Personal Tax and miscellaneous matters

 The Tax Lock

 The Government are to legislate to set a ceiling for increases to various taxes. This will ensure that they cannot rise above their 2015-16 levels for the duration of the current parliament. The taxes affected are:

• The main rates of Income Tax.
• The standard and reduced rates of VAT.
• Employer and employee Class 1 National Insurance Contribution (NIC) rates.

 The NICs Upper Earnings Limit cannot rise above the Income Tax higher rate threshold and it will not be possible to remove any items from the zero or reduced rate of VAT.

 Personal Tax allowance

 The personal allowance will be increased to £11,000 from April 2016, with the promise of further yearly increases to meet the Government’s target of £12,500 by the end of the current parliament. The rates for the current and next two tax years are:

• £10,600 for 2015-16
• £11,000 for 2016-17
• £11,200 for 2017-18

 Income Tax rate bands

 There was significant press commentary prior to the Budget predicting an increase in the threshold at which tax payers are liable to the 40% Income Tax rate. During the term of the current parliament it was promised this would rise to £50,000. As a first step the higher rate threshold will be increased to £43,000 from April 2016. For the current and following two tax years the thresholds are:

• £42,385 in 2015-16
• £43,000 in 2016-17
• £43,600 in 2017-18

 If your income before personal allowances exceeds this amount you will be paying 40% Income Tax on the excess (this assumes that you are only entitled to the basic personal allowance).

 The threshold at which the 45% rate starts is unchanged at £150,000.

 There were no changes to the basic Income Tax rate (20%), the higher rate (40%) and the additional rate (45%).

 Dividend tax credit to be abolished

 From April 2016 Income Tax payers will no longer be able to claim a deduction for tax credits associated with the receipt of dividends.

 In its place, a new Dividend Tax Allowance of £5,000 is to be introduced. If your dividend income is below this allowance you will pay no Income Tax. Dividends received in excess of £5,000 will be taxed as follows:

• 7.5% if you are a standard rate (20%) tax payer
• 32.5% if you are a higher rate (40%) tax payer
• 38.1% if you are an additional rate (45%) tax payer

 Abolition of non-domicile status

 The Government is to legislate such that, from April 2017, any person who has been resident in the UK for more than 15 of the previous 20 years will be deemed to be domiciled in the UK for tax purposes.

 Additionally, from April 2017, individuals who are born in the UK, to UK domiciled parents, will no longer be able to claim non-domiciled status whilst they are resident in the UK.

 IHT – Main Residence Nil-rate Band (MRNB)

 A new nil-rate band for IHT purposes is to be introduced. It will be available when a residence is left on death to direct descendants. The amount of the MRNB will be:

• £100,000 in 2017-18
• £125,000 in 2018-19
• £150,000 in 2019-20
• £175,000 in 2020-21

 Any unused MRNB can be transferred to a surviving spouse or civil partner. The allowance will still be available if the tax payer downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent amount, up to the amount of the available MRNB, are passed on death to a direct descendant.

 From April 2017, estates with a net value of more than £2m will be subject to a reduction of £1 in the available MRNB for every £2 the net estate exceeds £2m.

 The basic nil-rate band of £325,000 will remain frozen at this level until April 2021.

  Tax credits

 As expected, George Osborne has made a few cuts to Tax Credits as part of his plan to reduce public expenditure. The following are the main changes:

• From April 2016, the income threshold that applies to Tax Credits will be reduced from £6,420 to £3,850.
• From April 2016, once a claimant earns above the income threshold, their Tax Credits award will be reduced by 48p for every additional £1 they earn. Presently, the taper rate is 41p for each additional £1 of income.
• The child element in Tax Credits and Universal Credits claims will be restricted to the first two children. There will no longer be awards for third or subsequent children born after 6 April 2017. There will be exceptions for multiple births, disabled children and other exceptional circumstances.
• The in-year income disregard (the amount by which a claimants income can increase in one year as compared to the previous year without affecting eligibility) is to be reduced from April 2016, from £5,000 to £2,500.

 Insurance Premium Tax (IPT) hike

 From 1 November 2015 IPT is to be increased from 6% to 9.5%

 Business Tax

 Corporation Tax rate

 The main rate of Corporation Tax is to be reduced from the current 20% to:

• 19% from 1 April 2017, and
• 18% from 1 April 2020.

 These reductions are intended to maintain the UK’s competitive tax position and to compensate employers for the possible increases in their wages costs when the new National Living Wage for the over 25s is introduced from April 2016.

 The National Living Wage arrives

 It has fallen to a Conservative Government to make the important shift towards the implementation of a National Living Wage (NLW).

 The long term goal is to set a rate of £9 per hour by 2020. As a first step, from April 2016, the NLW rate for over 25s will be £7.20. 

 Corporation Tax payment dates change for larger companies

 For accounting periods ending on or after 1 April 2017, companies with taxable profits over £20m will be required to pay Corporation Tax in quarterly instalments in the third, sixth, ninth and twelfth months of their accounting periods.

 National Insurance Employment Allowance (EA)

 The Government is to increase the EA from April 2016. The allowance is as follows:

• £2,000 for 2015-16
• £3,000 for 2016-17

 This means that most employers will not pay the first £3,000 of employers NIC from April 2016.

 Annual Investment Allowance (AIA)

 The current AIA limit is £500,000. This allows businesses to write off up to this amount in qualifying asset purchases (commercial vehicles, plant and machinery and computers etc.) against their taxable profits.

 This is a temporary increase and from 1 January 2016 the maximum was set to revert to the previous permanent level of £25,000. It is now intended to increase this permanent limit to £200,000 from 1 January 2016.

 This is a welcome announcement as businesses contemplating investment in qualifying plant and machinery of up to £200,000 will now have more time to make a buying decision, past the end of this year, and not lose a tax advantage.

 Tax relief on acquisition of goodwill to be restricted

 Acquisitions of goodwill after 8 July 2015 will be subject to restrictions for Corporation Tax relief purposes.

 Bank Corporation Tax Surcharge

 An 8% supplementary tax is to be levied on banking sector profits from 1 January 2016. The tax will apply before deductions for carried forward losses.

 The tax will not apply to the first £25m of profit within a group.

 Nuisance calls clampdown

 In a welcome announcement, the amount that can be claimed by claims management companies is to be capped. It is hoped that change will discourage cold calling to promote PPI and other similar claims.

 Three million new apprenticeships

 The Government intends that three million new apprenticeships will be created by 2020. The scheme will be funded by a levy on large employers and firms that commit to training will be able to get back more than they invest.

 Savers and investors (including property investors)

 Wear and Tear Allowance (WTA)

 The WTA presently compensates residential landlords by allowing them to deduct 10% of their gross rents received (adjusted for some direct charges) before tax due is computed. The allowance is intended to cover replacements of furnishing made from time to time.

 From April 2016, this WTA will no longer be available. In its place the actual replacement cost will be deductible.

 Capital allowances will continue to apply for owners of furnished holiday let properties.

 HMRC will be issuing technical guidance on this change.

 Basic rate restriction for landlord finance costs

 Landlords of residential properties will have tax relief on finance charges, such as mortgage interest, restricted to the present 20% basic rate of tax. This will be phased in over four years from April 2017.

 Rent-a-room relief increase

 From April 2016 the present rent-a-room relief of £4,250 is to be increased to £7,500.

 Pensions Lifetime Allowance to be reduced

 This allowance is to be reduced from £1.25m to £1m from 6 April 2016.

 Transitional arrangements will be in place to protect funds in excess of £1m, ensuring that the change will not be retrospective.

 From 6 April 2018 the Lifetime Allowance will be indexed annually in line with the Consumer Price Index.

 Pension’s annual allowance reduced for high income earners

 The present £40,000 Annual Allowance for pension contributions is to be reduced for high income earners from April 2016.

 Those with income in excess of £150,000 will see their allowance tapered down to a minimum of £10,000.

There seems be a trend. Most of the key issues that will be disclosed this week seem to have been leaked to the press prior to the actual budget speech. For example:

1. Inheritance tax (IHT): the government will fulfil its election promise and increase the tax free value that couples can leave to their families to £1m. Presently, the limit is £650,000. The change is reported to apply from April 2017.

At present estates for individuals are exempt up to half this value – £325,000 – the higher limit of £650,00 applies to married couples (and those in a civil partnership) where the first deceased spouse’s estate is not subject to IHT and their unused exempt amount is automatically transferred to the surviving spouse. Presumably the change in April 2017 will increase these limits to £500,000 and £1m.

2. Tax relief on pension savings: at present contributions into pension schemes are deductible at the saver’s highest rate of tax. According to the Conservatives’ pre-election pledges, the changes to IHT set out above will be funded by the removal of this higher rate relief. Presumably, tax relief will be limited to the 20% basic rate.

3. Tax credits: as part of the government’s continuing efforts to reduce public expenditure it is mooted that the present levels of tax credits are to be reduced. We will have to see which of the benefits, and by how much, these reductions will affect low income families.

 Next week we will highlight the actual changes announced. What we are unlikely to see are unexpected “give-aways”…    

The Cabinet Office launched an initiative on the 25 June that will provide grants to increase the sustainability of around 250 organisations working in the voluntary, community and social enterprise (VCSE) sector.

The fund, which will be delivered by the Big Lottery Fund, will provide grants that will enable recipients to implement organisational changes and access professional advice that might currently be out of their reach. It will give VCSEs access to a wider range of skills and support, with all grant recipients establishing a strong volunteering relationship with a local business. These cross sector relationships will help grant recipients to strengthen their resilience and long term sustainability.

The Local Sustainability Fund will be £20 million of government funding delivered over 2 years, and will be available to medium-sized VCSE organisations that deliver vital support to vulnerable and disadvantaged people. Alongside working with local businesses, recipients will also work with skilled advisors so that the fund generates maximum impact.

It is expected to help around 250 high-impact charities and social enterprises in England to secure sustainable futures for themselves, including supporting them to bid for public service contracts and to diversify their incomes. Eligible organisations will be able to apply for funding when the fund opens today. Details of how to apply will be on Big Lottery Fund’s website and will be widely circulated throughout the sector.

There are 2 elements to the first stage of the programme: an organisational diagnostic tool and an LSF eligibility checker. The diagnostic tool, which takes approximately 1 hour to fill in, can be completed by any organisation interested in their sustainability, regardless of whether they apply to the LSF. The tool allows organisations to understand their strengths and weaknesses better, and every organisation that fills it out will receive a sustainability report.

Once an organisation has submitted its sustainability report to the Big Lottery Fund, a selection of suitable applicants will be invited to make a more detailed application at the second stage.

It is expected that successful organisations will receive their first grant payment in March 2016. Average grant size is expected to be £70,000. Big Lottery Fund will be administering the Local Sustainability Fund on behalf of the Cabinet Office.

Following on from our posting last week. HMRC has underlined its commitment to relaxing the issue of penalty notices, this time for employers having problems meeting the online filing of payroll information. Rather than issue late filing penalties automatically when a deadline is missed, HM Revenue and Customs (HMRC) will take a more proportionate approach and concentrate on the more serious defaults on a risk-assessed basis.

Late reporting penalties already apply to employers with 50 or more employees, so this ‘risk-based’ approach will apply to submissions that were late from:

• 6 March 2015 for employers with fewer than 50 employees, and
• 6 January 2015 for employers with 50 or more employees.

HMRC will continue to issue risk-based penalties for the tax year 2015-16.

HMRC does not want to charge penalties, but wants employers to report on time. It wants to help employers who are trying to do the right thing, rather than penalise them.

This move to issuing risk-based late filing penalties also continues HMRC’s strategy of adapting its approach, where necessary, before moving to the next phase of implementation.

This approach will enable HMRC to concentrate more resources on the more serious failures to comply, and to focus on educating employers about their filing obligations through targeted communications, webinars and Employer Bulletin articles.

It applies in addition to HMRC’s recent announcement that it will not be penalising minor delays of up to three days. HMRC will monitor both, and review by April 2016.

Even if employers do not get a penalty, they are required by law to file on time and if they do not may be charged a penalty on a future occasion. The deadlines for sending PAYE information stay the same, including the requirement to send PAYE information on or before the time that employees are actually paid or due to be paid.

Employers can appeal electronically using the Penalties and Appeals System (PAS) on HMRC Online. Employers who receive a late filing penalty notice for tax year 2014 to 2015 quarter 4 but who filed within three days of the reporting deadline may appeal and should use reason code A as set out in the online guidance on this issue.