Tax update February 2016 Helen Elliott Sayer Vincent
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 old 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 of 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 Supply Business Non-business or outside the Exempt Taxable scope of VAT Zero- Reduced Standard rate rate rate
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 Financial services • • Education Insurance • • Admissions to cultural events Selling and renting land and • Sport and physical education buildings • • Burial & cremation Betting, gaming and lotteries • Charity fundraising events
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 of 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
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