Budget & Finance Bill Update - 2013 Mike Hayes & Geraint - - PowerPoint PPT Presentation

Budget & Finance Bill Update - 2013

Mike Hayes & Geraint Lewis

Main topics

 Personal tax allowances & rates  Inheritance tax  New residence rules  Mansion tax  Anti-avoidance  VAT & other indirect taxes  Business & corporate tax

Income tax rates

2012/ 12/13 2013/1 3/14 2014/1 4/15 Personal allowance £8,105 £9,440 £10,000 Income limit £100,000 £100,000 £100,000 Basic rate – 20% £34,370 £32,010 £31,865 Higher rate – 40% £34,371 - £150,000 £32,011 - £150,000 £31,866 - £150,00 Additional rate – 50% 50% > £150K 45% > £150K 45% > £150K

National insurance rates

2013/1 3/14 Employer’s NIC 13.8% Employee’s NIC 2% Class 4 NIC 2% Note: highest rates only

Capital gains tax

2012/ 12/13 2013/1 3/14 Annual exemption £10,600 £10,900 Basic rate tax payers 18% 18% 40% & 45%/50% tax payers 28% 28% Entrepreneurs’ relief – 10% £10 million £10 million Trust capital gains tax rate 28% 28%

Inheritance tax

2013/1 3/14 Nil rate band £325,000 Life time gifts 20% On death 40% Rate on death where ≥ 10% of net estate left to charity 36%

Inheritance tax

 Nil rate band was to go up  Now to be capped at £325,000 until April 2018  To fund cap on reasonable care costs of

£72,000 from April 2016

Inter spouse exemption

 Applies to transfers to spouses & civil partners  Lifetime or on death  Limit - ∞  But where donee is non-domiciled the limit is

£55,000

 From 6 April 2013 to be increased to £325,000

New election

 New election - to be treated as UK domiciled for

inheritance tax purposes only:

– Benefit is that inter-spouse exemption is uncapped – Can be made at any time after marriage/registration of civil partnership – Can be effective for up to 7 years earlier - not before 6 April 2013 – Can be made within 2 years of death – Effective from immediately before death

Example

 Arkwright (Yorkshire domicile!) married Mlle

Geneviève (French domicile) in 2012

 She retains her French domicile of origin  Arkwright dies suddenly in November 2013  He leaves his entire estate of £5M of freehold

property to Geneviève

 Inheritance tax on £5M less nil rate band &

capped exemption (£650,000) = £1.74M

Example

 If Geneviève elects to be treated as UK

domiciled within 2 years of Arkwright’s death:

– Effective from immediately before death – Unlimited inter-spouse exemption available – £1.74M inheritance tax saving

 If Geneviève goes back to France & is NR for

more than 4 years, the election will cease to have effect

 She still owns UK assets, but can convert these

Inheritance tax - liabilities

 Liabilities are deductible from an individual's

estate for inheritance tax

 The liability is deducted from the property on

which the loan is secured

 Important where reliefs available on some

property:

– Business property – Agricultural property – Woodlands

Example

 X’s estate comprises a house worth £2.5M  Potential IHT liability - £1M  He buys a farm for £1.5M, funded with a loan  The loan is secured on his house

Example

Bus usine iness ss proper perty House use X owns a house £2,500,000 Borrows to buy a farm £1,500,000

• £1,500,000

Net et esta tate £1,500,000 00 £1,000,000 00 APR

• £1,500,000

Taxa xable ble estat tate £Ni Nil £1,000,000 00 Inheritanc eritance e tax £400,000 £400,000 Saving £600,000 £600,000

But from Royal Assent

Bus usine iness ss proper perty House use X owns a house £2,500,000 Borrows to buy a farm £1,500,000

• £1,500,000

Net et esta tate £Nil £2,500,0 £2,500,000 00 APR Nil Taxa xable ble estat tate £Ni Nil £2,500,0 £2,500,000 00 Inheritanc eritance e tax £1,000,000 00

Debts & inheritance tax

 Applies to deaths & chargeable transfers after

Royal Assent

 Therefore existing arrangements caught  Also – debt must be paid (eg after death) unless

commercial reason for not doing so

Statutory residence test

 New rules from 6 April 2013  Need to review cross border workers as

residence may change under new rules

 Need to keep very accurate records

Part A

 Always non resident if either:

– Visitor - not resident in any of the previous 3 tax years and < 46 days in the UK in the year – Hardly here at all – resident in one or more of previous 3 tax years and < 16 days in the UK in the year – Full time working abroad

Full time working abroad

 At least a full UK tax year working outside of UK

– Will allow up to 90 days in the UK pa – Including up to 30 working days (more than 3 hours per day) in the UK in any one tax year – No significant breaks from overseas work

 Full time ≥ an average of 35 working hours pw

Part B

 If Part A tests not satisfied - always UK resident

if either:

– In the UK for more than 182 days in the year – A home in the UK for more than 90 days:

• Present at that home for at least 30 separate days; &
• No overseas home in which you were present for more

than 30 days in the tax year

Part B

– Full time working in the UK for a period of 365 days:

• All or part of period falls within tax year
• No significant breaks
• More than 75% of the work days in the tax year when

more than 3 hours are worked are UK working days

Part C

Days spent in UK 0 - 45 45 Not resident 46 46 -90 90 All 4 ties 91 91 – 120 120 3 or more ties More than an 120 2 or more ties

Days spe pent in in UK Arriv iver ers Lea eaver ers 0 – 15 15 Non resident Non resident 16 - 45 45 Non resident 4 or more ties 46 46 -90 90 All 4 ties 3 or more ties 91 – 120 120 3 or more ties 2 or more ties More e than 120 20 2 or more ties 1 or more tie

 Arrivers - anyone who has not been UK resident

in any of the previous three tax years

 Leavers – anyone else

UK ties

 Family tie:

– Spouse, civil partner, ‘significant other’ or minor children resident in UK – Some relaxation in the rules if:

• Child here for full time education; or
• Taxpayer sees them in the UK on 60 days or less

UK ties

 Accommodation tie:

– Available accommodation in the UK for at least 91 consecutive days; and – used in the year (only needs to be for 1 night a year) – If the home is of a close relative - up to 15 nights can be ignored

 Work tie - works in the UK (employed or self

employed) for 40 days (> 3 hours) or more in the tax year

UK ties

 90 day tie - more than 90 days spent in the UK

in either or both of the two previous tax years

 Country tie – if the UK is the country in which

you were present at midnight for the greatest number of days in the tax year – does not apply to arrivers

Other issues

 UK day – here at the end of it:

– In transit? – Exceptional circumstances

 Deemed UK day:

– P has at least 3 UK ties for a tax year, – The number of days in that tax year when P is present in the UK at some point in the day but not at the end of the day is more than 30, and – P was resident in the UK for at least one of the 3 tax years preceding that tax year

Other issues

 What counts as work including travel  Split year basis  Ordinary residence abolished  Overseas work day relief put on statutory footing

• 3 years only

Comment

 Good to have some statutory rules  Mainly fair compared with previous position  Complicated  Need to review current arrangements  Need to keep records  But…..

Temporary non-residence

 Capital gains realised whilst NR taxed on return

to UK if not out of UK for 5 tax years

 Now same rule to be applied to:

– Certain lump sum pension benefits – Distributions from close companies – Release of a loan to a participator – Chargeable event gains

Mansion tax

 Properties valued at over £2M held by non-

natural persons:

– SDLT from 21 March 2012 at 15% – Annual residential property tax from 1 April 2013 (now to be known as annual tax on en envel elope ped d dw dwel ellin ings gs – ATED) – Capital gains tax at 28% on any disposal from 6 April 2013

Spot the mansion?

Which is worth more than £2 million?

Non-natural person

 Examples given:  A company (could be a UK company)

 A collective investment scheme (including a unit

trust)

 A partnership with corporate partners above

Exclusions from 15% charge

 From Royal Assent 2013  Property developers – 2-year rule removed  Property rental businesses  Property traders  No relief where property occupied by a non-

qualifying individual

– Someone connected with beneficial ownership of the property

Exclusions from 15% charge

 Dwellings open to the public for at least 28 days

a year on a commercial basis

 Occupation by certain employees or partners

– < 5% interest in property or company owning it

 Residential properties owned by charities &

used for charitable purposes

 Working farmhouses  Diplomatic properties  Other publicly owned residential properties

ATED

Prope perty y Val alue ue £2m 2m-£5m £5m £5m 5m - £10m 0m £10m 0m - £20m 20m >£ >£20m 20m Annual Charge ge £15,000 £35,000 £70,000 £140,000

Property values & returns

 Owned on 1 April 2012 - value on that date  Property acquired subsequent to 1 April 2012 -

value on acquisition

 Revaluation - each 5th anniversary of 1 April

2012

 First return due – 1 October 2013  Tax due – 31 October 2013

Capital gains tax

 The CGT charge applies to non-natural persons

(NNPs) on disposals after 5 April 2013

– Where the owner of the property has been within the ATED charge at some time during its period of

• wnership

– Exemptions that apply for ATED also apply for CGT

 Allowable cost for CGT purposes will be

increased to the market value of the property as at 6 April 2013

Capital gains tax

 There is a further relief where the proceeds are

close to £2M

– Gain restricted to 5/3 of the excess of the sale price

• ver £2 million

 The CGT charge can apply to UK companies

– Tax rate will be at 28% rather than the usual corporation tax rate of 23% (for 2013/14) – Intra-group transfers taxable!

Cap on reliefs

 From 6 April 2013 annual cap on deductions

from personal income of:

– £50,000; or – 25% of adjusted total income if greater

 Gift aid excluded

Capped reliefs

 Trade

ade lo losses ses ag agai ainst st gen enera eral l income come

 Ea

Early ly tr trad ade e lo loss s relief lief

 Post-cessation trade relief  Property loss relief against general income –

available for property business losses arising from capital allowances or agricultural expenses

 Post-cessation property relief  Employment loss relief against general income

Capped reliefs

 Former employees deduction for liabilities  Shar

are e lo loss s relief lief on non-EIS/ EIS/SEIS SEIS shares ares

 Losses on certain deeply discounted securities  Qu

Qual alifying fying lo loan an interest terest

GAAR

 From Royal Assent  Hopefully will not need to be involved!

Loans from close companies

 Loans to participators  Corporation tax under s455 CTA 2010 at 25% of

loan

 Can catch indirect loans  Now being made clear to apply to close

companies advancing money to partnerships in which they are participators

 Stop bed & breakfasting of loans

More joy!

 Misuse of partnerships

– Remove presumption of self-employment in an LLP? – Counter manipulation of profits/losses by partnerships including a company

 Offshore payment intermediaries  High-risk promoters – naming & shaming

2013 Budget VAT Update

Geraint Lewis VAT Principal

The he Bu Budget et 2013: 3: TINA

Bu Budget et Head eadlines ines – Playing

ing Now



From 1st April 2013 – VAT Threshold increases to £79,000 from £77,000 – VAT de-registration threshold increases to £77,000 from £75,000



£2,000 increase in line with inflation, smaller than 2012



There will also be similar increases in the fuel scale charges, again in line with inflation

Bu Budget et 2013 3 VAT AT Cha hanges ges

 At first blush, that was pretty much that, no mention of

VAT in the speech and apparently no “son of the pasty tax”, but

 The devil, as so often was in the detail

Bu Budget et 2013: 3: Comi ming ng So Soon

• n

Bud Budget et 2013 3 VAT AT Ch Chan anges ges Comi ming ng So Soon:

• n: NFP

FP

 End of the exemption for research provided by one

“eligible body” to another

– 1 August 2013? – Transitional Relief?

 End of the reduced rate for energy efficient materials

in relevant charitable purpose buildings, 1 August 2013

Budget dget 2013 013 VA VAT Cha hanges: nges: Coming ming Soon:

• n: Electroni

lectronic c Serv rvices ices



FA 2014 will see new legislation (effective from 1.1.15) to tax the supply of B2C e-services, telecoms etc. by reference to where the customer is based



Potentially this means UK businesses having to register across Europe, and deal with different rates of VAT etc.



HMRC to introduce a “mini one stop shop” (the VAT equivalent

• f Tesco Local) which would allow UK businesses to account for

non UK VAT via a single return filed with HMRC



Compliance issues, VAT recovery, etc.



Use and enjoyment?

Budget dget 2013 013 VA VAT Cha hanges nges Coming ming Soon:

• n: VA

VAT Free ee Sho hopping pping



HMRC to consult on changes to the “VAT free” shopping system for overseas visitors

– Looking to make the system easier and simpler – Possible electronic system?



Changes are well overdue, system is unchanged since in the 1970’s

Budget dget 2013 013 VA VAT Cha hanges: nges: Coming ming Soon:

• n: Manufacturer

nufacturer Re Refunds funds



FA 2014 to include legislation to allow manufacturers to claim VAT relief on refunds, compensation etc. given to customers.

– Puts them on the same footing as retailers making similar repayments – What about distributors, or wholesalers?

Bud Budget et 2013 3 : Pl : Plan an B a mi B a missed ed

• pportuni
• rtunity

ty?

Corporate & business tax

Corporation tax rates – 2013/14

2012/ 12/13 2013/1 3/14 Small company 20% 20% Marginal company 25% 23.75% Large company 24% 23%

Corporation tax rates – 2013/14

2012 12/1 /13 2013/1 3/14 2015/1 5/16 Small company 20% 20% 20% 20% Marginal company 25% 23.75% 20% 20% Large company 24% 23% 20% 20%

Effective tax rate – 2013/14

Small all compan any Marg rginal inal compan any Larg rge compan any

Salary 53.43% 53.43% 53.43% Dividend 44.44% 47.05% 46.53% Interest or rent 45% 45% 45% Self employment 47%

Effective tax rate – 2015/16

Small all compan any Marg rginal inal compan any Larg rge compan any

Salary 53.43% 53.43% 53.43% Dividend 44.44% 44.44% 44.44% Interest or rent 45% 45% 45% Self employment 47%

NIC employment allowance

 From April 2014  £2,000 allowance for all businesses & charities  Offset against employer’s class 1 NIC  Will be deducted throughout year  Targeted at smaller businesses but available to

all

SEIS & EIS

 One unforeseen pitfall removed:

– The issuing company must not at any time in period A be under the control of any other company – ‘Period A’ starts with incorporation & ends 3 years after SEIS shares issued – SEIS companies formed with a company formation agent as a subscriber failed!

 Rule now changed so that subscriber shares

disregarded where company has not begun to trade or to prepare to carry on a trade

SEIS – reinvestment relief

 Gains realised in 2012/13 can be exempted if

reinvested under SEIS

 HMRC confirmed that SEIS investment could be

in 2013/14 & carried back to 2012/13

 Same exemption for capital gains realised in

2013/14 – but limited to ½ amount reinvested

Example

 George sells a second home realises a capital

gain of £130,000 in 2013/14

 George reinvests £100,000 of this into SEIS

shares in 2013/14

 Exempt amount = £100,000 x ½ = £50,000  Amount remaining taxable = £80,000  It is assumed that SEIS investments made in

2014/15 can be carried back to 2013/14

EMI & entrepreneurs’ relief

 Entrepreneurs’ relief requires a holding of 5% of

• rdinary shares giving 5% of votes

 FA 2012:

– Extended entrepreneurs’ relief to shares acquired under EMI options exercised on or after 6 April 2012 – Still had to own shares for 12 months to qualify – Exit only options?

EMI & entrepreneurs’ relief

 FB 2013:

– The option period will count towards the 12 months – Applies to options:

• Exercised on or after 6 April 2012
• Shares sold after 6 April 2013

 Going through the EMI process can be

preferable to issuing shares immediately where employee obtaining < 5%

Employee shareholder status

 From 1 September 2013

– Surrender certain employee rights – In exchange for shares

 Between £2,000 & £50,000 worth of shares  Deemed payment of £2,000 for the shares  Corporation tax deduction for the company  Capital gains tax free on a sale

Rights to be given up

 Statutory redundancy pay  Right to claim unfair dismissal (except where

the dismissal is automatically unfair or relates to anti-discrimination law)

 Not automatically unfair for an employer to

dismiss an employee owner who requests flexible working

 Limited right to flexible working

Rights to be given up

 16 weeks' notice of their intention to return

ear arly ly from maternity or adoption leave,

 Right to request training under section 63D of

the Employment Rights Act 1996

Deemed payment

A B Value of shares given to employee £2,000 £25,000 Deduct deemed payment £2,000 £2,000 Amo mount unt li liab able le to income come ta tax x & NI NIC £Ni Nil £23 23,000 ,000

Employee ownership

 New CGT relief in 2014 on sale of a controlling

interest of a business into an ‘employee

• wnership structure’

 Also measures targeted at ‘indirect ownership

models’

 OTS review of partnerships – simplification of

taxation

Employment related loans

 A cheap or interest free loan to an employee will

give a benefit in kind

 No benefit if loan below £5,000 throughout year  Limit increased to £10,000 from 6 April 2014

UK as a corporate tax destination

 New corporation tax rates  Will be the joint lowest in the G7 & G20  Holding company reliefs:

– Dividends exemption – Substantial shareholdings exemption – Relaxed controlled foreign company rules

 Patent box  Tax credits

R&D tax credits - SMEs

 SME:

– Uplift of 125% of spend – Repayable credit = 11% of surrenderable loss

 Large company:

– Uplift of 30% of spend

From 1 April 2013

 Large companies will be able to claim a 10%

above the line (ATL) credit

 Optional for now – mandatory from 1 April 2016  It will be a taxable receipt  Paid net of tax for non-taxpayers  Treated as a reduction of corporation tax liability

Film tax relief

 British films intended to be shown commercially

in cinemas

 ≥ 25% of the total production costs of the film

must relate to activities in the UK

 Only available to film production co

comp mpanies anies within the charge to UK corporation tax

 FPC can claim FTR on the lo

lower wer of either:

– 80% of total core expenditure; or – the actual UK core expenditure incurred

Film tax relief

 Enhanced tax deduction

– 100% of the qualifying expenditure for films with core expenditure of £20 million or less (known as limited budget films) – 80% of the qualifying expenditure for films with core expenditure in excess of £20 million (known as bigger budget films)

 Payable tax credit as a % of losses surrendered:

– For limited budget films – 25% – For bigger budget films – 20%

Similar credits from 1 April 2013

 Video games  High-end television & animation production

Look at one in some detail – Video games

Culturally British Test

 % of the video game set in UK or another EEA

state

 The number of characters depicted in the game

from the UK or another EEA state - having a character in a game that looks like Sherlock Holmes for example!

 Whether the video game depicts a British story

• r a story relating to an EEA state

Culturally British Test

 % of original dialogue recorded in English or a

recognised regional language

 The level of contribution of the video game to

the promotion of British culture

 Whether certain personnel (being the project

leader, at least one scriptwriter, the lead composer, one of the lead actors, the lead programmer and the lead designer are citizens

• f, or ordinarily resident in an EEA state)

Taxation of video game companies

 Each video game is treated as a separate trade  Trade starts when:

– the design of the video game begins or, if earlier, – when it receives any income from the video game

 In its first period of account, the company must:

– Record the proportion of the estimated total income from the video game treated as earned at the end

• f that period; less

– the costs incurred to date

Taxation of video game companies

 In later periods of account, the company must

record the new total income and costs incurred since the previous period

The relief

 For the first period of account additional

deduction = 80% of the lower of:

– Qualifying UK expenditure; – 80% of total amount of qualifying expenditure

 For subsequent periods of account, the

additional deduction is the difference between the amount calculated by the formula above and the amount of additional deductions given for previous periods

Repayable credit

 25% of surrenderable loss

Plus

 Consultation on tax support for the visual

effects industry

Plant in buildings

 New rules from 1 April 2012  s198 election fixes value of CAs which vendor

has claimed

 But supplementary claim possible until 1 April

2014

Case study

 Client buying commercial buildings worth £8M  S198 election amount:

– Cost - £50K – Tax WDV - £15K

 Purchaser can apportion price to assets:

– Ordinary plant which vendor has not claimed – Integral features acquired before April 2008

Don’t forget

 Annual investment allowance increased from

£25,000 to £250,000 from 1 January 2013

 For 2 years only

And finally.... ....any questions?