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National Insurance; capital gains tax; social investment tax relief; creative industries; avoidance; Charity Commission
The chancellor of the Exchequer delivered his autumn statement on 5 December. Detail of many measures will not be known until tomorrow (10 December), when the draft Finance Bill 2014 is published.
National Insurance
A new class of voluntary National Insurance (NI) contribution (class 3A) will be introduced in October 2015 to enable those who reach state pension age before 6 April 2016 to boost their additional state pension. Employers will no longer be required to pay class 1 secondary NI on earnings paid up to the upper earnings limit to any employee under the age of 21.
Association of Tax Technicians president Yvette Nunn, said, “This is good news for out of work young people and businesses that want to hire them. The problem has been that high employer National Insurance costs have progressively diminished their enthusiasm for doing so.”
Capital gains tax
The final period exemption for only or main residence relief is to be reduced from three years to 18 months on 6 April 2014. Daniel Crowther, partner in the private client advisory practice at KPMG, claimed the surprise measure will reduce “the incentive to... buy a property, use it as a principal private residence and continue to benefit from the capital gains tax (CGT) exemption for the next three years”.
The annual CGT exemption will be £11,000 for 2014/15, and £11,100 for 2015/16 and subsequent years. The exemption for most trustees will be £5,500 and £5,550 respectively.
Social investment tax relief
A new tax relief for investment in social enterprise will begin in April 2014. Graham Batty, chairman of the Chartered Institute of Taxation’s charity taxes working group, welcomed the measure, saying, “The inclusion of debt investments is particularly welcome as many social enterprises do not have a share capital and so would otherwise not be able to use the scheme to attract funding.
“However, as the detail of the relief has yet to be announced, we are cautious as to whether in reality this will be attractive to and workable for social enterprises and potential investors.”
Creative industries
Subject to state aid approval, the rate of film tax credit for surrenderable losses from April 2014 will be 25% on the first £20m of qualifying core expenditure, subject to a maximum of 80% of qualifying core expenditure, and 20% thereafter, to a maximum of 80% qualifying core expenditure. The minimum UK expenditure qualification will also change from 25% to 10%.
Chris Morgan, head of tax policy at KPMG, said, “The measures include an ambition to make the film industry tax reliefs more generous with a number of steps proposed, including modernising the cultural test. In addition, the chancellor wants to ensure that there is additional support for wider film production and, specifically, visual effects following a Treasury consultation on this earlier in 2013.”
The Treasury has also announced that a consultation will take place in spring 2014 on the introduction of a limited corporation tax relief for commercial theatre productions and a targeted relief for theatres investing in new writings or touring productions to regional theatres.
Avoidance
The government had announced five measures to tackle tax avoidance, to come into effect from 5 December:
- The first comprises revamps to the debt cap provisions. Changes to the grouping rules will ensure a UK tax-resident company that does not have ordinary share capital – a company limited by guarantee, for example – can be a relevant group company subject to the worldwide debt cap. A modification of the definition of a 75% subsidiary will guarantee that indirect ownership of a company can be traced through intermediate entities without ordinary share capital. It will also puts beyond doubt that the ultimate parent of a worldwide group may be regarded as beneficially entitled to 75% of the profits or assets of a UK group company for the purposes of the debt cap grouping rules, regardless of whether any intermediate entities in the ownership chain do not have ordinary share capital.A second change amends the regulation-making powers to allow the regulations to include conditions to be met by companies making an election to transfer worldwide debt cap liabilities to another group company.
- A new measure switches off the partial exemption rules for loan relationship credits of a controlled foreign company that arise from an arrangement with a main purpose of transferring profits from existing intra group lending out of the UK. It also amends the anti-avoidance rule relating to the transfer of external debt to the UK to ensure that the rule works as intended.
- A third measure concerns partnerships with mixed membership. A first element will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner in circumstances where an individual member may benefit from those profits. A second element will affect cases where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs. The changes will take effect from April 2014, with the exception of rules concerning tax-motivated profit allocations which comes into force from 5 December 2013.
- The fourth measure relates to avoidance schemes using total return swaps. It blocks schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits. It will apply from 5 December 2013.
- The final measure makes two changes to the double taxation relief rules to prevent avoidance and have effect from 5 December 2013. It will have effect on non-trading credits for accounting periods beginning on or after 5 December, with transitional provisions where accounting periods straddle this date.
Legislation will be introduced in Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the organisation is tax avoidance.
A new information disclosure and penalty regime for high-risk promoters of avoidance schemes will be introduced. Objective criteria for identifying high risk promoters and a higher standard of reasonable excuse and reasonable care that will then apply to them will also be introduced. Clients of these promoters will also have certain obligations including identifying themselves to the tax authority.
Users of avoidance schemes that has been found by the courts not to work, are to be obliged to concede their position to reflect the decision. When there has been a relevant decision, HMRC will issue a notice to all users of the scheme requiring them to amend their return or explain why they believe they should not.
A tax-geared penalty would be charged if they failed to amend their return and it was found that the scheme they used failed on the same point of law. In addition, legislation will be included in Finance Bill 2014 to require payment of the tax in dispute in a tax avoidance enquiry when an “avoidance follower penalty notice” is issued. This will take effect from royal assent.
Charity Commission
A new IT system is being developed by the taxman to will allow organisations wanting to register with the Charity Commission for England & Wales and seeking charity tax status to submit their applications through a single online portal. The system is planned to be introduced in 2015/16 and will later be extended to enable charities in Scotland and Northern Ireland to register with their charity regulators at the same time as they apply to the Revenue.
