UK: Weekly Tax Update - 14 December 2015

Last Updated: 22 December 2015
Article by Tina Riches

1. General news

1.1 Making tax digital

HMRC has published two documents outlining some fundamental changes that HMRC intend to make to the way the tax system works, transforming tax administration, with the intention of making it more effective, more efficient and easier for taxpayers.

The digital road map sets out the interesting and bold proposals of HMRC and the Government. This includes quarterly reporting for landlords and all but the largest businesses (over £20m turnover). The plan is that businesses will use software that compiles their tax data as part of their ordinary day-to-day activity, with the submission process being less burdensome.

The 'simpler payment' discussion paper considers payment arrangements for CT, for entities with profits of £20m or less in a 12 month accounting period, Income Tax Self Assessment (ITSA), Value Added Tax (VAT), Class 4 National Insurance Contributions (NICs) and other taxes collected through the self assessment process.

If you have any concerns regarding this area do get in touch with us. Smith & Williamson is already involved in the consultation on this.

www.gov.uk/government/publications/making-tax-digital

1.2Draft Finance Bill 2016 clauses

HMRC has published draft Finance Bill (DFB) 2016 clauses for many of the provisions due to be in next year's Finance Bill. These are published early in draft to provide greater certainty to taxpayers on future tax law and for consultation, with a deadline for comments of Wednesday 3 February 2016.

Many of the provisions have already been announced and we have commented on many of these in our previous Autumn Statement booklet. For some of the provisions or where the detail has not been available before, we have set out a summary and some initial comments below. It is important to remember that these are an early draft only and may not reach the statute book in current form or even at all. In addition, further draft clauses are expected over the next month or so.

www.gov.uk/government/collections/finance-bill-2016

Personal savings allowance (PSA) (clause 1 and 4)

Clause 1 (thank you HMRC for numbering the clauses, even if they were initially in 88 separate documents) introduces the new tax-free Personal Savings Allowance (PSA) for individuals. It could be described as a savings nil rate band. The proposed legislation (new ITA 2007 ss12A and 12B) will from, 6 April 2016, apply a 0% rate on up to £1,000 of savings income, such as interest, paid to an individual. The limit is £500 for individuals with any higher rate income and it is not be available to individuals with any additional rate income. Note that it will only apply to the calculation of income tax for individuals only.

Changes are being made to the conditions for the transfer of personal allowance for married couples and civil partners so that income subject to the savings nil rate does not trigger ineligibility Income from an ISA, and income which qualifies for the 0% starting rate for savings at ITA 2007 s.12, will not use up any part of an individual's savings allowance. The income within an individual's personal savings allowance will still be taxable income and included where taxable and net taxable income need to be considered.

Clause 4 makes the changes so that banks, building societies and National Savings and Investments (NS&I) no longer need to deduct tax from the account interest paid or credited on or after 6 April 2016.

www.gov.uk/government/publications/income-tax-personal-savings-allowance

Dividend nil rate and dividends tax credits (clause 2 and 3)

Clause 2 introduces a dividend nil rate, which is referred to as a dividend allowance. The draft legislation will apply the nil % rate to the first £5,000 of an individual's dividend income otherwise taxable at the dividend ordinary rate, dividend upper rate or dividend additional rate. Note that it will only apply to the calculation of income tax for individuals and not the income of any other person.

For the purposes of the transfer of personal allowance for married couples and civil partners, the dividend nil rate is looked through, such that, if some of the dividend income would have been taxed at the dividend upper rate or additional rate had the old rules continued, then the transfer conditions are not met. An individual will not need not notify HMRC of the receipt of dividend income when there is no liability to tax on it.

Clause 3 removes the adjustments to gross up dividend income by 1/9 and have a 10% notional tax credit, together with various consequential amendments. UK and non-UK distributions will therefore be treated in the same manner.

www.gov.uk/government/publications/income-tax-changes-to-dividend-taxation

Statutory tax exemption for trivial benefits in kind (clause 8)

Clause 8 introduces an exemption from tax for qualifying benefits in kind provided on or after 6 April 2016 costing £50 or less. An annual cap of £300 will be applicable for directors and office holders of close companies and their associates. Broadly, a benefit in kind will be qualifying where it is:

  • not cash or a cash voucher;
  • not provided as part of a salary sacrifice arrangement or other contractual obligation; and
  • is not provided in recognition of particular services or in anticipation of such services.

Employers will no longer be required to report such benefits on P11Ds or via PSAs. There will be a corresponding disregard for such benefits that attract class 1 NICs.

www.gov.uk/government/publications/income-tax-exemption-for-trivial-benefits-in-kind

Travel expenses of workers providing services through intermediaries (clause 9)

This clause closes the apparent loophole on travel expenses for such intermediaries.

The clause applies to IR35 situations or other cases where the worker is under supervision. Put simply, each engagement of the worker is considered a separate employment and thus it will not be possible to avoid the ordinary commuting rules on each of those employments. This has the effect of preventing the travel expenses in question becoming tax deductible for the employee, bringing the position into line with that of 'ordinary' employees.

New HMRC guidance has also been produced. NIC will be brought into line as well.

www.gov.uk/government/publications/income-tax-employment-intermediaries-and-relief-for-travel-and-subsistence

Securities Options (clause 11)

Restricted stock units (RSUs) are to be taxed as share options.

The purpose of this new clause is to bring to an end an old chestnut over the taxation for, largely American, RSUs. In a small change, RSUs will be taxable, if at all, as share options. This has had some implications in particular for internationally mobile employees and the related provisions in HMRC's Manuals have, disconcertingly, changed over the years. This is now a reasonable basis of taxing this kind of award, however, and certainty should be welcomed.

www.gov.uk/government/publications/employee-share-schemes-simplification-of-the-rules

Pensions Lifetime Allowance details (Clause 12)

This clause introduces the well-trailed reduction of the lifetime allowance for registered pensions to £1M from £1.25M from 5 April 2016. In addition, we now have the details of both fixed protection and individual protection. An individual may only apply for one of these protections after 6 April 2016.

Fixed protection, broadly, comes at the cost of ceasing all contributions together with no further accrual of benefits in defined benefit schemes over CPI or in accordance with rules providing for further accrual actually in the scheme rules at 9 December 2015. If this is done, the fund is protected up to £1.25M with 55% rates of tax applying over that amount.

Individual protection for funds of over £1M permits further contribution, but only the present value of the fund as at 5 April 2016 is protected. The schedule to the clause sets out the details for both obtaining suitable reference numbers from HMRC for protected schemes and of the inevitable record keeping required.

www.gov.uk/government/publications/reduction-of-pensions-lifetime-allowance

Company distributions (clauses 16 to 18)

The anti-avoidance transactions in securities rules in ITA 2007 will change for transactions occurring on or after 6 April 2016.

The assessment of whether an income tax advantage arises is widened from considering only the person who is a party to the transaction, to any person. The way the fundamental change of ownership rule is assessed will change from considering whether the purchaser has a 75% interest in the close company for the two years after the transaction, to whether the vendor has a 25% interest after the transaction.

Currently, there is a notification procedure followed by the issue of counteraction notices within a six year period. From 6 April 2016 there will instead be a notice of enquiry, followed by the issue of counteraction notices without time limit.

A new rule will deem a distribution in a winding up, formerly a possible capital gain, to be an income distribution where certain conditions are met. One of these is that there is a main purpose of the avoidance or reduction of a charge to income tax. This is a self-assessment provision which appears to legislate what is currently described in HMRC manuals at CTM36850.

www.gov.uk/government/publications/corporation-tax-income-tax-and-capital-gains-tax-company-distributions

Taxation of performance linked rewards paid to asset managers (clause 22)

Following consultation in summer 2015, we now have draft legislation determining the boundary for income and capital for carried interest arrangements under the disguised investment management fee rules. The provisions will apply to carried interest arising on or after 6 April 2016 whenever the arrangements under which the sums arise were made.

In summary, where the investments within the investment scheme giving rise to the carried interest are held within the scheme on average for at least four years, the carried interest will be treated as capital. If held on average for less than three years, the carried interest will be treated as income. There is a sliding scale between these dates where the proportion of carried interest attracting capital treatment increases by 25% after each three month period. Carried interest treated as income instead of capital by these new provisions is known as 'income-based carried interest', and is included within the scope of charge to income for disguised investment manager fees as introduced by FA2015.

www.gov.uk/government/publications/investment-managers-performance-linked-rewards

Loan relationships and derivative contracts (clauses 23 to 25)

We now have the draft legislation that deals with anomalies in the loan relationship and derivative contract changes introduced by F(No2)A 2015. The changes will take effect for accounting periods beginning on or after 1 April 2016, with accounting periods which straddle this date being split. As the default date for many of the regime changes introduced in F(No2)A 2015 Sch7 was the accounting period commencing on or after 1 January 2016, there may be a short period for some groups where the anomalies cannot be corrected by the new draft legislation. The new draft legislation covers three areas:

(i)Non market rate loans

The new rule removes from tax those accounting debits on non-market rate loans relating to corresponding accounting credits on the same loan that will not be taxed under the new regime. It will apply where either the lender is not within the charge to corporation tax, for example, non-market rate loans from individual shareholders, and to loans from corporate lenders that are tax resident in a non- qualifying territory, or that are effectively managed in a non-UK territory that does not tax companies by reason of domicile, resident or place of effective management.

The measures will not deal with loans between a parent lender and subsidiary borrower where the parent is either in the UK or a qualifying territory. The new regime TAAR, effective from 18 November 2015, and the unallowable purpose rule should deal with avoidance arising from this area.

(ii)Debits and credits affected by transfer pricing adjustments

Transfer pricing rules may mean that debits on some loan relationships and derivative contracts are disallowed for tax, but without this provision, a later reversal of the debits may still be subject to tax.

Amendments are made so that no credit can be brought into account for tax that relates to debits previously disallowed as a result of transfer pricing adjustments.

(iii)Exchange gains and losses on transactions not at arms-length

CTA 2009 s.447, 449, 451 and 694 leave out of account any exchange gains or losses arising on loans or derivative contracts to the extent those loans and derivatives are ignored as a result of transfer pricing adjustments. As these provisions currently do not address any hedging of these transactions, this could leave tax exposures on foreign exchange amounts where economically there is none for the company.

Changes are therefore introduced to ensure that these provisions only exclude foreign exchange gains and losses to the extent they are not 'matched' in a hedging relationship or disregarded as a result of the Disregard Regulations.

www.gov.uk/government/publications/corporation-tax-update-of-the-taxation-of-corporate-debt-and-derivative-contracts

Orchestra tax relief (clause 27)

As announced in March 2015, orchestra tax relief is to be introduced for accounting periods beginning on or after 1 April 2016.

The form of the relief is similar to TV, video games and theatre tax relief. Companies will have the ability to claim an additional deduction for tax of the lower of 100% of EEA qualifying expenditure or 80% of total qualifying expenditure. If the business is loss-making, the company can claim the repayment of a tax credit of 25% of the surrenderable loss. A company may qualify if it is engaged in the production of a qualifying orchestral concert. This will be an orchestral concert consisting of at least twelve instrumentalists, none of whom, or a minority of whom, is electronically or directly amplified.

www.gov.uk/government/publications/orchestra-tax-relief

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Tina Riches
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions