Introduction

Chancellor Osborne announced the final Budget of the current Government on Wednesday 18 March last, the sixth Budget since his appointment as Chancellor in 2010. That Budget and the subsequent Finance Act were no different to those that have gone before and contained the now familiar mix of re-announcements, pre-announcements and (some) new announcements that have become so familiar since 2010. So who fared best last month? We’ll give you a big clue: there was something for nearly everybody in the audience. After all, there is a general election in just a few weeks.

Finance Act 2015

Finance (No.2) Bill 2014–15 was published just six days after the Budget. A mere two days later that Bill passed through all the relevant parliamentary stages and received Royal Assent to become the Finance Act 2015 (FA 2015). The promised exemption on trivial BIKs announced at Budget 2015 which was due to come into operation on 6 April 2015 got left behind.

With Parliament now dissolved one can expect the normal “purdah” between now and the General Election in early May. And one might also expect a second Finance Bill later this year once the new Government is formed. Therefore the tax announcements made at Budget 2015, and previously, which are due to be enacted in a future Finance Bill should be read with that context in mind.

Northern Ireland Corporation Tax Devolution

Just the day before Budget Day, the Corporation Tax (Northern Ireland) Bill passed all the relevant stages in the House of Lords. Royal Assent was granted last month. That’s not the end of the matter. The Act is subject to a Commencement Order. And the Chancellor made clear on Budget Day the continued importance that the Stormont House Agreement plays in the devolution of corporation tax to the NI Assembly.

This Institute also understands that progress is expected soon in relation to the Enterprise Zone announced for Northern Ireland at Budget 2014. The local council tells us that they are progressing with the purchase of land at the University of Ulster site. This process was due to be completed before 31 March. Once the land is in the ownership of council it is expected that development of the enterprise zone will progress quickly as part of the newly merged council’s new economic development strategy.

Income Tax changes focus once again on savers

After the changes announced in Budget 2014 for savers a further announcement favouring savers was made at this Budget. A new Personal Savings Allowance is intended to be introduced in a future Finance Bill effective from 6 April 2016.

This new allowance will apply for up to £1,000 of a basic rate taxpayer’s savings income and up to £500 of a higher rate taxpayer’s savings income each year. It will not be available for additional rate taxpayers.

Increased personal allowances were announced for 2016–17 (£10,800) and 2017–18 (£11,000). The higher personal allowance for those born before 6 April 1938 will be removed with effect from 2016–17, so that everyone regardless of their age is entitled to the same personal allowance.

The basic rate limit for 2016–17 (£31,900) and 2017–18 (£32,300) will increase by indexation so that most higher rate taxpayers will get the full benefit of the increases. Taken together, these changes will increase the higher rate threshold above which individuals pay income tax at 40% to £42,700 for 2016–17 and £43,300 for 2017–18. However, these changes were not enacted in FA 2015.

The period over which self-employed farmers can average their profits for income tax purposes is to be extended from 2 years to 5 though this will be subject to consultation later in 2015. This measure is planned to come into effect from 6 April 2016 and be legislated for in a future Finance Bill.

Corporation tax gets even more creative

Once again, changes to the creative sector reliefs which have been so prevalent in previous Budgets and Autumn Statements featured in the Budget and subsequently in FA 2015. And the main rate of corporation tax has now been set at 20% for financial year 2016.

High end TV

FA 2015 reduces the minimum UK spend requirement from 25% to 10% for high end television relief. Changes will also be made to the cultural test to bring this in line with similar changes made to the film cultural test.

Children’s TV

As announced at Autumn Statement 2014, FA 2015 provides for a new tax relief for the producers of children’s television programmes. These provisions now include children’s game shows and competitions.

Film relief

An increase to the rate of payable tax credit to 25% for all films was also introduced.

All these changes are intended to take effect from 1 April 2015 or date of approval by the European Commission, if later.

Some other changes to note in the area of corporation tax are as follows:-

Corporation tax loss refresh prevention.

As announced at Budget 2015 FA 2015 contains legislation designed to protect against “contrived” arrangements to increase access to carried-forward corporation tax reliefs. The change affects arrangements that create profits to use the carried-forward relief whilst also creating newer and more versatile relief (‘refreshing’ the loss). The new rules are not intended to affect normal tax planning around mainly commercial transactions and apply from 18 March 2015.

Bank loss relief restriction.

FA 2015 also contained legislation restricting the proportion of banks’ annual taxable profit that can be offset by carried-forward losses to 50%. Following the technical consultation this now includes an allowance of £25 million for groups headed by a Building Society. This allowance will reduce the carried forward reliefs that are subject to the restriction.

Research and development tax credits – qualifying expenditure.

As announced at Autumn Statement 2014, FA 2015 now restricts expenditure in respect of consumable items that qualify for R&D tax credits where a company sells the products of its R&D activity as part of its normal business. The revised definition of qualifying consumable items makes it clear that the cost of materials incorporated in such products, that are then sold, will not be eligible for the relief.

Following consultation the legislation clarifies that the restriction will not apply where the product of the R&D is transferred as waste, or where it is transferred but no consideration is received.

Pensions landscape continues to shift

Ahead of major changes effective from 6 April 2015, there were two notable proposals in this area.

Lifetime allowance reduction

Legislation will be introduced in a future Finance Bill to further reduce the pensions Lifetime Allowance to £1 million, with effect from 6 April 2016. Transitional protection will be introduced alongside the reduction in the Lifetime Allowance to ensure the change is not retrospective and protect savers who think they may be affected.

Annuity rule changes

The tax rules relating to annuities will be amended in a future Finance Bill, intended to take effect from April 2016, to allow people who are already receiving income from an annuity to sell that income to a third party as and when they choose. A consultation was published last month on how best to remove the barriers to the creation of a secondary market in annuities. This should allow those who have already bought an annuity to be able to enjoy the same flexibilities as those retiring from April 2015.

Capital Gains Tax measures focus on avoidance

A number of announcement of changes to the capital gains tax (CGT) regime were made with a clear focus on cutting back on some reliefs, in particular entrepreneur’s relief (ER).

ER and associated disposals

FA 2015 contains legislation to prevent claims to ER in respect of gains on disposals of privately held assets used in a business unless they are associated with a significant material disposal, that is to say a disposal of at least a 5% shareholding in the company or of at least a 5% share in the assets of the partnership carrying on the business.

Joint ventures and partnerships

Legislation was also introduced to prevent claims to ER in respect of gains on shares in certain companies which invest in joint venture companies, or which are members of partnerships. The new rule denies relief where the investing company has no trade (or no relevant trade) of its own.

Both these changes have effect for disposals on or after 18 March 2015.

Wasting assets exemption

In addition, the CGT exemption for certain wasting assets is now only available where qualifying assets have been used in the seller’s own business. This is effective from 1 April 2015 for corporation tax and 6 April 2015 for CGT.

Goodwill and incorporations

Autumn Statement 2014 announced that ER is no longer be available in respect of gains on business goodwill, where the goodwill has been disposed of to a limited company related to the claimant. Following consultation, the legislation has been revised to allow entrepreneurs’ relief to be claimed by partners in a firm who do not hold or acquire any stake in the successor company. These changes affect transfers on or after 3 December 2014.

Capital allowances AIA limit fall to be reconsidered?

The current temporary Annual Investment Allowance (AIA) limit of £500,000 is due to end on 31 December 2015. It was expected that after that date it would revert back to £25,000. However, the Budget speech did refer to future help for business through the annual investment allowance.

The Chancellor announced in his speech that “a better time to address this is in the Autumn Statement. However, I am clear from my conversations with business groups that a reduction to £25,000 would not be remotely acceptable – and so it will be set at a much more generous rate.” It’s not clear what that “generous rate” is likely to be or if it will materialise at all in any new Government.

Energy saving and water efficient technologies

The criteria for tax relief under these schemes will undergo its annual update this time to adopt the waste heat to electricity sub-technology, and to remove the packaged chillers sub-technology. The qualifying criteria for some sub-technologies in both schemes will be amended. These changes will come into effect by Treasury Order in summer 2015, subject to State Aid approval.

Indirect taxes changes

There were the usual changes to the VAT thresholds which took effect from 1 April. The VAT registration threshold increases from £81,000 to £82,000 and deregistration threshold from £79,000 to £80,000.

Foreign branches

Regulations will also be introduced so that supplies made by foreign branches will no longer be taken into account when working out how much VAT incurred on overhead costs can be deducted in the UK. This will affect partly exempt businesses, and they will have to implement the change from the beginning of their next partial exemption tax year falling on or after 1 August 2015.

Administration is never boring

A surprise announcement was made that there are plans to “abolish the annual tax return altogether”. Further information on what this proposal is can be found in the small print amongst the hundreds of pages of supporting Budget day publications and one particular publication called “Making Tax Easier” though this Institute understands that the infrastructure to make this happen is not yet in place.

Anti-avoidance/evasion appears again

A number of announcements and proposals in this area were made on Budget Day with details remaining scant in many areas. Generally, it should be noted that most of the proposals concerning evasion and avoidance are subject to consultations scheduled to take place after the General Election. Much could therefore change from what was announced last month.

Readers will be kept abreast as details emerge though the proposal to shorten the disclosure period of the Liechtenstein Disclosure Facility, from April 2016 to December 2015 should be noted.

One other area to be aware of is the implementation of the UK’s automatic exchange of information agreement. As announced at Budget 2015, a statutory instrument was enacted in March 2015 to implement this.

Miscellaneous announcements of miscellaneous interest

From the Diverted Profits Tax to the taxation of oil and gas there were a diversity of announcements covering miscellaneous areas of interest. Some of these are outlined below.

Diverted Profits Tax (DPT)

As announced at Autumn Statement 2014, a new tax on diverted profits takes effect from 1 April 2015. Following consultation, the legislation has been revised to narrow the notification requirement. There have also been changes to clarify rules for giving credit for tax paid, the operation of the conditions under which a charge can arise, specific exclusions and the application of DPT to companies subject to the oil and gas regime.

Bank levy rate increase

The rate of the bank levy increased to 0.21 % from 1 April 2015. A proportionate increase to 0.105% was also made to the half rate, also with effect from 1 April 2015.

Qualifying expenses payments – exemptions

FA 2015 also exempts from tax certain expenses payments and benefits in kind provided to employees. The legislation applies where employees would have been eligible for tax relief if they had incurred and met the cost of the expenses or benefits themselves. This exemption replaces the rules that require employers to either apply to HMRC for an agreement known as a ‘dispensation’ so that they can provide expenses and benefits free of tax and National Insurance contributions, or to report such expenses and benefits to HMRC.

However, the exemption does not apply where expenses are paid as part of a salary sacrifice arrangement. Following consultation, the legislation was revised ensure that the exemption cannot be used in conjunction with other arrangements that seek to replace salary with expenses. These changes take effect from 6 April 2016.

Inheritance tax exemption for emergency service personnel

As previously announced, FA 2015 includes legislation to extend the existing inheritance tax exemption for members of the armed services whose death is caused or hastened by injury on active service to members of the emergency services and humanitarian aid workers. This new measure is effective for all deaths on or after 19 March 2014.

Budget/Finance Act 2015 useful links

The Budget announcements and publications can be found on GOV.UK on the main Budget 2015 webpage. One page also links to all the HMRC Budget 2015 tax-related documents and announcements. As usual, the main Budget documents are the Red Book, and the Overview of Tax Legislation and Rates, (OOTLAR). OOTLAR contains detailed tax information including Tax Information and Impact Notes on all the Budget and Finance Act 2015 measures, and has informed much of our coverage of this year’s Budget and Finance Act. FA 2015 is available at http://www.legislation.gov.uk/ukpga/2015/11/contents/enacted.

Readers are also reminded that many new measures announced during the 2014 Autumn Statement and at previous budgets are also effective from 6 April 2015. One major example is the new capital gains tax charge on the disposal of UK residential property interests by non-residents. The OOTLAR is a useful summary of all measures effective 6 April 2015 (and et seq.) whether as a result of this or previous Budget/Autumn statement announcements.

As always, the devil is often in the detail – time and care should be taken to read the detailed legislation. And with a new Government due to be elected it’s unclear what future changes lie ahead.

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Email: leontia.doran@charteredaccountants.ie
Website: www.charteredaccountants.ie