July 2015 2020 Innovation November 2015 Tax Webinar Martyn Ingles Agenda • Finance Bill progress • More consultations • HMRC announcements , other developments • Recent tax cases • Offshore assets – Common Reporting Standard 1
July 2015 Finance Bill 2015 Progress • IHT – Residence Nil Rate Band – clause 9 amended • “Direct descendants” – expanded to spouses and widow(ers) of direct descendants • Also certain trusts, step and foster children • “Buy to Let” interest to be restricted from 6 April 2017 • Restriction does not apply to companies • But will apply to trusts – pass BR relief to beneficiary Finance Bill 2015 Progress • New clauses added at Report Stage: • 4 (EIS, VCTs etc: excluded activities) inserted as clause 27. = Feed in tariffs • 8 (restitution interest payments) inserted as clause 38 – 45% tax • 5 (corporation tax instalment payments) inserted as clause 39. – 4 months earlier if profits > £20m • 6 (carried interest and disguised investment management fees: “arise”) inserted as clause 45. 2
July 2015 Venture capital changes • Company raising capital under EIS or VCT must do so within 7 years of starting to trade (10 years for knowledge intensive company) • ‘Lifetime’ cap on the amount a company can raise using these schemes of £12m (£20m if knowledge intensive) • In addition to the current 12 month cap of £5m Venture capital changes • Remove the requirement that 70% SEIS money must be spent before EIS or VCT funding can be raised – for investments made on or after 6 April 2015 • Cannot use EIS/VCT finance to acquire another business • Existing shareholders barred from acquiring more shares in the same company under EIS or SEIS unless current shares acquired under these schemes 3
July 2015 Tax Credit Changes Blocked by Lords • Tax credit clawback rate increased from 41% to 48% • Income threshold for tax credits reduced from £6,420 to £3,850 a year • Income increase disregard reduced from £5,000 to £2,500 • Overall benefits cap to be reduced from £26,000 to £23,000 (London) and £20,000 (outside) • No additional tax (universal) credits for more than 2 children from 2017 Other Legislative Changes • NIC rates locked in by NIC (Rate Ceilings) Bill – 12% • What will Class 4 be 2016/17? 9% => 12%? • Draft Small Charitable Donations Act (Amendment) Order 2015 • Increases the max. amount of small donations on which a charity may claim BR tax from £5,000 to £8,000 with effect from 6 April 2016 . • Will also apply to donations to CASC • Draft Finance Bill 2016 clauses issued 9 Dec 2015 4
July 2015 More Consultations • Interest relief for multi-national companies to be restricted in line with BEPS Action Point 4 • Suggests limiting to 10% => 30% of EBITA • Above a de-minimis threshold • Patent Box rules to be tightened up • Link patent profits to R&D spend • Current relief to continue to 30 June 2021 Tax breaks for innovative company PATENT INVENTION “Super” profits R&D PHASE 230% relief for costs 10% corp. tax (if SME) 5
July 2015 HMRC Announcements and other developments HMRC Guidance • R&D Tax Credits for Small Businesses • Govt. to raise awareness of R&D tax relief amongst smaller companies • Introducing “Advance Assurance” November 2015 • Try to identify those that should be claiming • Business Records Checks to end 6
July 2015 Payrolling Benefits in Kind • Reporting through RTI rather than end of year P11d • Spread “cash equivalent” over tax year => PAYE • Voluntary initially • Employers can now Register and update payroll software before 5 April for 2016/17 tax year • Cannot start part way through the year • Certain benefits cannot be payrolled • Need not include all benefits, or all employees Updated Factsheet on Compliance Checks • Factsheet CC/FS3 sent to taxpayers • At least 7 days notice of visit to business premises • Includes businesses run at home • May request meeting at agent’s office or HMRC • May need to interview: • Persons who keep accounting records • Workers, to check their status! • Penalties for failure to comply 7
July 2015 Tax implications of FRS 102 • HMRC have updated their guidance • Consider tax implications of accounting changes: • Transitional adjustment arising on conversion to FRS102 • Accounting under FRS102 going forward • Applies to a/c periods commencing on or after 1.1.2015 • Comparatives to be restated (B/fwd balances) FRS102 - Accounts and tax • “Tax legislation for companies requires that the profits of a trade are calculated in accordance with generally accepted accountancy practice, subject to any adjustment required or authorised by law in calculating profits for corporation tax purposes” • Section 46 Corporation Tax Act 2009 • Also section 25 ITTOIA 2005 8
July 2015 Accounts and tax • General rule: Tax treatment follows accounting treatment, GAAP, unless tax law overrides • Main exceptions/overrides: • Tangible fixed assets – capital allowances • Share based payment • Pension costs • Provision for bonuses/ commissions Tax implications of FRS 102 • Consider tax implications of main accounting changes: • Financial instruments/ hedging transactions => Fair value – disregard for tax? Or spread over 10 years? • Business combinations – separate intangibles • Lease incentives – over length of lease • Employee benefits - Holiday pay accrual • Goodwill and intangibles – 10 year write off 9
July 2015 IHT - Normal Expenditure out of Income • HMRC Trusts and Estates Newsletter gives advice on claiming this valuable IHT exemption • Not a transfer of value for IHT • Does individual have sufficient net income after tax to make regular gifts • and still maintain their normal lifestyle? • Give details on page 6 of Form IHT403 • Support with spreadsheet detailing income and expenses each year Recent Tax Cases 10
July 2015 What is a Valid Gift for IHT? • Scott v HMRC – UKFTT • Case involves the transfer of 2 sets of paintings • First set physically transferred as evidenced by letter but remained hanging in the family home • Second set also remained in Aunt’s home until she moved into care home • HMRC contended not valid gifts, also date of transfer • In absence of Deed of Gift there must be intention and delivery • FTT held that delivery was when Aunt went into care Payment for not claiming damages taxable? • Hill v HMRC – UKFTT • Employed to work in Luton and within 10 mile area • Seconded to work in London • No proper consultation under TUPE rules • £30,000 paid under compromise agreement • For not claiming damages • Held to be taxable as employment income • £30,000 tax free ex-gratia payment rules did not apply 11
July 2015 Payment under Compromise Agreement was PILON • P Andrew v HMRC – UKFTT • £68,800 paid under compromise agreement • Entitled to 6 months notice in contract of employment • Was £30,000 tax free? • At discretion of employer? • Thorn EMI v Caldicott (1999) – need not be in contract if custom and practice in organisation • Held that was PILON and taxed in full HMRC 1 Glasgow Rangers 0 • HMRC v HMRC at Scottish Court of Session = HC • Payments to Footballers via EBT Scheme • FTT had held that not emoluments • Trustee of the Principal Trust had a “genuine discretion” as to how to apply the funds • No PAYE or NICs due • Now overturned - Held to be taxable as employment income • Other EBT schemes? 12
July 2015 Rangers - EBT Loan Scheme COMPANY TRUST LOANS Taxable Sub Trusts VAT – DIY Housebuilders Scheme - Not a Careless Error • Simon Coates v HMRC – UKFTT • Relied on accountant to reclaim VAT • Prepared by junior staff and reviewed • Not all costs qualified, but included in error • HMRC applied 15% penalty for careless error • FTT – No penalty – reasonable to use accountant to assist with claim 13
July 2015 Offshore Tax Evasion and Common Reporting Standard Tackling Offshore Tax Evasion - Consultations • 4 consultations: 1. Strengthening civil deterrents for offshore evaders 2. Civil sanctions for enablers of offshore evasion 3. A new corporate criminal offence of failure to prevent the facilitation of evasion 4. A new criminal offence for offshore evaders 14
July 2015 Common Reporting Standard (CRS) • Overseas financial institutions will be obliged to provide • Details to HMRC of foreign assets owned by UK resident taxpayers • 90 countries committed to supplying data • 2016 - Crown Dependencies and Overseas Territories • 2017 – other countries CRS – What information? • Name, address and date of birth of taxpayer • Investment data - account number(s), year-end valuations/ balances, • Interest credited and proceeds of assets sold • Include trustees, settlors, beneficiaries, nominees, companies, and non-UK companies under the control of UK persons. 15
July 2015 CRS – What Next? • HMRC will start making investigations and invite individuals to make a disclosure • Lichtenstein Disclosure Facility (LDF) now closed • There will be a final disclosure facility • But the penalty will be at least 30% of the tax rather than 10% or 20%, which was the norm under the LDF THE END Any questions? Please post online 16
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