A summary of the key provisions included in the Finance Bill 2015 and measures that have an immediate effect.
Tax rates and allowances
Personal tax 2015/16:
- personal allowance increased to £10,600
- basic rate threshold increased to £31,785
- capital gains tax annual exemption increased to £11,100
- inheritance tax nil-rate band remains at £325,000.
Corporation Tax – FY 2015:
- The main rate of corporation tax is to be aligned with the small companies’ rate at 20%, with effect from 1 April 2015.
Research & development (R&D) tax relief
- The rate of relief for qualifying R&D expenditure incurred by small and medium sized entities is increased from 225% to 230% with effect from 1 April 2015;
- The rate of tax credit relief is increased from 10% to 11% for large companies.
ACCA has produced a Guide to research and development tax relief for SMEs which reflects the most recent changes.
Restriction of corporation tax allowance on intangible fixed assets in certain circumstances
Finance Bill 2015 introduces measures to restrict corporation tax deductions under the corporate intangible fixed asset regime where goodwill and other intangible assets are acquired from related party individuals. This will only apply to close companies making acquisitions from their individual participators.
Prior to this, a deduction was allowed on the acquisition of goodwill, etc. on incorporation.
The new legislation also imposes a restriction on entrepreneurs’ relief where an individual, trust or member of a partnership transfer goodwill or other intangible assets to a related company (see personal tax section).
Diverted profits tax
The diverted profits tax represents a major development in the crackdown against tax avoidance on multi-national groups. The proposal is to charge a diverted profits tax of 25% in the following two situations:
- where a non-UK resident company makes taxable supplies to UK customers of more than £10,000,000 (including sales from connected companies) and the related UK activities are designed to avoid creating a permanent UK establishment
- where a UK resident company makes payments to related parties under arrangements that are designed to secure a reduction in tax, without any underlying economic substance.
Targeted anti-avoidance rules for loan relationships and derivative contracts
A new targeted anti-avoidance rule is to be introduced to counteract the effects of companies attempting to obtain a tax advantage by miss-using the loan relationship rules.
Changes to social investment tax relief
The amount that can be invested under Social Investment Tax Relief (SITR), a relief that was introduced from 6 April 2014, is to be increased.
The government is to request EU approval to increase the amounts that can be invested in an individual organisation from the current limit of £275,000 over a three year period, to:
- an annual limit of £5m; and
- an overall limit on the amount that can be invested in an individual organisation of £15m.
Additionally, the government plans to extend the scope of SITR to ‘community energy generation undertaken by qualifying organisations’. The changes will come into effect on or after 6 April 2015, subject to State aid clearance.
Capital gains tax: Restriction of entrepreneurs’ relief on disposal of goodwill to a connected person
This new measure represents one of the most significant measures announced in the Autumn Statement 2014.
Entrepreneurs’ relief in respect of goodwill has been withdrawn where an individual, trustee, or member of a partnership transfers their business to a close limited company to which they are a ‘related party’.
Any chargeable gain arising on such transfers will now be subject to tax at 18%/28% rather than 10%. The new legislation also imposes a restriction on corporation tax relief where a company acquires goodwill or other intangible assets from related parties (see corporation tax section).
The new legislation applies from the date of the Autumn Statement, i.e on or after 3 December 2014.
Changes to CGT private residence relief
The private residence nomination rules enable an individual who owns two or more properties to nominate a property as their main residence, provided that they do actually occupy the property at some point.
With effect from 6 April 2015, there will be some new conditions that will apply in order for such an election to be effective. These will mainly affect non-resident individuals who own homes in the UK, and UK residents who own homes in other countries.
From 6 April 2015, a home can only be nominated as the taxpayer’s main residence for CGT purposes if:
- it is located in the same country in which the taxpayer is resident for tax purposes
- the taxpayer spends at least 90 midnights in the property in the tax year (or 90 days spread across all the properties the person owns in the country where the property is located).
Days spent in the property by the taxpayer’s spouse or civil-partner count as being occupied by the taxpayer, but days can’t be double counted.
The 90 days of occupation doesn’t have to be a continuous period. Where the property is owned for part of the tax year, the 90-day requirement is reduced proportionately to the part of the year for which the property was owned.
Individuals who are not resident for tax purposes in the UK will have to meet this 90-day condition in order to nominate a UK home as their main residence.
UK residential property – capital gains tax for non-UK residents
Capital gains tax is a residence based tax. Under existing legislation, only individuals who were resident (or previously ordinarily resident) in the UK were subject to UK capital gains tax. Finance Bill 2015 introduces a new charge to capital gains tax for non-UK residents where they dispose of a UK residential property.
The charge will apply to:
- non-UK resident individuals (and personal representatives);
- non-UK resident trustees
- non-UK resident companies
- interests held in a partnership by a non-resident.
The rate applicable to individuals will be 18%/28% depending on marginal tax rates; 28% for trustees; 28% for companies which are subject to the annual tax on enveloped dwellings and 20% for those which are not.
Any chargeable gain will be calculated using 6 April 2015 as the base cost where the property was owned before that date, or the actual purchase price if acquired later.
Entrepreneurs’ relief – Gains deferred against Enterprise Investment scheme or Social Investment Tax Relief investments
Capital gains which are eligible for Entrepreneurs’ Relief (ER), but which are instead deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR), will remain eligible for ER when the deferred gain is realised.
This measure applies with effect of disposals eligible for entrepreneurs’ relief made on or after 3 December 2014.
You can access ACCA’s Technical Factsheet 164: Entrepreneurs’ relief here.
Increase to remittance basis charge
Finance Bill 2015 increases the annual RBC for UK resident non-domiciliaries who elect to use the remittance basis, as follows:
- for those who have been UK resident for at least 12 of the last 14 tax years, the remittance basis charge increases from £50,000 to £60,000
- a new charge will apply for non-domicilliaries who have been UK resident for at least 17 of the last 20 tax years.
The charge for those who have been resident for at least seven out of the last nine tax years is unchanged at £30,000.
ACCA has a produced a Guide to the Non-Domicile Levy, with a flowchart highlighting the options available which can be accessed here.
Bad debt tax relief for peer to peer (P2P) lending and crowd funding
From April 2016, a new tax relief will be introduced for individuals who have incurred losses from lending through P2P platforms. The relief will enable individuals to offset losses from irrecoverable debts against interest income arising through P2P lending when calculating their taxable income.
It is intended that the changes will have effect for loans made from 6 April 2015. Draft legislation concerning the operation of the relief will be published in 2015, with a view to being included in the Finance Bill 2016.
Arrangements offering a choice of an income or capital return to shareholders
From 6 April 2015, where a UK resident company offers a choice of return as either capital or income will be treated as an income distribution where:
- shareholders are given the choice of receiving a dividend or some other form of receipt from the company or a third party
- the ‘alternative receipt’ is substantially of the same value as the dividend option
- they have opted for the ‘alternative’ receipt which would not otherwise have been subject to income tax.
As part of their review of the benefits and expenses code, the Office of Tax Simplification (OTS) recommended a number of changes. Their main recommendations are introduced by Finance Bill 2015, as follows:
Simplifying the administration of employee benefits and expenses
Finance Bill 2015 introduces new legislation to simplify the administration of employee benefits and expenses.
Under the existing regime, employers must report all benefits and expenses payments made to an employee or director on a form P11D, unless the expenses are covered by a dispensation. The employee then has to make an election under ITEPA 2003, s.336 for exemption in respect of any of those expenses that were incurred wholly, exclusively and necessarily in the course of carrying out the duties of their employment.
Under the new regime, there will be automatic exemption from reporting expenses payments that should not be taxable in the hands of the employee/director.
The draft legislation also provides for a similar exemption regime for payment of flat rate expenses. The government has stated that payments of qualifying expenses and benefits made as part of a salary sacrifice arrangement will not meet the requirements for exemption.
The new arrangements will come into effect from 6 April 2016.
Voluntary ‘payrolling’ of benefits in kind
New legislation will be introduced to enable employers to report and account for PAYE on benefits in kind through the RTI payroll system. The consultation process is still ongoing and is examining of introducing the ability for employers to voluntarily payroll the following types of benefit:
- company cars
- car fuel benefit
- medical insurance
- subscriptions such as gym membership.
The new arrangements will come into force from 6 April 2016.
Statutory exemption for trivial benefits-in-kind
The Finance Bill introduces a statutory exemption for trivial benefits in kind, i.e., those costing less than £50.00. The exemption will not apply to the following:
- cash or a cash vouchers
- benefits provided as part of a salary sacrifice arrangement
- benefits provided in recognition or anticipation of particular services or duties performed in the course of employment.
This measure will come into effect from 6 April 2015.
Abolition of the £8,500 threshold for benefits-in-kind
Under existing legislation, there is a difference in the treatment of benefits in kind for employees earning more than £8,500 per annum/directors and lower paid employees earning less than £8,500 per annum.
Under the current regime, lower paid employees are exempt from tax on certain benefits in kind and employers use for P9D rather than form P11D to report benefits for such employees.
With the abolition of the £8,500 income threshold all benefits-in-kind will be brought into charge for tax and NIC and all employees will pay tax and NIC in the same way. The legislation will include provisions to ensure that Ministers of Religion and live-in carers are not adversely affected.
The changes will be introduced from 6 April 2016.
Other changes to employment taxes include:
Changes to company car and car fuel benefit
There are changes to the car and fuel benefit percentages which will take effect from 6 April 2015, as follows:
- the appropriate percentage of list price subject to tax will increase by two percentage points for cars emitting more than 75 grams/kilometre of carbon dioxide, to a maximum of 37% in both 2015–16 and 2016–17
- the appropriate percentage of the list price subject to tax for the 0-50 g/km CO2 band will be 5%
- the appropriate percentage of the list price subject to tax for the 51-75 g/km CO2 band will be 9%.
Abolition of employer national insurance contributions for apprentices under 25
From 6 April 2016, Employer NIC will not be charged on earnings from apprenticeships for the under 25s. The exemption is restricted to earnings up to the Upper Earnings Limit (UEL) which is currently £805 per week. Earnings in excess of the UEL will be subject to employer NIC at the normal rate of 13.8%.
NIC employment allowance extended to personal carers and support workers
The employment allowance introduced an allowance of £2,000 which employers could claim against their employers’ class 1 national insurance contributions. Previously, this was not available for employers in respect of employees engaged in the running of their domestic or household affairs. This restriction is to be removed with effect from 6 April 2015.
Annual tax on enveloped dwellings (ATED): Increase in charge
From 1 April 2015, the ATED rates will increase significantly as follows. ATED levies an annual charge where a residential property is owned by a ‘non-natural person’ (companies, partnerships with one or more corporate members and collective investment schemes).
ATED charge 2014/15
ATED charge 2015/16
|£1,000,001 – £2,000,000||
|£2,000,001 – £5,000,000||
|£5,000,001 – £10,000,000||
|£10,000,001 – £20,000,000||
There are also changes to be made in connection with the administration of the scheme, the most important of which is that from 1 April 2015 the relevant company, partnership or scheme will be required to file a single annual return claiming any reliefs due in respect of the following:
- property rental
- property trading
- property development
- businesses involving dwellings open to the public
- dwellings used for trade purposes (occupation by certain employees or partners)
- farmhouses used in a farming business
- dwellings held by financial institutions in the course of a business of lending money
- dwellings held by providers of social housing.
Article contributed by ACCA In Practice