Although the headlines have been grabbed by Osborne's new sugar tax and his failure to meet his own fiscal rules, this was a huge budget with implications for the firm's clients both who are in the UK and invest in the UK.
As well as confirming a number of points that have previously been announced, including implementation of many aspects of the OECD's base erosion and profit shifting ("BEPS") initiative, Key points from yesterday are:
Reduction of the corporation tax rate to 17% by April 2020: Companies' effective tax rates may generally remain higher though as restrictions on the use of losses from previous years could mean that companies will pay tax more quickly that they would have done previously. Also, having by far the lowest tax rate in the G20 may mean the UK will be treated as a tax haven by some countries which may put off some foreign investors and cause further complications.
Reduction of the chargeable gains tax rates: From 6 April 2016 individuals will pay CGT at 10% (basic rate) or 20% (higher rate), other than on gains relating from residential property or carried interest.
New lifetime ISA and increase in ISA allowances: The general movement away from pensions continues with the introduction of a new lifetime ISA for savers aged 18-40, who will receive £1,000 each year from the government if they save £4,000. The personal ISA allowance has also increased to £20,000 which will lead savers to question whether they are better off saving through ISAs out of post-tax income or through pensions out of pre-tax income.
SDLT changes for both commercial and residential property: taking effect from today, SDLT on commercial property was changed to follow the "slicing"approach announced for residential property in the last budget and a new 5% rate was introduced for commercial properties over £5m. The new 3% additional SDLT charge on residential property will apply to companies as well as individuals buying second homes from 1 April 2016.
We have highlighted below some of the key points affecting practice areas across the firm. Please speak to your regular contact in the Tax department if you would like to discuss these points further or if you would like us to prepare any client focussed briefings.
- Royalties and withholding taxes - three changes are being made to the withholding tax treatment of royalties:
- The rules are being amended to ensure all IP royalties are subject to withholding tax in the UK
- Changes are being made to make it clear that if royalties are connected with a UK permanent establishment of a foreign company they will be subject to UK withholding tax
- Anti-avoidance rules are being implemented to ensure that royalties paid to conduit companies do not benefit from treaty reliefs.
- VAT legislation will be introduced to strengthen HMRC's enforcement powers against overseas traders selling goods in the UK via an online marketplace without registering and accounting for UK VAT on those sales. The measures are discretionary and will include allowing HMRC to require the appointment of a UK VAT representative with joint and several liability, seeking financial security or imposing joint and several liability on the online marketplace (wherever based, and not yet defined) for unpaid VAT where necessary remedial action isn't taken by them.
- HMRC are also consulting in a new online due diligence and record-keeping scheme for UK fulfilment houses from 2018 handling goods imported from outside the EU.
- Gaming duty bands are being increased in line with inflation on 1 April 2016.
- From 6 April 2016, investors in unlisted trading companies will benefit from a 10% capital gains tax rate on gains realised on the disposal of shares acquired since 17 March 2016. The investor must hold the shares for at least three years. Draft legislation is yet to be published, however it will be interesting to see what restrictions are placed on this generous measure. Interestingly this new relief will place many independent investors in a better position than employees or directors who need to have 5% of the ordinary share capital of the company to qualify for entrepreneurs relief.
- The loan to participators tax rate is set to increase from 25% to 32.5%. This new tax rate payable by a company which is controlled by five or fewer persons will apply to loans made to participators from 6 April 2016. This brings the tax rate in line with the dividend upper tax rate, to prevent individuals gaining an unfair tax advantage by taking loans from their companies rather than remuneration or dividends.
- A rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an EMI option will be treated in the same way for share identification purposes as other rights issues. In other words, it will be possible to claim Entrepreneurs' Relief in respect of rights issue shares acquired in relation to shares acquired through EMI options.
- The SDLT rates for commercial property are changing from 17 March 2016. The rates for freehold transactions/lease premiums are now set at 0% (£0 - £150,000), 2% (£150,001 - £250,000) and 5% (£250,001 +). A new 2% rate has also been introduced for leasehold transactions with a net present value of more than £5m. Freehold transactions of more than £1.05m and leasehold transactions with a net present value of more than £5m will pay more tax under the new rates.
- From 1 April 2016, the much anticipated higher rates of SDLT will be charged on individuals purchasing additional residential properties (i.e. second homes and buy to let properties). The Government has extended this charge also to apply to companies from their first residential property purchase. The higher rates will be 3% above the current SDLT residential property rates.
- As part of the government's commitment to the OECD's BEPs project, the Chancellor announced that he would be introducing a restriction on the tax deductibility of interest expense incurred by corporates. The new rules will apply from 1 April 2017, and will no doubt trigger a large amount of intra-group debt restructuring. The restriction will take the form of a Fixed Ratio Rule limiting corporation tax deductions for net interest expense to 30% of a group's UK earnings before interest, tax, depreciation and amortisation (EBITDA). There will also be a group ratio rule based on the net interest to EBITDA ratio for the worldwide group as recommended by the OECD to reflect the fact that some groups may have high external gearing for genuine commercial purposes. The restriction will only apply to UK group's with interest expenses of at least £2 million, and there will be an exemption for certain infrastructure projects as well as the bank and insurance sectors. The much maligned worldwide debt cap rules will be repealed.
- Legislation is being introduced in this year's finance bill to deal with anti-avoidance using hybrid financial instruments and hybrid entities. This is to deal with the conclusions from the related BEPS Action Point. There is in addition going to be a new anti-avoidance rule to prevent tax advantages arising through financing through permanent establishment structures such structures (eg Swiss branch finance entities) are common in multinational groups.
- Air Passenger Duty rates are being increased in line with RPI on 1 April 2016 and again on 1 April 2017. APD (due to be devolved to Scotland) may be reduced/abolished or replaced with a new tax following a consultation launched this month in Scotland.
- New legislation will be introduced to tighten up the rules on disguised remuneration involving employment related loans from third-parties.
- Employers can volunteer to tax non-cash vouchers and credit tokens provided to employees through the payroll rather than by amending the employee's tax code and reporting on P11D.
- From April 2018, termination payments over £30,000 which are subject to income tax will also be subject to employer NICs. The government will also undertake a technical consultation on tightening the scope of the exemption.
- Public sector bodies who engage workers through personal service companies will be responsible for determining whether the intermediaries legislation (aka IR35) applies and then collecting the relevant tax and NICs.
- George Osborne has finally acted on shares for rights. Rather than abolishing the relief (which would be too politically embarrassing) he has instead introduced a lifetime tax free limit of £100k on gains made on the sale of shares issued on or after midnight on 16th March 2016. Gains on shares issued pursuant to shares for rights arrangements entered into before then will not count towards the £100k limit (so will continue to be tax free on sale with no cap).
Energy & Utilities
- Carbon Reduction Commitment (CRC): The CRC energy efficiency scheme is to be abolished with effect from the end of the 2018-2019 compliance year. Businesses will be required to surrender allowances for the final time in October 2019. The Government has confirmed they will work with the Devolved Administrations on closure details for the reporting element of the scheme. Allowance prices for CRC compliance years 2016-17, 2017-18 and 2018-19 will increase in the line with RPI.
- Further consultation: There will be a further consultation in 2016 on a simplified energy and carbon reporting framework for introduction by April 2019.
- Climate Change Levy (CCL): The main rates of CCL will increase from 1 April 2019. The Government has announced that this increase is to cover the cost of abolishing the CRC. The CCL main rates from 1 April 2017 and 1 April 2018 will increase in line with RPI.
- CCL rates: The Government consider the difference in CCL rates between electricity and gas to be outdated at an electricity to gas ratio 2.9:1. This is to be adjusted to reflect the fuel mix used in electricity generation, adjusting the electricity to gas ratio to 2.5:1, with the Government intending to further rebalance the ratio to 1:1 by 2025 to deliver greater carbon savings. CCL rates for liquefied petroleum gas and other taxable fuels will also be increased in proportion to the rate for gas.
- CCL discount: There will be an increase in the CCL discount available to energy intensive businesses in the Climate Change Agreement (CCA) scheme, to compensate for the increase in CCL main rates. From 1 April 2019, the CCL discount for electricity will increase from 90% to 93%, and the discount for gas will increase from 65% to 78%. The Government have committed to retaining existing eligibility criteria for CCA schemes until at least 2023.
- Carbon price support (CPS) rates: The Government has announced that there will be no change to the CPS rates, which will be capped until 2019-2020 at £18/tCO2.
- Enhanced Capital Allowances: The list of designated energy-saving and water-efficient technologies which will qualify for enhanced capital allowances will be updated during Summer 2016 (subject to State aid approval).
- Venture Capital Schemes: From 6 April 2016, all remaining energy generation activities will be excluded from benefiting from the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts. This measure was announced at the Autumn Statement 2015 and follows on from a gradual exclusion of energy generation activities benefiting from these schemes.
- Fuel Duty: A new reduced rate of excise duty for aqua methanol will be introduced from 1 October 2016.
- Landfill Tax: There will be an increase to both the standard and lower rates of Landfill Tax in line with the RPI from April 2017 and again from April 2018. There will also be a consultation in 2016 on the definition of a taxable landfill disposal.
- Landfill Communities Fund: Following on from the Government announcing reforms to the Landfill Communities Fund at Autumn Statement 2015 (to include simplification of record-keeping requirements and changes to the scheme's objectives), ENTRUST will shortly publish guidance setting out the requirement for landfill operators to make a greater contribution to the fund from April 2016.