Following this week's Budget, we have set out below a summary of some of the main announcements. The majority of the measures will be implemented in this year's Finance Act and draft legislation will follow on 24 March in the Finance Bill.
If you would like to discuss the impact of any of the changes, please get in touch.
- Business Taxes
- Personal Taxes
- Venture Capital
- Media and Entertainment
- Anti-Avoidance and BEPS
- As previously announced, the rate of corporation tax will reduce from 21% to 20% from 1 April 2015. At Budget 2015, it was announced that the rate will remain at 20% for the financial year beginning 1 April 2016.
- The majority of the provisions reforming the corporate debt legislation have been deferred to the next Parliament. The only exception is the repeal of the 'late interest' rules limiting the timing of relief for interest on loans made to UK companies by a connected company in a non-qualifying territory, which will be included in the forthcoming Finance Bill.
- Following consultation, the changes announced at Autumn Statement 2014 to restrict the expenditure in respect of consumable items that qualifies for R&D tax relief where a company sells the products of its R&D activity as part of its normal business have been modified to ensure that the restriction does not apply where the product of the R&D is transferred as waste or for no consideration.
- A package of measures will be introduced to improve the accessibility of R&D tax credits for smaller businesses, including producing new guidance aimed at smaller firms and setting out a roadmap for further improvements over the next 2 years.
- The VAT registration turnover threshold will increase to £82,000.
- The Chancellor announced that the personal allowance will increase to £10,800 in 2016/17 and to £11,000 for 2017/18. The threshold above which an individual pays higher rate income tax will increase to £42,700 for 2016/17 and to £43,300 for 2017/18. Note that the personal allowance is not available to additional rate taxpayers and is reduced on a scaling basis for taxpayers with annual income over £100,000.
- The annual tax return is being replaced with online digital accounts. Details are yet to be confirmed.
- A new Personal Savings Allowance will be introduced from 6 April 2016. The Allowance will exempt the first £1,000 of a basic rate taxpayer's savings income and the first £500 of a higher rate taxpayer's savings income from income tax. The Allowance is not available to additional rate taxpayers. In addition, the automatic deduction of 20% income tax by banks and building societies on non-ISA savings interest will end in April 2016.
- Class 2 national insurance contributions (NICs) will be abolished in the next Parliament and Class 4 NICs will be reformed by the introduction of a new contributory benefit test. A consultation on the detail and timing of these measures will take place later this year.
- Changes announced in this week's Budget have tightened the rules around entrepreneurs' relief with immediate effect, with the potential to impact on existing management equity structures. Read our Private Equity Alert for further information.
- The Chancellor announced measures (with immediate effect) to prevent claims for entrepreneurs' relief in respect of gains on disposals of privately-held assets used in a business, unless they are associated with a disposal of at least a 5% shareholding in the company, or of at least a 5% share in the assets of the partnership, carrying on the business.
- The Government is to consult on a possible extension to entrepreneurs' relief to cover gains made by academics on disposals of shares in 'spin-out' companies that use intellectual property to which they have contributed.
- The list of qualifying investments for ISAs and Child Trust Funds will be expanded to include listed bonds issued by co-operative societies and community benefit societies and SME securities that are admitted to trading on a recognised stock exchange (with effect from 1 July 2015). A consultation will take place during summer 2015 on whether to further extend the list to include debt and equity securities offered via crowd funding platforms.
- Changes will be made in autumn 2015 to allow ISA savers to withdraw and replace money from their cash ISA without it counting towards their annual ISA subscription limit for the relevant tax year (provided the replacement takes place within the same tax year as the withdrawal).
- A new 'Help to Buy' ISA will be introduced to help first time buyers. A maximum of £200 can be deposited into the ISA each month. If the ISA funds are used for a home purchase, the Government will pay a bonus equal to 25% of the amount saved (subject to a cap on the maximum bonus of £3,000) at the time of the property purchase. Caps are imposed on the price of the house (£450,000 in London, £250,000 elsewhere).
- The Autumn Statement 2014 proposal to introduce Social Venture Capital Trusts will go ahead. Income tax relief at 30% (subject to State aid approval) will be available on investments in Social VCTs. Investors will not pay tax on dividends received from Social VCTs and there will be an exemption from capital gains tax on disposals of shares in Social VCTs.
- The current requirement that 70% of SEIS funding must be spent before EIS or VCT funding can be raised will be removed with effect from 6 April 2015.
- The SEIS, EIS and VCT scheme will all be amended (subject to State aid approval) to:
- require that companies must be less than 12 years old when receiving their first EIS or VCT investment (unless the investment will lead to a substantial change in the company's activity);
- introduce a £15 million cap on total investment received under the tax-advantaged venture capital schemes (increased to £20 million for 'knowledge intensive companies');
- increase the limit on the number of employees for 'knowledge intensive companies' from 249 to 499;
- require that all investments are made with the intention to grow and develop a business;
- require that all investors are 'independent' from the company at the time of the first share issue; and
- introduce new qualifying criteria to limit relief to companies where the first commercial sale took place within the previous 12 years, unless the total investment represents more than 50% of turnover averaged over the preceding 5 years.
We will provide further details of these changes once the legislation is available.
- As announced at Autumn Statement 2014, investments in companies which benefit substantially from subsidies for the generation of renewable energy will no longer benefit from the tax-advantaged venture capital schemes from 6 April 2015. Following consultation, investments in companies receiving foreign subsidies similar to contracts for difference will also be excluded from the schemes. The transitional arrangements for community energy organisations moving from the tax-advantage venture capital schemes to Social Investment Tax Relief were also announced at Budget 2015.3
Media and Entertainment
- Changes are to be made to high-end television relief and animation relief to reduce the minimum UK spend requirement from 25% to 10%. Changes will also be made to align the cultural test for high-end television relief with that for film tax relief. These changes will have effect for expenditure incurred on or after 1 April 2015, subject to State aid approval.
- Following consultation, the new children's television tax relief announced at Autumn Statement 2014 will be expanded to cover children's game shows and competitions. The legislation will have effect from 1 April 2015.
- The rate of payable tax credit under film tax relief will increase to 25% for all films from 1 April 2015, or the date of approval by the European Commission if later. In addition, the 100% enhancement rate that currently applies to increase the deduction available in respect of qualifying expenditure on limited budget films will be extended to apply to all films.
- The gross gaming yield bandings for gaming duty will be increased in line with inflation for accounting periods starting on or after 1 April 2015.
Anti-Avoidance and BEPS
- The Chancellor confirmed that the diverted profits tax announced at Autumn Statement 2014 will be introduced on 1 April 2015. Following consultation, the notification requirement is to be narrowed. Changes are also being made to clarify the rules for giving credit for tax paid, the operation of the conditions under which a charge can arise, specific exclusions and the application of the rules to companies within the oil and gas regime. Of particular note is HMRC's confirmation that the rules will be capable of applying to dealings in land and real property. The revised legislation is expected to be published in the Finance Bill on 24 March 2015.
- There was also confirmation of the Autumn Statement announcement that investment managers will be prevented from disguising their guaranteed fee income as capital gains in order to avoid income tax with effect from 6 April 2015. Sums linked to performance (such as 'carried interest') will not be affected by these changes. Following consultation, changes are being made to the draft legislation to ensure that it better reflects industry practice on performance-related returns, to restrict the charge on non-UK residents to UK duties and to ensure that the rules apply to investment trust managers.
- An anti-avoidance provision will be introduced (with immediate effect) to prevent the use of arrangements designed to increase access to carried forward corporation tax reliefs. The target of the measure is arrangements that create profits to use the carried forward relief whilst also creating newer and more versatile in-year relief for the company with the carried forward loss or a connected company. The new rules will only apply where the main purpose (or one of the main purposes) of entering into the arrangements is to obtain a tax advantage involving both the new relief and the carried forward reliefs. In addition, for the rules to apply, the expected value of the tax advantage must exceed any other expected economic value of the arrangements. Where the rules apply, the company will not be able to use the carried forward relief against the profits arising from the arrangements, but the new deduction will not be restricted.
- It was announced at Autumn Statement 2014 that individuals will be unable to claim entrepreneurs' relief on disposals of goodwill when they transfer a business to a related close company (i.e. incorporate their business). Following consultation, this measure has been amended to allow entrepreneurs' relief to be claimed by partners in a firm who do not hold or acquire any stake in the successor company.
- Legislation will be introduced in a future Finance Bill targeting serial tax avoiders. Measures will include a special reporting requirement and a surcharge on such serial avoiders whose latest tax return is inaccurate as a result of a further failed avoidance scheme. The Government is also considering restricting access to reliefs for the limited number of people with a history of trying to abuse them through avoidance schemes which do not work and developing further measures to name those who continue to use schemes that fail. The existing Promoters of Tax Avoidance Schemes regime will be extended to cover promoters whose schemes regularly fail.
- A specific, tax-geared penalty will be introduced for cases caught by the GAAR.
- The Government will consult further on proposals to restrict tax relief for travel and subsistence for workers engaged through an employment intermediary, e.g. an umbrella company or a personal service company, and under the control of the end-user. Any changes will take effect from 6 April 2016.
- Both tax evaders and the professionals who enable tax evasion will face new sanctions under plans announced on 19 March 2015. The Government plan to:
- introduce a new strict liability criminal offence for offshore evasion;
- make it a criminal offence for companies to fail to prevent tax evasion or the facilitation of tax evasion;
- increase the financial penalties for tax evasion, including linking the amount of the penalty to the value of the asset kept in an offshore bank account;
- introduce new civil penalties for those who enable tax evasion so they will face the same penalty as the tax evader;
- publicly name both tax evaders and those who enable evasion; and
- ask the regulatory bodies who police professional standards to take greater responsibility in setting and enforcing professional standards around the facilitation and promotion of avoidance.
- It was confirmed that the proposed exemption from the duty to deduct income tax from interest paid on unlisted securities (known as qualifying private placements) will go ahead. Regulations will be laid later in 2015 to introduce the exemption. Following consultation, changes have been made to the original proposal to remove a condition relating to the minimum term of the security.
- The Government announced at Autumn Statement 2014 that it would restrict the proportion of banks' annual taxable profit that can be offset by carried forward losses to 50%. This measure was confirmed at Budget 2015. Following consultation, a £25 million allowance will be introduced for groups headed by a Building Society, reducing the amount of reliefs that are subject to the restriction.
- The bank levy rate will increase to 0.21% from 1 April 2015.
- The Chancellor announced that payments made by banks as compensation for mis-selling will be non-deductible for corporation tax purposes. A consultation will be carried out on the details of the change and the implementation date has not yet been confirmed.
- For partial exemption tax years beginning on or after 1 August 2015, partly exempt businesses will no longer be able to take account of supplies made by their foreign branches when working out how much VAT incurred on overhead costs can be deducted in the UK.
- The pensions lifetime allowance has dropped from £1.25 million to £1 million from 2016. This represents the third drop under this Government (from £1.8 million initially) but it is to be index linked from 2018. This is likely to affect long-serving members of defined benefit schemes as well as those with large defined contribution pots.
- Following on from last years' pension freedoms, holders of annuities will be able to sell them to a third party, with the consent of the provider, from 2016. The Government is consulting on the guidance that will relate to these decisions.
- A new investment allowance for oil and gas companies operating a ring fence trade in the UK or UK Continental Shelf was announced at Autumn Statement 2014. Following consultation, the Government has decided that the allowance will remove an amount equal to 62.5% of investment expenditure incurred by a company (on or after 1 April 2015) in relation to a field from its adjusted ring fence profits for the purposes of the supplementary charge.
- The new cluster area allowance announced at Autumn Statement 2014 has been amended to introduce a power to extend the definition of qualifying expenditure in the future by secondary legislation and to introduce a restriction for expenditure incurred on the acquisition of a licence interest.
- The Chancellor also announced that the rate of the supplementary charge will reduce from 32% to 20%, backdated to 1 January 2015 and the rate of petroleum revenue tax will reduce from 50% to 35% for chargeable periods ending after 31 December 2015.