2020 Innovation Training Tax Update Webinar February 2017 Martyn Ingles FCA CTA 1
Webinar Overview • Draft Finance Bill 2017 clauses • MTD update • IR35 developments public sector workers • Other recent tax developments Draft Finance Bill 2017 clauses • Draft clauses issued for consultation 5 December • Further clauses issued in January • Many of measures announced in Autumn Statement • Now includes MTD legislation • And IR35 rules for public sector workers … 2
Public sector workers “Off payroll” 'Client' 'Intermediary' Service company/partnership 'Worker' Public sector w orkers “Off Payroll” • Government departments, legislative bodies, armed forces • Local government • NHS ( but not GPs) • Schools and further and higher education institutions • Police forces • Other public bodies (such as BBC, Channel 4) 3
Public sector w orkers “Off Payroll” • From April 2017 , individuals working through a personal service company (“PSC”) in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies • The public sector employer/agency will have to decide if the rules apply to a contract and, if so, account for and pay the liabilities through RTI and deduct the relevant tax and NICs. Public sector w orkers “Off Payroll” • HMRC guidance issued 3 February 2017 • Example: • PSC invoices £6,000 + £1,200 VAT = £7,200 • Public sector employer/ agency deducts £1,871 tax, NIC • PSC gets £4,129 + £1,200 VAT • £4,129 can be drawn tax-free from PSC • No CT on this £4,129 4
Limiting tax relief on Salary sacrifices • Where a BiK is provided through salary sacrifice, it will be chargeable to income tax and Class 1A employer NICs, even if it is normally exempt from tax and Class 1A NICs • The greater of: • the amount of salary sacrificed; and • the cash equivalent set out in statute (if any) • 5 Exceptions… Limiting tax relief on Salary sacrifices • 5 Exceptions: • employer pension contributions; • employer-provided pension advice; • employer-supported childcare and provision of workplace nurseries; and • cycles and cyclist's safety equipment • Ultra – Low (< 75g) CO2 emission cars 5
Other employee benefit changes • Date for “making good” benefits in kind to be 6 July • Lower P11d benefits for electric cars – 2020/21 • Private use of assets – 20% charge limited to period available for use by employee • Pensions advice to employees - £500 tax free • Deduction for employees’ liabilities • PAYE settlement agreements simplified Tax and NIC on termination payments • From April 2018 : • all PILONs will be subject to tax and NICs as earnings; • all other post-employment payments which would have been treated as general earnings if the employee had worked their notice period will be subject to tax and Class 1 NICs, including employer's NICs; and • payments relating directly to the termination of the employment will have a £30,000 income tax and employer NICs exemption . Unlimited employee NICs exemption on termination payments to continue? 6
Employee shareholder shares • Flagship policy 2013 - “Employee shareholder” shares • minimum £2,000 worth of shares if give up certain employment rights – tax free • Unfair dismissal, working time directive • Gains on £50,000 of shares (at issue) exempt CGT • So if subsequently receive £5m tax free!! • Being abused by some employers • Tax free gain was limited to £100,000 where shares acquired after 16 March 2016 • Tax advantages now abolished from 1 December 2016 New Tax Free Allowances • From 6 April 2017: • £1,000 self-employed income • £1,000 rental income • In addition to £1,000 savings allowance if basic rate 7
EBT Loan Scheme COMPANY TRUST LOANS Taxable Sub Trusts Disguised Remuneration Schemes • Loan transfers – debts transferred to third parties to be within the scope of the disguised remuneration rules. • Close companies - rules to prevent schemes which claim that the disguised remuneration received by director of a close company is not in connection with their employment. • Release of disguised remuneration loan – will give rise to an income tax charge (except on death of the employee). • Denying CT deductions for employee remuneration • Transfer of liability from the employer to the employee if it cannot reasonably be collected from the employer 16 8
Disguised Remuneration Schemes • The loan charge will apply to disguised remuneration loans still outstanding at 5 April 2019, but will not apply to loans made before 6 April 1999. • Avoiding double taxation – where a charge applies to a disguised remuneration loan, but there has also been an earlier income tax charge on the same amount • Measures to apply to self employed and partnerships where taxable income has been replaced by loans and other non- taxable amounts to avoid tax 17 Non-domiciles rules from 6 April 2017 • New “deemed domicile” rule – 15/20 years • Will apply for IT,CGT and IHT (was 17/20) • IHT to apply to UK residential property held by non-doms through an overseas company or similar structure • New rules for income tax and CGT for individuals who are deemed to be domiciled in the UK, • Protection for non-resident trusts set up before the settlor became deemed-domiciled in the UK • Business investment relief for remittance basis taxpayers 18 9
Deemed UK domicile for IT and CGT • Individual deemed domiciled if meets either of two conditions: • was born in the UK and has a UK domicile of origin. The individual must also be UK resident in the tax year under consideration, OR • must have been UK resident for tax in at least 15 out of the 20 years preceding the tax year under consideration. 19 CGT – non-resident trusts • S86 TCGA potentially attributes gains made by non-resident trust to UK resident and domiciled settlor where property derived from settlor • Paragraph 18 of the draft Schedule inserts a new paragraph 5A into Schedule 5 to TCGA which disapplies the effect of the amended section 86 (dealing with the attribution of gains to settlors of foreign or resident settlements trusts) where 6 conditions are met 20 10
CGT deemed Doms – Rebase to 5 April 2017 • If person was a non-UK dom remittance basis user prior to 2017/18 and becomes treated as UK domiciled under the 15 out of 20 rule from 6 April 2017 may rebase to 5 April 2017 • provided that during the person’s ownership the asset was not situated in the UK in the period 16 March 2016 to 5 April 2017 (the “relevant period”), • and the person remains deemed domiciled under the 15 out of 20 rule at all times until disposal. • Person may elect for rebasing not to apply to a disposal . - once made will be irrevocable. 21 CGT deemed Doms – Mixed Funds • Individuals previously taxed on the remittance basis may rearrange their overseas funds so that they will be able to bring money as “clean capital” to the UK without being taxed on a remittance basis purposes. • Section 809R(4) ITA disapplied for any transfer of funds made between two overseas accounts, one of is a mixed fund, provided certain conditions are met. • These conditions are provided in subsections (a) to (f) of paragraph 28(2) of Schedule12 22 11
Deemed UK domicile for IHT • Individual deemed domiciled if resident in the UK for at least 15 out of the previous 20 tax years (was 17/20) ending with the tax year in question. • Also: • If born in the UK with a UK domicile of origin and have acquired a domicile of choice elsewhere - if at any time they are resident in the UK and have been resident in the UK in at least one out of the two previous tax years . 23 Extending IHT charge to UK residential property held through offshore structures • Excluded property – non UK situs property owned by non- domiciled persons not charged to IHT • UK residential property will be brought within the scope of IHT where they are held by a non-domiciled individual through an overseas company or similar structure. • Draft legislation amends the definition of excluded property such that an interest in those properties will be treated as part of a person's estate and thus liable to IHT in the event of a chargeable transfer • If property has been a dwelling in previous 2 years 24 12
Changes to company loss relief 2017 • New corporation tax loss set-off rules from 2017 • For new losses incurred on or after 1 April 2017 , companies will be able to use carried forward losses against profits from other income streams or other group companies • “Old” losses will still be streamed • Limited to 50% of future profits where company profits exceed £5m (1% of companies) • 25% set off restriction in the case of bank losses New company loss relief rules – Alpha Ltd • Trading losses b/fwd at 1 January 2017 £400,000 • Year ended 31 December 2017 the company incurred further trading losses of £1,200,000 • Year ended 31 December 2018 - trading profit of £500,000 and profits from a new trade of £2,000,000 13
New company loss relief rules – Alpha Ltd Old trade New trade Carry forward Trading profits 500,000 2,000,000 Old losses (500,000) 200,000 New losses (900,000) Profits chargeable 0 1,100,000 Substantial Shareholdings Exemption (SSE) TRADE CO CG EXEMPTION NO CAPITAL LOSS 10% . TRADE CO 14
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