National Insurance Contributions Bill 2014 – The Draft

The National Insurance Contributions Bill was introduced into Parliament on 17 July 2014.
This is known as the first reading and there was no debate on the Bill at this stage.

If the bill passes second reading and is committed to a public bill committee, the membership of the committee will be published in Votes and Proceedings and posted on the Parliament page under ‘Commons Public Bill Committee’.

The draft Bill includes legislation relating to the following main measures:

– simplifying the collection of National Insurance Contributions (NICs) paid by the self-employed
– accelerating the payment to the Exchequer of amounts of NICs in dispute in avoidance cases
– applying new information powers and penalties to high-risk promoters of avoidance
– a Targeted Anti Avoidance Rule to prevent people from circumventing new legislation tackling avoidance involving employment intermediaries and offshore employers.

If you would like to read the draft Bill, follow the link: http://www.publications.parliament.uk/pa/bills/cbill/2014-2015/0080/15080.pdf

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Tax Disputes: Follower Notices and Accelerated Payments

New provisions, which came into force on 17 July 2014, are designed to remove the cashflow advantage for the taxpayer that currently exists in relation to most direct tax disputes and to help HM Revenue & Customs (HMRC) to clear the backlog of disputes relating to past tax avoidance schemes.

If HMRC succeeds in the courts against another scheme user, it will be able to require a taxpayer to settle their dispute or if they wish to continue their dispute, to make an accelerated payment of tax and face potential penalties if they are ultimately unsuccessful.

In addition, anyone who has used a scheme disclosable under the Disclosure of Tax Avoidance Schemes (DOTAS) rules may have to make an accelerated payment of tax – even if the planning was disclosed under DOTAS many years before these changes became law and even if HMRC has not succeeded in any litigation against the scheme.

Follower notices following a judicial ruling in another case
‘Follower notices’ are aimed at marketed avoidance schemes, where HMRC has succeeded in the courts against one scheme user.

HMRC will be able to issue a follower notice where an enquiry or tax appeal is in progress in relation to ‘arrangements’ where it is reasonable to conclude that obtaining a ‘tax advantage’ was the main purpose or one of the main purposes of the arrangements.

The legislation is widely drawn and allows the issue of a follower notice where “HMRC is of the opinion that there is a judicial ruling which is relevant to [the taxpayer’s] arrangements”. A ruling is relevant if “principles” laid down or reasoning given in the ruling would, if applied to the arrangements, deny the asserted advantage, or part of it.

The judicial ruling must be a final determination. This means a decision where there is no right of appeal, such as from the Supreme Court, where permission to appeal is refused or where an appeal is not made within the time limits or is abandoned. The ruling could therefore be a ruling of the First Tier Tribunal, if the taxpayer does not appeal.

A follower notice requires the taxpayer to amend its return, if the return is still under enquiry, or enter into an agreement with HMRC to settle the dispute, where a closure notice or tax assessment is under appeal. The taxpayer is also required to give HMRC a notice stating that it has taken the necessary corrective action and notifying HMRC of the amount of additional tax which becomes payable as a result. The taxpayer has 90 days in which to comply.

There is no right of appeal against a follower notice, just a right to send written representations to HMRC, within 90 days of the notice being given, objecting to the notice on the basis that the procedural conditions have not been complied with or that the judicial ruling is not relevant to your circumstances. If you submit representations and are unsuccessful, you have 30 days from being notified of the outcome to comply with the notice, assuming this period ends after the original 90 day period.

There is a maximum penalty of 50% of the tax due, if you fail to comply with the follower notice. This can be reduced if you co-operate with HMRC. You can appeal against a follower notice penalty. The grounds of appeal include that the procedural conditions for the follower notice were not met, that the judicial ruling is not relevant to the arrangements or that “it was reasonable in all the circumstances…not to have taken the necessary corrective action”. This last ground should prevent a penalty arising where a taxpayer continues their own litigation and is ultimately successful.

HMRC has 12 months to issue a follower notice, beginning on the latest of the day of the judicial ruling, the day HMRC received the taxpayer’s return or claim and the day the taxpayer made its appeal. If the ruling was before 17 July 2014, the limit is the later of 24 months from 17 July 2014 and 12 months from the return or appeal.

If the disputed tax has not already been paid, a follower notice will usually be accompanied by an ‘accelerated payment notice’ specifying an amount of tax that must be paid on account of the final liability. See below for more details.

Special provisions apply in relation to scheme participants who have invested through a partnership. In these circumstances, a follower notice will be issued to the representative partner of the partnership, and not to the individual partners. However, if the partnership does not comply with the follower notice, penalties of a maximum of 20% of the tax due will be assessed on the individual partners in accordance with their profit shares.

Accelerated payment notices
HMRC can issue an ‘accelerated payment notice’ (sometimes referred to as an ‘APN’) to a taxpayer if a tax enquiry or tax appeal is in progress and:
– a follower notice has been given or is given at the same time in relation to the same return and same tax advantage;
– HMRC has issued a DOTAS reference number in relation to the arrangements (or similar arrangements where the promoter is required to notify a scheme reference number to the taxpayer); or
– a general anti-abuse rule (GAAR) counteraction notice has been given in a case where the stated opinion of at least two members of the sub panel of the GAAR advisory panel was that the arrangements were not a reasonable course of action.

The accelerated payment notice will specify the amount of tax that must be paid on account of any final liability in respect of the enquiry or appeal. This will be determined to the best of the HMRC officer’s information and belief. The accelerated payment provisions overrule the normal postponement rules in relation to tax appeals. The accelerated payment will be repaid (with interest) in the event that the scheme is ultimately proved to work.

The accelerated payment notice will be discharged by a settlement of the dispute with HMRC, and so for those who have also received a follower notice, will only be relevant to those who decide not to comply with the follower notice and to continue with their own dispute.

The proposals are particularly controversial in relation to DOTAS schemes. A DOTAS scheme user could have to make an accelerated payment of tax in relation to a scheme entered into many years before these provisions become law, even though their use of the scheme is still under enquiry or being litigated and despite there being no other judicial ruling in respect of the scheme in question.

There are penalties if you fail to pay the accelerated payment within 90 days of the issue of the notice. There is no right of appeal against an accelerated payment notice. However, a recipient has 90 days from receipt of the notice to send written representations objecting to the notice to HMRC but only on the grounds that the conditions for the notice were not fulfilled – eg the scheme was not a DOTAS scheme or that the amount of the accelerated payment claimed is incorrect. HMRC must consider the representations and will then confirm or withdraw the notice or amend the amount of the accelerated payment. If written representations are made and the notice is confirmed by HMRC, the recipient has 30 days from receipt of HMRC’s decision to make the payment (if this would be a later date than the end of the original 90 day period).

HMRC has published a list of DOTAS scheme reference numbers of schemes where it intends to issue an accelerated payment notice. This list will be updated quarterly, HMRC said that starting in August 2014, it will phase the issuing of notices to users of listed schemes over approximately 20 months.

There are no specific provisions allowing tax to be paid in instalments. HMRC says it will consider requests for its normal ‘time to pay’ discretionary relief.

For those who have invested through a partnership, an accelerated payment notice cannot be given to the representative partner, instead ‘partner payment notices’ may be issued to individual partners.

As previously mentioned, the changes apply from 17 July 2014 – but they will apply to schemes entered into before that time, as well as those entered into after the provisions take effect.

National Insurance Contributions
APNs and follower notices do not currently apply to schemes designed to save national insurance contributions. However, the government intends to extend the provisons to national insurance contributions. The measures will have effect effect two months after the National Insurance Contributions Bill 2014 receives Royal Assent.

Source: http://www.out-law.com

UK tax inspectors collect record £23.9bn

Investigations by tax inspectors have collected a record £23.9bn over the last year, according to official figures.

The total was £3.2bn more than the previous year, £9bn higher than three years ago, and nearly £1bn above the target set by the chancellor, George Osborne, in his 2013 autumn statement, HM Revenue and Customs said.

More than £8bn was secured from large businesses, more than £1bn from criminals and £2.7bn from tackling tax avoidance schemes in the courts, it said.

Exchequer secretary David Gauke said: “The government supports the hard-working, honest majority of taxpayers that play by the rules, and is determined to tackle the minority that seek to avoid paying the taxes they owe.

“We set HMRC ambitious targets to increase its yield and the figures published today demonstrate that HMRC is successfully meeting these challenges. It also sends a clear signal – HMRC will pursue those seeking to avoid their responsibilities and will collect the taxes that are due.”

Gauke told the BBC Radio 4 Today programme a variety of things had been done to increase the tax yield, including campaigns and better use of technology.

“The staff of HMRC deserve credit for what they have done … the government has been very much backing HMRC. We put in place a reinvestment programme that has contributed to this increase in yield.”

Asked about Amazon, which paid just £4.2m in tax last year, despite selling goods worth £4.3bn, he replied: “I don’t want to be drawn into individual cases but I do think you can’t expect HMRC to collect tax that isn’t in accordance with the law. The answer is to make sure we have international reform … the UK has led the way in that process.”

Source: theguardian.com

New Legislation Causing Nervousness

Contractors being subjected to unnecessary checks by agencies

Probably not unexpectedly, the new Agency Legislation is already wreaking havoc amongst some agencies and causing knee jerk reactions.

The legislation, enshrined in Chapter 7, Part 2, Income Tax (Earnings and Pensions) Act 2003, was amended from 6th April of this year to tighten up on ‘false self-employment’ by forcing agencies to deduct PAYE tax and NIC from self-employed individuals who are subject to control or a right of control by any parties in the contractual chain. The effect is therefore to re-classify such workers as being employed by the agency.

During the eight week consultation period, ‘Onshore Employment Intermediaries: False Self-Employment’, concerns were voiced that the legislation did not make it clear that a typical PSC was not the intended target and because of this it would cause confusion with the existing IR35 rules.

In response, HMRC issued a technical note setting out their view of the interaction between the Agency Legislation and IR35, basically stating it’s ‘as you were’ for IR35 and that the PSCs are not affected by the new legislation. I am however only paraphrasing as, in true Revenue style, of course, the note did not expressly say this!

As a result of there being no absolute confirmation that PSCs are not the subject of the Agency Legislation (which they aren’t), this has caused some agencies to start twitching and putting into place unnecessary measures in their dealings with bona fide contractors. Only last week I saw a document that an agency is issuing to freelancers in reaction to the legislation. In its covering letter, the agency stated, “Please note it is our current understanding that workers engaged via a PSC which pays salary under PAYE and NIC’s and/or pays dividends are not normally regarded as being paid as a result of services provided.”, i.e. contractors aren’t affected. However, the letter then contradicts itself and proceeds to ask the freelancer to complete and sign a document containing 5 questions:

  1. Confirm that the PSC only employs workers under a contract of employment and pays them under PAYE.
  2. Confirm that the contractor operates via a PSC.
  3. If a PSC, identify the controlling director and:
    – confirm that, apart from expenses and dividends, they will not be paid gross; and
    – the PSC’s payroll is operated in the UK.
  4. Confirm the nature of the engagement between the PSC and the named worker, ie, self-employed, director’s agreement or something else.
  5. If the named worker is engaged on some basis other than self-employed or director’s agreement, then further details are to be given.

This type of document serves only to pacify and satisfy an agency’s paranoia, caused and fuelled, in part, by HMRC’s failure to provide categorical confirmation that PSCs are not affected by the new Agency Legislation. The legislation itself however is not new, it has only been amended and narrowed and has always applied to self-employed individuals. So why then were agencies not imposing these excessive checks before 6th April 2014? It is because they knew the legislation did not apply and that PSCs came under the IR35 regime. Well that hasn’t changed and it would be unjust and unfair to expose a group of taxpayers to double taxation on the same source of income.

Forcing contractors to enter into such gratuitous confirmations could have an impact on their IR35 status, as they may give the impression that the personal service of the freelancer is a condition of the engagement. My advice to any contractor presented with such a request would be to politely decline, pointing out that it should be sufficient that the agency know they are operating through their own limited company and to attach a copy of HMRC’s technical note, which can be found on pages 24-25 of Onshore Employment Intermediaries: False Self-Employment highlighting the paragraph, “As is currently the case, the proposed Agency legislation will not generally apply where a worker is engaged via a PSC…..”.

Author: Andy Vessey

Are you “Employed with a second income”?

HMRC have recently launched ‘The Second Incomes Campaign’, aimed at employees who are UK resident and running a business on the side but not paying tax on the income. A second income could derive from:

  • consultancy fees, e.g. for providing training
  • organising parties and events
  • taxi driving, hairdressing or fitness instructor
  • making and selling craft items
  • buying and selling goods, e.g. at market stalls or car boot sales.

To help taxpayers decide whether or not they are self-employed as well as being employed, HMRC have produced a seven minute video titled, ‘Do You Have a Second Income’ which takes individuals on a brief journey through the hallmarks of self-employment.

http://youtu.be/oElhdGK9gBI

According to the video if you can answer ‘yes’ to one or more of the following questions then it is likely that you are self-employed:

  • Can hire helpers at your own expense
  • Risk your own money and can make a loss as well as a profit
  • Provide your own equipment to undertake the work
  • Work for a fixed price regardless of how long the job takes
  • Make key decisions, i.e. control
  • Work for a number of clients
  • Rectify own mistakes at your own expense

If only deciding on employment status were that easy and can someone please tell the Status Inspectors!

Those affected can take advantage of this latest amnesty, ‘Second Incomes Voluntary Disclosure Opportunity’ to secure the best possible terms, i.e. a reduced penalty as interest will still be payable on the tax arrears. Taxpayers who ignore this opportunity could face an investigation, higher penalties or criminal prosecution.

John Redwood: ‘Top tax rate cut is raising billions’

Cutting the top rate of income tax has massively increased the amount of money the rich are paying into government coffers, says a senior Tory MP. John Redwood points to figures from HM Revenue and Customs that show a £9bn increase in tax receipts this year – after the top rate was cut to 45%.

The Office for Budget Responsibility suggests the boost is partly down to people delaying declaring their income. But Mr Redwood insists it is not a one-off and will be sustained. The previous Labour government created a new 50% tax band in 2010 for anyone with income of more than £150,000, but the coalition cut it to 45% last April.

‘Eye-popping’

A Treasury analysis in 2012 estimated the switch to 45% would reduce tax revenue by about £100m. But Mr Redwood, who co-chairs the Conservative Party’s policy review on economic competitiveness, said the Treasury had been “utterly wrong”.

“The Revenue and Customs figures for what actually happened is stunning proof that the tax cut from 50p to 45 has led to a big tax increase on the rich,” he wrote in a blog. He said the 50% rate had driven high earners overseas and encouraged them to use tax loopholes to declare less income.

The Office for Budget Responsibility (OBR) suggested the £9bn spike in revenues would not be sustained. It said high-rate taxpayers knew a change in the rate was coming so declared less income than normal in 2012-13 – as they are entitled to do under the rules – and that had led to a big increase in 2013-14. But Mr Redwood said the “eye-popping” amount that had been declared this year by high earners and the super-rich had taken even him by surprise – and he was confident the trend would continue.

‘Self-defeating’

“I am quite sure we are going to get more in the following years. There will be a net gain,” he told BBC News. He added: “I just want people to know the truth, and I now have a very important ally in Revenue and Customs.”

Mr Redwood is among a group of Conservative MPs pushing George Osborne, the Chancellor, to commit to cutting the top rate to 40p. Chancellor George Osborne has yet to comment on his future income tax plans.

David Ruffley, a member of the Treasury Select Committee, told The Times that rates above 40p were “self-defeating”. “Most Tories want to get back to what was the economic and political consensus that was 40p. We’re not saving millionaires, we just want to get back to the best way to raise money,” he added. Mr Osborne has yet to comment on his future income tax plans.

‘Cost of living’

A Conservative Party spokesman said: “The government is clear that in clearing up Labour’s economic mess those with broadest shoulders should bear the biggest burden.”

The Labour Party is standing by its pledge to restore the 50p rate – and it described Mr Redwood’s analysis as “very misleading”.

Shadow exchequer secretary Shabana Mahmood said: “As the Office for National Statistics and the OBR have both said, many of the highest earners moved income and delayed bonuses by a year after George Osborne’s 2012 Budget in order to benefit from the top rate tax cut.” He added: “It cannot be right, at a time when the deficit is high and ordinary working people face a cost-of-living crisis, to have given the richest 1% of earners a tax cut of £3bn a year.”

Source: BBC News

Overview of Anti-avoidance Tax Legislation 2014

This article summarises tax changes to be legislated in relation to Anti-avoidance in Finance Bill 2014 and/or other legislation, including secondary legislation having effect in 2014-15.

Offshore employment intermediaries –

As announced in Budget 2013 and following consultation, legislation will be introduced in Finance Bill 2014 to strengthen obligations to ensure the correct income tax and National Insurance contributions are paid by offshore employment intermediaries. These changes will have effect from 6 April 2014.

Onshore Employment Intermediaries: False self-employment –

As announced at Autumn Statement 2013, legislation will be introduced in Finance Bill 2014 to prevent employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment. Following consultation, the legislation has been revised to incorporate a number of small changes to address some of the concerns raised. A Targeted Anti-Avoidance Rule has also been introduced. These changes will have effect from 6 April 2014.

Partnerships –

As announced at Budget 2013, and following formal consultation over the summer, draft Finance Bill 2014 legislation was published for consultation at Autumn Statement 2013, alongside a consultation response document and a Technical Note, setting out the Government’s proposals to counter:

• the disguising of employment relationships (and consequential reduction of employment taxes) in relation to salaried members of Limited Liability Partnerships (LLPs);

• tax-motivated allocations of business profits or losses in partnerships (not just LLPs) where the partners include both individuals and companies (mixed membership partnerships); and

• tax-motivated disposals of assets through partnerships.

Accelerated payment in tax avoidance cases –

As announced in Autumn Statement 2013, legislation will be introduced in Finance Bill 2014 to change tax administration to require taxpayers who have used avoidance schemes which are defeated in another party’s litigation, and who do not settle the dispute, to pay the disputed amount to HMRC on demand.

Avoidance schemes involving the transfer of corporate profits –

Legislation will be introduced in Finance Bill 2014 to prevent companies from obtaining a corporation tax advantage by transferring profits between companies within a group. The legislation will provide that where as part of tax avoidance arrangements a company transfers all or a significant part of its profits to another group member, then the company’s profits will be taxed as though the transfer had not occurred. These changes will have effect for any transfer of profits made on or after 19 March 2014. A TIIN is available at Annex A.

Review of loan relationships and derivative contracts –

Following consultation, the Government will shortly issue a Technical Note setting out proposed changes to make the corporation tax rules on loan relationships and derivative contracts simpler, more certain and more robust against avoidance. As part of these changes, legislation will be introduced in Finance Bill 2014 in two areas.

First, both profits and losses will be brought into account for tax purposes when a group transfers a loan or derivative contract to a company, which subsequently ceases to be a member of the group (currently losses are not normally brought into account). These changes have effect where the cessation of membership of the relevant group occurs on or after 1 April 2014. A TIIN is available at Annex A.

Second, changes will be made to the rules in Chapter 3 of Part 6 of Corporation Tax Act 2009, concerned with the taxation of certain collective investment vehicles, to enhance existing anti-avoidance provisions and to clarify aspects of the operation of the rules. These changes have effect in relation to accounting periods beginning on or after 1 April 2014.

Legislation, previously intended for inclusion in Finance Bill 2014, to clarify and rationalise the taxation of loan relationships and derivative contracts held by a partnership will now be deferred to 2015.

Autor: Lora Sivova, PhD

6 Apr Employment Law changes

The 6 April is a day for change for employers because it is one of the Government’s two annual ‘common commencement dates’.

Pay rates increase

The annual increase in statutory payments for sick pay, maternity pay, paternity pay and adoption pay took place on 6 April. The weekly rate of statutory sick pay is now £87.55 and statutory maternity pay, ordinary and additional paternity pay and adoption pay is now £138.18 a week.

Statutory compensation limits increase

The maximum compensatory award for an unfair dismissal claim will increase to £76,574 (n.b. the secondary cap of a maximum of 12 months’ will still apply so that the most that can be awarded in a standard unfair dismissal claim will be the lower of £76,574 or 12 months’ pay). In addition, a week’s pay (which is used for calculating statutory redundancy payments and basic awards) will increase from £450 to £464.

Financial penalties for employers 

This April also saw the introduction of the ability for employment tribunals to award financial penalties up to £5,000 on employers found to have breached employment law where the tribunal considers that the breach had ‘one or more aggravating features’.

Recovery of sick pay 

The abolition of the statutory sick pay percentage threshold scheme also took place. This scheme enabled employers to recover amounts of statutory sick pay. Transitional and saving provisions enable employers to continue recovery of statutory sick pay until 6 April 2016 for days of incapacity falling before 6 April 2014.

Use of offshore intermediaries for tax avoidance

If you use employment agencies, prepare to start collecting evidence as the Government focuses in on PAYE and NICs paid by offshore employment intermediaries.

The Government’s plans to create Income Tax and National Insurance Contributions (NICs) charges on offshore intermediaries employing workers in the UK, and if the employer fails to pay, moving this charge to an onshore ‘end client’ business, have been published.

The draft legislation includes the following key points:

From 6 April 2014, a UK end client will be made liable for PAYE and NICs, with retrospective effect back to that date, if HMRC is unable to recover those liabilities from the offshore employer of individuals who, at any time after that date, ‘work for’ the end client, or any UK intermediary involved. It will not be possible to escape these charges by arguing that the employee’s services were part of a larger, composite service including other services. It will also not be possible to escape by arguing, for example, that the employee was not subject to control by the end client.

Existing legislation has broadly similar effect, but HMRC considers it inadequate to cater for all situations where abuse could arise. In practice, there is often a ‘chain’ of intermediaries between the worker and the end client. The end client engages a UK intermediary and that intermediary engages further intermediaries, one or more of which is offshore. Where all intermediaries cease trading by the time HMRC investigates, HMRC has difficulty attaching the liability to the end client, who may claim that he had no knowledge that the chain of suppliers included offshore employers.

Although the consultation document indicated that the intention was to attack arrangements involving work performed in the UK through offshore employers, the new legislation as drafted does not confine itself to circumstances where work is performed in the UK. It appears it can also apply, for example, where a UK resident individual performs work outside the UK (and by virtue of being UK resident is liable for UK Income Tax and NICs on his earnings) but for the benefit of an end client who is resident or present, or has a place of business in the UK.

In principle, a danger arises for all UK businesses who use employment agencies or who otherwise outsource services which include work performed by UK resident employees. Assuming that the agency itself is not an offshore employer, the danger is that the agency subcontracts to other entities in providing the workers involved and an offshore employer is included somewhere in the chain the arrangements.

If these proposals are implemented, UK businesses that engage workers through employment agencies, offshore group service companies, and so on, will no doubt want to ensure either that evidence can be maintained that nowhere in the chain is there an offshore employer or, that if there is, PAYE and NICs are operated.

Author: Martin Benson

Tax on homes

There can be a significant tax hit where residential UK properties are owned by a non-natural person. This includes a company, partnerships with corporate members and collective investment schemes. Since April 2013 we have had to consider the consequences for these types of structures where the property is valued at more than £2m. The three tax points are:

1) A 15% Stamp Duty Land Tax charge (SDLT) will apply on acquisition of the property.
2) An annual tax charge (ATED) and the submission of a formal return. The charge starts at £15,000 for a property worth £2m and increases in line with valuation bands set by HMRC.
3) Capital Gains Tax (CGT) at 28% on disposal.

Extending the measures

These measures have been extended but not all at the same time:

From 20 March 2014, the SDLT will now apply to any property valued at more than £500,000.
From 1 April 2015, the ATED will also apply to properties worth more than £1m and the charge will be £7,000 per year.
From 1 April 2016, the ATED will extend further to properties valued at more than £500,000 and will be £3,500 per year at this level.
The CGT charge will also apply to properties worth £1m and £500,000 in 2015 and 2016 respectively.

What can you do?

If you own a UK residential property via a non-natural person and the extension of these rules affects you then it is time to consider whether the holding structure is still appropriate. You need to think about the long term benefit of retention and consider the tax cost of restructuring if that is a viable alternative.

Budget 2014: the key announcements

George Osborne said his Budget would boost “makers, doers and savers”. But it was far broader than that…

 

PERSONAL TAX

* Personal tax allowance to be raised to £10,500 next year; £800 average savings

* Higher rate threshold for 40p income tax to rise from £41,450 to £41,865 next month and then by further 1 per cent to £42,285 next year

* Transferable tax allowance for married couples to rise to £1,050

 

TAX

* 15 per cent stamp duty on homes worth more than £500,000 bought through companies

* Scrapping inheritance tax for members of the emergency services who “give their lives protecting us”

* Inheritance tax waived for emergency services personnel who “give their lives protecting us”

* VAT waived on fuel for air ambulances and inshore rescue boats

* Fuel duty rise planned for September cancelled

* Stamp duty on homes worth more £500,000 to rise to 15 per cent for those bought by companies, as part of tax avoidance measures

 

PENSIONS AND SAVINGS

* All tax restrictions on pensioners’ access to pension pots removed and tax on cash removed on retirement cut from 55 per cent to 20 per cent

* Reform of taxation of defined contribution pensions to help 13 million people from March 27

* Abolition of 10p starting rate of tax on income from savings

 

ECONOMY

* GDP growth forecast to be 2.7 per cent this year, then 2.3 per cent, 2.6 per cent, 2.6 per cent and 2.5 per cent in following years – making UK economy £16 billion bigger than predicted.

* Deficit revised down to 6.6 per cent this year, and forecast to fall in following years before going into surplus of 0.2 per cent in 2018/19

* Borrowing expected to be £108 billion this year – £12 billion less than forecast

* Debt revised down to 74.5 per cent of GDP this year; then predicted to peak at 78.7 per cent in 2015/16 and fall to 74.2 per cent by 2018

 

JOBS

* OBR forecasts 1.5 million more jobs over the next five years and earnings to grow faster than inflation

* Welfare cap set at £119 billion for 2015/16, rising to £127 billion by 2018/19, only state pension and cyclical unemployment benefits excluded

 

ENERGY

* £7 billion package to cut energy bills includes £18 per ton cap on carbon price support, saving medium-sized manufacturers £50,000 and families £15 a year

* Compensation scheme for energy intensive industries extended four years to 2019/20; £1 billion to protect manufacturers from cost of green levies

 

LEISURE

* Tobacco duty to rise by 2 per cent above inflation

* Alcohol duty escalator scrapped

* Duty on spirits and ordinary cider frozen. Beer duty cut by 1p a pint

* Duty on fixed-odds betting terminals increased to 25 per cent

* Bingo duty halved to 10 per cent.

* 20 per cent tax relief for theatre productions

INVESTMENT

* £270 million guarantee approved for the Mersey Gateway bridge.

* Support to build 200,000 homes.

* Additional £140 million made available for repairs and maintenance to flood defences

 

BUSINESS

* Business rate discounts and enhanced capital allowances in enterprise zones extended for three more years

* Research and development tax credit for loss-making small businesses raised from 11 per cent to 14.5 per cent

* Annual investment allowance doubled to £500,000 and extended to the end of 2015

 

GENERAL

* A scheme to boost exports – doubling the amount of finance available to £3bn

* An extra £140m for repairs and maintenance to flood defences and £200m for potholes

* Scrapping VAT on air ambulance services and inshore rescue boats

* A five-year cap on structural welfare spending from 2015, starting at £119bn and rising in line with inflation. It excludes pensions and Job Seekers Allowance

* Reform of air passenger duty so all long haul flights carry the same tax rate as currently charged for flights to USA.

* A new “garden city” at Ebbsfleet in addition to plans for 200,000 new homes

Budget 2014

The political theatre of Budget day, with its heady mix of data on the economic state of the country and proposed tax changes will be particularly heightened this year.

A recovery is underway but the government’s expenditure is still far in excess of its tax and other receipts. On the political front two significant events will loom large Chancellor’s sights. One is 7 May 2015, the date set for the next general election at the end of first ever fixed term parliament, the other 7 September 2014, the date of the Scotland referendum. The 19 March Budget is the Chancellor’s final opportunity to set out his stall.

 The challenge is to craft a speech with a large amount of the “feel good factor”, yet retain credibility in the international money markets by not actually affecting the rate of improvement in government finances.
On 19 March, we reckon the Chancellor is likely to make much of:
  • The good news of growth in the economy, falling inflation and increased levels of employment
  • Taking more of the lower paid out of tax with personal allowance increasing to £10,000
  • Continuing reductions in the headline rate of corporation tax making the UK an attractive location for businesses
  • No immediate increase in the duties on petrol or diesel
  • A continued “crackdown” on tax avoidance
  • A robust defence of a top income tax rate at 45%, asserting a higher rate would result in less income tax being collected and asserting the intention to remove the additional rate as soon as improving economic conditions make it appropriate

What surprises might Mr Osborne pull out of the budget box?

  • For individuals – a further increase in the income tax personal allowance
  • Energy taxes – softening, or perhaps freezing of increase in levies on electricity generation
  • Businesses – a more generous annual investment allowance for capital expenditure on plant and machinery than the limit of £25,000 a year due to apply from 1 January 2015, which would be a 90% reduction from the present, albeit temporarily high, £250,000 limit.
  • Savings – an increase in the cash ISA limit as this would not actually “cost” that much due to the continued expectation of low interest rates, this could be presented as a way to reverse the precipitous drop in personal savings.
  • Capital gains – the 28% main rate of CGT partly compensates individuals for the absence of relief for the effect of inflation, might this rate be reduced to encourage investment?

Whatever tax changes are announced on 19 March we will analyse them to identify the essence of the practical impact: what the change will actually mean for you. Visit our blog for articles about further developments.

Matrimonial Property, Needs and Agreements

The Law Commission is awaiting Government’s response after making recommendations to clarify the law of “financial needs” on divorce or dissolution of a civil partnership and to introduce qualifying nuptial agreements in England and Wales.

Many couples resolve the financial consequences of divorce or dissolution without going to court.  But where this is not possible, the courts have a very broad discretion to redistribute the parties’ property and income.

One of the key factors that the court must take into account when making a decision is the parties’ financial needs.  The meaning of “needs” in this context has generated uncertainty and there is confusion, for those separating, about the extent to which one spouse should be required to meet the other’s needs after their formal relationship has come to an end.  Another area of uncertainty is how the courts treat property that one party brought into the relationship or acquired by gift or inheritance during it.

The Law Commission’s project also considered the treatment of pre-nuptial, post-nuptial and separation agreements.  These are agreements made between couples before or during their marriage or civil partnership as to how their property and finances will be dealt with if they were to separate.  Such agreements are not currently enforceable but the judgment of the Supreme Court in Radmacher v Granatino [2010] UKSC 42 said that they should be given “decisive weight” unless the agreement is unfair.

Recommendations

The final report was published on 27 February 2014.  The report sets out and explains our recommendations for reform, which would:

  • Clarify, through the provision of guidance by the Family Justice Council, the law relating to “financial needs”.  This would ensure that the law is applied consistently by the courts and reinforce judicial best practice.  Guidance will also give people without legal representation access to a clear statement of their responsibilities and the objective of a transition to independence that a financial settlement should achieve.
  • Investigate the possibility of whether an aid to calculation of “financial needs” could be devised.  That formulae, if developed, would take the form of non-statutory guidance and would give a range of outcomes, in figures, within which the separating couple might negotiate.
  • Introduce “qualifying nuptial agreements”.  These would be enforceable contracts, which would enable couples to make binding arrangements for the financial consequences of divorce or dissolution.  In order for an agreement to be a “qualifying” nuptial agreement, certain procedural safeguards would have to be met.  Qualifying agreements could not, however, be used by parties to contract out of meeting the “financial needs” of each other and of any children.

The Law Commision’s report includes a draft Nuptial Agreements Bill, which would introduce qualifying nuptial agreements in England and Wales.

Crackdown on tax evasion

A new campaign has been launched by the chancellor to target those who evade tax. George Osborne has confirmed HM Revenue and Customs (HMRC) will work with G20 members to track down people who use offshore accounts to evade paying tax.

The UK last year signed up to an agreement with France, Germany, Spain and Italy to increase resources to ensure those who attempt to dodge their financial commitments are brought to justice. Since the scheme was launched in 2013, a total of 43 countries are now working towards reducing options for offshore accounts.

Mr Osborne said: “Last year the prime minister put tax at the heart of the UK’s G8 agenda, leading to ground breaking consensus on the action needed to bring greater transparency and fairness to the global tax system. The G20 took up the baton and at this meeting we agreed the next steps in the international fight against tax avoidance and evasion.” He added that the steps will protect those businesses and contractors who do meet their tax obligations.

Income tax personal allowance for those born after 5 April 1948 and basic rate limit for 2014-15

General description of the measure 

For 2014-15, the personal allowance for those born after 5 April 1948 will be increased to £10,000, and the basic rate limit will be reduced to £31,865. As set out at Budget 2011, once the personal allowance has reached £10,000, it will then increase by Consumer Prices Index (CPI) in future years, starting from 2015-16.

Proposed revisions 

Legislation will be introduced in Finance Bill 2014 to over-ride the amounts in the Indexation Order to set for 2014-15, the personal allowance for those born after 5 April 1948 at £10,000, and the basic rate limit at £31,865.

Economic impact

This measure will reduce income tax for low and middle income individuals, improving incentives to enter employment and increasing real household disposable incomes. This might feed through to higher consumption or savings in the household sector. Overall employment outcomes will also depend on other measures announced relating to personal tax and national insurance contributions as well as aggregate labour demand and the performance of the wider economy.

Impact on individuals and households

The increase in the personal allowance to £10,000 will take 257,000 individuals out of income tax altogether in 2014-15.

By April 2014, the cumulative effect of this Government’s increases in the personal allowance will lift 2.7 million people out of the income tax system.

In 2014-15, the increase will provide 24.5 million individuals with a real terms gain (over and above that from normal indexation) averaging £50. Of these, 20.4 million will be basic rate taxpayers and 4.2 million higher rate taxpayers (figures may not sum due to rounding).

0.47 million individuals will have an average loss of £50 in 2014-15. All of these have incomes above the breakeven level near £120,000 at which the personal allowance is tapered to zero and so no benefit is derived from the personal allowance increase.

Source: http://www.hmrc.gov.uk/budget2013/tiin-2531.pdf

OTS’ report tries to simplify taxes

Limited company contractors could find that their workload is reduced thanks to new proposals. The Office of Tax Simplification (OTS) has taken another look at how it can remove some of the complexity associated with taxes and expenses. The OTS has summarised a number of recommendations, which it believes would achieve this if introduced.

One of its main suggestions is to reduce the number of forms that need to be completed by freelance workers. In particular, the OTS wants to allow employers to submit some or all of their benefits and expenses on a monthly basis. Although this isn’t its sole recommendation, the Office believes that it could be the one that has the biggest impact. It believes the changes could reduce 99% of P11D forms submitted, which could benefit umbrella contractors, employers and HM Revenue and Customs.

Some of the OTS’ suggestions may be long term issues but others are likely to be carried into the Budget 2014 process. There are six main recommendations in the OTS’ document with each focusing on a different area of employment.

The first concerns the voluntary payrolling of benefits, which will see the most umbrella and limited company contractors affected. Under the current system, all taxable benefits have to be reported by employers to the HMRC with a P11D form. However, the change would see employers payroll some or all of their expenses on a voluntary basis.

Another recommendation affects the PAYE system. A PAYE Settlement Agreement allows an employer to make one payment per year to cover all income tax and NICs due. However, the OTS wants to expand this to allow companies to settle any tax liability on benefits or expenses in this way.

Other areas concerned travel and subsidence, exemption for qualifying business expenses, abolition of the £8,500 threshold and trivial benefits and other administrative burdens.

Colin Ben-Nathan, chairman of the Chartered Institute of Taxation’s Employment Taxes Sub-Committee, welcomed the report. He said: “It contains many excellent recommendations which we believe should be given careful consideration by government with a view to action as soon as possible. Employers are subject to a cumbersome system for the reporting of employee benefits and expenses and its streamlining should be regarded as a high priority.”

HMRC plans to increase up-front payments from tax avoiders

The number of tax avoiders forced to pay tax owed upfront could increase if a new set of government plans are approved.

HM Revenue and Customs (HMRC) has launched a consultation on proposals to change economic incentives for contractors that avoid paying levies. The government is looking to add further circumstances to the law in which HMRC will be able to ask for upfront payment from those using tax avoidance schemes. This comes after chancellor George Osborne announced in the Autumn Statement that the tax body would be able to demand instant payment of tax from those using an avoidance scheme the same as or similar to one defeated in court following an HMRC investigation.

Under the new proposals, any disputed tax associated with schemes that are subject to the Disclosure of Tax Avoidance Schemes regime will be eligible for immediate payment. Similarly, contractors and self-employed professionals employing the most abusive tax avoidance measures will also be demanded to settle upfront by HMRC. The government claims that by building in such circumstances to existing regulation, the tactic of holding onto the disputed tax while a case is being investigated and litigated will be eradicated.

David Gauke, exchequer secretary to the Treasury, said: “The government has been absolutely clear that we will not tolerate aggressive tax avoidance and will take action to make sure people pay the taxes that are due. While the vast majority of taxpayers play by the rules, there is still a minority who will engage in artificial schemes as a way to avoid their responsibilities.”

Mr Gauke added that the scheme isn’t just designed to remove the advantage enjoyed by those that avoid tax, but to deter anyone thinking of not complying with HMRC rules and regulations. By doing so, the government is hoping to shift the economic balance and help HMRC resolve many of the cases currently under investigation. However, the tax body claims that the new proposals are only an extension of the terms and conditions taxpayers might currently have to accept when deciding to use an avoidance scheme.

NIC cuts will save £5.5 billion per year

The government’s plans to reduce employers’ National Insurance Contributions (NIC) will save nearly £5.5 billion per year for businesses by the end of the parliament – the equivalent to £200 per employee.

According to HM Revenue and Customs (HMRC), the savings will be generated through the introduction of the new Employment Allowance, which takes effect from April this year.

Under the scheme, up to £2,000 is wiped off the total NIC bill of every business, helping to encourage hiring among small firms.

Abolishing employer National Insurance for employees under the age of 21 from April 2015 and raising the threshold before a business starts paying NIC for employees will also contribute to significant tax savings for employers.

Chancellor George Osborne said: “Effectively providing cashback on jobs, the Employment Allowance will help […] businesses achieve their goals and help the UK succeed in the global race. With three months to go until the introduction of the Employment Allowance, I am shining a spotlight on this scheme which demonstrates our support for small businesses and enterprise.”

Lowering total NIC contributions will also enable smaller companies to dedicate more resources to securing the professional talent they need through contractors and limited companies. 

R&D tax credits

Small firms could be missing out on tax breaks and incentives because they are not aware of what they are entitled to. This is according to a new survey by Baker Tilly, which reveals that many companies are not taking advantage of government schemes. The research found that only 15 per cent of small firms were aware of R&D tax credits, despite them being around for nearly 14 years.

R&D tax credits were first introduced in 2000 to try and encourage more investment in research and development. However, since their introduction, the benefits of these tax credits have become more extensive and allowed small firms greater tax breaks. HMRC has even expanded the way it determines which firms are eligible for the credits and the way it applies the rules to encourage innovation in the UK’s economy. However, most of the claims are being made by large companies rather than small firms.

According to HMRC reports, large companies have claimed £780 million in R&D tax relief, compared to just £420 million by small and medium enterprises (SMEs). However, there was a low awareness about other tax incentive schemes, as just eight per cent of small firms knew about the Seed Enterprise Investment Scheme (SEIS) and just four per cent were aware of the Patent Box.

The most recognised tax incentive were Capital Allowances, with 55 per cent of respondents knowing about them.

Research also found that, once businesses knew about an incentive, they were likely to use it. This suggests that being aware of schemes is the main issue rather than companies not being interested in the benefits.

George Bull, tax partner at Baker Tilly, said: “The survey backs up what we already suspected, that many UK SMEs are missing out on generous R&D tax incentives.

“There’s clearly an issue of awareness that the government needs to address, but SMEs also need to take responsibility for finding out about R&D and other tax breaks on offer, in order to take advantage of all opportunities to grow. Anecdotal evidence suggests there is a perception that R&D refers to lab-based work only, whereas a whole range of innovative measures in SMEs can be classified as R&D.”

BCC: UK economy could strengthen in the short-term

The UK economy could strengthen in the short-term, according to the British Chambers of Commerce (BCC) Quarterly Economic Survey. After growing at a solid pace in 2013, signs point towards a positive year for the economy – news that is likely to spur further hiring among businesses.

For contractors, the news from the BCC indicates opportunities in the UK may be about to increase. Indeed, in Q4 it is estimated that GDP grew by 0.9 per cent. Services export balances and the employment sector are now at an all time high too.

However, the BCC highlights that there remains risks for firms looking to expand, as access to finance continues to be problematic. The body states that addressing this will be crucial for moving the economy forward.

John Longworth, director general of the BCC, said: “Firms across the board believe they can create jobs, invest, and export. It is especially pleasing that the spurt in the manufacturing has proven not to be a fluke, which demonstrates the dynamism of our small, high value, manufacturing sector.”