Phil’s Last (Spring) Budget • Future Budgets in Autumn • More scrutiny to give better legislation? • Class 4 increase – U Turn already – after next Election? • Dividend allowance to be reduced to £2,000 • MTD going ahead but deferred to 2019 if < VAT limit • £2bn extra for Social Care • Lots of measures already announced
Income tax and NIC 2017/18 45%, 38.1% (div) N I C b a n d s (SE, E’ee , E’er ) £150,000 2%, 2%, 13.8%? I n c o m e t a x b a n d s 40%, 32.5% (div) UEL £45,000 £45,000 20%, 7.5% (div) 9%, 12%, 13.8% ? Personal £11,500 Earnings £8,164 allowance threshold
Falling corporation tax rates: FY2016 FY2017 FY2018 FY2019 FY2020 • 20% • 19% • 19% • 19% • 17%
Income tax and NIC 2020/21 45%, ?38.1% (div) N I C b a n d s (SE, E’ee , E’er ) £150,000 2%, 2%, 13.8%? I n c o m e t a x b a n d s 40%, ?32.5% (div) UEL £50,000 £50,000 20%, ?7.5% (div) 9%, 12%, 13.8% ? Personal £12,500 Earnings ???? allowance threshold
Tax driven incorporation?
G20 Corporation Tax rates
Huge increase in tax-driven incorporation • Government concerned about rise in new companies • Just for tax reasons? • Looking to level the playing field • Possible introduction of “Look - through” entity? • Budget 2017 in 2018/19: • £5,000 dividend allowance cut to £2,000 • Increases in Class 4 NIC => 10% then => 11% XXXX
Employee v Self employed v Own co. 16/17 Employee Self-employed Own company Salary/ fees £40,000 £40,000 £40,000 Income tax 20% 5,800 5,800 NIC 3,833 3,020 350 NIC – ERs 4,401 (398) Corporation tax 5,721 Dividend tax 1,341 Total taxes 14,034 8,820 7,810 NET for worker £30,367 £31,180 £32,190
OTS review of small company taxation • Focus is on incorporated businesses with fewer than 10 employees (micro businesses) • Key recommendations: • New “Look - through” entity – shareholder/directors taxed directly on share of profits • Sole traders to have protected assets to limit their liability • Will provide level playing field at last?
H & W companies – 2018/19? • £11,500 salary each • Then dividends, say £33,500 each (£45,000) • No tax on salary (just ‘EEs NIC – 2017/18 £400) • Just £2,000 dividends tax free • Then 7.5%? rate on £31,500 = £2,363 each • £4,726 IT for the couple = £84,474 net • Corporation tax on £67,000 PAT = £15,716 (19%) • PBT £82,716 + salaries = £105,716 (20.1% tax and NI) • Note: No £3,000 employment allowance for single director companies 11
H & W partnership 2018/19 • £105,716 profit, say £52,858 each • £11,500 @ Nil • £33,500 @ 20% = £6,700 ) • £7,858 @ 40% = £3,143) IT £9,843 each • Class 4 (NB Class 2 ends): • 10% on (£45,000 - £8,164?) = £3,684 ) £3,841 each • 2% on £7,858 up to £52,858 = £157 ) • Net, after income tax, NIC = £78,348 (25.9% Tax + NI) • Same if company taxed on “Look Through” basis?
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 • NB - £5,000 savings income taxed at 0% (up to £16,500)
Social Investment Tax Relief • New tax relief for investment in Social Enterprises • Modelled on EIS – 30% IT relief up front • Plus CGT deferral • Investment may be shares or loan to Social Enterprise • Must not be “connected” with entity • Must keep money invested for 3 years • New limit: £1.5m per organisation over lifetime • New 250 employee limit • Not nursing homes or care homes • Cannot use SITR fund to repay existing loans
Social Investment Tax Relief • Qualifying social enterprises: • Community interest companies • Community benefit societies • Charitable companies and trusts • “Accredited social impact contractors” • First approved scheme – Fareshare South West – diverts food industry waste to charities
Venture Capital changes • EIS and SEIS relief denied if there is a disposal of shares within 3 year qualifying period (or pre-arranged exit). Similar rules apply for VCTs • The right to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares • Additional flexibility to allow follow-on investments made by VCTs in companies, aligns with EIS provisions • VCT regulations to be relaxed to allow certain share for share exchanges
Employment tax changes • Date for “making good” BiK – 6 July • Salary sacrifice rules changing • Termination payment rules changing • Public sector workers “off - payroll” – new rules from 2017/18 • Disguised remuneration anti-avoidance
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) • Note transitional rules – if in place at 5 April 2017 • 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
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?
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)
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 • Employment status tool - on HMRC website • optional for the agency/ public sector body to deduct the worker’s expenses when calculating the tax due .
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 28
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 29
Pensions - Money purchase annual allowance • Normal pension annual allowance £40,000 a year • (plus unused relief from previous 3 years) • But in flexible drawdown the limit was £10,000 • £10,000 limit dropping to £4,000 from 6 April 2017 on contributions to money purchase fund where in flexible drawdown
Pensions – 25% charge on transfer to QROPS • UK pension savings have benefited from tax relief • If transfer to foreign scheme that is neither • registered pension scheme; nor • QROPS • Then unauthorised payment charge 40%+ • New 25% overseas transfer charge on transfer to QROPS after 9 March 2017 • Does not apply if pension fund and individual are in EEA (further exclusions)
Corporate and Business Tax changes
Recommend
More recommend
