The introduction of an exemption for trivial benefits was expected to be included in the Finance Bill 2015. However this has now been postponed and will be included in a future Finance Bill. This delay is surprising for a relatively straight forward issue. Employers should ensure they continue to maintain records as previously used for minor and trivial gifts to employees.
The Chancellor George Osborne delivered his pre-election Budget on 18 March 2015. As expected major points were pensions and savings and further measures to crackdown on tax evasion and avoidance. One surprise was the proposal to abolish the Tax Return for millions of individuals and small businesses with the introduction of digital tax accounts.
Key Points of the Budget and introduction of new rates effective from April 2015
Personal income tax allowance and thresholds
The Finance Bill 2015 will remove one tier of Personal Allowances. Currently there are three tiers of personal allowance depending on the taxpayers’ age. Those born before 1938 and 1948 have higher tax free allowances.
The personal allowance for 2015/16 for everyone born after 1938 will be £10,600 and for subsequent years there will be one allowance regardless of age, set at £10,800 for 2016/17 and £11,000 for 2017/18.
The transferable tax allowances for married couples and civil partners will be £1,060 for 2015/16. Where a spouse or civil partner is not liable to income tax above the basic rate they may transfer 10% of the personal allowances to their spouse/civil partner, so long as the recipient of the transfer is equally not liable to tax above the basic rate.
The threshold for higher rates will increase to £42,385 (£41,865) for 2015/16 and to £42,700 for 2016/17 rising to £43,300 for 2017/18.
National Insurance Contributions (NIC) increases from 6 April 2015
Lower Earnings Limit rises to £5,824 per annum (£112 per week/£485 per month)
Primary Threshold (level at which Employee contributions are due) rises to £8,060 per annum (£155 per week/£671 per month)
Secondary Threshold (ST) (level at which Employer contributions are due) is increased to £8,112 per annum (£156 per week/£676 per month.
Upper Earnings Limit rises to £42,380 per annum (£815 per week)
Employer’s NIC for most under 21s is abolished (except those earning over the Upper Earnings Limit).
Class 2 NIC flat weekly rate £2.80. The exemption limit is £5,965. Class 2 NIC is to be abolished with consultation in 2015 on reforms to the Class 4 contributions.
NIC Employment Allowance
Employment allowance is to remain at £2,000 for 2015/16. Businesses and charities in the UK that pay Employer Class 1 NIC on employees/directors’ earnings are entitled to up to £2,000 Employment Allowance to reduce their employer NIC.
Interest free or low interest rate loans to employees/directors which do not exceed £10,000 at any time during the tax year do not give rise to a benefit in kind charge. The Official Rate of Interest to determine if a loan is at a ‘low rate’ for 2015/16 is 3% (3.25% for 2014/15).
The various increases in the Personal Allowance and the PAYE and NIC thresholds will allow the rate of salary you currently pay yourself to increase with effect from 6 April 2015, without attracting a liability to tax or NIC. Further, with the Employment Allowance it may be more tax efficient to consider paying a higher salary instead of limiting to the ST rate. By paying a higher salary, the employer incurs Employer’s NIC and the director Employee NIC but as the amount of Employer NIC is less than £2,000 this will be refunded.
With the de miminis level for Beneficial Loans, remaining at £10,000 for 2015/16, it may be worth considering taking a loan from your company. A loan is more than just lending money, it includes any form of credit, ie an amount shown in the records as owed by an employee/director will count as a loan.
If you wish to discuss increasing the level of salary, and/or taking a loan from your company please contact your Account Manager or your usual contact.
Charge for use of Remittance Basis
The charge for the remittance basis for individuals not domiciled in the UK is currently £30,000 if the indivual has been in the UK for at least seven out of nine years or £50,000 if resident 12 out of 14 years. For 2015/16 the £30,000 remains the same, the £50,000 charge increases to £60,000. The additional charge will be increased to a new level of £90,000 where the individual has been in the UK at least 17 out of the preceding 20 years.
Self-Assessment Tax Returns
The Government’s surprise announcement was that by early 2016 they are to abolish the Tax Return for millions of individuals and small businesses. Individuals will have access to Digital tax accounts that allow tax and National Insurance Contributions to be collected outside of PAYE and Self-Assessment. The policy and administrative changes will be published later this year.
This fundamental change to the Self-Assessment system and Tax Return completion will transform the way a taxpayer manages their tax affairs. These proposals lead to significant concerns with how HMRC handle matters, with regard to accuracy, privacy and their continued and increased access to taxpayers’ affairs.
As previously announced a new tax free childcare scheme will replace the current childcare voucher scheme for new entrants from autumn 2015. The new scheme basically provides a subsidy for working parents of up to £2,000 per child under the age of 12. From September 2015 families with both parents earning between £50 per week and £150,000 per annum will be able to open an online account through this new scheme facilitated by NS&I and pay in money as needed.
For every 80p paid by parents (or employers or relatives) the Government will add 20p. The maximum contribution from the state will be £2,000 per child per year. All children under 12 are eligible immediately. Children with disabilities will receive support to the age of 16.
The scheme is open to parents on paid sick leave and on paid and unpaid maternity, paternity and adoption leave.
Parents that are self-employed will be able to participate. The minimum £50 per week income requirement will be waived for the self-employed for an unspecified ‘start up’ period.
Employees will still be able to join childcare voucher schemes until autumn 2015 and either remain in these or join the new scheme. Workplace nurseries are unaffected by the new announcements.
Tax-free childcare money can only be paid to Ofsted registered providers.
You may be considering options for your company to provide childcare, including the use of the current childcare voucher scheme. If you wish to join childcare voucher schemes you can still do so until this autumn. You may then either remain in the voucher scheme or join the new scheme.
If you wish to discuss more details of how the existing childcare voucher scheme works and/or the new childcare scheme and how it will work when it comes into effect later this year please contact your Account Manager or your usual contact.
Review of Form P11D reporting
Employer Tax is facing major changes with recommendations made by the Office of Tax Simplification. Some of the changes announced are as follows:
Simplifying the P11D process – from 6 April 2016 the £8,500 threshold for P11D reporting is to be abolished removing the need for Forms P9D and so all employees will be taxed on benefits such as medical insurance, company cars, beneficial loans above the de minimis. This does not affect directors however who are required to complete P11D regardless of earnings level.
Payrolling Benefits – legislation is to be introduced from 6 April 2016 for employers to have the option to put benefits through the payroll. This will remove the need for P11Ds in respect of these payrolled benefits.
Trivial Benefits – from 6 April 2015 a statutory exemption is introduced for for trivial or minor benefits. This covers benefits costing £50 or less but does not include cash or cash vouchers, benefits provided as part of a salary sacrifice arrangement nor benefits in recognition or in anticipation of services. An annual cap of £300 will be introduced for office holders of close companies to receive a maximum of £300 worth of exempt trivial benefits each year.
Non-taxable Expenses – from 6 April 2016 an automatic exemption for qualifying flat rate expenses to be paid tax free will be introduced. This will remove the need for a Dispensation from P11D Reporting for certain expenses. This will not include expenses provided a part of salary sacrifice arrangements.
A consultation document issued last year demonstrated the Government’s concern with the growing use of overarching contracts that can lead to favourable treatment for travel and subsistence expenses for temporary workers. The consultation on the detail will continue with new rules to be introduced to restrict relief for travel and subsistence for workers engaged through an employment intermediary such as an umbrella company or a personal service company that are under the supervision, direction and control of the end user.
Some simplification of the current compliance procedures is to be welcomed. With regard to Dispensations from P11D reporting this will continue in place and it is likely any new rules for non-taxable expenses will simply override this current procedure.
Until further details are known we are not able to provide any specific advice as to how this may affect you personally. However, we will keep you up to date with matters as they progress.
In the meantime if you have any queries regarding any of the above points please contact your Account Manager or usual contact.
Capital Gains Tax
Following announcements in the 2013 autumn statement new guidance has been published in respect of Capital Gains Tax (CGT) being charged on gains made by non-UK residents on the disposal of UK residential properties on or after 6 April 2015. The guidance confirms previously published detail, including the following main points:
- this affects non-resident individuals, certain companies and trustees
- the rates to be applied to individuals is 18% or 28% depending on marginal rate, companies at 20% and trustees at 28%
- only the proportion of the gain arising after 5 April 2015 is chargeable.
- Where a disposal is made by an individual they can claim the principal private residence relief if they meet the occupancy test. The test is if the individual or spouse stays in the property for at least 90 nights
- The disposal must be notified to HMRC within 30 days of completion.
- If the individual is in Self-Assessment they may include the liability to tax in their end of year payment but if not they are required to pay the tax within 30 days of completion.
- HMRC must be advised of all disposals regardless of whether a liability to tax arises.
The guidance also clarifies certain aspects such as the occupancy test not applying where the spouse is resident in the UK. So if a non-resident has a UK resident spouse they will not need to meet the occupancy test and will be unaffected by the new CGT charge. Also the guidance clarifies that rebasing is available to individuals who purchase a property in the UK while they are not resident here and then subsequently sell the property once they become UK resident.
This is a complex area and advice should be sought well in advance of any proposed disposals. We are happy to discuss with you any potential disposals of assets that may give rise to a CGT liability and how this may affect you.
Investments and Savings
Currently up to £15,000 can be invested tax free in an Investment Savings Accounts (ISA), £4,000 into a Junior ISA. For 2015/16 the maximums rise to £15,240 and £4,080, respectively.
If any part of the invested amount is withdrawn this cannot be reinvested later in the tax year. Regulations are to be introduced in the autumn this year so that cash ISA investor may withdraw from the ISA and pay it back in later in the same tax year without the second transaction being regarded as the ISA subscription limit for that year.
A Help to Buy ISA is to be introduced. This proposed scheme is for first time buyers and will provide a bonus to investors in a Help to Buy Individual Savings Account. The bonus will be paid at the time savings are used in purchasing a home and for every £200 saved the Government will provide a £50 bonus up to a maximum of £3,000 on £12,000 of savings. The bonus will be available on home purchases of up to £450,000 in London and up to £250,000 elsewhere in the UK.
Individuals with non-savings income that do not exceed the personal allowance pay income tax currently at a rate of 10% on the first £2,790 of savings income. From 6 April 2015 the starting rate of savings income will increase to £5,000 and the rate of tax will be reduced to nil. An individual with total taxable income of less than £15,600 (ie £5,000 plus personal allowances of £10,600) will therefore have no liability to tax.
A new saving allowance will introduced from 6 April 2016 exempting from tax the first £1,000 of savings income for basic rate taxpayers and up to £500 for higher rate taxpayers. No such
Pensioner Bonds are now available since January 2015. These used to be referred to as “Granny Bonds” – an investment of a maximum of £10,000 can be made into Pensioner Bonds. It is proposed that the bonds will pay “market leading rates.”
There are a number of savings opportunities which are also tax efficient. Income Made Smart LLP is not able to provide investment advice but we can discuss with you the tax effects of such investments.
Please contact your Account Manager or usual contact if you wish to discuss this in more detail.
Defined Contribution Pensions
From 6 April 2015 savers in defined contribution pension schemes will have the option to take 100% of their pension as a lump sum, with the first 25% being tax free and the remainder taxed at their marginal rate of tax. This replaces the current system of a 55% tax rate on lump sums greater than 25% of the pension pot.
Under current rules the remaining 75% is usually used to purchase an annuity from an insurance company or put into restricted gradual ‘drawdown’ arrangements. Under the new rules with the flexibility this allows, it is likely to increase the attractiveness of pensions as savings vehicles for those within Annual and Lifetime Allowance limits.
Free guidance will be provided for pension savers at retirement to help them make the right choices. Pensioners will not have to buy an annuity and will be able to drawdown as little or as much, with tax restrictions on access to pension pots removed.
The introduction to the changes to the pension systems may affect you as an individual. Income Made Smart is not able to provide pension advice but we can discuss with you the tax effects of your proposed pension investments and guide you further as to where to seek specific advice.
In the first instance please contact your Account Manager or usual contact if you wish to discuss this in more detail.
Corporation Tax rates have already been announced – main rate of Corporation Tax reducing from 21% to 20% with effect from 1 April 2015. Small profits rate to remain at 20%.
The main rate of Corporation tax will be reduced to 20% from 1 April 2015. The small profits rate that applies to your limited company remains unchanged at 20%.
The VAT threshold will be increased from 1 April 2015 from £81,000 to £82,000. The threshold for deregistration will be increased from £79,000 to £80,000.