A short summary of the tax changes announced in the Autumn Statement yesterday, ACAS’s comments on a recent case regarding the calculation of holiday pay, a reminder that filing a 2014 paper tax return now will cost you £100 penalty, an update regarding tax summaries being distributed by HMRC and a reminder of an approaching deadline if you want to pay off tax arrears for 2013-14 by adjusting your code number.
Autumn Statement – 3 December 2014 – BUDGET SUMMARY
George Osborne has delivered his last Autumn Statement of this Parliament. As expected, he was bullish about the state of the nation’s finances and seems committed to maintaining a steady reduction in borrowing. Nevertheless, the temptation to include a few sweeteners, prior to the 2015 general election, were in evidence. We have listed below some of the changes announced and start with a summary of the economic indicators.
Employment is at a record high of 30.8 million, up 1.7 million since the Government came into office, and more than 1 million above its pre-recession peak. Since 2010, employment has increased faster in the UK than in any other G7 country, and the working-age labour market participation rate has risen to levels last seen over 20 years ago.
UK GDP grew 3% in the third quarter of 2014 compared to a year ago. The Office for Budget Responsibility (OBR) has revised its forecast for UK growth as follows:
- in 2014 from 2.7% to 3.0%,
- in 2015 from 2.3% to 2.4%.
The OBR forecasts growth of:
- 2.2% in 2016,
- 2.4% in 2017,
- 2.3% in 2018 and
- 2.3% in 2019.
The OBR has revised down its forecast for unemployment in all years to 2018, and expects a rate of 6.2% in 2014, falling to 5.3% at the end of the forecast period.
The OBR expects business investment growth of 7.7% in 2014. It also expects Consumer Price Index inflation to be below target in 2014 through to 2017 and then to stay at target from 2017 to 2019.
The Government seems committed to a gradual reduction in the deficit over the next 5 years. The deficit estimates for each year are set out below:
- 2014-15 a deficit of £91.3bn
- 2015-16 a deficit of £75.9bn
- 2016-17 a deficit of £40.9bn
- 2017-18 a deficit of £14.5bn
- 2018-19 a surplus of £4bn.
Stamp Duty Land Tax (SDLT) changes
As expected, SDLT has been reformed and the changes announced will provide a significant reduction in the charge for most home owners when they buy their next property. The new rules come into force 4 December 2014, but if you have exchanged on a property purchase you will have the choice to pay SDLT under the old or the new rules. In the majority of cases you will pay less tax under the new rules.
Before this announcement, SDLT was charged on the “slab” basis: whatever rate applied to the total value of the property was applied to the entire purchase price. So if your purchase was £275,000 you would pay a 3% charge on the total price, £8,250.
The new rates that apply to residential property sales are:
- £0 to £125,000 – rate is 0%
- £125,001 to £250,000 – rate is 2%
- £250,001 to £925,000 – rate is 5%
- £925,001 to £1.5m – rate is 10%
- Over £1.5m – rate is 12%
These rates are applied on a graduated basis, like Income Tax. In the above example, the SDLT charge for a property purchase of £275,000 would be £3,750, a saving of £4,500.
This is calculated as:
- £125,000 no charge
- £125,000 at 2%, and
- £25,000 at 5%
In Scotland, the new rates will apply until 1 April 2015 when SDLT is devolved to the Scottish Parliament.
Personal taxes and related matters
Personal Tax and National Insurance 2015-16
- The personal allowance for persons born after 5 April 1948 is confirmed as £10,600 from 6 April 2015 (presently £10,000).
- The higher rate threshold (the basic personal allowance plus the basic rate limit) will be £42,385. With the basic personal allowance at £10,600 this means that the basic rate limit will be £31,785 from 6 April 2015. There are no changes to the basic, higher rate or additional rate of Income Tax which remain at 20%, 40% and 45% respectively.
- There will be no percentage increases in the rates of National Insurance Contributions (NICs) (Class 1, Class 1A, Class 1B and Class 4) for 2015-16, but there will be minor changes to the various thresholds. The weekly rates for Class 2 are £2.80, and Class 3 £14.10.
- From April 2015, the Government will also extend the £2,000 annual NICs Employment Allowance to those households that employ care and support workers. This means that a family will be able to employ a care worker on a salary of up to £22,500 and pay no employer NICs. In addition, care workers will be exempted from the impacts of removing the £8,500 threshold below which employees do not pay Income Tax on benefits in kind.
- The Government will abolish employer NICs up to the upper earnings limit for apprentices aged under 25. This will come into effect from April 2016.
Tax Credit, Child Benefit and Guardian’s Allowance 2015-16
There are minor changes to the Tax Credit rates for 2015-16. The income threshold for those entitled to Child Tax Credit only is increased to £16,105. There are no changes to the income disregard which remains at £5,000.
Transferrable Tax Allowance
From April 2015 a spouse or civil partner, who is not a tax payer, or who does not pay tax above the basic rate, will be entitled to transfer up to £1,060 of their personal allowance to their spouse or civil partner. This will not advantage higher rate tax payers as the recipient of the transfer cannot be subject to tax at higher than the basic rate.
Entrepreneurs’ Relief (ER) – transfer of goodwill to a close company
The Government will prevent individuals from claiming ER on disposals of the reputation and customer relationships associated with a business (‘goodwill’) when they transfer the business to a related close company. This will affect transfers on or after 3 December 2014.
Entrepreneurs’ Relief – extended to eligible investments
The Government will allow gains which are eligible for ER, but which are instead deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR), to remain eligible for ER when the gain is realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into an EIS or SITR on or after 3 December 2014.
The Chancellor announced that from 3 December 2014, if an ISA saver in a marriage or civil partnership dies, their spouse or civil partner will inherit their ISA tax advantages. In addition from 6 April 2015, surviving spouses will be able to invest as much into their own ISA as their spouse used to have, on top of their usual allowance.
ISAs: The subscription limits increase to £15,240 (currently £15,000) from 6 April 2015.
Junior ISAs and Child Trust Funds: The investment limits increase to £4,080 (currently £4,000) from 6 April 2015.
The planned September 2014 increase in fuel duty was cancelled. No further increases will be made during the current Parliament.
State Pension changes
The basic State Pension will rise by £2.85 a week from April 2015.
The Government is to increase the charge it makes to long-term, non-domiciled tax payers who take advantage of the remittance basis.
It will therefore increase the remittance charge for non-domiciles who have been resident in the UK for 12 of the past 14 years (from £50,000 to £60,000), and introduce a new charging point for those who have been resident for 17 of the past 20 years (£90,000). The charge for those resident for 7 of the past 9 years will remain unchanged (at £30,000).
Death and taxes
The Chancellor confirmed that the 55% tax charge that presently applies to pension funds left to beneficiaries will be scrapped from April next year.
Additionally, from April 2015, beneficiaries of individuals who die under the age of 75 with remaining uncrystallised or drawdown defined contribution pension funds, or with a joint life or guaranteed term annuity, will be able to receive any future payments from such policies tax free where no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of Income Tax, or 45% if the funds are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary’s marginal rate from 2016-17.
Small pension pots withdrawal
As announced on 21 July 2014, the Government will continue the small pots rules for withdrawals from defined contribution pension savings from 6 April 2015. These rules allow individuals to take up to 3 small pension pots from non occupational schemes, or an unlimited number from occupational schemes, of up to £10,000 as a lump sum without being subject to a reduced annual allowance of £10,000. The Government will also lower the age at which an individual can make use of these rules from 60 to 55 from 6 April 2015.
Pensions – the age 75 rule
Following informal consultation since Budget 2014, the Government has decided not to make changes to the age limit at which tax relief can be claimed on pension contributions. This will remain at age 75.
Inheritance Tax (IHT) exemption extended to aid workers
The existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service is to be extended to members of the emergency services and humanitarian aid workers responding to emergency circumstances. It will have effect for deaths on or after 19 March 2014.
Air Passenger Duty (APD) changes
An APD exemption is to be introduced from 1 May 2015 for children under 12 on economy flights and from 1 March 2016 for children under 16.
Diverted Profits Tax
Where multinationals use artificial arrangements to divert profits overseas in order to avoid UK tax, the Government will now act. The Autumn Statement announces the introduction of a new Diverted Profits Tax to counter the use of aggressive tax planning to avoid paying tax in the UK. The Diverted Profits Tax will be applied at a rate of 25% from 1 April 2015.
Restrictions to banks tax losses
When a company makes a loss for Corporation Tax purposes, this loss can be carried forward and offset against profit arising in future periods. Many banks operating in the UK have built up exceptionally large carried-forward losses – a result of their performance during the financial crisis and the costs associated with subsequent misconduct and mis-selling scandals. The Government considers it unreasonable that these losses are now being used to eliminate tax on current profits. Corporation Tax receipts from the banking sector have already fallen from £7.3 billion in 2006-07 to £1.6 billion in 2013-14, and it is unsustainable that some banks will not be making Corporation Tax payments for another 15 to 20 years.
Accordingly, the Government will restrict the amount of banks’ profits that can be offset by carried-forward losses to 50%, increasing banks’ contribution to fiscal consolidation through Corporation Tax payments.
Corporation Tax Northern Ireland
The Government is giving serious consideration to the strongly held arguments for devolving Corporation Tax rate-setting powers to Northern Ireland, including its land border with the very low Corporation Tax environment in the Republic of Ireland, and the shared goal of the UK Government and the Northern Ireland Executive of rebalancing the Northern Ireland economy and securing the peaceful economic progress made in Northern Ireland since the Good Friday Agreement. In practical terms, further work by HMRC and HM Treasury has concluded that this proposal could be implemented provided that the Northern Ireland Executive is able to manage the financial implications.
R&D Tax Credits
The Government will increase the rate of the above the line credit from 10% to 11% and will increase the rate of the Small and Medium Enterprise (SME) scheme from 225% to 230%, from 1 April 2015.
The Government will also restrict qualifying expenditure for R&D tax credits so that the costs of materials incorporated in products that are sold are not eligible, with effect from 1 April 2015.
Small Business Rate Relief
- The Government will increase the business rates discount to £1,500 for retail and food and drink premises with a rateable value of up to £50,000 from 1 April 2015.
- The Government will continue the 2% cap on the RPI increase in the business rates multiplier for an additional year from 1 April 2015.
- The doubling of the Small Business Rate Relief will continue until April 2016.
Social Investment Tax Relief (SITR)
The Government is to seek EU approval to increase the investment limit for the SITR from £5 million per annum per organisation up to a maximum of £15 million per organisation and to extend the relief to small-scale community farms and horticultural activities. The changes will come into effect on or after 6 April 2015, subject to state aid clearance.
Don’t file a paper tax return – INCOME TAX
The online filing deadline for 2013-14 Self Assessment tax returns is 31 January 2015. However, if you are still filing a paper version of the return, the 2013-14 deadline was 31 October 2014.
As the 31 October paper-filing deadline has passed, even if you have no tax to pay, or you eventually pay your tax on time, and if you file a paper return for 2013-14 between now and the 31 January 2015, it will still land you with a £100 penalty.
The only way to avoid a penalty is by submitting your tax return online by 31 January 2015. To send an online tax return yourself, you must be registered for HMRC’s Online Services. This involves HMRC sending you an Activation Code in the post, so allow time for this to arrive. If you haven’t registered for online filing, you can do so by visiting the GOV.UK website and following the instructions.
Paying tax arrears by instalments – INCOME TAX
At present, if you file your Self Assessment tax return before a certain date, you can elect to have any arrears paid off by making an adjustment to your tax code in the following tax year.
In order to qualify for this option you must have your return filed by 30 December.
For example, if you file your 2013-14 return before 30 December 2014 you can request to have an underpayment recovered by HMRC in the tax year 2015-16. To achieve this, HMRC will adjust your code number so that you pay additional tax each month that adds up to the amount owed by the end of the 2015-16 tax year.
There are a few conditions:
- For 2013-14 the maximum that can be paid off in this way is £3,000.
- HMRC can only adjust a code number if you have a source of income (salary or pension) that is subject to PAYE.
- HMRC will not adjust your code if you do not receive sufficient income from the source against which the underpayment is to be coded, or
- If your PAYE deductions would be doubled – twice as much Income Tax would be deducted, or
- The 50 per cent K code limit would be exceeded.
Personal tax summaries – PAYROLL
HMRC have started to distribute personal tax summaries that set out how much tax you have paid and how the revenue collected is spent by government. According to a recent press release:
- Personal tax summaries show you how your tax is calculated and what it is spent on - Personal tax summaries show you how much Income Tax and National Insurance Contributions (NICs) you paid over the financial year 2013-2014, and how this is calculated. The back of the summaries show you how your tax contributed to public spending, for example, how much of the tax you paid went on health, defence, overseas aid and more.
- Overall, 24 million people will receive a personal tax summary - This is the first year that the government is sending out personal tax summaries, and from now on, they will be sent out once each year.
- You don’t have to do anything with them - The personal tax summary is for reference only – you don’t have to do anything with it. Apparently, the government is sending them out to improve the transparency of the personal tax system, so that you know how much tax you pay, how it is calculated, and how the government spends it.
- It’s all part of a wider aim of the government to make the tax system fair and simpler - In future, HMRC will provide everyone with a digital account which will include their tax summary.
- Not everybody will get theirs on the same day - Personal tax summaries will be sent in batches over several weeks. The first tax summaries were delivered on 3 November, and most will have been sent by mid-December.
If you prepare a tax return, then your summary will not yet be available unless your 2013-14 return has been filed.
Overtime and holiday pay – EMPLOYMENT LAW
In the past companies have tended to base holiday pay payments on a worker’s basic pay, excluding overtime. In a recent landmark case an Employment Tribunal has ruled that past, non-guaranteed overtime should be included in the calculation of holiday pay.
Here’s what ACAS have to say:
“Non-guaranteed overtime is where there is no obligation by the employer to offer overtime but if they do then the worker is obliged by the contract to work overtime.
On 4th November 2014 the Employment Appeal Tribunal handed down judgment in the case of Bear Scotland v Fulton which covers how holiday pay should be calculated when non-guaranteed overtime is worked.
The judgment has clarified that:
- Workers should have their normal non-guaranteed overtime taken into account when they are being paid annual leave.
- Anybody making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim.
- If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between those underpayments.
- Only the 4 weeks’ annual leave entitlement under the original Working Time Directive apply to this judgment, rather than the full 5.6 weeks’ leave provided by the Regulations as they operate in Great Britain.
This judgment may have an impact in situations where non-guaranteed overtime is carried out by workers on a regular or consistent basis. It is unlikely to have an impact in situations where non-guaranteed overtime is either already factored into holiday pay, or possibly where non-guaranteed overtime is only used on genuinely one-off occasions.”
Tax Diary December 2014/January 2015 – GENERAL
1 December 2014 – Due date for Corporation Tax due for the year ended 28 February 2014.
19 December 2014 – PAYE and NIC deductions due for month ended 5 December 2014. (If you pay your tax electronically the due date is 22 December 2014.)
19 December 2014 – Filing deadline for the CIS300 monthly return for the month ended 5 December 2014.
19 December 2014 – CIS tax deducted for the month ended 5 December 2014 is payable by today.
30 December 2014 – Deadline for filing 2013-14 Self Assessment online to include a claim for under payments (under £3,000) be collected via tax code in 2015-16.
1 January 2015 – Due date for Corporation Tax due for the year ended 31 March 2014.
19 January 2015 – PAYE and NIC deductions due for month ended 5 January 2015. (If you pay your tax electronically the due date is 22 January 2015.)
19 January 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 January 2015.
19 January 2015 – CIS tax deducted for the month ended 5 January 2015 is payable by today.
31 January 2015 – Last day to file 2013-14 Self Assessment tax returns online.
31 January 2015 – Balance of Self Assessment tax owing for 2013-14 due to be settled today. Also first payment on account for 2014-15 due today.