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Pitched as a “Budget that puts the next generation first”, George Osborne’s speech contained a number of announcements aimed at helping people save for the future.
For businesses, measures included changes to business rates and the abolition of class 2 national insurance contributions for the self-employed.
And, as we’ve come to expect from such occasions, there were a few surprises too.
The following report summarises the announcements made by Chancellor George Osborne during the 2016 Budget on 16 March 2016.
At a glance
Measures announced in Budget 2016 include:
Corporation tax
The rate will be reduced to 17% by April 2020.
Business rates
The small business rate relief threshold will rise to £15,000 from £6,000 in April 2017.
Stamp duty
The way stamp duty is applied to commercial properties will change to a marginal rate system.
Self-employed
Class 2 national insurance contributions for the self-employed will be abolished from 2018.
Tax-free allowances
There will be £1,000 allowances on goods and services and property income from April 2017.
Personal allowance
The personal allowance will rise to £11,500 From April 2017.
Lifetime ISA
Those aged under 40 can save up to £4,000 a year and receive a 25% government bonus from April 2017.
ISAs
The annual ISA allowance will increase to £20,000 from April 2017.
Fuel duty
Fuel duty will remain frozen.
Alcohol duties
Duty on beer, cider and Scotch whisky will remain frozen this year.
Capital gains tax
Capital gains tax will reduce from 28% to 20% from April 2016.
Sugar levy
A sugar levy will be placed on the soft drinks industry from 2018.
Insurance tax
Insurance premium tax will increase by 0.5%.
Stamp duty
Additional property rates will also apply to large investors from April 2016.
Infrastructure
There will be widespread investment in road and rail networks.
Business announcements
The rate of corporation tax will reduce to 17% for the financial year commencing 1 April 2020. The planned reduction in corporation tax to 19% from 1 April 2017 remains unchanged.
In order to keep the tax rate in line with the higher rate of tax on dividend income, the loans to participators tax rate payable will increase from 25% to 32.5% on loans or benefits conferred by close companies on or after 6 April 2016.
From 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million.
If a group, the £5 million allowance will apply per group. With respect to the current streaming rules, the use of losses arising on or after 1 April 2017 will be more flexible so that the losses will be useable, when carried forward, against profits from other income streams or other companies within a group.
New rules will be introduced from 1 April 2017 to limit the tax relief that large multinational enterprises can claim for their interest expenses.
Relief on interest payments will be restricted to 30% of UK earnings, with exceptions for groups with legitimately high interest payments.
The government will permanently double the small business rate relief in England from 1 April 2017. At the same time, the government will raise the small business rate relief threshold in England to rateable values of up to £12,000 tapering to £15,000.
The threshold at which business rate bills in England are calculated using the standard multiplier to properties with rateable values of £51,000 and above from 1 April 2017.
The annual uprating of business rates will change from the RPI to the CPI, from 1 April 2020.
The renewals allowance for the cost of replacing tools which provides traders and property businesses with tax relief will be withdrawn.
The impact of the change is intended to ensure that tax relief for expenditure on replacement tools will be obtained under the same rules as those which apply to other capital equipment.
This change will see businesses claim tax relief under the capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as appliances or furnishings.
The new measure will repeal the renewals allowance on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax purposes.
At present, a self-employed person in business is required to pay class 2 national insurance contributions (NICs) if their profit is over the small profits threshold. From April 2018, class 2 national insurance will be abolished and only class 4 NICs will be payable. As class 2 NICs currently enable self-employed individuals to build entitlement to the state pension and other contributory benefits, class 4 national insurance will be reformed in April 2018 so that self-employed people can continue to build benefit entitlement.
As from April 2017, public sector bodies and agencies will become responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector.
The individuals working through their own limited company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and national insurance.
The responsibility for complying with the rules will move to the public sector employer, agency or third party that pays the worker’s intermediary and it will become their obligation to decide if the rules apply to the contract and if so, account and pay the liabilities through real time information and deduct the relevant tax and NICs.
The 100% first year allowance for businesses purchasing low emission cars will be extended for a further 3 years until April 2021.
From April 2018, the carbon dioxide emission threshold below which cars are eligible for the first year allowance will decrease to 50 g/km from the current threshold of 75 g/km. Similarly, the carbon dioxide emission threshold for the main rate of capital allowances for business cars will reduce from the current rate of 130 g/km to 110 g/km.
The level of van benefit charge for zero emissions vans will be set at 20% of the charge for conventionally fuelled vans for the 2016/17 and 2017/18 tax years. This measure defers the planned increase to 40% until 2018/19.
As previously announced, a statutory exemption from income tax for qualifying trivial benefits in kind costing £50 or less will be introduced from 6 April 2016. The exemption will also remove the charge from class 1A NICs, with a corresponding disregard for class 1 national insurance taking effect later in the year.
With effect from April 2018 employers will be required to pay NICs on termination payments to an individual above £30,000. This rule applies where income tax is also due.
The available exemption from tax and national insurance for employer arranged pension advice will increase from £150 to £500 from April 2017.
The business premises renovation allowance will expire on 31 March 2017 for corporation tax and 5 April 2017 for income tax.
A new measure will be introduced to ensure that profits from trading in UK land are always subject to UK tax by introducing specific rules to tax the full amount of profits, regardless of whether or not the person to whom they arise is UK resident.
The government will change the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU interest and royalties directive.
The reforms seek to:
Plans to bring forward the corporation tax payment dates for those companies with profits over £20 million are to be delayed.
The rules will now apply to accounting periods starting on or after 1 April 2019 and will require these companies to pay tax in instalments in the third, sixth, ninth and twelfth months of the year.
New measures will be introduced from 1 January 2017 to address hybrid mismatch arrangements, which will prevent multinational enterprises avoiding tax through the use of certain cross-border business structures or finance transactions.
The operation of the patent box will be modified to comply with a new set of international rules created by the OECD.
The new rules will make the lower tax rate dependent on, and proportional to, the extent of the research and development expenditure incurred by the company claiming the relief. This change comes into effect from 1 July 2016.
The way in which a large company obtains research and development relief has changed, and therefore this measure ensures that despite this change SMEs continue to benefit from the calculation which is required by statute. Without introducing these changes, this benefit would not apply for SMEs covering the period after 1 April 2016.
Vaccine research relief will end when its state aid approval runs out on 31 March 2017.
A new tax relief for museums and galleries will be introduced from 1 April 2017. Consultation will take place on the new relief over summer 2016.
As previously announced in Budget 2015, tax relief at a rate of 25% on qualifying expenditure will be available to orchestras from 1 April 2016.
The government is consulting on proposals for a new, competitive framework for insurance linked securities business.
Insurance linked securities are a means of transferring insurance risk to capital market investors.
Detailed regulations will be developed in consultation with stakeholders following the publication of the primary legislation and conclusion of the consultation on general proposals which began on 1 March 2016.
Legislation will be introduced in Finance Bill 2016 to confirm that trading income and property income received in non-monetary form is fully brought into account in calculating taxable profits for income tax and corporation tax purposes.
The measure will have effect in relation to trading and property business transaction occurring on or after 16 March 2016 and is intended to clarify existing laws on the matter.
Legislative changes will amend regulations to clarify the tax treatment of residual payments made by securitisation companies, confirming that they can be paid without withholding tax.
Companies investing in plant and machinery in designated enhanced capital allowance sites in enterprise zones are able to invest in new plant and machinery and can qualify for 100% capital allowances for 8 years.
A measure is introduced to amend the references within the relevant legislation to incorporate the most recent revisions to the OECD guidelines which are the internationally agreed standard for application of the arm’s length principle for transfer pricing purposes.
This measure is directed toward those who are subject to the transfer pricing rules in respect of a transaction (or series of transactions) with a connected party for purposes of income tax or corporation tax. This is intended to provide certainty for business and minimise the potential for double taxation.
The measure will have effect for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2016 and for income tax purposes in relation to the tax year 2016/2017 and subsequent tax years.
The proportion of a banking company’s annual profit that can be offset by pre-April 2015 carried forward losses will be further restricted from 50% to 25% from 1 April 2016.
To ensure that banking taxes are approximately targeted at banks, the government will amend the excluded entities test.
The government will introduce a new soft drinks industry levy to be paid by producers and importers of soft drinks that contain added sugar.
The levy will be charged on volumes according to total sugar content, with a main rate charge for drink above 5 grams of sugar per 100 millilitres and a higher rate for drinks with more than 8 grams of sugar per 100 millilitres. There will be an exclusion for small operators, and the government will consult on the details over the summer, for legislation in Finance Bill 2017 and implementation from April 2018 onwards.
Personal Announcements
The personal allowance will be increased from £11,000 in 2016/17 to £11,500 in 2017/18.
The higher rate threshold will increase from £32,000 in 2016/17 to £33,500 in 2017/18. Individuals entitled to a full personal allowance will not be liable to higher rate tax until their total income exceeds £43,000 in 2016/17 and £45,000 in 2017/18.
The NICs upper earnings limit will also increase to remain in line with the higher rate threshold.
The government will introduce a new £1,000 allowance for property income and a new £1,000 allowance for trading income from April 2017. Individuals with less than £1,000 of either source of income will no longer need to declare or pay tax on that income.
Those with income above £1,000 will be able to deduct their expenses in the usual manner or simply deduct the £1,000 allowance.
Legislation will be introduced relating to finance costs on residential properties incurred on or after 6 April 2017 in order to ensure that:
As announced at Summer Budget 2015, the wear and tear allowance is being abolished from April 2016. Landlords will be able to deduct the actual costs of replacing furnishings.
The government is acting to ensure that there is a level playing field between non-UK resident developers of UK property and UK developers.
The legislation will introduce a standard set of rules for taxing trading profits derived from trading in and developing land in the UK.
It will be introduced from report stage and will take effect from the date of introduction. Anti-avoidance rules will take effect from budget day to counteract any arrangements put in place.
The new rules will apply even if the overseas developer has no permanent establishment in the UK. The profits will be subject to either income tax or corporation tax depending upon the business structure used by the developer.
Tax relief will be allowable on bad debts incurred on peer-to-peer loans against other peer-to-peer income.
Farmers will have the choice of averaging their profits for income tax purposes over 2 years or 5 years. This was announced earlier in Autumn Statement 2015 and will apply from April 2016.
From April 2017 non-UK domiciled individuals will be deemed UK domiciled if they have been resident in the UK for 15 of the past 20 tax years. This was announced in Summer Budget 2015.
In addition individuals who were born in the UK and who have a UK domicile of origin will revert to their UK domiciled status whilst they are resident in the UK.
The government will also legislate to charge inheritance tax (IHT) on all UK residential property indirectly held through an offshore structure from 6 April 2017.
The law regarding the taxation of benefits in kind is being clarified with effect from 6 April 2016.
The concept of ‘fair bargain’ only applies to general taxable benefits where the taxable amount is based on the cost to the employer of providing the benefit.
If an employee receives goods or services from their employer at the same cost as a member of the public there is no benefit in kind.
The concept of ‘fair bargain’ does not apply to the taxation of certain benefits in kind which have specific charging rules, such as beneficial loans, accommodation and company cars.
All income received by an employee from a sporting testimonial or benefit match will be chargeable to income tax and NICs.
There will be a one-off exemption of £100,000 of the income received from events held during a single testimonial or testimonial year.
If the proceeds exceed £100,000 PAYE will need to be applied.
The exemption will not be available if the right to the testimonial is contractual or customary.
The new rules will apply for income received from testimonial events held on or after 6 April 2017 where the testimonial was awarded on or after 25 November 2015. If the testimonial was awarded before 25 November 2015 then existing arrangements will apply.
Capital taxes
The rates of capital gains tax (CGT) are changing for disposals of relevant assets made on or after 6 April 2016:
Entrepreneurs’ relief will be extended to external investors in unlisted trading companies. This new relief will apply a 10% rate of CGT to gains accruing on 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 at least 3 years from 6 April 2016.
There will be a lifetime cap for investors of £10,000,000.
Finance Act 2015 introduced new rules to combat abuse of entrepreneurs’ relief but they had unintended consequences which prevented entrepreneurs’ relief being available on associated disposals when a business was being sold to a member of the family as part of the succession planning for the business.
Legislation will be introduced in Finance Bill 2016 to amend the definitions of ‘partnership purchase arrangements’ and ‘share purchase arrangements’ for entrepreneurs’ relief purposes by excluding the material disposal itself and arrangements which predated both the material disposal and an associated disposal and are independent of the material disposal.
The legislation will be backdated and will apply to associated disposals made on or after 18 March 2015.
The requirement that the material disposal of business assets is 5% or more of the claimant’s share in the company or partnership does not apply where the claimant disposes of the whole of the interest and has previously held a larger stake.
Employee shareholder shares issued as consideration for entering into employee shareholder agreements after midnight on 16 March 2016 will be subject to a lifetime limit of £100,000 exempt gains for the purposes of CGT.
Gains in excess of the limit will be subject to CGT at the prevailing rate. Any employee shareholder shares that were issued before midnight on 16 March 2016 will not be subject to any lifetime limit when sold.
If any employee shareholder shares are transferred to a civil partner or spouse, the transfer will be treated as being made for a consideration which gives rise to a gain equal to the transferor’s unused lifetime limit, provided that the consideration does not exceed the market value of the shares transferred. This will fix the acquisition cost of the person acquiring the shares.
The government will legislate to ensure that the residence nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets are passed on death to direct descendants.
Legislation will be introduced to ensure that a charge to IHT will not arise when a pension scheme member designates funds for drawdown but does not draw all the funds before death. This will be backdated to apply to deaths on or after 6 April 2011.
Savings & pensions
The existing dividend tax credit is being abolished from April 2016 and a new dividends allowance of £5,000 a year is being introduced.
Tax on dividend income above the allowance will be charged at:
A personal savings allowance is being introduced from 6 April 2016 to remove tax from up to £1,000 of savings income from a basic rate taxpayer and up to £500 for higher rate taxpayers. Additional rate taxpayers will receive no allowance.
Interest from open-ended investment companies, authorised unit trusts, investment trust companies and peer-to-peer lenders may be paid without deduction of income tax from April 2017.
A new lifetime ISA will be available for adults under the age of 40 from April 2017. Individuals will be able to contribute up to £4,000 per annum and will receive a 25% state bonus.
Funds, including the bonus, can be used to purchase a first home at any time after the first annual anniversary of opening the account. Funds may be withdrawn from the age of 60.
The overall annual ISA subscription limit will increase from £15,240 to £20,000 from 6 April 2017.
Individuals in low income working households will be able to save up to £50 per month into a Help to Save account and receive a 50% government bonus after 2 years.
Account holders can then choose to continue saving under the scheme for a further 2 years. The scheme will be introduced no later than April 2018 and will be open to all 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 credits.
A number of minor changes are being made to the pensions tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015.
The changes will be effective from the day after the date of royal assent to Finance Bill 2016. They will:
As announced at Budget 2015 the pensions lifetime allowance is reducing from £1,250,000 to £1,000,000 with effect from 6 April 2016.
Changes are being made to ensure that the enterprise investment schemes (EIS) and venture capital trusts (VCT) legislation introduced in Finance (No 2) Act 2015 works as intended.
A new condition will be introduced from 6 April 2016 to clarify the non-qualifying investments a VCT may make for liquidity management purposes.
The methods of determining the 5 year period for the average turnover amount and the relevant 3 preceding years for the operating costs conditions will be clarified for both EIS and VCTs to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period.
The operative date will be 18 November 2015, although an investee company may elect to apply the existing legislation for investments received between 18 November 2015 and
5 April 2016 inclusive.
Duties
Reforms were introduced to the charging provisions for non-residential property. The stamp duty land tax (SDLT) charged on purchases of non-residential properties and transactions involving a mixture of residential and non-residential properties is to change for transactions on or after 17 March 2016.
Thereafter SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band. The new rates and thresholds are as follows:
Transaction value band | Rate |
£0-£150,000 | 0% |
£150,001 – £250,000 | 2% |
£250,001 + | 5% |
For new leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band.
On and after 17 March 2016 a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5 million.
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% |
Higher rates of SDLT will be charged on purchases of additional residential properties, such as second homes and buy-to-let properties. The higher rates will be 3 percentage points above the current SDLT rates:
Thresholds | Existing SDLT rates | New additional property SDLT rates |
£0-£125,000 | 0% | 3% |
£125,001-£250,000 | 2% | 5% |
£250,001-£925,000 | 5% | 8% |
£925,001-£1,500,000 | 10% | 13% |
Over £1,500,000 | 12% | 15% |
The announcement also provides arrangements where there is a period of overlap or a gap in ownership of a main residence.
Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property. Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates.
Rates for the climate change levy (CCL) are to increase for 2017/18, 2018/19 and 2019/20. The CCL main rates will increase in line with RPI.
These increases are partly intended to replace tax revenues lost as a result of the abolition of carbon reduction commitment energy efficiency scheme. The reduced rates of CCL for qualifying businesses in the climate change agreement scheme will be amended so participants will not pay more CCL than they would under the currently expected RPI increase for that year.
The main rate of fuel duty for both petrol and diesel are to remain frozen at 57.95 pence per litre.
Vehicle excise duty rates are to be maintained in real terms by increasing the duty by the RPI. This is a consistently applied policy as rates have increased in line with inflation since 2010. The next increase in rates will apply on 1 April 2016.
A 40 year rolling exemption for classic vehicles was announced in Budget 2014. Budget 2016 now makes this a permanent exemption for classic vehicles so that on 1 April each year vehicles constructed more than 40 years before 1 January that year will automatically be exempt from paying vehicle excise duty. It is reported that there are around 10,000 classic vehicle owners.
Rates are set to increase by inflation rounded to the nearest 5 pence:
Waste sent to landfill | Rate from 1 April 2016 | Rate from 1 April 2017 | Rate from 1 April 2018 |
Standard rate | £84.40/tonne | £86.10/tonne | £88.95/tonne |
Lower rate | £2.65/tonne | £2.70/tonne | £2.80/tonne |
It is reported that since 2000, the amount of waste sent to landfill has reduced by 70% while the average household recycling rates have risen from 18% to 44%.
The duty rate on hand-rolling tobacco increases with effect from 6pm on 16 March 2016 by 5% above RPI. This represents an additional 3% rise above the tobacco duty escalator.
Duty rates are set to increase in line with RPI as follows:
From 1 April 2016
Bands (distance in miles from London) | Reduced rate (lowest class of travel) | Standard rate (other
than the lowest class of travel) |
Higher rate |
Band A (0 – 2000 miles) | £13 | £26 | £78 |
Band B (over 2000 miles) | £73 | £146 | £438 |
From 1 April 2017
Bands (distance in miles from London) | Reduced rate (lowest class of travel) | Standard rate (other
than the lowest class of travel) |
Higher rate |
Band A (0 – 2000 miles) | £13 | £26 | £78 |
Band B (over 2000 miles) | £75 | £150 | £450 |
Duty is paid by casinos on their gross gaming yield. Rates range from 15% which applies to the first £2,370,500 of gross gaming yield (GGY) up to 50%.
The 50% rate applies to any GGY that exceeds the aggregate of the bandings to which the 15%, 20%, 30% or 40% apply.
If the bandings were not increased in line with inflation then more GGY would be subject to higher rates.
The increase in gaming duty bans will take effect for gaming duty accounting periods starting on or after 1 April 2016.
VAT
The positive rates of VAT are unchanged, so the standard rate remains at 20% and the reduced rate at 5%.
The taxable turnover threshold, which requires a person to register for VAT, will be increased from £82,000 to £83,000 per annum.
The threshold below which a VAT-registered person may apply to deregister will be increased from £80,000 to £81,000 per annum, and the relevant registration and deregistration threshold for intra-Community acquisitions will also be increased from £82,000 to £83,000 per annum.
All these changes will take effect from 1 April 2016 and will prevent around 2,000 businesses from having to register in the financial year 2016 to 2017.
The changes will also raise the turnover limit for income tax self-assessment ‘3 line accounts’ and increase the entry and exit thresholds for the income tax cash basis accounting, so that they are aligned with the new VAT registration threshold.
Changes are to be introduced to give HMRC greater powers to tackle non-compliance on the part of overseas businesses that avoid paying VAT on sales made to UK consumers through online marketplaces.
There will be 2 aspects to the changes, which HMRC will not automatically apply, but use only to tackle the highest risk compliance cases.
The first change will strengthen HMRC’s powers to direct overseas businesses to appoint a VAT representative, including the power to insist that the representative is in the UK. It will also provide greater flexibility as regards seeking security.
The second change will enable HMRC to make online marketplaces jointly and severally liable for any VAT unpaid by the overseas business on goods sold in the UK through the online marketplace’s website.
Both of these changes will be effective from royal assent to Finance Bill 2016.
This measure introduced a VAT reverse charge in the UK, designed to tackle missing trader intra community (MTIC) fraud. It was not a Budget measure as such, as it was announced on 11 January 2016 and introduced by Treasury Order on 1 February 2016.
Those perpetrating MTIC fraud charge and collect VAT on their supplies but then ‘disappear’ without paying over the VAT to the Exchequer. The introduction of a reverse charge means the business customer must now account for the VAT due, rather than the supplier.
The government will consult on a new penalty for participating in VAT fraud in spring 2016. Subject to the consultation, the intention is to legislate in Finance Bill 2017.
The new measure only applies to wholesale services of routing telephone calls and associated data such as texts and images over landlines, mobile networks or the internet. It does not affect consumption supplies.
The government has introduced a consultation on the ‘fit and proper’ standards that fulfilment houses will need to meet for them to be able to operate.
They will have to register and maintain accurate records once online registration begins in 2018. They will also have to provide evidence of the due diligence they have undertaken to ensure overseas clients are following VAT rules.
The purpose is ultimately to minimise any costs for legitimate businesses.
The government plans ongoing discussions with the EU and OECD with the objective of finding better solutions to international VAT fraud, including different mechanisms for collecting VAT.
The Department for Culture, Media and Sport has published guidance on new criteria to broaden eligibility for VAT refunds and thus provide greater support for museums and galleries in the UK.
The government plans to introduce legislation to enable named non-departmental and similar bodies to claim a VAT refund on shared service arrangements used to support their non-business activities.
Legislation is to be introduced to enable charities subject to the jurisdiction of the High Court of the Isle of Man to receive all the VAT benefits available under UK law.
Other announcements
The standard rate of insurance premium tax will increase from 9.5% to 10% with effect from 1 October 2016.
There is to be a tougher regulatory regime for claims management companies (CMCs) including by introducing a senior managers regime, requiring reauthorisation of all CMCs and transferring supervisory responsibility from the Ministry of Justice to the Financial Conduct Authority. The dates for the transfer will be announced in due course.
Nine banks will legally be required to offer basic bank accounts to help people access basic banking services. The government has also committed to publish basic bank account market share data for the first time in autumn 2016.
A raft of measures are to be introduced targeted at employers, companies and individuals using tax avoidance schemes that fall within the disguised remuneration legislation.
The measures will also apply to employers, companies and individuals that used an employee benefit trust (EBT) arrangement prior to 2011 and have yet to settle with HMRC.
Some of the measures include:
HMRC is to be given additional powers to collect information on certain state aids and share this information with the European Commission through a legal gateway. The intended purpose of this measure is to allow HMRC to collect additional data to help the UK contribute towards the monitoring of and compliance with state aids. This measure will have effect from 1 July 2016.
Personal tax
Generally the personal allowance is £10,600 with entitlement to a maximum of £10,660 for those born before 6 April 1938. Conditions and restrictions apply to the entitlement over £10,600. Non-savings and savings income above the personal allowance is taxed at rates from 20% to 45%.
Some taxpayers with very modest savings and income may only pay 10%. The basic rate of tax increases to the higher rate for taxable income over £31,785 and to 45% when taxable income exceeds £150,000.
A higher marginal tax rate may be payable between £100,000 and £121,200 when the personal allowance is gradually withdrawn giving an effective marginal rate of 60% in this band for non-savings and savings income.
In some cases, you can transfer £1,060 of your personal allowance to your spouse or civil partner.
Ordinarily, each person is entitled to make a tax-free gain up to £11,100 (or up to £5,550 for trusts). Thereafter, gains are taxed at a rate that is income dependent. Where taxable income is less than £31,786 the capital gains tax rate for gains up to the spare basic rate band allowance is 18%. Thereafter, this rises to 28%. The rate applicable to a trust is 28%.
For business owners entrepreneurs’ relief gives rise to a lower rate of 10% for qualifying gains which provides for a maximum reduction in tax of £1,800,000 (if the gain were £10 million, the current upper limit).
Generally, inheritance tax (IHT) is due on death at a rate of 40% if the inheritance threshold of £325,000 is exceeded. The percentage of any unused nil rate band from the first death may be transferred to the surviving spouse, allowing up to double the nil rate band applicable at the date of the second death.
Gifts or transfers made within 7 years of death are also added back into the estate and are liable to IHT, but may be subject to some exemptions as well as a tapered reduction for tax on transfers between years 3 and 7.
You have worked hard to create your wealth – now make sure you do all you can to minimise any payments that may be due for IHT. Estate planning should start early in life but it is never too late to start.
There are limits to how much can be invested in a pension scheme before a tax charge is payable. To qualify for personal tax relief, a pension contribution must be made by or on behalf of a relevant UK individual.
Tax relief for pension contributions is restricted by reference to net relevant earnings and the annual allowance. The annual allowance is currently £40,000 while there is a lifetime allowance which is currently £1.25 million.
However, it is possible to carry forward any unused allowances from the previous 3 tax years.
Major changes to the annual allowance and lifetime allowance will be introduced from 6 April 2016.
A pension investment is many peoples’ cornerstone as payments into a pension scheme currently attract tax relief of up to a potential maximum of 60%. However, there are undoubtedly other components of retirement planning.
Individuals who are 18 or over can invest up to £15,240 in an ISA. Withdrawals from an ISA are free of income and capital gains tax, but the value of an ISA will form part of your estate for inheritance tax purposes.
A Junior ISA of up to £4,080 is available for those who are 17 or under.
Help to Buy ISAs, which were launched on 1 December 2015, allow individuals over the age of 16 to save up to £200 into an account per month. Buyers can also deposit a lump sum of up to £1,000 when they set up their account.
The money will earn interest and will also qualify for a 25% bonus (up to £3,000) from the government provided the funds are used to buy a house.
If you don’t already have an ISA, should you start one this tax year? A further advantage is that ISAs are normally readily accessible (subject to scheme rules).
Individuals on low incomes may be eligible to claim tax credits or the universal credit (existing claimants will move to universal credit over by 2017). The calculations for these benefits involve determining 3 figures: your maximum benefit, your net income and your allowance.
The maximum benefit is the amount you would receive if you had no income at all. As some income is disregarded, it is possible that someone could receive the maximum benefit even though they have a small income.
Net income is usually earnings after tax, national insurance and pension contributions. If you have capital above a threshold this may require a notional income to be added.
The allowances are the maximum amount of income you may earn and still receive the maximum benefit. If your income is above this figure, a percentage of the excess is deducted from the maximum benefit.
Check to see if you qualify for these benefits as they can be payable for people with fairly high incomes.
As capital can be treated as income that reduces benefit, it may be sensible to give away funds or to spend them upgrading your property (as property value is not regarded as capital).
However, there are rules to counter blatant examples of capital reduction.
The high percentages at which benefit is withdrawn (between 65% and 76% for universal credit) provide much scope for planning.
Business tax
From 1 April 2015 there has been a single rate of corporation tax for all companies: 20%. Corporation tax self-assessment requires companies to work out their own tax liability as part of their return and account for the ‘self-assessed’ liability to corporation tax.
Taxable profits are typically reduced by employers making pension contributions. Self-invested personal pensions (SIPPs) are popular with many company owner-directors.
Another popular tax reduction strategy is to bring qualifying capital expenditure forward to take advantage of the 100% annual investment allowance. This was £500,000, although reduced to £200,000 from 1 January 2016.
VAT is chargeable where taxable turnover is in excess of £82,000 in the previous 12 months or you expect this threshold will be exceeded within the next 30 days.
There are schemes which simplify VAT accounting. These include the cash accounting scheme, annual accounting scheme and the flat rate scheme.
Business owners are entitled to claim deductions from income for costs which are incurred wholly and exclusively in running the business.
Determining how this rule applies in practice can be a challenge. In most circumstances, a deduction may not be claimed in respect of depreciation, but deductions in the form of capital allowances are available for some expenditure on qualifying capital expenditure.
Entrepreneurs’ relief provides relief for disposals by smaller business owners. It charges a reduced tax rate of 10% on disposals up to the lifetime limit of £10 million giving rise to a potential tax saving of up to £1.8 million.
The relief is available on material disposals of business assets which covers businesses operated as a sole trader, partnership or through a limited company.
The liability to capital gains tax is just one aspect of all the planning that goes into the wording of the final contract for sale.
The penalty regime covers income tax, corporation tax, VAT and IHT.
There are also penalties to cover the notification of starting a business and the filing of returns and accounts at Companies House.
Miss the first income tax return filing deadline and the next day you are liable for a £100 fine. Leave it for another 3 months and the maximum penalty rises by £10 a day up to a maximum of £900. After 6 months a further £300 or 5% of the tax due, whichever is the higher, is added. In some serious cases the penalty can be even higher than this.
HMRC charges late filing penalties for PAYE, VAT and corporation tax while at Companies House penalty rates range from £150 for a private company filing the accounts not more than 1 month late up to £7,500 for a public company filing accounts more than 6 months late.
Ensure that you know all of your filing and payment requirements and the due date for payment.
Upcoming changes
Future rules, rates and allowances may affect your planning for 2015/16. Some changes from April 2016 include:
Dividend taxation
Dividend tax credit will be abolished and replaced with a £5,000 dividend tax allowance. Dividend income exceeding the annual allowance will be taxed according to an individual’s income tax band. Basic rate taxpayers will pay 7.5%, higher rate 32.5% and additional rate 38.1%.
Personal savings allowance
A new allowance to remove tax on up to £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers will be introduced.
Pensions
There will be a reduction in the £40,000 annual pension allowance where income, including pension contributions, exceeds £150,000. The annual allowance will reduce by £1 for every £2 of income in excess of £150,000, down to a minimum of £10,000.
The lifetime allowance for tax relief on pension contributions reduces from £1.25 million to £1 million.
Property
The wear and tear allowance on furnished properties will be replaced with a new relief that will allow residential landlords to deduct the actual costs of replacing furnishings.
Rent-a-room relief increases from £4,250 to £7,500.
New rates of stamp duty that are 3% higher than the current bands will be introduced from 1 April 2016 on purchases of additional properties such as buy-to-lets and second homes. Similar changes have been announced to land and buildings transaction tax in Scotland.
This document is for information purposes only and you should not make any decisions based upon its content. The way in which tax charges (or tax relief, as appropriate) are applied depends upon individual circumstances and may be subject to change in the future. ISA and pension eligibility depend upon individual circumstances. You cannot normally take pension benefits until age 55. Whilst considerable care has been taken to ensure that the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.
A guide to what to expect if you are the subject of an investigation by HMRC.
Anyone who has experienced the difficulty of trying to get through to the HMRC helpline may think that it is an organisation too large and complex to do anything quickly.
However, while it may seemingly lack the ability to answer phone calls and emails in a timely manner, HMRC is now a force to be reckoned with when it comes to investigating those who they believe may not be paying the right amount of tax.
The reason for this is because HMRC has become far more speedy and proactive than before when dealing with tax evasion. Since 2012 it has introduced new measures to tackle tax evasion including:
According to HMRC, compliance checks are usually triggered when figures entered on a return appear to be wrong or when a very small business suddenly makes a very large claim for VAT, or one with a large turnover declares a very small amount of tax.
However, in our experience, it can also be all or some of the following:
Although less likely than in the past, an investigation can also be triggered entirely at random.
There are 3 levels of HMRC enquiry:
Full
A full enquiry looks at cases where HMRC believes there is significant risk of error in the tax return.
A review of all records will be undertaken. For businesses this may include personal financial records of directors or business owners as well as business records.
Aspect
HMRC is worried about a particular part (or parts) of your accounts and wants more detail. These are usually straightforward mistakes or misunderstandings rather than deliberate attempts at tax evasion. For example forgetting to include all your savings income on your self-assessment tax return.
Although these types of enquiry may seem less stressful than full investigations, they should still be treated seriously.
If HMRC uncovers anything more serious during an aspect enquiry they may reclassify it as a full enquiry.
Random
HMRC picks a selection of businesses to investigate.
If you receive a letter or phone call from HMRC with a query about anything to do with your tax or VAT, don’t panic but simply ask them to write to your agent – usually your accountant – instead.
The next step is to establish the level of enquiry (full, aspect or random).
Working with your accountant you can then evaluate the seriousness and scope of the request.
The information HMRC will ask for will depend on the nature of the enquiry. At the very least they will expect you to be able to provide the information you used to complete your tax return.
If your records are missing or incomplete, now is the time to try and track down replacement copies from your accountant, bank or building society.
If you know you have made a mistake, let HMRC know as soon as possible.
Once HMRC has the information they need, they can look into what’s happened. Sometimes these are no more than minor discrepancies or unusual figures submitted and can be closed quickly.
For example, you or your accountant know that your drop in income was the result of you being hospitalised for part of the year, but HMRC won’t until you tell them.
However, some cases will need more detailed investigation and HMRC may request further information.
HMRC may ask to meet you face-to-face – usually at your business or accountant’s office. You can ask your accountant or legal adviser to attend these meetings and ask for an agenda in advance.
What happens next depends on what HMRC finds. Common outcomes and solutions include:
Overpaid tax
The taxpayer will receive it back with interest.
Underpaid tax
The taxpayer will have to pay any tax owed within 30 days, possibly with interest added.
Deliberate wrongdoing
In serious cases HMRC may escalate fraud as a criminal case if necessary.
You may also have to pay a penalty. The amount will depend on:
The end of an investigation is marked by a decision notice or agreeing a contract settlement.
A decision notice can be a letter telling you what the final position is, a penalty notice or an assessment.
A contract settlement is a legally binding agreement where the taxpayer agrees to pay the money owed and HMRC agrees not to use its powers to recover the money.
Although some inspections are random and cannot be prevented, there are ways to make sure you don’t attract the attention of HMRC unnecessarily.
Contact us to find out more about dealing with HMRC investigations.
HMRC has revealed how it plans to introduce digital tax accounts over the course of the 2015/16 tax year.
First announced in Budget 2015, news that HMRC wants digital accounts to replace traditional annual tax accounts created much debate.
Now, further details of what this transitional process will look have been provided by HMRC:
HMRC wants to introduce digital tax accounts in order to simplify the process for everyone involved.
However, some members of the Public Accounts Committee (PAC) have expressed concerns that HMRC will not be able to deliver on its proposed timetable.
In the summary of the PAC report into the digital transition, the committee stated:
“HMRC’s record in managing the Aspire contract and other IT contractors gives us little confidence that HMRC can successfully achieve this transition or that it can manage the proposed model effectively to maximise value for money.
“HMRC also demonstrates little appreciation of the scale of the challenge it faces or the substantial risks to tax collection if the transition fails.”
The cost benefits of HMRC running more of its processes through its own IT systems will be a 24% saving on its £800 million annual IT budget by 2020/21.
But HMRC also wants to stress a number of other key benefits to taxpayers:
Get in touch to talk about reporting and paying tax.
Ombudsman Services is launching a new service that will accept all consumer complaints.
The newly created consumer ombudsman will be able to receive complaints relating to the conduct of sectors that don’t have a current ombudsman. This includes retail, home maintenance, improvement or installation services, second-hand cars, car repairs and car servicing. The ombudsman is for any unresolved complaint a consumer has with an organisation, meaning that all internal complaints processes must have been attempted.
Consumers are able to register complaints with the consumer ombudsman regarding goods and services bought after 1 January 2015.
The move has caused some controversy in the business community regarding the new obligations that will be placed on businesses dealing with complaints.
John Allan, national chairman of the Federation of Small Businesses, said:
“As of Thursday 1 October 2015 companies will be required by law to make consumers aware of a relevant alternative dispute resolution scheme e.g. the new consumer ombudsman.
“While this is a potential headache for small firms, we’re glad that the usage is not compulsory which would have added even more burdensome red tape.”
The consumer ombudsman outlines a 5 step process for consumers that would like lodge a complaint:
The company that is having the complaint lodged against them can choose whether or not they are willing to work with the ombudsman to reach a resolution.
Talk to our team about managing your business today.
Over-55s are the targets of repeated cold-calling and email scams offering fake pension opportunities.
5 months after the introduction of the new pension freedoms, 40% of Citizens Advice pension staff have come into contact with people affected by pension scams. Around 10% have seen people fall victim to scams.
Of those contacted by scammers, 80% had been cold-called, a third had been sent emails and a third had received post.
The emerging scams highlighted by Citizens Advice are:
Gillian Guy, chief executive of Citizens Advice, said:
“Pension scams threaten people’s financial security. People are targeted again and again with bogus investment offers or fraudulent pension opportunities.”
Pensions Minister Baroness Ros Altmann, added:
“Pensions are precious so don’t fall foul of conmen who want to snatch your money.”
To stand the best chance of avoiding falling prey to a pension scam, individuals need to be aware of the common signs of fraudulent deals:
Contact us to discuss your pension.
A guide on how to using your savings to improve your financial position.
People often have a slightly misjudged opinion of their savings as a sedentary block of assets that only creeps forward at a glacial pace due to the interest it generates.
The idea that an individual’s savings can be turned into a productive asset is one that is far removed from the image of throwing your money into a dark vault until you need to make a major purchase.
Figures from National Savings & Investments shows that the amount people are putting away reached its highest level in a decade in 2014. The average monthly saving last year was £113, but only 26% of those surveyed were saving with a specific purpose in mind.
Whether you are thinking about maximising the amount of resources you will have for retirement, or you simply want to start making your money work a little harder, there are a range of strategies for getting more out of your savings.
What you want to achieve is the foundation of your savings strategy.
For example, some options are better suited to those who simply want to increase the amount of money they have as quickly as possible to achieve short-term goals. Others might want to minimise the amount of tax they pay on the money they earn.
Some of the most common reasons people have for saving are:
While there are alternatives to saving to achieve some of these goals, such as insurance, loans or selling your possessions, building up a bank of savings is a less risky way to get to where you want to be.
We can help you with your savings strategy today.
Inflation is an important concept for anyone who is making plans based on their savings to understand. High inflation combined with low interest rates can create a situation where your hard-earned savings begin to lose value.
In order for your savings to be worth the same amount over time, it will need to grow (either through interest or be added to) by at least the rate of inflation.
The golden rule of savings is therefore:
after tax, your savings must be earning interest that is higher than the rate of inflation in order for its value to grow.
Contact us to talk about making your savings work for you.
There are a large variety of strategies open to those who want to increase their savings, from finding a decent rate of interest to getting on the next plane to Las Vegas with a suitcase bulging with cash.
Here are some of the most popular options.
You do not have to pay tax on savings interest for certain kinds of savings accounts and National Savings & Investment products. Most other savings accounts will incur income tax at 20%, which is automatically deducted from your account.
How much tax you have to pay also depends on your income. For those that earn less than £15,600 (with or without savings interest) a year, it is possible to get your savings interest tax-free. Basic rate taxpayers will have their tax automatically deducted by their bank or building society while higher and additional rate taxpayers will have to pay extra.
You can currently save up to £15,240 tax-free into an individual ISA each tax year. The interest earned is treated differently across cash and stocks and shares ISA accounts, with the former being tax-free and the latter tax-efficient.
The 2 different types of ISA, cash and stock and shares, are slightly different, but an individual can choose to split their money between them if they wish.
While a stocks and shares ISA gives you a choice of how your money is invested, like all investments your total savings could fall.
A cash ISA does not give you a choice of how the money is used, it will keep growing with interest added every year or more frequently.
Cash ISAs can be a good option for those who are looking for a low risk way of growing your savings while usually maintaining easy access to their money. If you want the chance of a higher return, then a stocks and shares ISA might just be the ticket.
You can earn a higher rate of interest if you agree to lock up your money and not touch it for a set period of time. These fixed rate accounts are a good option if you have a portion of your savings that you are certain you will not need for a number of years.
However, as with any long-term fixed deal, once the ink is dry on the contract you are at the mercy of external market forces. If you agree not to touch your money for 3 years and over that time interest rates go down and inflation goes up, then your pot will not grow substantially.
Investing your savings is the riskiest option, but also the one that can bring a big return.
First, you need to decide what you are going to invest in, with stocks, shares, property and bonds being among your choices.
Diversifying the range of ways you invest your money can be a good strategy for minimising risk.
Second, you need to decide whether you are going to invest all of your savings or apply a more drip-feed approach based on the results of your initial investment.
One of the most important things to consider for people who are trying to make the most of their savings is the idea of keeping active.
While picking a savings strategy and sticking with it can bring around the desired results, regularly re-evaluating that strategy can maximise these results further.
It is an interesting quirk of the market that providers often offer great deals for the first 12 months or so in the hope that savers will continue to store their assets there once the initial period is over. It may be advantageous to think about switching accounts once the starting offer runs out, but this far from an iron-clad rule.
Some banks and savings institutions also offer savers the chance to earn higher rates of interest if they can commit to make regular deposits into the account.
Good saving takes planning, discipline and knowledge of the wider market environment. We can give you the expertise you need to make the most out of your money.
Talk to us today about your savings options.