciles, regardless of their residence status for tax purposes, including property held indirectly through an offshore structure.

Employment allowance

The employment allowance is increased. But by how much?


The employment allowance is increased from £2000 to £2000. 

The Employment Allowance (Increase of Maximum Amount) Regulations 2016 increase the employment allowance from £2,000 to £3,000 while The Employment Allowance (Excluded Companies) Regulations 2016 now exclude limited companies where the director is the sole paid employee from April.

Increased pension flexibility
The great pension revolution has been put on hold, but for how long?

The great pension revolution has been put on hold, but for how long? 

Direct pension changes were limited to tidying up a few areas where the legislation failed to work as intended. These current rules and changes are:  

Current law

  • Serious ill-health lump sums can be paid only out of funds that have not been accessed. If a serious ill-health lump sum is paid to an individual who has reached age 75, it is taxed at 45%. Dependant’s drawdown pension and flexi-access drawdown pension may be paid following the death of a member to the member’s child who has not reached age 23.
  • Where the member has no dependants a charity lump sum death benefit may be paid out of their drawdown or flexi-access drawdown pension funds irrespective of their age at death.
  • Trivial commutation lump sums can be paid out of defined benefits funds whether or not the funds have been accessed.
  • An uncrystallised funds lump sum death benefit must be paid out of money purchase funds valued at the member’s death. Cash balance benefits are money purchase benefits that are not calculated on the basis of contributions to the scheme. They may be paid as an uncrystallised funds lump sum death benefit but the payment according to the scheme rules will be the amount promised to fund the benefits of the beneficiary.


Proposed revisions announced
Legislation will be introduced in Finance Bill 2016 to amend Finance Act 2004 for the following areas: 

  • Serious ill-health lump sums – if an individual would meet the requirements to take a serious ill-health lump sum but for the fact that they have accessed their pension, they will be able to take the remaining funds that have not been accessed as a serious ill-health lump sum. Where a serious ill-health lump sum is paid to an individual who has reached age 75, it will be taxable at that individual’s marginal rate rather than at a flat rate 45%.
  • Dependant’s drawdown and flexi-access drawdown – where an individual has a dependant’s drawdown pension fund or dependant’s flexi-access drawdown fund because they are a child under the age of 23 of the member who has died, they will be able to continue to receive drawdown pension or flexi-access drawdown pension as authorised payments after reaching age 23. This would ensure that a child dependant who continues to draw down from their fund when they have reached age 23 does not have tax charges of up to 70% on any payments received from that date, and aligns their tax treatment with that of a nominee of the member.
  • Charity lump sum death benefit – a change is made to align the tax treatment of a charity lump sum death benefit after a member has died under the age of 75 whether paid out of drawdown pension funds and flexi-access drawdown funds or out of funds that have not been accessed (uncrystallised funds). The need to pay an uncrystallised funds lump sum death benefit a drawdown pension fund lump sum death benefit or a flexi-access drawdown fund lump sum death benefit within two years when it is paid to a charity is also removed.
  • Trivial commutation lump sum – a change is made so that a trivial commutation lump sum may be paid out of a money purchase scheme pension that is already in payment.
  • Cash balance – where a member dies and the scheme must top-up the remaining funds to meet the entitlement of the member’s beneficiaries to an uncrystallised funds lump sum death benefit under the scheme rules, the full amount of the lump sum death benefit will be an authorised payment.
Scottish income tax
From 6 April 2016, taxpayers pay the Scottish rate of income tax if they live in Scotland.

From 6 April 2016, taxpayers pay the Scottish rate of income tax if they live in Scotland. 

This means that some of their income tax will be paid to the Scottish government. Employees’ and pensioners’ tax code will have the letter ‘S’. This should be at the beginning of the code, but for some it is at the end. 

There is a box on the self-assessment tax return for the 2016 to 2017 tax year to inform HMRC if you fall within Scottish rate of income tax. 

The good news is that the Scottish rate of income tax is 10% and taxpayers pay the same overall rate of income tax as people in the rest of the UK, whether they pay the basic, higher or additional rates. Taxpayers are liable to the Scottish rate from April 2016 if:
 

  • they move to or away from Scotland
  • they live in a home in Scotland and one elsewhere in the UK (eg for work)
  • they don’t have a home and stay in Scotland regularly (eg stay offshore or in hotels).


There have been a number of issues with taxpayers not receiving notices. Notices under the annual coding continue to be sent out, but problems have been encountered. This includes an issue whereby businesses expecting to receive a new Scottish tax code for employees have not been seeing this information when they download notices via their third-party software. HMRC has said that it will re-issue P9s and this error will be corrected by midday on Thursday 17 March 2016. Employers will receive an email alert notifying them that a new P9 is available.

HMRC has said that taxpayers must update their address with HMRC if their main home is in Scotland and they don’t get a letter from HMRC informing them that they are a Scottish taxpayer. 

Company cars and benefits in kind
Purchasing a company car – check the benefits in kind increases.

Purchasing a company car – check the benefits in kind increases. 

This increase will take effect from 6 April 2017 for cars with no registered CO2 emissions which are unable to produce CO2 under any circumstances by being driven, and from 6 April 2019 for all other cars. 

For cars which have neither a CO2 emissions figure nor an engine cylinder capacity and which cannot produce CO2 emissions in any circumstances by being driven the rates will be as follows: 

  • From 6 April 2017 to 5 April 2018 – 9%
  • From 6 April 2018 to 5 April 2019 – 13%
  • From 6 April 2019 – 16%.


For other cars with CO2 emissions the graduated table of company car tax bands will increase from 6 April 2019 as follows:  

  • Cars with emissions of 0-50g CO2 per km – 16%
  • Cars with emissions of 51-75g CO2 per km – 19%
  • Cars with emissions of 76-94g CO2 per km – 22%
  • A 3% increase for each rise in emissions of 5g CO2 per km from 95g CO2 to the existing maximum of 37%.


For other cars without a CO2 emissions figure and for cars first registered before 1 January 1998, from 6 April 2019 the appropriate percentage for the bands will be:

  • Cylinder capacity of up to 1,400cc – 23%
  • Cylinder capacity of more than 1,400cc and no more than 2,000cc – 34%
  • Cylinder capacity of more than 2,000cc – 37%.
Salary sacrifice arrangements
Find out which benefits will remain untouched.

Find out which benefits will remain untouched. 

Due to the high increase of clearance requests for salary sacrifice arrangements, the government is 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 cycle to work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.

Companies carrying forward losses
Loses can be offset against profits from April 2017.

Loses can be offset against profits from April 2017. 

The chancellor announced that companies that incur losses on or after 1 April 2017 and carry them forward, will be able to use those loses against profits from other income streams or from other companies within a group. 

Also, from 1 April 2017, the amount of profit that can be offset through losses carried forward will be restricted to 50% and this will only apply to profits in excess of £5m.

Gift aid
New limit for GASDS payments

New limit for GASDS payments. 

Gift Aid Small Donations Scheme (GASDS) top-up payments are restricted to a maximum small donations limit of £8,000 per tax year after 6 April 2016 for eligible charities and CASCs. As a reminder, GASDS:
 

  • allows charities and CASCs to claim a Gift Aid style payment on small cash donations where it would be difficult to collect donors’ details on a Gift Aid declaration
  • is for small donations – those of £20 or less
  • doesn’t require individual donors to complete a Gift Aid declaration
  • doesn’t require the charity or CASC  to provide the donors’ details with their claim for a top-up payment.


View the GASDS rules
, including the rules for connected charities.

 

Changes to benefits in kind for zero-emission vehicles
Van benefit charge for zero-emission vehicles remains at 20% rate.

Van benefit charge for zero-emission vehicles remains at 20% rate. 

When a van is made available to an employee by reason of his employment and is also made available for private use (other than for restricted private use), then a benefit in kind will arise. The benefit is subject to tax on the employee and Class 1A National Insurance contributions on the employer. 

For the period 6 April 2010 to 5 April 2015, the legislation provided for a van benefit charge of nil for zero-emission vans. The Finance Act 2015 introduced a tapered increase in the level of the van benefit charge for zero-emission vans through applying an appropriate percentage to the charge applying to conventionally fuelled vans, starting at 20% for the year 2015/16. 

The level of the appropriate percentage was currently due to increase to 40% in 2016/17; 60% in 2017/18; 80% in 2018/19 and 90% in 2019/20 until the charge applying to conventionally fuelled vans applies to zero-emission vans in 2020/21. 

Legislation will be introduced in the Finance Bill 2016 to retain the appropriate percentage of 20% for the tax years 2016–17 and 2017–18 and deferring further increases to the level of the appropriate percentage until later years. 

Farmers’ averaging profits
The essential features of new averaging requirements.

The essential features of new averaging requirements. 

New farmers’ averaging requirements will appear in the Finance Bill 2016 that will apply from April 2016. The essential features will be: 

  • no requirement for a volatility test
  • no requirement for an annual claim
  • irrevocable opt in election for five years
  • transitional averaging for newer businesses.


This means an averaging claim for 2016/17 will result in averaging 2012/13 to 2016/17 being calculated through five years.

 

NEWS
New BPP online CPD centre
Following the launch of the new BPP online CPD centre take advantage of 20% off the entire course catalogue.

We are very pleased to announce the launch of the new BPP online CPD centre and a fantastic offer of 20% off the entire course catalogue from now until 30 April 2016 for ACCA members. 

The new online CPD centre is a stylish and innovative platform containing over 150 high-quality online courses and learning packages offering the ultimate choice and flexibility for your professional development. 

Explore the new BPP online CPD centre

CPD skills webinar programme
Through our research and insights, we have identified core business skills recognised throughout the profession as the fundamental skillset for the future accountant.

Through our research and insights, we have identified core business skills recognised throughout the profession as the fundamental skillset for the future accountant.

Each free 60 minute webinar will explore each topic in more detail, giving you an understanding of the skill and some key learning takeaways for you to apply to your day-to-day role. 

This fantastic new initiative provides you with a flexible and bite-sized approach to develop your expertise, enhance your employability for the future and gain some free verifiable CPD. 

Find out more and register to attend CPD skills webinars

CPD
Saturday CPD Conferences 2016
Have you booked your next Saturday CPD Conference yet?

Our programme of Saturday CPD Conferences is now underway across the country. Find the venue closed to you and book for our highly informative and convenient training courses.

Conference One 


Sessions will cover: VAT update | Essential law update | NIC, PAYE, P11Ds and benefits refresher and planning | Specialist accounting

You can also book for conference two (covering property taxes; know your rights with HMRC; Finance Bill/Act 2016 and inheritance tax and pensions) and conference three (covering tax planning for the owner–managed business; accounting standards update and two sessions left open to deal with issues arising during 2016) taking place in the same locations.

Each conference provides seven hours' CPD.

Fees: 1 conference = £142 | 2 conferences = £130 | 3 conferences = £116

CPD events for practitioners
Book now for workshops on audit compliance for partners and managers as well as events in East Kent.


Guide to Practical Audit Compliance for Partners and Managers
This two-day workshop will help you prepare your practice for ACCA audit monitoring visits. The most common causes of unsatisfactory monitoring visit outcomes will be identified and discussed. Participants will learn how to undertake audits and to record audit work in a manner consistent with the requirements of auditing standards and which will consequently meet monitoring visit requirements. The workshop will involve case study examples and is suitable for partners and also managers in public practice.

DATES AND LOCATIONS
17–18 May, London
20–21 September, London
12–13 October, London
13–14 December, Manchester

FEE £418
Early booking discounted price £376 available up to one month before the date of the workshop booked.

CPD 14 Units

View the flyer for full details and how to book


East Kent Conferences 

Accounting Standards - Changes, Challenges and Choices 
22 April 2016 | Ashford International Hotel, Kent  

General Tax Update for Accountants 
10 June 2016 | Ashford International Hotel, Kent 

Commercial, Employment and Company Law Update 
16 September 2016 | Ashford International Hotel, Kent

Each conference provides seven hours' CPD. 
*Fees: 1 conference = £142 | 2 conferences = £130 | 3 conferences = £116

CAREERS
Register now for Accountex 2016
Register today for Accountex - the essential event for accountants.

Returning to ExCeL on 11 – 12 May 2016, Accountex is the largest, independent, cross sector supported event in the UK's accountancy industry.

The show features all the leading industry vendors and has unrivalled CPD accredited education programme, including tax, technology, cloud, pensions, pricing and every other subject relevant to the modern accountant. The show is a 'must attend' for all accountants and you'll be able to: 

  • visit ACCA's stand and talk with us
  • enjoy free lectures on subjects including 'making tax digital', 'FRS 102' and 'Cybercrime' in the dedicated ACCA theatre
  • meet with nearly 200 leading suppliers, shaping today's business marketplace
  • keep up to date with legislation updates and new business strategies in 12 other topic specific theatres
  • be inspired by industry thought leaders, who'll predict future trends and lecture on how to improve your profitability
  • network with over 5000 industry colleagues in dedicated networking areas
  • CPD accreditation available on 150 certified seminars.


Accountex is the only event which brings all parts of the sector together, from senior partners, practice managers and accountants to financial directors and managers across all enterprises.

Registration to the event is FREE. Don't forget to invite your colleagues too!


accountingcpd.net’s 2 for 1 offer
Get 2 for 1 on any of accountingcpd.net’s 4-unit CPD courses from now until 31 March 2016!

Get 2 for 1 on any of accountingcpd.net’s 4-unit CPD courses from now until 31 March 2016! 

With a choice of over 100 high-quality, in depth online CPD courses designed specifically for accountants and finance professionals, the 2 for 1 offer allows you to select any two courses that are relevant to your specific learning needs for the price of one. 

Find out more about the 2 for 1 offer