The Chancellor, George Osborne’s second Budget of this parliament was billed as a Budget for the next generation and it was not expected to be radical but the announcements made yesterday were wide ranging and there have been some fairly major changes to digest on the tax front.
Included in the announcements was the surprise inclusion of a sugar levy tax, restructuring of corporation tax loss relief as well as reductions in corporation tax rates and capital gains tax rates.
We have summarised the main points of interest of the Budget which will be of relevance to our clients. This release is not intended to be a full review of the Budget.
PERSONAL TAX AND NATIONAL INSURANCE
Personal allowances (PA) and thresholds
As previously announced, the PA for people born after 5 April 1949 will still be increased to £11,000 for the 2016/17 tax year but the threshold from 2017/18 will be increased to £11,500.
The higher rate threshold will also increase by a greater amount in 2017/18 with the basic rate limit now set at £33,500 for 2017/18 meaning that most individuals will not have to pay higher rate tax until their income is over £45,000.
These increases mean that the full benefit of the PA increases in future years will be available to higher rate taxpayers. This is a change to previous years, when the PA increases were partially clawed back through adjustments to the basic rate band. Individuals earning between £43,000 and £100,000 will benefit most from the changes.
Capital Gains Tax (CGT) Rates
It has been announced that from 6 April 2016, there will be a reduction in the CGT rates where the18% rate will be reduced to 10% and the 28% rate will be reduced to 20%.
However the current rate of 18%/28% will continue to be applicable on chargeable gains from residential property and carried interest. Relief such as principal private residence relief will continue to ensure that an individual’s main home is not subject to CGT.
In addition, any ATED related chargeable gains will also not be effected by the announcement yesterday.
This budget has confirmed that ‘non-doms’ who become deemed-domiciled in April 2017 can treat the cost base of their non-UK based assets as being the market value of that asset on 6 April 2017.
Individuals who expect to become deemed UK domicile under the 15 out of 20 year rule will be subject to transitional provision with regards to offshore funds to provide certainty on how amounts remitted to the UK will be taxed.
Corporation Tax (“CT”) rates
The Main rate of CT is now further reduced to 17% from 1 April 2020, which is 1% less than previous announcement.
Corporation Tax loss relief
From April 2017, the current streaming rules will be made more flexible so that losses arising on or after 1 April 2017 will be useable, when carried forward against profits from other income streams or other companies within a group.
However there are restrictions and companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. £5 million allowance will apply to group of companies as an overall allowance.
Loan to participator (‘s455’ charge)
From 6 April 2016, close companies which make loans to their participators or make other arrangements through which participators extract value from the company will incur a tax charge of 32.5% of the loan value (increased from 25%).
Where the accounting period straddles 6 April 2016, different rates will be applied to separate loans made or benefits incurred before, and on or after, 6 April 2016.
Withholding Tax on Royalties
The government will extend the current withholding tax rights to cover all intangible assets such as trademarks and brand names, and the government will:
- Apply this tax to all payments connected with the activities of a business liable for tax in the UK.
- Introduce a domestic law to prevent tax treaties being abused by royalty payments being routed through third countries to gain a tax advantage.
From April 2018 employers will now need to pay National Insurance contributions on pay-offs (for example, termination payments) above £30,000.
For people who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.
Benefits in Kind
The government has confirmed that they will introduce the statutory exemption for qualifying trivial benefits in kind costing £50 or less with an annual cap of £300 for directors or other office holders.
So from 6 April 2016, the exemption will remove the charge to income tax or Class 1A NIC and a similar disregard for Class 1 NIC will take effect later in the year.
The government have been monitoring the position in relation to salary sacrificed arrangement and considerations are taken as to limit the range of benefits that attract income and NIC advantages when provided as a salary sarifice arrangement.
However they have stated that pension, childcare and health-related benefits (including cycle to work scheme) would not be affected by the reduction in benefits.
Insurance Premium Tax (‘IPT’)
Further to the recent increase in IPT to 9.5%, it was announced that the rate will be increased by another 0.5% to 10% from 1st October 2016. It is expected to have a negative impact on business profits as this is a tax that is ultimately paid by the entity requiring insurance.
Stamp Duty Land Tax (SDLT)
The extra 3% stamp duty will still apply to additional homes, but they have increased the grace period to 36 months during which an overlap between two properties can claim a refund on the higher rates.
Previously it was thought that corporate investors might be able to avoid the new charge, but the Budget has confirmed that the higher rate will apply to both individuals and corporate investors.
In relation to stamp duty for commercial property, the rate with effective from 17 March 2016 will be 0% rate on purchases up to £150,000, 2% on next £100,000 and 5% top rate above £250,000. New 2% rate for high-value leases with net present value above £5m.
HMRC have been given greater powers to require the appointment of a tax representative in the UK for non-compliant overseas trader.
They have also announced that a consultation will take place on the standards to which fulfilment houses supplying goods in the UK on behalf of overseas suppliers.
It is planned that fulfilment houses with need to register with HMRC and retain records of the checks to ensure the overseas suppliers are complying with UK tax liability.
The surprise announcement by the chancellor was to include a sugar levy taking effect from April 2017 and the levy will be applicable to producers and importers of soft drink which have sugar added.
Producers of fruit juices and milk will be excluded from the levy.
OTHER TAX ANNOUNCEMENTS
Trading and Property Income Received in Non-monetary form
The government will introduce legislation to ensure that trading and property receipts in non- monetary form are brought into account for tax purposes at their full value (money’s worth) for transaction occurring on or after 16 March 2016.
This is applicable to sole traders, partnerships and corporate who received remuneration in non- monetary form.
HMRC are continuing with their stance on offshore non-compliance and a number of measures have been included to encourage voluntary disclosure ahead of the global exchange of financial information.
The government will introduce a new legal requirement to correct past offshore non-compliance for open affairs up to April 2016 with new sanctions unless it is disclosed within the defined period. It is understood that the time period would be from April 2017 to September 2018.
Non-compliance detected after the defined timeframe will be subject to the new ‘failure to correct’ penalty and this will effectively replace existing penalties that would apply in the affected years.
HMRC will also have extended powers to obtain information from online intermediaries where there are risks that businesses or individuals do not appear to be declaring and paying the tax they owe.