FINANCE ACT 2015 Robert Jamieson MA FCA CTA (Fellow) TEP 25 September 2015 NEW STARTING RATE FOR SAVINGS • In 2015/16, new 0% starting rate for savings income up to maximum of £5,000. • But only in point for those whose non- savings income does not exceed personal allowance plus £5,000. • This will benefit (mainly) elderly taxpayers with modest pensions and certain amount of interest.
ZERO-EMISSION VANS • For several years, S155 ITEPA 2003 has ensured that company vans which emit no CO 2 were not subject to any benefit in kind charge for private use. • This nil rate regime came to end on 5 April 2015. • For 2015/16, 20% of normal van benefit (£3,150) will be chargeable on drivers of zero-emission vans. ZERO-EMISSION VANS (CONT) • Thereafter, this percentage gradually rises as follows: 2016/17 40% 2017/18 60% 2018/19 80% 2019/20 90% 2020/21 100%
ZERO-EMISSION VANS (CONT) • In other words, benefit for zero-emission vans in 2020/21 is precisely same as for vans which emit CO 2 . • But restricted private use exemption in S155(4) ITEPA 2003 (“commuter use” and “business travel” requirements) remains. BENEFICIAL LOANS • No taxable benefit on cheap or interest- free employer-provided loans where total of all such loans does not exceed £10,000. • Nor is there Class 1A NIC charge. • But ignore any loans which would attract income tax relief (ie. because they were made for qualifying purpose). • Official rate of interest = 3% for 2015/16.
EMPLOYEE EXPENSE CLAIMS • OTS review of tax regime for employee benefits and expenses published in January 2014. • 4 changes announced in Budget 2014 and intended for inclusion in FA 2015: • abolition of £8,500 threshold; • “trivial” statutory exemption for benefits; EMPLOYEE EXPENSE CLAIMS (CONT) • introduction of system of voluntary payrolling for benefits in kind; and • replacement of dispensations with exemption for paid and reimbursed expenses. • Publication of consultation document “Employee entitled Benefits And Expenses – Exemption For Paid Or Reimbursed Expenses” on 18 June 2014.
EMPLOYEE EXPENSE CLAIMS (CONT) • At present, employers can apply for dispensation using Form P11DX, but not all employers are aware of this possibility. • OTS recommended that dispensation regime should be replaced with more straightforward exemption for qualifying expenses. • This would allow employers to decide whether expense payment is taxable. EMPLOYEE EXPENSE CLAIMS (CONT) • Automatic tax relief, subject only to checks being made by HMRC on employer’s records. • HM Treasury accepted recommendation. • W.e.f. 6 April 2016, dispensation regime is to be abolished. • New rules found in Ss289A – 289E ITEPA 2003 for 2016/17 onwards.
EMPLOYEE EXPENSE CLAIMS (CONT) • If expenses would be deductible under Ss333 – 360A or Ss369 – 377 ITEPA 2003 (eg. travel expenses or fees and subscriptions), they will qualify for automatic exemption (S289A ITEPA 2003). • But there must be no “relevant salary sacrifice arrangements” . • Payments of expenses calculated in “approved way” are also exempted. EMPLOYEE EXPENSE CLAIMS (CONT) • This requires that sums are calculated and paid in accordance with: • regulations laid down by HMRC; or • agreement made under S289B ITEPA 2003 (flat rate payments). • But Conditions A and B must be met – these mainly relate to employer (or third party) having system for checking that expenses are of correct type.
EMPLOYEE EXPENSE CLAIMS (CONT) • Employers can apply to HMRC to make flat rate payments to employees in respect of deductible expenses. • Requirements: • reasonable estimate of actual costs given to HMRC; and • HMRC officer to issue approval notice. • Mechanism for revoking such notices. EMPLOYEE EXPENSE CLAIMS (CONT) • Separate exemption for benefits such as use of company credit cards (S289D ITEPA 2003) – here, too, there is “relevant salary sacrifice” restriction. • Over and above, there is TAAR which stops these exemptions applying to any arrangements where effect is to reduce employee’s income subject to tax and NICs (S289E ITEPA 2003).
EMPLOYEE EXPENSE CLAIMS (CONT) • Corresponding changes for NIC purposes. REPEAL OF “LOWER - PAID” CODE • W.e.f. 6 April 2016, special income tax code for employees earning at rate of less than £8,500 per annum will be abolished. • All employees to be subject to same benefit in kind tax rules. • “lower - paid” Only exception is for ministers of religion.
PAYE AND BENEFITS • New powers which allow HMRC to make regulations authorising employers to deduct or repay income tax on employee benefits through PAYE system. • Will operate on voluntary basis for 2016/17 onwards. • Administrative saving. BOARD AND LODGING PROVIDED FOR CARERS • No income tax liability where board and/or lodging is provided on reasonable scale for home care worker at home of person who is being looked after. • Also equivalent NIC exemption. • Applies for 2016/17 onwards. • This follows abolition of £8,500 threshold.
LUMP SUMS PAID TO ARMED FORCES PERSONNEL • Under EDP 05 scheme, persons aged 40 or over but less than 55 who leave armed forces after at least 18 years of service are entitled to lump sum plus monthly payments until they reach age of 65. • Lump sums are paid free of tax and NICs, but monthly amounts are dealt with under PAYE. • Latest version is EDP 15 scheme. LUMP SUMS PAID TO ARMED FORCES PERSONNEL (CONT) • This started on 1 April 2015. • Income tax exemption for lump sum payments under EDP 15 has been continued. • But now there has to be minimum service period of 20 years.
B SHARE SCHEMES • “B share schemes” are typically set up by listed companies wanting to return cash to their shareholders. • Actual structure of these arrangements varies considerably. • They usually involve creation of new class of share, issued on pro rata basis to existing shareholders. B SHARE SCHEMES (CONT) • Main purpose is that shareholders could then choose what form their “dividend” takes, ie. income or capital. • New S396A ITTOIA 2005 which takes effect for receipts on or after 6 April 2015. • Applies where person has choice between receiving: • income distribution; or
B SHARE SCHEMES (CONT) • something else which is essentially of same value but which is not chargeable to income tax (“alternative receipt”) . • “Alternative receipt” is now treated as income distribution. • Makes no difference if choice is subject to exercise of any conditions or power (including failure to exercise right). • Double charge relief. REMITTANCE BASIS CHANGES • New £90,000 RBC applies for 2015/16 onwards where non-UK domiciliary has been resident in UK for 17 out of last 20 tax years (“ 17-year residence test”) . • Does this link in with deemed domicile rule for IHT purposes? • Anomaly? • Intermediate RBC levy increased from £50,000 to £60,000 for 2015/16 onwards.
REMITTANCE BASIS CHANGES (CONT) • This is in point where taxpayer has been UK-resident for 12 out of last 14 tax years. • Also consultation on possibility of requiring remittance basis election to be for minimum of 3 tax years – not now going ahead. Basis of taxation for non- UK domiciliary can still be changed annually. • “ 15- year” rule w.e.f. 6 April 2017. PENSION FLEXIBILITY – ANNUITIES • Rules in FA 2004 amended to allow anyone to receive payments from annuity on death of pension scheme member. • Takes effect from 6 April 2015. • Where individual dies before age of 75, new Ss646B – 646F ITEPA 2003 allow transfer of annuities to be exempt from tax.
INVESTMENT RELIEFS • These changes affect SITR (+ venture capital reliefs such as EIS, SEIS and VCTs). • Intention to increase amount which social enterprises are able to raise from approx. £250,000 over 3-year period to £5,000,000 per tax year. • Overriding maximum = £15,000,000. • State aid approval needed first. INVESTMENT RELIEFS (CONT) • Agriculture and market gardening are excluded activities under SITR. • When approval comes through for SITR enlargement, community organisations carrying out “small - scale” agricultural and horticultural activities will be eligible for relief. • Investment in renewable energy schemes is currently made through EIS/VCTs.
INVESTMENT RELIEFS (CONT) • Reasons: • EIS/VCT regimes predate SITR; • they have higher investment threshold; and • organisations receiving feed-in tariffs are excluded from SITR. • This is set to change. INVESTMENT RELIEFS (CONT) • All community energy generation undertaken by qualifying organisations will be eligible for SITR from date of expansion of this relief. • Following transitional period, such activities will then cease to attract EIS, SEIS and VCT reliefs. • New EIS, SEIS or VCT shares issued on or after 6 April 2015 will not qualify.
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