Cautious Finance Bill calms election nervesby
The government pulled some of its punches and went for a low-impact approach in draft clauses published for the Finance Bill 2015 - but there are still some niggles ahead, according to tax experts.
Rebecca Benneyworth took a break from preparing her traditional small business analysis to tell AccountingWEB about some of the measures that caught her eye, including a welcome change of tack from HMRC on the capital gains tax charge for non-residents.
Originally the government planned to remove the ability to nominate a second home as the main residence and stop the practice of “flipping” as part of a package measures to impose CGT on non-residents who dispose of residential properties in the UK. But in a change of tack, the Finance Bill 2015 will enact a new CGT charge on residential property owned by non-residents (NRCGT) for gains arising from 6 April 2015 onwards.
Taxpayers with homes in other countries, including those subject to NRCGT, will be able to nominate a second home as their main residence for CGT purposes, as long as the properties are where they are resident for tax purposes, or they spend at least 90 days a year within the country.
New offshore penalty regime
Clamping down on offshore evasion makes for good headlines, but it can also lead to bad tax law. The draft clauses published last week bring inheritance tax into the offshore penalty net and extends the penalties liked to proceeds from deliberate disclosure failures/errors that are moved offshore after 1 April 2015.
Funds moved offshore to avoid OECD reporting standards will be subject to a 50% increase in penalties once the Finance Bill 2015 is given royal assent.
Gabelle’s John Hood said the government was “upping the ante” with the offshore penalties, but like many other tax experts he was glad to see that the proposed strict liability criminal offence was held back.
This looks to be a political decision to avoid an embarrassing spat with the profession ahead of the general election campaign. Similar caution applies to the clauses enacting direct debt recovery (now re-branded enforcement by deduction by accounts), which have been published but will not be put forward to parliament until after the election.
The change of stance is welcome, but not clear proof that these measures will go away, according to Hood. He was also critical of the way the government is still approaching tax law as a part of its public relations strategy around offshore tax evasion.
“From our perspective this is all about creating a deterrent so people realise there’s no benefit in placing income in overseas jurisdictions,” Hood said. “My view is that HMRC is leaving it up to profession to publicise the implications and get the message out to the public.
“They have to make sure the people affected understand what the implications are. It’s not a deterrent if you’re unaware of it.”
As Rebecca Cave noted, it’s never a good sign when the Chancellor mentions a perfectly good tax relief in the Commons, and sure enough a measure to restrict entrepreneurs’ relief on transfers of goodwill to a related party was enacted on 3 December 2014.
The government decided that the combination of 10% tax for the business founder, plus corporation tax relief for the successor company, on a value which was difficult to prove with any accuracy was an abuse of the tax rules. ER will continue to be available on incorporations – it’s just that the value of goodwill is excluded from the assets that qualify for ER on the business disposal. If the seller enters into arrangements to try to side-step this new condition applying on the transfer of goodwill – it will apply anyway (new TCGA 1992, s 169LA(5)).
The company will also be denied tax relief on the value of goodwill acquired on and after 3 December, where the seller of the goodwill is related to the company.
Company car changes - as expected
There will be no let-up in the continuing crackdown on company cars identified by Rebecca Benneyworth at the time of the 2011 Budget. But what we have seen this month is confirmation of the continuing rises in tax rates through to 2018/19, when the benefit rates for a 125-129g/km car will reach 26%.
“It’s perverse, but almost the worst to lose out from it are people who have gone for a low emissions car,” Benneyworth told AccountingWEB earlier this month. For example a petrol-engine Smart car, emitting 82 grams CO2 per kilometre and is currently taxed at 11.5% of list price.
“By the end of the period we’ve got figures for - that will be taxed at 19% of list. So my benefit in kind is almost going to double,” she said.
Draft clauses issued last week bring this year’s consultation around improvements to the operation of CIS to fruition. The object of the exercise was to improve the operation of CIS for smaller businesses and to introduce mandatory online filing for contractors. To this end, it will reduce the minimum turnover threshold to £100,000 a year for multiple directorships from April 2016 and simply the compliance test for companies and firms applying for gross payment status from that date.
But nothing is ever that easy with HMRC. Online filing will become mandatory next year and failing to make a nil return will continue to incur a penalty. But these will can be appealed - with an online amendment and appeals system due to go live by April 2015.
Benneyworth commented of the CIS: “They weren’t what we asked for, but what HMRC is proposing would slim down the number of people in CIS. It seems to be going in the right direction.”
Diverted profits tax
The diverted profits tax, widely renamed the Google tax by campaigners and tabloids alike, drew some of the biggest headlines and criticism for apparently jumping the gun on international reforms being promoted by the OECD. Sandy Bhogal, head of tax at Mayer Brown commented in Tax Journal: “I cannot recall the last time I saw such an ill-considered proposal… The run up to elections is always a difficult time for policy makers, as they try to balance the desire to appeal to the masses with the long term benefits of sensible tax policy… The legislation itself needs a lot of work, not least to clarify what an ‘avoided PE’ is and how this interacts with the intended carve outs.”
There are some interesting arguments around this - but as Benneyworth has commented, few of the thousands and thousands of small businesses who are part of AccountingWEB or advised by member accountants have much scope for diverting their profits offshore.
Again away from the main battleground of small business taxation, we saw a package of measures to introduce online filing and simplify inheritance tax charges for discretionary trusts. BDO noted in its analysis, “HMRC has abandoned its ill-conceived plan for a 'settlement nil rate band' and instead will make relatively simple amendments to the IHT legislation.”
Where more than one trust is settled on the same day by the same person, they are 'related settlements' and the value comprised in them is aggregated when determining the rate at which tax is charged. However, currently, where you create multiple settlements on different days and then add funds to each on the same day, the related settlement provisions do not bite. The new rules will apply to all IHT charges arising on or after 6 April 2015 in respect of relevant property trusts created on or after 10 December 2014.
From the same date, an appointment from a will trust is made within three months of the date of death in favour of the deceased's surviving spouse or civil partner, it can be read back into the will and benefit from the spouse exemption.
A tax-free bereavement support payment will replace the widowed parent’s allowance from 2016.