Spring Tax Update - Bournemouth

pkf-francisclark.co.uk

SpeakerSpring tax updateBournemouth March 2017


SpeakerChairman’s welcomeJames Robinson, Partner

pkf-francisclark.co.ukpkf-francisclark.co.uk

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Housekeeping

@pkfFrancisClark#FCSpringTax17 #Bournemouth

A copy of the slides will be sent to you by email shortly


Staff update – newly appointed Partners

Holly BedfordTax Partner

Lucinda ColemanBusiness Recovery Partner

Jason MitchellPartner


Staff update – East Region Newly appointed Directors, 1 April 2017

Frances Kingsnorth, Director, Salisbury

Lisa Macpherson, Tax Director & Head of Tax Technical, Poole

…and Hot off the Press!


• Budget day changing to autumn from 2017

• This update will be in March again next year

We have better information to share

Access to consultations and draft legislation

Spring tax update


Programme for today


Budget overview Julian Smith, Tax Partner

Making tax digital Julian Smith, Tax Partner

Business tax update Lisa Whitbread, Manager

Personal tax update Victoria Christopher, Assistant Manager

Financial planning update Peter Nyland, Chartered Financial Planner


SpeakerBudget overviewJulian Smith, Tax Partner


Measured & boring

Hammond’s speech


Overview


• Worries over the economy – Brexit

• Digitisation and automation Making tax digital (MTD)

• Changing employment patterns Attacks on self employment

Concern over incorporations

• Pressure on property owners – business rates

• Crackdown on evasion and ‘bad’ avoidance

Spring tax update - themes


SpeakerMaking tax digitalJulian Smith, Tax Partner


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Making tax digital New HMRC initiative revolutionising the way businesses file online

• Landlords and unincorporated businesses with turnover over the VAT registration limit start to file from 5 April 2018

• VAT will be filed via MTD from 5 April 2019, and businesses with turnover below the VAT registration limit will start to file quarterly


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Making tax digital New HMRC initiative revolutionising the way businesses file online

• Corporates and large (> £10m) partnerships 5 April 2020

• Run-off of existing returns, plus any other income where HMRC doesn’t receive details through third parties

• First years will have multiple deadlines to meet


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Making tax digital

• Deadline for submitting quarterly returns one month after the quarter end

• Deadline for submitting final adjustments for year will be the sooner of ten months after the year end, or 31 January following the year of assessment (the existing tax return deadline)

• Applies to the first accounting period that begins after 5 April 2018, so 5 April year ends’ first quarterly reporting date is 5 July 2018, and first MTD deadline on 5 August 2018


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Making tax digital

Government has given some assurances regarding small businesses, and the digitally excluded:

• Businesses can use spreadsheets for record keeping, but must file via MTD-compliant software

• Businesses eligible for three line accounts can submit quarterly updates with only three lines of data (income, expenses and profit)

• Free software will be available to businesses with “the most straightforward affairs” – in practice, this will mean those under the VAT registration limit and with no employees


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Making tax digital • No need to scan in invoices

• Where more than one property is owned, only one update for the entire property business required – originally appeared to be per property

• Accounting adjustments not needed at quarterly updates – can be made in final adjustment for year


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Making tax digital • Declaration of partnership splits now optional for quarterly updates –

must be notified in year end adjustment

• Partnerships must return all income and gains i.e. investment income as well as trading income

• Will not include CIS returns for the time being – current quarterly return system will continue


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Making tax digital

• Government has yet to decide on de minimis limit below which MTD will not apply

• Will clarify later in 2017

• £10,000 is too low (below the personal allowance) but unlikely that a limit as high as the VAT registration threshold will be considered acceptable


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Cloud accounting?

• Multi-user & multi-location

• Immense server processing power

• Machine learning

• Application programming interface (API)


Why?

• Can help with making tax digital

• Automated bank feeds

• Invoice recognition

• Make business decisions based on real time data

• Dashboards

• Management accounts


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Who to contact?

Jessica Tubbs MAATHead of CloudSourcing East [email protected]


SpeakerBusiness tax updateLisa Whitbread, Manager


Research and development

• SMEs – tax relief on allowable R&D is 230%

• £4,600 tax saved for £10,000 of spend

• If loss making, a repayable tax credit of 14.5% is available. A tax refund of up to £3,335 for a £10,000 spend.

• Large companies now must use ‘research and development expenditure credit’ scheme – RDEC


• UK likely to remain in support of the OECD’s base erosion and profit shifting (BEPS) project

• Potentially no immediate corporation tax consequences – but non-discrimination against EU entities no longer required?

• EU parent-subsidiary directive, EU interest and royalties directive, EU merger directive

may be the case that full relief for all withholding taxes, whether on dividends, interest and royalties is not available in some cases

Brexit


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Corporation tax – interest deduction• New rules will restrict each group’s net deductions for

interest to

30% of EBITDA taxable in the UK or, if higher

An amount based on the net-interest to EBITDA ratio for the worldwide group

If the group’s net interest deduction is below £2m then a full deduction will be given regardless of the fixed ratio or group ratio limits


Corporation tax – interest deductibility

Foreign Holdco

UK Tradeco

100%Lent £50m – interest at 10%

Equity funding - £50m

• The groups interest charge is £5m

• Group EBITDA £8m therefore allowable interest deduction is capped to £2.4m

• Disallowance of £2.6m which is carried forward and available for potential relief in future periods


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Corporation tax - losses

• New rules will increase flexibility for relieving corporate tax losses

• From 1 April 2017 losses can be carried forward and offset against other income streams

• Losses can also be carried forward and group relieved

• Companies with profits > £5m – only 50% of profits in excess of £5m can be relieved by losses brought forward


Substantial shareholdings exemption

• SSE can apply to exempt gains on companies selling shares (holding >10%)

• Changes to SSE following consultation:

Removing investing company trading condition

Making it easier to sell shareholdings in multiple tranches

Removing post disposal investee trading condition

Broader exemption for companies owned by qualifying institutional investors


Liquidations and entrepreneurs’ relief

• 10% tax rate possible on liquidating trading company

• Now have targeted anti-avoidance rules to catch: Money boxing Phoenixism

• Are you carrying out a similar trade or activity within two years?

• Those caught treated as receiving a dividend


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Transactions in land• Tightening of rules aimed at taxing gains on

development of land as trading income, not capital

• Previous rule – ‘sole or main object’ was to realise a gain on disposal of land

• New rule – ‘main or one of main purposes’ is to realise a gain

• Applies where other property (e.g. shares) derives 50+% of its value from land


• IR35 aims to stop incorporation as way of achieving PAYE/NIC advantage over directly employed individual

• From April 2017 – changes for those engaged by public sector bodies apply when:

Worker personally performs services for end client

End client is public authority

If the contract had been directly with the end client the worker would have been regarded as an employee

• Workers engaged in public sector via their own ‘personal service company’ will have their employment status reviewed by public sector end client

IR35 public sector bodies


• Government also considering incorporations – will there eventually be a ‘look through’ to tax undistributed profits of close companies at rates effectively equivalent to income tax rates?

IR35 private sector


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• Increase in business rates from April 2017 - revaluation of the rating list

• Wider review of business rates likely – is the tax fit for purpose?

Business rates


• £435m for firms affected by increases in business rates

• £300m hardship fund for small businesses worst affected will be allocated to local authorities for discretionary use in ‘hard

cases’

• Pubs with rateable value of less than £100,000 to get a £1,000 a year discount on rates they pay

• Any business losing existing small business rates relief will not pay more than £50 a month extra

Business rates announcements


Personal tax updateVictoria Christopher, Assistant Manager


• Abolition of Class 2 NIC from April 2018

• Class 4 NIC will rise by 1% (to 10%) from 6 April 2018 • Further 1% increase (to 11%) on 6 April 2019

National insurance for the self-employed


• The Chancellor’s response to the ‘small company’ problem

• From 6 April 2018, this will reduce from £5,000 a year to £2,000 a year

• This will largely impact company directors/shareholders and investors with portfolios worth over £50,000

Reduction in the dividend allowance


Residential property

• Various ownership structures

• New tax rules where residential property owned personally

• Increase in SDLT


Wear and tear allowance

• 10% allowance scrapped from April 2016

• Replacement furniture relief

• Initial furnishings

• FHLs retain capital allowances


Financing costs – residential

• 100% financing cost deduction being phased out over a number of years

• Replaced with a 20 % tax reducer

• Basic rate taxpayers, child benefit and personal allowance impact

Tax Year Finance cost relief2017/18 75% of finance costs deductible against rental income, 25% tax

reducer

2018/19 50% of finance costs deductible against rental income, 50% tax reducer

2019/20 25% of finance costs deductible against rental income, 75% tax reducer


Financing costs – an example

2016/17 2020/21Rental income £50,000 £50,000General expenses -£10,000 -£10,000Allowable interest -£20,000 -Rental profit £20,000 £40,000

Tax at 40% £8,000 £16,000Tax reducer at 20% - -£4,000

Tax payable on rental income

£8,000 £12,000


Residence nil rate band

• When a residence is passed on death to a direct descendant:

• Property must have been occupied by the deceased as their main residence at some point during the period of ownership

Tax year Rate of RNRB2017/18 £100,0002018/19 £125,0002019/20 £150,0002020/21 £175,000


• Downsizing provisions

• Unused band is transferable between spouses – potential for £1 million IHT free

• Tapered withdrawal of the nil rate band for estates with a net value of more than £2 million

• Planning opportunities?

Residence nil rate band


• Full finance cost relief

• Corporation tax rate 19% from 1 April, reducing to 17%

• Tax costs of setup – capital gains tax and stamp duty land tax

• Reliefs may be available to mitigate tax costs

• Profit extraction

• Director’s loan account

Incorporation of rental business


• 3% surcharge for additional residential property purchase

• Applies to any acquisition of residential property by a company

• Commercial and mixed use properties are unaffected

• Available reliefs?

Stamp duty land tax


SDLT - residential rates

Main residence

Second home

or buy to let

Up to £40,000 Zero Zero* Up to £125,000 Zero 3% The next £125,000 (the portion from £125,001 to £250,000) 2% 5% The next £675,000 (the portion from £250,001 to £925,000) 5% 8% The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%

The remaining amount (the portion above £1.5 million) 12% 15%


SpeakerFinancial planning updatePeter Nyland, Director, Chartered Financial Planner


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ISA update

There are now six types of ISA!• Cash

• Stocks and shares

• Lifetime from 6 April 2017 (new)

• Help to buy (being withdrawn 30/11/2019)

• Junior

• Innovative finance


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ISA limits from 6 April 2017Reduction to tax free dividend allowance from April 2018 – increases benefit of ISA

• Cash and stocks & shares - £20,000 (2016/17 £15,240)

• Lifetime - £4,000 plus Government bonus 25%

• Help to buy - £1,200 in first month + £200pm thereafter plus Government bonus of 25%

• Junior - £4,128 (2016/17 £4,080)

• Innovative finance - £20,000 (2016/17 £15,240)


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Focus on lifetime ISA

Alternative to pension?

• Dual purpose – save for first home and/or retirement

• 25% Government top up

• Open to 18-40 year olds (can continue to age 50)

• Access before age 60 results in loss of Government top up and investment growth unless

Using funds to buy first property up to £450,000

Terminal illness


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Focus on junior ISAWealth transfer idea?

• Available from 0 to age 18 (becomes adult ISA at 18)

• Parents, grandparents, friends etc can contribute

• Using a calculator from Fidelity we can see that saving £340 per month from birth to age 18 could produce a fund of £101,322 assuming 5% annual growth

• An excellent way of transferring wealth down through the generations with no tax consequences

• Could fund university fees or a property deposit


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Pension update

Key changes/considerations

Budget confirmed reduction of annual allowance to £4,000 from 6 April 2017 if money purchase annual allowance triggered

What triggers it?

• Uncrystallised pension fund lump sum (UFPLS)

• Flexible access drawdown (income taken), but not if just tax free lump sum

• Exceeding the income cap in capped drawdown


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Pension update

• From 6 April 2016 tapered annual allowance applies if ‘adjusted income’ exceeds £150,000

• Lifetime allowance reduced to £1m

• Individual protection 2014 deadline is 5 April 2017 for those who had pension funds valued at more than £1.25m at 5 April 2014

• Pension scams – consultation closed in February, feedback due later this spring

• Aiming to tackle cold calling

• Giving powers to schemes to refuse pension transfers


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Pension carry forward

• Carry forward still available from previous three tax years

• Useful for those caught by tapered annual allowance

• Be aware that 2013/14 carry forward (£50,000) drops away on 6 April 2017

• Can only carry forward if you had a registered pension plan in place for the tax years used in carry forward

• No pension plan but may want to save in future? Start one now to ensure full scope of carry forward is open to you when you need it


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Non earners’ pension contributions• Can contribute up to £3,600 per annum gross

• Net cost £2,880 per annum

• Tax relief each year of £720

• Can contribute for children

• Pension funds generally free of inheritance tax

• In a low interest rate environment, 25% instant uplift in value is significant

• Wealth transfer opportunity, grandparents contributing for grandchildren?


Pension allowances restricted?• Venture capital trusts• High risk but with significant tax advantages• HMRC approved• £200,000 annual investment limit• 30% up front tax rebate• Tax free growth and dividends• Must be held for five years to retain tax benefits

Alternative tax efficient investing


No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro

Disclaimer & copyright

fcpp.co.uk


SpeakerChairman’s closing remarksJames Robinson, Partner


(c) copyright PKF Francis Clark, 2017

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