2016 Budget

17 March 2016

Following a more detailed review of the documentation on Budget Day these are a few of the more interesting developments in more detail.

Reform of the intermediaries legislation for public sector engagements

From April 2017, and following further consultation, the intermediaries legislation (IR35) will be extended such that all public sector bodies must ensure that any worker engaged via a Personal Service Company (PSC) is compliant with the legislation otherwise they must account for tax and national insurance on any payments made.

Currently it is the responsibility of the PSC to decide if it is caught by IR35 or not, the proposed change shifts the responsibility to the engaging body. If there are more intermediaries in the supply chain such as an agency then the entity closest to the PSC in the supply chain will be responsible.

HMRC have said they will provide assistance for public sector employers and agencies by introducing clear, objective tests for employers at the point of hire. For more complex cases where the result is not clear cut new tools will be designed to enable the engager to obtain a real-time HMRC view.

PSC's that provide their services outside of the public sector are unaffected by these changes, however the new tools will also be made available to them to assist them in their compliance with the rules.

The new Lifetime ISA

The possibility of a new Pension ISA had been suggested by commentators, the Chancellor has taken the idea a step further with the Lifetime ISA.

The Chancellor stated that often young people are faced with a difficult choice, either save for a deposit to buy their first home, or save for their retirement. The Lifetime ISA effectively enables young people to do both at the same time.

From 6th April 2017 those under 40 will be able to save up to £4,000 into the Lifetime ISA each year and receive an additional 25% bonus from the government. This bonus is the equivalent to receiving basic rate tax relief on the investment.

Savings along with the government bonus will be available in retirement or to assist in buying a first home.

If funds are withdrawn at any other time then the government bonus and any investment growth must be returned to the government along with what is described as a 'small' 5% charge.

Savers can continue to make investments and receive the government bonus up to the age of 50.

Funds can be drawn to assist in the purchase of a new house 12 months after the account has been opened and from the age of 60 for use in retirement.

Corporation Tax losses

Currently there are complex loss relief rules for companies that generally allow losses carried forward only to be set against the same income stream.

From 1 April 2017 losses arising that can’t be utilised in the current period can be carried forward and used against profits from other income streams or from other group company’s income streams.

A restriction will apply such that only 50% of the profits in excess of £5 Mil will be relievable but this will only affect the largest 1% of companies.

Loans to Participators 

Currently when a participator becomes indebted to a company the company must account for tax at a rate of 25% of the balance owing at the year end unless the loan has been repaid within 9 months of the year end. The tax will be repaid to the company on the normal tax payment date for the accounting period in which the balance is repaid.

There are complex anti avoidance rules regarding repayment.

The new rules will apply to any indebtedness that arises on or after 6 April 2016, current balances will NOT attract the increased charge.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

New Dividends Tax Regime

11 December 2015

The summers Finance Bill received Royal Ascent and became Finance Act 205 (No.2) on 18th November 2015, this included the new rules for the taxation of dividends.

From 6th April 2016 the taxation of dividends is completely overhauled. There will be a new tax-free dividend allowance of £5,000, then to the extend dividends fall within the basic rate tax band they will be taxable at 7.5%, dividends within the higher rate band will be taxed at 32.5%, and finally those within the additional rate band will be taxed at 38.1%.

The new tax-free Dividend Allowance of £5,000 has turned out to be far less generous than purported in the chancellor’s initial announcement.  It was initially understood to be a tax free amount that would not affect your personal allowance and tax bands, unfortunately that turned out to be incorrect.

The tax free dividend allowance is in fact a nil rate band for dividends, still counting towards your taxable income, just taxable at 0%.

Dividend income is still deemed to be the top slice of your income, but the first £5,000 of dividends simply attracts a 0% rate of income tax.

The new dividend tax regime will affect the remuneration strategy for all businesses operating via limited companies, if you have not already done so you should work with your advisor to ensure you are still remunerated in the most tax efficient manner once the new rules come in.

TT Intelligence is a young, dynamic firm who embrace the idea that detailed information is key to making the right decisions about your tax affairs. Our consultants have been working in the tax and accounts industry for over 20 years, their extensive knowledge and expertise, coupled with a jargon-free approach, makes guiding clients through the complexities and technicalities of their tax affairs straight forward and efficient.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

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