Autumn Statement 2015

26 November 2015

Yesterday the chancellor delivered his Autumn Statement and surprised many by performing a complete U-Turn on the planned cuts to tax credits.

As ever the devil will be in the detail, we will know more in the coming weeks once the draft legislation has been published, for now some of the highlights from the Blue Book are:

  • By the end of this parliament the Personal Allowance will be £12,500 and the Higher Rate Threshold will be £50,000.
  • From April 2016 the Personal Allowance will be £11,000, and the Higher Rate Threshold will be £43,000.
  • The Tax Credits income threshold will remain at £6,420 from April 2016 and the taper will remain at 41% of gross income. The income rise disregard will drop to £2,500.
  • The government will publish its response on Pensions Reform consultation process at Budget 2016.
  • The administration of Auto Enrolment will be simplified by aligning the next two phases of minimum contribution rate to the tax years.
  • With effect from 1 April 2016 SDLT will be 3% above the current rates for buy to let properties and second homes.
  • The eligibility criteria for the Venture Capital Schemes will be amended to exclude all energy generation activities.
  • A new 60% penalty will be introduced for cases successfully tackled under the General Anti Abuse Rule (GAAR) and the procedure will be improved so it is more able to tackle marketed avoidance schemes.
  • New rules to be introduced to stamp tax to stop avoidance where “deep in the money” options are used.
  • A consultation will be issued shortly with a view to changing the company distribution rules to reduce opportunities for income to be converted into capital. Further, the Transactions in Securities rules will be amended and a new Targeted Anti-Avoidance rule will be introduced.
  • The Corporation Tax intangible assets regime will be further amended to counter arrangements using partnerships. Legislation will also be amended to counter avoidance involving capital allowances and leasing.
  • The 3% diesel supplement in company car tax will be retained until 2021.
  • Corporation Tax to fall to 18% by the end of this parliament.
  • The doubling of small business rate relief (SBRR will be extended by 12 months to April 2017.
  • By 2020 it will be a requirement that most businesses, self employed people, landlords will keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account.
  • The government will consult on simplifying the payment of tax with the aim of bringing payment dates closer to the point when profits arise, making single regular payments that cover all their tax affairs.
  • From April 2019 capital gains tax on residential property will be payable within 30 days of completion.
  • Over the next 5 years HMRC will move from 170 offices to 13 large, modern regional centres.
  • HMRC to work with debt collection agencies to collect £324 million of tax credits debts owed by 2019-20.
  • There will be 18 new Enterprize Zones and an extension of 8 sites of the current programme.
  • Income from certain pensions made by the Netherlands government payable to victims of national-socialist and Japanese aggression during World War II will be exempt from income tax from April 2016.
  • The taxation of income from sporting testimonials will be simplified.
  • Non Resident competitor’s income from their earnings in the 2017 World Athletics and Paralympics Championships and the 2016 London Anniversary Games will be exempt from income tax.
  • From 6 April 2016 relief for travel and subsistence costs will be restricted for workers engaged through an employment intermediary, such as an umbrella or personal service company. This will affect individuals working through personal service companies where the intermediaries legislation applies.
  • The averaging period for self –employed farmers will be extended from 2 year to 5 years as of April 2016.
  • A number of technical changes will be made to tax-advantaged and non tax-advantaged employee share schemes.
  • The £5,000 starting rate of savings tax will remain at its current level for 2016-17.
  • The ISA annual subscription limits will remain at their current level for 2016-17.
  • Extra Statutory Concession (ESC) F20 will be legislated, giving an inheritance tax (IHT)exemption for certain compensation and ex-gratia payments for World War II claims.
  • 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 from 6 April 2011.
  • New restrictions to the use of deeds of variations will not be introduced, however their use will continue to be monitored.
  •  A tax charge will not apply to loans or advances made on or after 25 November 2015 by close companies to charity trustees for charitable purposes.
  • The Apprenticeship levy will be introduced in April 2017.
  • The tax rules for company debt and derivative contracts will be updated to ensure they correctly interact with the new accounting standards.
  • In 2016 the government will consult on changing the SDLT filing and payment window from 30 days to 14 days from 2017-18.
  • The exemptions from ATED and the 15% SDLT rate will be extended to equity release schemes, property development activities, and properties occupied by employees from 1 April 2016.
  • A new criminal offence will be introduced that does not require proof of intent for the most serious cases of failing to disclose offshore income and gains.
  • New civil penalties for offshore tax evaders linked to the value of the asset on which tax was evaded.
  • New civil penalties for those who enable offshore evasion.
  • New criminal offence for corporates failing to prevent tax evasion.
  • The government will introduce tough new measures for those who persistently enter into tax avoidance schemes that are defeated by HMRC.
  • The government intends to take action against those who have used or continue to use disguised remuneration schemes and are yet to pay their fair share of tax, legislation may be introduced in the future that will have effect from 25 November 2015.
  • Legislation will be introduced with effect from 1 January 2017 addressing hybrid mismatch arrangements.
  • Large businesses will be required to publish their tax strategies as they relate to or affect UK taxation and a new special measures regime will be introduced to tackle businesses that persistently engage in aggressive tax planning.
  • The government is taking forward most of the OTS recommendations on employment status.
  • From 2016-16 a new system of simple assessment will be introduced for those in self assessment with the simplest of affairs.

Regarding the OTS recommendations on employment status the chancellor has written to the OTS clarifying which of its recommendations it will, and in some cases already has, take forward:

  • A cross government working group is to be established to consider employment status and move towards the creation of an statutory employment status test.
  • The Employment Status Indicator tool is to be improved, and other industry specific versions may be created. Consideration is also being given to HMRC standing by the results if it has been properly and reasonably completed.
  • Class 2 NIC will be abolished, and Class 4 NIC will be reformed.
  • Travel and Subsistence rules to be modernised.
  • The taxation of termination payments is to be simplified.
  • An employment status helpline will be set up.
  • A full review will be conducted of the taxation of small businesses generally, including limited companies, partnerships, LLP’s and sole traders. This will have regard to employee taxation.

Click the links for the full text of the Blue Book and Chancellor’s letter to the OTS

HMRC wins Rangers Tax Case Appeal

05 November 2015

Yesterday the Opinion of the Court was issued in respect of the latest appeal to the Court of Session by HMRC in the Murray Group Holdings Ltd Case.

To the surprise of many HMRC have won this round although it is almost certain the former Ranger’s chairman Sir David Murray will take the case onto the final appeal arbiter, the Supreme Court. This case has been ongoing since 2010 and many refer to it as the Big Tax case in respect of arrangements that used Employment Benefit Trusts (EBTs).

HMRC’s win hinges on the redirection of earnings principle, in the wording of the opinion ‘… if income is derived from an employee’s services qua employee, it is an emolument or earnings, and is thus assessable to income tax, even if the employee requests or agrees that it be redirected to a third party. That accords with common sense.’.  

A key factor in the case was that the arrangement’s documentation included a contract of employment and a side letter providing for a discretionary trust payment. The trust would subsequently set up a sub trust in the name of the employee which would in turn loan the money onto the employee. The court decided the payment to the trust formed part of the employee’s employment package and as such there was an obligation to deduct tax under the PAYE legislation which falls upon the employer.

A number of other key cases in the EBT arena were considered, including Dextra Accessories Ltd and Sempra Metals Ltd which both went in the taxpayers favour. Dextra was considered to not be relevant due to distinguishing facts and the court decided re Sempra that the decision should simply not be followed.

HMRC have made it clear that they see this a paving the way for Accelerated Payment Notices (APN’s) to be issued for similar cases using EBTs, however due to the likely appeal this may be beyond their powers, until the final appeal is heard and published we remain uncertain as to the final outcome.

The full text of the opinion can be accessed here.

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