Budget update 2015

THE COMEBACK KID? Many had predicted an overtly political budget, with more than half an eye on the impending election. George Osborne gave a barnstorming performance, with plenty of political jibes aimed squarely at the Opposition. With just 50 days to the general election, and polls stubbornly indicating another hung Parliament, has George Osborne done enough to swing voters back to the Conservative Party? The Chancellor started his speech with the repetition of a “we choose” formula – the future, economic security, jobs, the whole nation. Similar to his party conference speech last year, the performance began to bear an uncanny resemblance to a scene from the film Trainspotting. He quickly shifted gear into an upbeat summary of the country’s economic position, with GDP and real household disposable income per capita increasing, and the deficit and unemployment down, although there is far to go before the country achieves a current account surplus. Most of the more significant tax measures were announced in the Autumn Statement last December – for example, the new 25 per cent diverted profits tax – but the Chancellor announced two new anti-avoidance measures with immediate effect, one to stop companies “refreshing” carried forward tax losses, and another to stop individuals claiming entrepreneurs’ relief on capital gains on shares in companies without a “genuine” trading business. The second will apply to individuals who have invested in genuine trading businesses through corporate joint ventures or through so-called “Manco” structures. Other announcements included significant cuts to the rates of petroleum revenue tax and the supplementary charge to corporation tax which will be welcomed by the oil and gas sector, a commitment to maintain a higher level of the annual investment allowance, and a wideranging review of business rates. Individual taxpayers will face a revolution in tax compliance from early 2016, when annual tax returns are abolished and replaced by digital tax accounts which will be pre-populated with the data HMRC already holds from PAYE, banks and other sources. The income tax allowances will be increased, with an ultimate aim of a personal allowance of £12,500 and a higher rate threshold of £50,000. In addition, from 2016, most taxpayers will benefit from a new tax-free allowance of £1,000 or £500 for savings income. First-time buyers will welcome the proposal for an innovative “help to buy” ISA, with generous 25 per cent contribution by the Government, up to £3,000, and other savers will benefit from relaxations of the ISA rules. Finally, in the run up to the implementation of the OECD’s Common Reporting Standard for automatic exchange of information about investors’ financial accounts, and no doubt prompted by the recent debacle involving bank accounts in Switzerland, the existing disclosure facilities will be closed early and replaced by a less generous facility open until 2017. We’ve summarised the Budget 2015 in more detail below. BUDGET UPDATE 2015 CONTENTS 2 PERSONAL TAX 6 BUSINESS TAX 9 PERSONAL ALLOWANCES AND TAX RATES 2 PERSONAL TAX INTRODUCTION The 2015 Budget, announced on 18 March, contained a mixture of new tax reliefs on the one hand and the extension and tightening of anti-avoidance and anti-evasion rules on the other. For the private client the Budget was, in many ways, an election Budget rather than a technical Budget changing the detailed rules of tax legislation. A number of changes to tax reliefs were announced, in addition to election manifesto pledges which are not Budget measures and which would be unlikely to achieve full coalition support. The reliefs introduced and extended include the liberalisation of the rules on ISAs, the new Help to Buy: ISAs, changes to the taxation of savings, the extension of the personal allowance and of the threshold at which higher rate tax is paid. On the other hand, a number of measures designed to tighten up on tax avoidance were outlined. These measures are clearly partly in response to recent publicity on tax avoidance and suggestions that the Government has not played a proper role in countering tax avoidance. New criminal offences for tax evasion and sanctions for professional persons assisting with tax schemes were announced, as well an extension of the rules accelerating the liability to pay tax. In an election year it is not unusual for only a limited number of the Budget measures to be included in legislation prior to the ensuing General Election. This is often necessitated by the need to have some legislation passed implementing the most important measures, such as the tax rates and thresholds for the ensuing tax year, while other more technical and detailed measures may await legislation following the election. The fate of these deferred provisions then awaits the outcome of the election and the nature of the Government taking office. It will therefore remain to be seen how many of the measures outlined in the Budget and referred to below find their way to the statute book before or after the General Election. INHERITANCE TAX Inheritance tax and trusts In his Autumn Statement in December 2014 the Chancellor announced new legislation designed to restrict taxpayers’ ability to reduce the rate of inheritance tax on relevant property (i.e. discretionary) trusts by the creation of multiple trusts. The approach adopted was to provide that assets added to more than one trust on the same day would be added together in working out the rate of tax on each trust. Draft legislation was published in December following the Autumn Statement. In the light of subsequent consultation HMRC has amended the draft legislation to take account of certain comments made. The changes made include the following:  The new rules will not now require the aggregation of assets initially settled in other trusts where those other assets are not subject to the relevant property regime, nor will additions to more than one trust be aggregated where the addition to a trust was of £5,000 or less. In other words, small additions will not bring the new rules into play.  There is also a welcome extension of the transitional rule that was included in the draft legislation that assets added to more than one trust under an individual’s will are exempted from the new rules in circumstances where the will was made before 10 December 2014 and the deceased dies before 6 April 2016. The transitional rule will now apply where the person making the will dies before 6 April 2017. Inheritance tax exemption for medals and other rewards The Government confirmed it will extend the existing inheritance tax exemption for medals and other declarations that are awarded for valour and gallantry. From 3 December 2014 this exemption will apply to all declarations and medals awarded to the armed services or emergency services personnel, and to awards made by the Crown for achievements and service in public life. Inheritance tax exemption for emergency services personnel and humanitarian aid workers The Government has also confirmed that it will extend the existing inheritance tax exemption for members of the armed forces where death is caused or hastened by injury while on active service to members of the emergency services and humanitarian aid workers responding to emergency situations. This will have effect for deaths on or after 19 March 2014. Deeds of variation The Chancellor announced, in a very brief way, proposals to review the use of deeds of variation of the wills of deceased persons. The rules for inheritance tax which enable a beneficiary under a will to rewrite the will within two years of death and for those changes to be read back into the will and treated as made by the deceased are well known and have been widely used. The Chancellor announced that these rules will be reviewed in the autumn. There is no reference 3 PENSIONS CHANGES Annuities The Government had announced that it will legislate from April 2016 to allow people who have already purchased an annuity to agree with their annuity provider to assign their right to the annuity income to a third party. This will enable them to cash the annuity in for a lump sum as an alternative retirement product. The aim of this is to put people who had already purchased annuities in the same position as those who when pensions reforms were announced in the 2014 Budget had not yet done so. From April 2015, beneficiaries of individuals who die under 75 with a joint life or guaranteed term annuity will be able to receive any future payments from the policies free of tax. This will be allowed where no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was aged over 75 the beneficiary will however pay their marginal rate of income tax on the annuity. The pension lifetime allowance The Government will reduce the lifetime allowance for pension contributions from £1.25m to £1m from 6 April 2016. The lifetime allowance is the level of value of pension arrangements which is free of tax when pension plans are vested on retirement or capital is paid out on the death of the pension investor. The lifetime allowance has been reduced in previous Budgets and, as with those previous reductions, there will be protection for pension rights already worth over £1m to ensure that the changes are not retrospective. The lifetime allowance will be indexed annually in line with the CPI with effect from 6 April 2018. INCOME TAX Personal allowance and higher rate threshold As it has done in previous years, the Government has announced an increase in the income tax personal allowance for individuals. The personal allowance is currently £10,000 and will increase to £10,600 for 2015/16, £10,800 for 2016/17 and £11,000 for 2017/18. The basic rate limit (i.e. the threshold above which individuals pay tax at 40 per cent) will also increase in both 2016/17 and 2017/18. The overall result is that higher rate threshold (i.e. the sum of the personal allowance and the basic rate limit) will gradually increase from £41,865 in this tax year to £43,300 in 2017/18. to any particular form of avoidance or mischief that is to be addressed. No suggestion was made in the brief statement that the changes, if any, would be effective as from the Budget day. The review will be undertaken, if it occurs, by the Government in office after the General Election and whether any action is ultimately taken must be open to doubt. CAPITAL GAINS TAX Capital gains tax for non-UK residents The Chancellor announced in his 2013 Autumn Statement the Government’s intention to extend the scope of UK capital gains tax so as to bring within the charge to tax gains on UK residential property realised by non-resident individuals, trustees and companies. Draft legislation was eventually published following the 2014 Autumn Statement and the Government is currently carrying out a consultation process with relevant professional bodies before finalising the legislation. A copy of our note explaining the details of how the new charge will operate is available here. In this week’s Budget the Government published a list of Frequently Asked Questions (FAQs) concerning this new capital gains tax charge. The FAQs do not include any policy announcements or changes, rather they clarify some administrative aspects of the new regime and provide additional detail on how eligibility for principal residence relief will work in the context of non-UK resident individuals. The final legislation is expected to be published in this year’s Finance Bill and we will publish a more detailed note on the effect of the expanded regime once the bill has been published on 24 March. Exemption for machinery and plant restricted: the Lord Howard case The Government is to introduce legislation to reverse the decision of the court in the Lord Howard Trust case. The trustees in that case claimed an exemption from capital gains tax on the sale of some valuable paintings which had been loaned to them by another family entity and which did not qualify for capital allowances. The court held that the gain was exempt from capital gains tax even though the asset had been lent by the owner to the trustees and was not used by the owner in his business. The effect of the legislation will be that the exemption will be restricted to a gain arising where the owner carries on the business but does not qualify for capital allowances. The changes will have effect for gains accruing on and after 1 April 2015 for corporation tax purposes and 6 April 2015 for capital gains tax purposes. 4 will be able to view details of their income tax collected through the PAYE system, National Insurance contributions, pension income and interest from banks and building societies in their account. Taxpayers will be able to check and confirm that their details are complete and correct and the change will mean that millions of taxpayers with simple affairs will no longer need to complete a return. There is no detail as yet on how the system will operate for those with more complex affairs, but a roadmap setting out the policy and administrative changes needed to create the accounts will be published later in 2015. The Government will consult over summer on a new payment process to enable tax and National Insurance contributions to be collected through digital accounts, instead of through the current self assessment system. It is intended that small businesses will be able to link their accounting software to their digital tax account enabling them to check their details online with, in time, no need to file an annual return. Small businesses will have the option to pay in instalments, to better manage their cash flow. It is intended that small businesses will be given a single view of their total liabilities across all taxes through the new accounts. HMRC and Companies House will be also co-ordinate the registration of new companies by May 2017 to remove the need to provide the same information more than once. Taxpayers will still be able to authorise agents to view and manage their digital account. This is a highly ambitious IT project and inevitably there will be concerns about the Government’s ability to deliver tens of millions of accounts by 2020 and the security issues arising from putting such sensitive personal data online. CHARITIES Gift aid and small donations scheme (GASDS) The GASDS helps eligible charities and community amateur sports clubs to claim “top-up” payments (similar to Gift Aid) on cash donations of £20 or less. With effect from April 2016, the maximum annual donation amount which can be claimed through the GASDS is being increased from £5,000 to £8,000. Where the basic rate of income tax is 20 per cent, a top-up payment of up to £2,000 a year can therefore be claimed. Under the GASDS, cash donations must be in bank notes or coins that have been collected and banked in the UK after 6 April 2013. Donations can be in any foreign currency. In addition, the Chancellor announced that with effect from 6 April 2016, a new Personal Savings Allowance will be introduced, the effect of which will be to reduce tax on savings income received by both basic rate and higher rate taxpayers. The tax free allowance will be £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers will not be able to benefit from the Personal Savings Allowance. ISAs As things stand, if an individual withdraws cash from their ISA and subsequently replaces that amount, the replacement counts towards their annual ISA subscription limit. The Government plans to bring in changes later this year which will mean that, provided withdrawals and replacements happen in the same tax year, they will not affect the individual’s subscription limit. As previously announced, the ISA subscription limit for the 2015/16 tax year will be £15,240. The Government also announced a new Help to Buy: ISA. This effect of this is that, for every £200 an individual saves, the Government will top this up with £50 when the individual comes to buy their first home. The Government assistance will be capped at a total of £3,000. The benefits of a Help to Buy: ISA will only apply in respect of properties worth up to £450,000 in London and up to £250,000 elsewhere. Profits realised by farmers The Chancellor announced that the period over which farmers can average their profits for tax purposes will be extended from two years to five years. DIGITAL TAX ACCOUNTS During his Budget speech, the Chancellor announced that, as part of the Government’s overall vision to modernise the tax system, tax returns will be replaced by digital tax accounts in a “revolutionary simplification” of the current system. By early 2016, all of the UK’s five million small businesses and ten million individuals will have their own digital tax account. The briefing paper “Making tax easier: The end of the tax return”, published today, sets out more details of the project and makes the bold promise that by the end of the next Parliament every individual and small business in the UK will have a digital account. The briefing paper promises that these accounts will be simple and secure and that taxpayers will be able to access them through the digital device of their choice. The project recognises that the current self-assessment system requires taxpayers to provide information that HMRC already holds when filing their tax returns. It is expected that individuals 5 of information arrangements coming into force). This is going to be on tougher terms, with no protection from criminal prosecutions and higher (at least 30 per cent) penalties. The Chancellor also stated that the Chief Secretary to the Treasury will tomorrow (19 March) publish further details of comprehensive plans for new criminal offences for tax evasion and new penalties for those professionals who assist them, so there is more to come on this. The plans may be based around HMRC’s consultation during 2014 on the introduction of a new strict liability criminal offence relating to failure to declare overseas income or gains. Those proposals if implemented would carry the risk of harshly impacting on taxpayers particularly in the light of the complex remittance basis of taxation and anti-avoidance income and gains attribution rules and it is to be hoped that the new proposals have taken this into account. Automatic exchange of information Further secondary legislation has been announced which will give effect to international tax transparency arrangements. Regulations will be implemented shortly which:  relate to the existing FATCA reporting and exchange of information regime (both UK and US regimes), and correct certain minor errors in the existing regulations;  ensure the UK is compliant with its obligations under the EU Revised Directive on Administrative Co-operation prior to the 31 December 2015 deadline for its domestic implementation; and  implement the OECD led Common Reporting Standard reporting and exchange of information regime. Draft regulations were published on 31 July 2014 in the discussion document: Implementing Agreements under the Global Standard on Automatic Exchange of Information to Improve International Tax Compliance, which closed for comments on 22 October 2014. A summary of the responses to that document will be published when the draft regulations are laid before Parliament. The regulations are expected to have effect 21 days after being laid for the FATCA regimes, but from 1 January 2016 for the Common Reporting Standard and Directive on Administrative Co-operation. The Chancellor also announced a £4m investment in data analytics to make best use of the information which will be collected under the Common Reporting Standard. The Government also intends to legislate to require financial intermediaries and tax advisors to explain to their clients the Common Reporting Standard, the opportunities for disclosure and penalties for failing to disclose. The collecting charities do not need to know the identity of the donors or collect Gift Aid declarations, which makes it easier to claim on donations through charity buckets and other street collections. Help for hospices From 1 April 2015, hospices and palliative care charities will be eligible to reclaim VAT on purchases they make to support their non-business activities. The Government expects around 200 palliative care charities to be affected. This measure will close the VAT gap faced by charitable hospices which, unlike NHS providers, have to date been unable to reclaim VAT on many non-business supplies. Legislation allowing search and rescue charities, air ambulance charities and blood bike charities to claim VAT refunds will also be introduced with effect from 1 April 2015. OFFSHORE EVASION AND THE EARLY TERMINATION OF DISCLOSURE FACILITIES The Chancellor has announced a number of measures in the Budget to further clamp down on UK tax evasion using nonUK accounts or structures. These measures compliment the international arrangements to exchange information relating to foreign bank accounts and structures including US and UK FATCA reporting (see below for further developments on these points). First of all, steps will be taken to accelerate any participation by individuals or entities with undisclosed liabilities in certain UK tax disclosure facilities – the Liechtenstein Disclosure Facility and the Crown Dependency Disclosure Facilities (Guernsey, Jersey and Isle of Man Disclosure Facilities), which each offer favourable terms for disclosing liabilities for qualifying persons where the full terms apply. The Liechtenstein Disclosure Facility has generally been the most favourable and offers complete immunity from criminal sanctions. Whereas the Liechtenstein Disclosure Facility was scheduled to end at the end of April 2016 (having been extended in June 2012) it will now cease to be available from 31 December 2015. The Crown Dependency Disclosure Facilities were to end on 30 September 2016 and will now also cease to be available from 31 December 2015. Applications to register should accordingly be made as soon as possible and in advance of the 31 December 2015 deadline. The Government will instead be making a new “last chance” disclosure facility available between 2016 and mid 2017 (in anticipation of the new Common Reporting Standard exchange 6 BUSINESS TAX ENTREPRENEURS’ RELIEF Where entrepreneurs’ relief applies, it reduces the effective rate of capital gains tax from 28 per cent to 10 per cent on the first £10m of gains realised by an individual during their lifetime. Three changes have been announced to the way entrepreneurs’ relief applies in order to counter what the Government sees as schemes that exploit the rules. Joint ventures Entrepreneurs’ relief can be claimed on shares held in “trading companies” provided certain conditions are satisfied – broadly, that the individual making the disposal holds 5 per cent of the votes and share capital. The Government is proposing a change to the test of what qualifies as a trading company. Until 18 March 2015, a trading company could include a company which, despite not having its own trade, held at least a 10 per cent stake in another company (a “qualifying joint venture company”) which did have a trade. This rule has now been repealed and the company itself must either be a trading company or the holding company of a trading group. We believe that this change is aimed at schemes which sought to maximise the number of people who could benefit from the relief by using qualifying joint venture structures. However, the change is wide ranging and not directed at avoidance arrangements, and so it could also have implications for structures which take the form of joint ventures for sound commercial reasons. This will result in some individuals who thought they benefitted from entrepreneurs’ relief, and did not enter into planning, being denied the relief due to the use of a corporate joint venture structure and so such structures should be reviewed. The legislation is in force with immediate effect for disposals on or after 18 March 2015. Given the accelerated timescale for this Finance Bill to be passed, this measure is unlikely to be amended. Companies in partnership The second change makes it clear that companies will not be treated as having trading activities where they are members of partnerships (including LLPs) which carry on a trade. This change runs counter to the general presumption that partnerships should be treated as transparent for tax purposes, but is consistent with the assault on partnerships in the last two Finance Acts, and in particular the “mixed member” rules which penalised companies in partnership from last year. Associated disposals Finally, the ability to access relief on disposals of assets other than shares has been narrowed. Entrepreneurs’ relief is available for disposals of assets used in a business carried on by a company or a partnership with which the individual is associated, if the individual also withdraws from or disposes of an interest in the business (in whole or in part) at the same time. With effect from 18 March, the withdrawal or disposal needs to be of at least 5 per cent, to prevent schemes which involved de minimis disposals of an interest in the business solely for the purpose of accessing the entrepreneurs’ relief on a disposal of associated assets (for example, on office buildings or other premises occupied by the business). PREVENTING THE “REFRESHING” OF CARRIED FORWARD LOSSES A new anti-avoidance provision has been introduced to combat arrangements which allow companies to access certain carried forward tax reliefs which otherwise might not be available. Generally, carried forward tax losses can only be utilised by the company which has carried them forward, and can only be set off against the same sort of profits; by contrast, current year losses can be surrendered to other group companies and set against other kinds of profit. The new measure will cover corporation tax trading losses, non-trading loan relationship deficits and management expenses. To the extent that a “tax arrangement” results in profits against which the relevant carried forward losses can be deducted, the deduction will be denied (albeit that the company can use the deduction against other profits in accordance with the normal rules). The rules include a motive test: the restriction will only apply if one of the main purposes of the arrangement is to obtain a tax advantage involving both the deduction and the use of the carried forward reliefs. This is quite a wide test – the use of carried forward reliefs against taxable profits is a common feature of tax planning – so, with a view to ensuring that genuine commercial arrangements are not caught by these rules, a “tax advantage” and a “non tax advantage” must also be calculated for the relevant arrangement, and compared. If the “non tax advantage” exceeds the “tax advantage” then the new rule will not apply. The restriction is an anti-avoidance provision, and has immediate effect. It applies for accounting periods beginning on or after 18 March 2015, and current accounting periods will be apportioned into two notional periods (on a time basis, unless some other basis is more just and reasonable). 7 CAPITAL ALLOWANCES Depreciation is not a deductible expense for tax purposes. Instead, capital allowances allow the cost of capital assets to be written down and deducted from taxable profits. Generally, capital items are written down in a business’s accounts over a number of years, with the period for the write down depending on the category of asset. Annual investment allowance to be maintained The annual investment allowance was introduced in 2008, allowing a business to claim a 100 per cent deduction for expenditure on plant and machinery up to an annual limit. The limit was temporarily increased from £250,000 to £500,000 last year, but was due to fall back to £25,000 in January 2016. The Chancellor announced the intention to maintain a higher level of the allowance, with further details to follow in the autumn. Businesses may wish to bring forward spending on plant and machinery to obtain the maximum possible benefit while the £500,000 limit remains in force. Anti-avoidance The Finance Bill 2015 will also include anti-avoidance legislation announced in February, which seeks to prevent taxpayers increasing the expenditure that qualifies for capital allowances, by entering into transactions with a connected party or by a sale and lease back, if the relevant asset was originally acquired without incurring capital expenditure. In such cases, the expenditure that would otherwise qualify for capital allowances will be restricted to nil. OIL AND GAS TAXATION The Budget included several announcements intended to boost the UK’s oil and gas sector. Historically, the sector has been heavily taxed, with petroleum revenue tax (PRT) which applies to profits from fields granted development consent before 16 March 1993, in addition to a ring-fenced corporation tax regime, and a supplementary corporation tax charge on profits within the ring-fence (but excluding finance costs). A new investment allowance will be introduced, replacing existing off-shore field allowances, so that an amount equal to 62.5 per cent of a company’s investment expenditure incurred after 1 April 2015 in relation to fields in the UK or the UK continental shelf will be removed from the supplementary charge regime. Further, with retrospective effect from 1 January 2015, the supplementary charge will be reduced from 32 per cent back to the 20 per cent rate that applied from January 2006 until March 2011, and the rate of PRT will be reduced from 50 per cent to 35 per cent, the lowest rate since the tax was introduced in 1975. BANK TAXATION The tax burden on the UK’s banking sector continues to increase. In addition to the restriction on use of carried forward losses by banks announced in December 2014, so at least 50 per cent of their taxable profits remain subject to corporation tax, the Chancellor has announced a substantial increase in the bank levy. The levy was introduced from January 2011 to charge tax based on a bank’s balance sheet assets, without regard to the bank’s profits. It is not deductible for corporation tax purposes, which can increase the effective rate of the levy by 25 per cent. The headline rate has steadily increased from 0.075 per cent in 2011, and jumps by a third from April 2015 to 0.21 per cent, raising nearly £1 billion more each year. VALUE ADDED TAX The Chancellor announced that regulations will be made so that, with effect from 1 August 2015, supplies made by foreign branches of business established for VAT purposes in the UK will no longer be taken into account in determining the recoverability of input VAT incurred on overhead costs of the business. The change implements a decision of the European Court of Justice in 2013, in a case involving Crédit Lyonnais in 2013. The effect of the change will be that partially exempt businesses based in the UK will no longer be able to justify increased recoverability of input VAT if their overseas branches make taxable supplies (supplies by those branches would typically not be subject to UK VAT in any event). BUSINESS RATES The Government announced a wide-ranging review of business rates shortly before the Budget, to address growing concerns that business rates are poorly designed and add an unjustified tax burden to UK businesses. Business rates are a significant cost of any business with premises in the UK. The current system of business rates was introduced in 1990 and is based on the “rateable value” of the premises, which is an estimate of the annual rent that might be achieved (last reassessed in 2008). Business rates account for nearly 5 per cent of total government revenues. They are forecast to raise about £22bn in 2014-15 from around 1.8m commercial properties, an average of about £12,000 per property, although the top 5 per cent of properties bear most of the tax. 8 automatically exchanging information about investors. The new regulations will apply from January 2016, with the first reports required later that year. MEASURES ANNOUNCED IN DECEMBER 2014 The Budget announcement included confirmation of many measures for which draft legislation was published for consultation after the Autumn Statement in December 2014, including:  The diverted profits tax, which will charge a new 25 per cent tax on profits from economic activity in the UK which are diverted out of the UK without bearing significant tax in the UK.  Taxing the “disguised fee income” of investment managers received by individuals through transparent vehicles (such as partnerships or LLPs) as employment income.  Preventing entrepreneurs’ relief from applying to capital gains arising on the disposal of goodwill to a close company to which the transferor is related.  The rate of corporation tax falling to 20 per cent from 1 April 2015.  Introducing corporation tax reliefs for investment in certain cultural activities, including children’s television programmes.  The introduction of “country-by-country reporting” for multinational companies, in accordance with the OECD’s proposals from its Base Erosion and Profit Shifting (BEPS) programme. Some changes will be made to these measures in response to consultation comments on the draft legislation, but details will not be available until the legislation is published in the Finance Bill 2015 on Tuesday 24 March. The Finance Bill will be passed into law in a matter of days, before Parliament is dissolved on Monday 30 March. Depending on the result of the general election in May, this Finance Bill will probably be the first of two (or three) this year. The Government has announced some other measures which will be implemented in later Finance Bills, subject of course to the results of the general election. Examples include a new regime of tax-geared penalties for arrangements that fall within the scope of the general anti-abuse rule (GAAR), and a regime for the direct recovery of tax debts from the bank accounts of defaulting taxpayers. The review is intended to be fiscally neutral, but will consider other options for local taxation of property and businesses: for example, possibly linked to turnover or number of employees. The Treasury has published a discussion paper, setting out the terms of the review. As a first stage, the Government is asking for evidence before 12 June 2015, with a view to publishing findings at the time of the Budget in 2016. NATIONAL INSURANCE CONTRIBUTIONS FOR THE SELF-EMPLOYED The Chancellor announced an intention to change the regime of national insurance contributions (NICs) paid by self-employed individuals in the next Parliament. First, the fixed-rate Class 2 will be abolished, and second, Class 4 NICs, levied as a percentage of a self-employed person’s taxable profit, will be reformed to introduce a new benefit test. The Government will be consulting on the details of the proposed changes later in 2015. NEW CRIMINAL OFFENCE The Chancellor announced proposals for new criminal offences for tax evasion, and new penalties for professionals who assist tax evaders. Details are expected to be published on 19 March, but could include a revival of the proposal of criminalising the failure to disclose overseas bank accounts, and an offence of “corporate failure to prevent economic crime” similar to that discussed by Danny Alexander, the Chief Secretary to the Treasury, in February 2015. The proposals may have parallels with the existing legislation that addresses money laundering and bribery. COMMON REPORTING STANDARD Regulations will be introduced to require UK financial institutions to undertake further due diligence on their investors, and report information to the UK tax authorities. The information will then be exchanged with tax authorities in other countries. The regulations will implement the amendments made in December 2014 to the EU Administrative Cooperation Directive – which, in its amended form, will replace the EU Savings Tax Directive from January 2016 – and will enable the UK to meet its obligations under bilateral information exchange agreements that implement the OECD’s Common Reporting Standard (CRS). The regulations will also replace the rules that implement the UK’s intergovernmental agreement with the US in relation to FATCA, creating a single consolidated regime for gathering and 9 PERSONAL ALLOWANCES AND TAX RATES Income tax allowances 2014/2015 2015/2016 Personal allowance1 (under 65) £10,000 £10,600 Age-related allowance (65-74)2 £10,500 £10,600 Age-related allowance (75 and over)3 £10,660 £10,660 Income limit for age-related allowances £27,000 £27,7004 Married couples allowance4 £8,165 £8,3554 Married couples allowance - minimum amount £3,140 £3,2204 Blind person’s allowance £2,230 £2,2904 1 For those earning over £100,000, the personal allowance is reduced by £1 for every £2 earned so that those earning over £121,000 in 2015/16 have their personal allowance completely removed. 2 This allowance applies for those born after 5 April 1938 but before 6 April 1948. 3 This allowance applies for those born before 6 April 1938. 4 For 2015/2016, these have been increased by amounts equivalent to the Retail Prices Index (RPI). Income tax rates 2014/2015 2015/2016 Income taxed at 20% (Basic rate) on first5 £31,865 £31,785 Income at 40% (Higher rate) on6 £31,866 - £150,000 £31,786 - £150,000 Income at 45% (Additional rate) on £150,001+ £150,001+ Dividends: Basic rate taxpayers 10% 10% Higher rate taxpayers 32.5% 32.5% Additional rate taxpayers 37.5% 37.5% Most trusts: Dividends 37.5% 37.5% Other income7 45% 45% Starting rate for savings8 10% 0% 5 For the tax year 2015/16, the basic rate tax band will apply to income up to £31,785. 6 For the tax year 2015/16, the higher rate tax band is £31,786- £150,000. 7 The first £1,000 of trust income is taxed at basic non-savings, dividends or savings rates depending on the type of income received. 8 Up to a starting rate limit for savings of £2,880 in 2014/15, and up to a starting rate limit for savings of £5,000 in 2015/16. NICs 2014/2015 2015/2016 Employees’ primary Class 1 rate9 12% 12% Employees’ primary Class 1 rate above Upper Earnings Limit10 2% 2% Employers’ secondary Class 1 rate above Secondary Threshold11 13.8% 13.8% 9 From £153.01 to £805 in 2014/2015, and from £155.01 to £815 in 2015/2016. 10 £805 per week in 2014/15, and £815 in 2015/2016. From April 2016, employers’ secondary class 1 NICs up to the upper earnings limit (£815) will be abolished for apprentices under the age of 25. 11 £153 per week in 2014/15, and £156 2015/2016. From April 2016, the employment allowance of £2,000 will be extended to care and support workers (it is already available to businesses and charities) to offset against their Class 1 primary NIC bill. For employees under the age of 21 earning between £156 and £815 the rate of employers’ secondary class 1 NICs will be 0%. Capital gains tax 2014/2015 2015/2016 Rates: Basic 18% 18% Higher (and trustees) 28% 28% Entrepreneurs’ relief 10% 10% Annual exempt amounts: Individuals £11,000 £11,000 Trustees £5,550 £5,550 Entrepreneurs’ relief: lifetime allowance £10m £10m Inheritance tax 2014/2015 2015/2016 Nil rate band12 £325,000 £325,000 Rate of tax on death on excess 40% 40% Lower rate13 36% 36% 12 The nil rate band will be frozen at £325,000 until 2017/18. 13 For deaths on or after 6 April 2012, a lower rate of inheritance tax of 36% applies if 10 per cent or more of the deceased person’s net estate is left to charity. Corporation tax 2014/ 2015 2015/ 2016 For companies with ring-fenced profits: Small companies rate - for companies with profits not exceeding £300,000 19% 19% Marginal relief for companies with profits between £300,000 - £1.5m Marginal relief fraction 11/400 Marginal relief fraction 11/400 Main rate - for companies with profits of £1.5m or more 30% on whole of profits 30% on whole of profits Profits other than ring-fenced profits: Small companies rate - for companies with profits not exceeding £300,000 20% 20% Marginal relief for companies with profits between £300,000 - £1.5m14 Marginal relief fraction 3/400 N/A Main rate - for companies with profits of £1.5m or more 21% on whole of profits 20% on whole of profits 14 From 2015/2016, because the small companies’ rate and the main rate are unified at 20%, Marginal Relief is abolished (with respect to profits other than ring-fenced funds). Value Added Tax 2014/ 2015 2015/ 2016 Standard rate 20% 20% Registration threshold £81,000 £82,000 CONTACT DETAILS If you would like any further information or specific advice please contact: JONATHAN CONDER OWEN CLUTTON PARTNER CONSULTANT DD: +44 (0)20 7849 2253 DD: +44 (0)20 7849 2350 [email protected] [email protected] ANDREW LOAN SENIOR CONSULTANT DD: +44 (0)20 7849 2688 [email protected] MARCH 2015 MACFARLANES LLP 20 CURSITOR STREET LONDON EC4A 1LT T: +44 (0)20 7831 9222 F: +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained. Macfarlanes LLP is a limited liability partnership registered in England with number OC334406. Its registered office and principal place of business are at 20 Cursitor Street, London EC4A 1LT. The firm is not authorised under the Financial Services and Markets Act 2000, but is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority. It can provide these investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes March 2015