Summer Budget 2015 - PLC Coverage - Tax Practitioners' Expert View
The Fieldfisher Tax & Structuring Group once again contributed to PLC's Tax Practitioners' piece on Budget 2015. Here are our contributions:Hartley FosterOn the contentious tax front, a quiet budget.
The Fieldfisher Tax & Structuring Group once again contributed to PLC's Tax Practitioners' piece on Budget 2015. Here are our contributions:
On the contentious tax front, a quiet budget. Although whether the increase in the differential of rates between Corporation Tax and Diverted Profits Tax will act as a motivating factor for challenges to the latter remains to be seen.
The controversial "direct recovery of debts" measure, which enables HMRC to secure payment of tax debts directly from bank accounts, will be introduced and will have effect on and after the date of Royal Assent of Finance (No 2) Act 2015. Draft secondary legislation will be published alongside. HMRC estimate that the measure will be applied to around 11,000 cases per year, and that approximately 200 objections will be generated each year. Although some of the concerns that were raised during the consultation process have been addressed (such as by introducing a right to appeal to the County Court and seeking to protect "innocent" joint account holders, by ensuring that joint accounts always have a lower priority than other accounts), an undesirable consequence of the measure - that it has the potential to make HMRC a de facto preferential creditor - remains.
The nascent Nuttall Review share buy-back regime received a setback in the Summer Budget 2015, with the news that the dividend tax credit regime would be replaced from April 2016. Changes to the Companies Act 2006 (from 30 April 2013 and amended on 6 April 2015) deregulated share buy-backs, especially when pursuant to employees' share schemes, and permitted treasury shares in private companies. The idea was to open up an alternative form of internal market to support private company employee share plans, one that did not require an employee trust to warehouse shares. Although HM Revenue & Customs published helpful guidance in 2013, unfortunately no accompanying changes were made to tax law or published practice to ameliorate the usual income tax treatment of share buy-back proceeds. But at least purchases from basic rate tax paying employees benefited from the dividend tax credit, such that no income tax was payable. This Summer Budget 2015 change adds a 7.5% tax charge when buying back shares that are subject to income tax treatment, subject to the new tax-free dividend allowance of £5,000 a year. From April 2016 the Government will set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers (instead of 25% of the net dividend) and 38.1% for additional rate taxpayers (instead of 30.6% of the net dividend). In contrast, capital gains tax generally applies when an employee trust buys shares from employees, and income tax is not charged in some circumstances on the buy-back of employee shareholder shares. The Government will consult in Autumn 2015 on the rules for company distributions. There is therefore a timely opportunity to lobby for changes to remove this new tax cost, or perhaps secure a usually more favourable capital gains tax treatment instead?
"We have to move Britain from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare economy". Stirring stuff…although I had to re-check the "lower tax" bit once I'd read all of the announcements. Like all Osborne Budgets, it pays to let the dust settle. An apparent gift with one hand is often removed with the other. For businesses, the further reduction in corporation tax to 19% in 2017 and 18% in 2020 is appealing. Britain's headline rate is right down there with Switzerland, Hong Kong and Ireland. However, that tax will now have to be paid earlier and, for some UK-based businesses, the tax cut will be absorbed by the cost of implementing the living wage. Also to weigh against the CT cut, especially for entrepreneurs, is the dividend tax hike - so much for the gimmick of the new income tax lock! Grossing-up under the tax credit system will go and markedly higher tax rates of up to 38.1% will apply to the extent dividend income exceeds £5,000. It may encourage more to retire by selling their companies rather than holding for dividend income. There will be implications for buy-backs and other arrangements. There will be consultation on dividend tax reform in the autumn. Finally, try as I could, I couldn't spot the repeal of the DPT regime (although the decrease in the CT rate makes it more punitive still). So, "lower tax"? Well, yes and no.
Hartley Foster
On the contentious tax front, a quiet budget. Although whether the increase in the differential of rates between Corporation Tax and Diverted Profits Tax will act as a motivating factor for challenges to the latter remains to be seen.
The controversial "direct recovery of debts" measure, which enables HMRC to secure payment of tax debts directly from bank accounts, will be introduced and will have effect on and after the date of Royal Assent of Finance (No 2) Act 2015. Draft secondary legislation will be published alongside. HMRC estimate that the measure will be applied to around 11,000 cases per year, and that approximately 200 objections will be generated each year. Although some of the concerns that were raised during the consultation process have been addressed (such as by introducing a right to appeal to the County Court and seeking to protect "innocent" joint account holders, by ensuring that joint accounts always have a lower priority than other accounts), an undesirable consequence of the measure - that it has the potential to make HMRC a de facto preferential creditor - remains.
Graeme Nuttall, OBE
The nascent Nuttall Review share buy-back regime received a setback in the Summer Budget 2015, with the news that the dividend tax credit regime would be replaced from April 2016. Changes to the Companies Act 2006 (from 30 April 2013 and amended on 6 April 2015) deregulated share buy-backs, especially when pursuant to employees' share schemes, and permitted treasury shares in private companies. The idea was to open up an alternative form of internal market to support private company employee share plans, one that did not require an employee trust to warehouse shares. Although HM Revenue & Customs published helpful guidance in 2013, unfortunately no accompanying changes were made to tax law or published practice to ameliorate the usual income tax treatment of share buy-back proceeds. But at least purchases from basic rate tax paying employees benefited from the dividend tax credit, such that no income tax was payable. This Summer Budget 2015 change adds a 7.5% tax charge when buying back shares that are subject to income tax treatment, subject to the new tax-free dividend allowance of £5,000 a year. From April 2016 the Government will set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers (instead of 25% of the net dividend) and 38.1% for additional rate taxpayers (instead of 30.6% of the net dividend). In contrast, capital gains tax generally applies when an employee trust buys shares from employees, and income tax is not charged in some circumstances on the buy-back of employee shareholder shares. The Government will consult in Autumn 2015 on the rules for company distributions. There is therefore a timely opportunity to lobby for changes to remove this new tax cost, or perhaps secure a usually more favourable capital gains tax treatment instead?
Andrew Prowse
"We have to move Britain from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare economy". Stirring stuff…although I had to re-check the "lower tax" bit once I'd read all of the announcements. Like all Osborne Budgets, it pays to let the dust settle. An apparent gift with one hand is often removed with the other. For businesses, the further reduction in corporation tax to 19% in 2017 and 18% in 2020 is appealing. Britain's headline rate is right down there with Switzerland, Hong Kong and Ireland. However, that tax will now have to be paid earlier and, for some UK-based businesses, the tax cut will be absorbed by the cost of implementing the living wage. Also to weigh against the CT cut, especially for entrepreneurs, is the dividend tax hike - so much for the gimmick of the new income tax lock! Grossing-up under the tax credit system will go and markedly higher tax rates of up to 38.1% will apply to the extent dividend income exceeds £5,000. It may encourage more to retire by selling their companies rather than holding for dividend income. There will be implications for buy-backs and other arrangements. There will be consultation on dividend tax reform in the autumn. Finally, try as I could, I couldn't spot the repeal of the DPT regime (although the decrease in the CT rate makes it more punitive still). So, "lower tax"? Well, yes and no.