2020 Innovation November 2015 Tax Webinar Martyn Ingles Agenda - - PDF document

July 2015 1

2020 Innovation November 2015 Tax Webinar

Martyn Ingles

• Finance Bill progress
• More consultations
• HMRC announcements , other developments
• Recent tax cases
• Offshore assets – Common Reporting Standard

Agenda

July 2015 2

• 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.

Finance Bill 2015 Progress

July 2015 3

• 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

Venture capital changes

July 2015 4

• 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

Tax Credit Changes Blocked by Lords

• 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

Other Legislative Changes

July 2015 5

• 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

More Consultations

PATENT INVENTION 230% relief for costs 10% corp. tax (if SME)

Tax breaks for innovative company

R&D PHASE “Super” profits

July 2015 6

HMRC Announcements and other developments

• 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

HMRC Guidance

July 2015 7

• 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

Payrolling Benefits in Kind

• 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

Updated Factsheet on Compliance Checks

July 2015 8

• 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)

Tax implications of FRS 102

• “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

FRS102 - Accounts and tax

July 2015 9

• 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

Accounts and tax

• 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

Tax implications of FRS 102

July 2015 10

• 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

IHT - Normal Expenditure out of Income

Recent Tax Cases

July 2015 11

• 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

What is a Valid Gift for IHT?

• 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

Payment for not claiming damages taxable?

July 2015 12

• 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

Payment under Compromise Agreement was PILON

• 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?

HMRC 1 Glasgow Rangers 0

July 2015 13

Rangers - EBT Loan Scheme

COMPANY TRUST LOANS Sub Trusts Taxable

• 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

VAT – DIY Housebuilders Scheme

• Not a Careless Error

July 2015 14

Offshore Tax Evasion and Common Reporting Standard

• 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

Tackling Offshore Tax Evasion - Consultations

July 2015 15

• 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

Common Reporting Standard (CRS)

• 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.

CRS – What information?

July 2015 16

• 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

CRS – What Next?

THE END

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