Tax update February 2016 Helen Elliott Sayer Vincent Agenda 1. - - PowerPoint PPT Presentation

February 2016 Helen Elliott Sayer Vincent

Tax update

Agenda

• 1. Employee taxation
• 2. Gift Aid
• 3. VAT
• 4. Corporation Tax

EMPLOYEE TAXATION End of contracting out

• Contracting out for NICs to cease from 6 April

2016 when the new state pension is introduced

• All employees and employers will pay standard

class 1 contributions from this date

• The main group of employees who are

contracted out are employees in defined benefit final salary schemes

Employee benefits and expenses

• Abolition of the lower paid employee category
• Abolition of dispensations
• Statutory exemption for trivial benefits in kind
• Ability to payroll benefits in kind

Abolition of the lower paid employee category 6 April 2016

• Lower paid employee (pay, benefits and

expenses < £8,500)

• Means more benefits are taxable on lower

paid employees

• But stays for ministers of religion -

accommodation costs, e.g. as heat, light and water, or allowance towards these remains exempt from income tax and NICs

Abolition of dispensations from April 2016

• No need for P11D dispensation for employee

benefits and expenses e.g. business travel, professional subscriptions currently treated as deductible provided not paid under salary sacrifice

• Still need receipts, reason and authorisation
• Will also implement scale rates for business travel

– similar to benchmark rates on HMRC website

Statutory exemption for trivial benefits in kind from 6 April 2016

• Not cash or a cash voucher
• Cost per head at most £50
• Not provided under salary sacrifice
• Not provided in recognition of particular services

performed by the employee in the course of the employment or in anticipation of such services

Ability to payroll benefits in kind

• From 6 April 2016 employers will be able to

put most taxable benefits through the payroll

• E.g. private medical insurance, company cars,

fuel for private use

• Avoids having to complete a P11D but P11Db

(class 1A NICs return) still required

Ability to payroll benefits in kind

But cannot be used for:

• vouchers and credit cards
• living accommodation
• interest free and low interest (beneficial)

loans

Future changes

• Employment status
• Business travel
• Living accommodation
• Termination payments

Employment status

Employee or self-employed? Government has recently announced it will:

• Set up a Cross-Government review of

employment status to agree employment status principles between HMRC, HM Treasury, DWP and BIS

• Improve the HMRC online employment

status indicator tool (ESI) by April 2016

Business travel

• HMRC discussion paper to update the

business travel rules for the modern working environment

• Proposal to disallow business travel

between home and ‘main base’ but allow any other business travel

• And allow business travel between

home and a main base in limited situations, similar to the current temporary workplace rules

Living accommodation

• HMRC call for evidence issued December

2015

• Aim is to simplify and update the living

accommodation rules

• Consultation likely in 2016

Termination payments

HMRC consultation proposals are:

• tax all payments in same way
• tax free amount calculated per years’

service after a minimum of two years’ service and up to a cap

• tax free amount conditional on redundancy
• no tax free amount for salary sacrifice,

fixed term contracts and re-employment within 12 months

Termination payments

• preserve some of the existing

exemptions such as for death, injury or HM armed forces payments but abolish most of the rest

• introduce two new exemptions for

compensation for wrongful or unfair dismissal or discrimination

GIFT AID

1. New model Gift Aid declaration 2. New Retail Gift Aid Scheme procedures 3. Partnership declarations 4. Gift Aid intermediaries 5. Scottish Rate of Income Tax

New model Gift Aid declaration

• Updated model declarations for new declarations

issued from 1 April 2016

• But HMRC has announced charities can use up
• ld stocks after 1 April 2016 provided ordered

before the date of announcement (22 October 2015)

Extract from new GAD

Boost your donation by 25p of Gift Aid for every £1 you donate Gift Aid is reclaimed by the charity from the tax you pay for the current tax year. In order to Gift Aid your donation you must tick the box: I want to Gift Aid my donation of £_________ and any donations I make in the future or have made in the past 4 years to: ABC Charity I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax than the amount

• f Gift Aid claimed on all my donations in that tax year it

is my responsibility to pay any difference.

New Retail Gift Aid Scheme (RGAS) procedures

Procedures for RGAS have changed:

• New HMRC template letters that must be sent out

from 1 Jan 2016 to notify donors of sales

• End of year summary statements are now mandatory

under methods A or B and must be sent by 31 May

• Prohibition of ‘inappropriate staff incentive schemes’
• Mandatory staff training and internal audit checks

Partnership declarations

• Previously HMRC accepted one partner

could make one declaration for the whole partnership

• From June 2015 – 5 April 2016 a single

partnership declaration must contain the name and home address of each partner

• From April 2016 each partner must

complete their own declaration

Gift Aid intermediaries

• Legislation in pipeline to enable a donor

to make a single declaration to multiple charities via a single intermediary

• The Intermediary will either pass the

donation (less commission) onto the charity with a declaration, for the charity to claim Gift Aid or

• Collect Gift Aid & pay both (less

commission) to the charity

• But legislation not yet issued

Scottish Rate of Income Tax

• Scottish taxpayers may pay a different

basic rate

• Current government position is that all

charities will carry on claiming at 25% for all UK taxpayers (Scottish and non-Scottish)

• But may change in future

VAT

• 1. VAT background
• 2. Mini One Stop Shop
• 3. New charities VAT refund scheme

Introduction

• No overall exemption from VAT for charities
• Problem of irrecoverable VAT
• Partial exemption often applies
• Uncertainty over the VAT status of supplies

Activities for VAT

Non-business

• r outside the

scope of VAT

Business Exempt Taxable

Zero- rate Reduced rate Standard rate

Supply

Non-business activities

• Activities funded wholly by grants or

donations

• Subsidised welfare services (85%)
• Must be no supply in return (barter

arrangement)

Exempt activities

Activities in the public interest Other activities

• Health & welfare
• Education
• Admissions to cultural events
• Sport and physical education
• Burial & cremation
• Charity fundraising events
• Financial services
• Insurance
• Selling and renting land and

buildings

• Betting, gaming and lotteries

Zero-rated supplies

• Sale of donated goods by a charity or its trading

subsidiary

• Export of goods by a charity
• Sale of certain printed publications
• Sale of children’s clothing & footwear
• Some food and drink
• Water and sewerage services

Reduced-rated supplies

• Gas & electricity for domestic or charity

non-business use

• Welfare advice or information
• Contraceptives
• Installation of certain energy saving

materials

• Smoking cessation products

Standard rated supplies

• Most sales of goods and services
• Consultancy fees
• Management charge to trading subsidiary
• Royalties
• Electronic publications

VAT recovery

• Must be VAT registered. Depends on how the purchase

is used:

• Full recovery if used wholly for taxable activities
• No recovery if used for wholly for non-business activities
• No recovery if used wholly for exempt activities – unless level
• f exempt activity is very small (“de-minimis”)
• Special rules for mixed use purchases

VAT recovery – mixed use purchases

Eg: overheads Called “non-attributable” or “residual”

• Apportion VAT to types of activity (non-

business, exempt, taxable)

• Recover part apportioned to taxable
• And recover part apportioned to exempt if

exempt activity is “de-minimis”

Mini One Stop Shop (MOSS)

• Sales of electronic products to non-business

customers in other EU states now subject to a special VAT regime

• E.g. sales of downloaded products (magazines,

videos, images, music, games, recorded podcasts), access to online databases, restricted access websites

Mini One Stop Shop (MOSS)

• Even if not VAT registered in the UK, as

soon as a business makes a single electronic sale to a non-business EU customer it must register for VAT with each EU state in which it has customers

Mini One Stop Shop (MOSS)

• Alternatively, can register for the Mini One Stop Shop
• Submit one pan-EU VAT return and payment to

HMRC, HMRC forwards to the relevant EU states

• Do not have to be UK registered to use
• Nil VAT registration threshold for such sales
• Only 12,000 businesses have registered for MOSS in

the whole of the EU, registrations were expected to be close to one million

Mini One Stop Shop (MOSS)

• Nil registration threshold seen as being a major

problem and disincentive to electronic business

• EU now considering introducing a VAT registration

threshold of €5,000

• UK businesses have been campaigning for a

€100,000 threshold

• But unlikely to be accepted by Germany,

Denmark, Italy and others

New charities VAT refund scheme

• Allows specified charities to claim back

from HMRC VAT incurred in non- business activities

• Applies from 1 April 2015
• HMRC issued VAT Notice 1001 on the

new scheme

New charities VAT refund scheme

Applies to:

• Palliative care charities (hospices)
• Air ambulance charities
• Search and rescue charities
• Medical courier charities
• Charities which support either of the last two

CORPORATION TAX

• Abolition of the small profits rate
• The distributable profits issue
• Theatrical Productions Tax Relief
• Orchestra Tax Relief

Abolition of the small profits rate

• From 1 April 2015 there is a single

unified rate of Corporation Tax

• 2015/16,2016/17

20%

• 2017/18,2018/19,2019/20 19%
• 2020/21

18%

The distributable profits issue

• ICAEW obtained Counsel’s opinion
• Opinion is that a charity trading company

cannot Gift Aid profits in excess of its distributable profits

• Distributable profits are (broadly)

accumulated realised reserves

The distributable profits issue

• To the extent any Gift Aid payment in the last

6 years has exceeded distributable profits, the payment is unlawful and must be repaid

• HMRC are to publish their view
• But unlikely HMRC will require retrospective

action

Theatrical productions tax relief

• From 1 September 2014
• Corporation Tax only – if charitable trust

must set up corporate subsidiary for productions

• Administered by special HMRC

entertainment industry unit in Manchester

43

Theatrical productions tax relief

• Must be a dramatic production or ballet
• Must be live before an audience
• Provided to paying members of the public or

for educational purposes

• Touring production = 6 different venues or 2

different venues and at least 14 shows

44

Theatrical productions tax relief

• A qualifying production is treated as a

separate trade

• Qualifying costs of that production attract an

80% additional deduction

• Qualifying costs = production creation, setup

and close down but not running, marketing, financing

45

Theatrical productions tax relief

• If there is a loss (after including the additional

deduction) – can surrender all or a part of the loss for a payable tax credit:

• 25% for a touring production
• 20% for a non-touring production
• Max surrender amount is lower of the enhanced

loss and the additional deduction

• Any un-surrendered loss is carried forward

46

Theatrical productions tax relief

Profit / Loss calculation £m Production income 3.5 (A) Qualifying costs (4.0) Non-qualifying costs (0.5) Profit / (Loss) on normal CT principles (1.0) (B) Additional deduction B = 80% x A (3.2) (C) Enhanced loss (4.2) (D) Surrenderable loss (lesser of B and C) 3.2 Loss c/fwd (1.0) Payable tax credit: 20% x D 0.64

Orchestra Tax Relief

• From 1 April 2016
• Similar to Theatrical Productions Tax Relief
• Will apply to a ‘qualifying orchestral concert

series’

• 80% additional deduction and 25% surrender

rate

• “orchestral concert” by an orchestra,

ensemble, group or band consisting wholly or mainly of instrumentalists

Orchestra Tax Relief

• “qualifying orchestral concert” has at least 12

instrumentalists and none or minority of musical instruments is electronically or directly amplified

• “qualifying orchestral concert series” means

two or more orchestral concerts, all or a high proportion of which are qualifying orchestral concerts

Further guidance

Helen.Elliott@sayervincent.co.uk www.sayervincent.co.uk Made simple guides