Enews - April 2016
In this month’s eNews we report on pertinent Budget announcements. We also report on the introduction of the register of people with significant control and proposals for different Scottish tax bands.
Please do get in touch if you would like any further guidance on any of the areas covered.
George Osborne presented his Budget on Wednesday 16 March 2016.
In his speech the Chancellor reported on ‘an economy set to grow faster than any other major advanced economy in the world’. Towards the end of 2015 the government issued many proposed clauses of Finance Bill 2016 together with updates on consultations. The Budget proposed further measures and some of the articles which follow summarise some of the key changes.
CBI Director-General, Carolyn Fairbairn, said:
‘After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit.’
Register of people with significant control
From April 2016, rules are introduced which require companies to keep a register of People with Significant Control (PSC). In addition, the details of PSC will have to be filed with Companies House from 30 June 2016.
A PSC is defined as an individual that:
- holds, directly or indirectly, more than 25% of the shares or voting rights in the company; or
- holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; or
- has the right to exercise, or actually exercises, significant influence or control over the company; or
- where a trust or firm would satisfy any of the above conditions, any individual that has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
The details of the individuals which need to be entered on the register include:
- name and address
- usual residential address, country of residence and nationality
- date of birth
- date when they became a PSC
- the nature of their control over the company.
Failure to comply with the requirements of the PSC regime could lead to the company or directors, or identified PSCs committing a criminal offence. The company and its directors could face a fine or imprisonment or both.
Further guidance can be found on the Companies House website or please contact us for more guidance in this area.
Internet link: Companies House
National Minimum Wage rises
The National Minimum Wage (NMW) rates will increase from 1 October 2016 as follows:
Rate from 1 October 2016
21-24 year olds
18-20 year olds
16-17 year olds
From 1 April 2016 following the introduction of the National Living Wage all workers aged 25 and over are legally entitled to at least £7.20 per hour. Employers should ensure that all affected employees benefit from this new rate from 1 April 2016.
*This apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.
First Minister for Scotland plans to block UK tax ‘cuts’ in favour of public services
First Minister Nicola Sturgeon has announced plans that income tax rates in Scotland will be frozen, with no increases in the basic, higher or additional rates. However the significant cuts (reduction in income tax liabilities) which would result from the increases to the higher rate threshold proposed by the UK government would not be adopted in Scotland under the proposals. Their plans are that the higher rate threshold will be frozen in real terms and increased only in line with CPI inflation in 2017/18 and by no more than inflation until 2021/22.
The exact level of the higher rate threshold will be set out each year by the Scottish Government at the budget.
The Scottish Government’s believe their proposals are a more balanced approach which ‘will be fair to higher rate taxpayers while also generating additional revenue to be invested in Scotland’s public services such as the NHS’.
Under the proposals, the Scottish Government will ensure a Personal Allowance of £12,750 in 2021/22. If necessary, the Scottish Government will create a zero rate band to ensure that this protection for low income households is delivered.
Alongside the tax proposals, the First Minister published Scottish Government analysis that demonstrated any increase in the additional rate for top earners; whilst the UK rate remains at 45p; could put millions of pounds of revenue at risk. Accordingly, she confirmed that the additional rate will not increase in 2017/18, but that the analysis will be updated each year to inform decisions in future budgets.
Nicola Sturgeon said:
‘In setting out our proposals we have balanced the need to invest in and support our public services with a recognition that many households are still facing difficult economic challenges, and with the need to grow the Scottish economy.
We will not allow our public services to pay the price of an inflation busting tax decrease for the highest earning 10% of the population. We think that is the wrong choice and today we set out our alternative.
We will freeze the basic rate of tax for the duration of the next parliament. We do not believe it is right that those on low incomes are asked to pay for austerity. That does not tackle austerity, it simply shifts the burden to those who can least afford it.
No taxpayer will see their bill increase as a result of these Scottish Government proposals.
In 2017/18, instead of offering a large tax cut we will ensure the higher rate threshold rises only by inflation.
That means next year the threshold for higher rate taxpayers will go from £43,000 to £43,387’.
These proposals would introduce a difference between the amount of income tax payable by higher and additional rate taxpayers in Scotland to that paid by taxpayers with similar income in the rest of the UK.
Other parties have their own plans for the income tax rules for Scotland.
Internet link: Scotland Gov.News
Personal allowances and tax bands
For those born after 5 April 1938 the personal allowance is currently £10,600. Those born before 6 April 1938 have a slightly higher allowance. Legislation has already been enacted to increase the personal allowance to £11,000 in 2016/17. From 2016/17 onwards one personal allowance will apply regardless of age.
Not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 which is £1 for every £2 of income above £100,000. So for 2015/16 there is no personal allowance where adjusted net income exceeds £121,200 (£122,000 for 2016/17).
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £31,785 so that the threshold at which the 40% band applies is £42,385 for those who are entitled to the full basic personal allowance.
Legislation has already been enacted to increase the basic rate limit to £32,000 for 2016/17. The higher rate threshold will therefore rise to £43,000 in 2016/17 for those entitled to the full personal allowance.
The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax bands and personal allowance for 2017/18
The Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate limit increased to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 for those entitled to the full personal allowance.
Reduction in corporation tax rate
The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. In the following years the rate of tax will fall as follows:
- 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019.
- 17% for the Financial Year beginning on 1 April 2020.
The 17% rate from April 2020 is a reduction of 1% from the rate previously announced by the Chancellor in his Summer Budget in 2015.
CBI Director-General, Carolyn Fairbairn, said:
‘The reduction in the headline Corporation Tax rate sends out a strong signal that the UK is open for global business investment, and reforms to Interest Deductibility are rightly in line with the international consensus.’
Personal service companies in the public sector
From April 2017, individuals working through their own company in the public sector will no longer be responsible for deciding whether the intermediaries legislation applies and then paying the relevant tax and NIC. This responsibility will instead pass to the public sector employer, agency or third party that pays the worker’s intermediary. The employer, agency or third party will have to decide if the rules apply to a contract and if so, account for and pay the liabilities through the Real Time Information (RTI) system and deduct the relevant tax and NIC.
HMRC has announced they will will provide help for public sector employers and agencies with their new responsibilities. They plan to introduce clear, objective tests for employers to use to decide at the point of hire whether or not they need to consider the new rules and then identify those engagements that are caught by the rules.
For cases that are less clear cut, HMRC have announced that they will develop a simple digital tool. This will be designed to provide employers engaging an incorporated worker with a ‘real-time’ HMRC view on whether or not the intermediaries rules need to be applied.
Chris Bryce, Chief Executive of the Association of Independent Professionals and the Self Employed (IPSE), commented:
‘The Chancellor announced a number of measures today which are likely to impact independent professionals and the self-employed. His move to extend rules for off-payroll working in the public sector will create confusion and disruption. The engaging department or agency will be made responsible for any tax liability. This will result in genuine businesses having to jump through numerous hoops and will see the cost of engaging contractors increase. It will endanger the delivery of vital public services and important projects like HS2.’
Internet link: HMRC Off payroll working
Business rates have been devolved to Scotland, Northern Ireland and Wales. The Chancellor has announced cuts on business rates for half of all properties in England from 1 April 2017. In particular the government proposes to:
permanently double the Small Business Rate Relief (SBRR) from 50% to 100% and increase the thresholds to benefit a greater number of businesses. Businesses with a rateable value of £12,000 and below will receive 100% relief, rateable values between £12,000 and £15,000 will receive tapered relief increase the threshold for the standard business rates multiplier to a rateable value of £51,000 taking 250,000 smaller properties out of the higher rate.
The government also proposes to modernise the administration of business rates to revalue properties more frequently and make it easier for businesses to pay the taxes that are due.
CBI Director-General, Carolyn Fairbairn, said:
‘Businesses will welcome the Chancellor’s permanent reforms to business rates – taking more small firms out of the regime and changing the uprating mechanism from RPI to CPI, which the CBI has long been calling for.’
A new Lifetime ISA will be available from April 2017 for adults under the age of 40. Individuals will be able to contribute up to £4,000 per year and receive a 25% bonus from the government. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
Further details of the new account, which will be available from 2017, are as follows:
- Any savings an individual puts into the account before their 50th birthday will receive an added 25% bonus from the government.
- There is no maximum monthly contribution and up to £4,000 a year can be saved into a Lifetime ISA.
- The savings and bonus can be used towards a deposit on a first home worth up to £450,000 across the country.
- Accounts are limited to one per person rather than one per home, so two first time buyers can both receive a bonus when buying together.
- Where an individual already has a Help to Buy ISA they will be able to transfer those savings into the Lifetime ISA in 2017, or continue saving into both. However only the bonus from one account can be used to buy a house.
- Where the funds are withdrawn at any time before the account holder is aged 60 they will lose the government bonus (and any interest or growth on this) and will also have to pay a 5% charge. After the account holder’s 60th birthday they will be able to take all the savings tax-free.
The Chancellor said in his speech:
‘My pension reforms have always been about giving people more freedom and more choice.
So faced with the truth that young people aren’t saving enough, I am today providing a different answer to the same problem.’
Internet link: GOV.UK lifetime-isa-explained
Capital gains tax rates
The current rates of capital gains tax (CGT) are 18% to the extent that total taxable income does not exceed the basic rate band and 28% thereafter.
The government is to reduce the higher rate of CGT from 28% to 20% and the basic rate from 18% to 10%. The trust CGT rate will also reduce from 28% to 20%.
The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate still applies for ATED related chargeable gains accruing to any person (principally companies).
These changes will take effect for disposals made on or after 6 April 2016.
The rate for disposals qualifying for Entrepreneurs’ Relief (ER) remains at 10% with a lifetime limit of £10 million for each individual.