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The Chancellor of the Exchequer has delivered his 2015 Autumn Statement and, overall, it was a case of expected policies that were not announced.
Seemingly, the Treasury has benefited from a windfall of £27bn from the combined effects of higher than anticipated tax receipts and lower debt interest. However, it is worth bearing in mind that this is a change to a forecast made only a few months ago.
The predicted crackdown on personal service companies, the scrapping of Entrepreneurs Relief and the cutback in the police service failed to materialise. Moreover, the much-criticized changes to the tax credit system have largely been dropped.
Contractors working through their own Limited Company have particular reason to celebrate. Due to a well-orchestrated campaign, not only has the draconian idea of forcing them onto the client payroll after a month been shelved but also the restriction on tax relief for travel and subsistence expenses has been watered-down only to relate to those Personal Service Companies where IR35 rules apply.
However, it would be foolhardy to believe that this has gone away for good. The consultation period on the initial discussion document on IR35 reform announced at the Summer Budget ended in September and the official HMRC line is that they are still considering the responses to this.
The overall objective to find a solution that protects the Exchequer and improves fairness remains and we fully expect a policy proposal to be published within the next few months. This does mean that any resulting change is unlikely to come into effect before April 2017 at the earliest.
Key sections of the Autumn Statement addressed the housing market. A new Help to Buy equity loan scheme for London will come into effect from early 2016 offering buyers loans for 40% of the purchase price as opposed to the current 20%.
From April 2016, Help to Buy Shared Ownership will be available to anyone who has a household income of less than £80,000 outside London or £90,000 inside London. Under the scheme, between 25% and 75% of a home can be purchased with the remainder rented with the guarantee that the annual rent will be no more than 3% of the amount left.
For example, 50% of a £250,000 property is purchased under the scheme. The annual rent for the remainder can be no more than £3,750 equating to £312.50 a month.
Again from April 2016, a higher rate of Stamp Duty Land Tax will be charged on the purchase of additional residential properties for more than £40,000. The higher rate will be 3% above the current Stamp Duty Land Tax rates and will apply to buy-to-let properties and second homes.
On many levels, this seems a sensible proposal especially for parts of the country like the West of England where much of the local population are unable to afford to buy houses due to the desirability of second homes.
For a £350,000.00 property, the Stamp Duty for a buy-to-let or second home buyer will be £16,800.00 compared to £7,500.00 for those buying their own home.
However, there has been no consideration made for those commercial buyers looking to renovate and refurbish properties thereby helping to ease the housing shortage. Worse still, announcing that this change comes into effect from next April will surely only serve to drive house prices up further.
There was some good news for small businesses with the Small Business Rate Relief scheme extended for another year. In addition, the uniform business rates regime will be scrapped to empower local councils to cut rates to make their town centres “more attractive to businesses”.
From 2020, local councils will keep money collected from business rates to spend on local services like street repairs, libraries and transport.
The investments in housing, infrastructure and science and technology together with the extension of the number and size of Enterprise Zones all represent a significant boost to the economy.
The concern remains as to whether the seeming end to the age of austerity is based on a grand illusion.
If you would like to discuss how the Autumn Statement will affect you, please email us at welcome@cooperfaure.co.uk.
The Chancellor of the Exchequer delivered his 2015 Spending Review and Autumn Statement today and, from a tax perspective, it more a case of what was not announced.
There was no announcement either on the predicted crackdown on personal service companies or on the restrictions to Entrepreneurs Relief.
Seemingly, the Treasury has benefited from a windfall of £27bn from the combined effects of higher than anticipated tax receipts and lower debt interest.
As a result, there were very few tax measures announced in the Autumn Statement. The main ones being:
Tax credits
The taper rate where a recipient’s award is reduced when their income exceeds the income threshold will remain at 41% of gross income from April 2016. Similarly, the income threshold will remain unchanged.
Tax Free Childcare
The upper income limit to qualify for Tax Free Childcare will reduce from £150,000 to £100,000 per parent.
Stamp Duty Land Tax (SDLT) on Additional Properties
From April 2016, a higher rate of SDLT will be charged on the purchase of additional residential properties for more than £40,000. The higher rate will be 3% above the current SDLT rates and will apply to buy-to-let properties and second homes.
However, this will not apply to caravans, mobile homes or houseboats and the government will examine whether there should be an exemption for corporate investors.
The government will also consult in 2016 on changes to the SDLT filing and payment process to reduce the window from 30 days to 14 days.
Capital Gains Tax
From April 2019, a payment on account of any Capital Gains Tax due on the disposal of residential property will be required to be made within 30 days of the completion of the disposal.
This will not impact a main dwelling where Private Residence Relief applies and, therefore, there is no tax due.
The government intends to publish draft legislation for consultation on this in 2016.
Tax in the Digital Age
The government is going to invest £1.3 billion aimed to transform HM Revenue and Customs into a world leader in digitally advanced tax administration.
As a result, most businesses, sole traders and landlords will be obliged to keep track of their tax affairs digitally and update HMRC on at least a quarterly basis.
As part of this process, there are undertakings to provide free apps and software that link securely to HMRC systems and to provide support to those who need help using digital technology.
This requirement will not apply to those in PAYE employment or pensioners, unless they have secondary incomes of more than £10,000 per year.
The intention is for the government to issue their plans shortly as a precursor to a full consultation in 2016.
Our detailed review of the Autumn Statement will be published tomorrow. In the meantime, if you would like to discuss how the Autumn Statement will affect you, please email us at welcome@cooperfaure.co.uk.
A question that we are regularly being asked is ‘given the changes to the taxation of Dividends from the next tax year would it more tax efficient to declare additional Dividends and pay the resulting tax this year?’
There are a couple of considerations that need to be borne in mind:
However, for someone whose income for the current year is at or around the Higher Rate tax band of £42,385, additional Dividends would be taxed at an effective rate of 25.0% this year compared to 32.5% in 2016-17.
The only caveat being that if the total income for the year exceeds £100,000 the entitlement to a Personal Allowance tapers off at a rate of £1.00 for every additional £2.00 of income which would increase the effective tax rate to 35.0%
As a result, for someone with an income of £42,385 and allowing for the tax credit element, the maximum additional Dividend payment should be no more than £51,000.
As an example, for someone with an overall income of £60,000 in the current tax year, if an additional £20,000 of Dividends was declared and paid now, the resulting £5,000 of tax would be due for payment on 31st January 2017.
Similarly, for someone in the Additional Rate tax band, additional Dividends would be taxed at an effective rate of 30.56% this year compared to 38.1% next year.
If you would like any further information, please email us at welcome@cooperfaure.co.uk.
As many of you will have read in articles such as the one published in The Guardian last Friday, the government is examining whether to severely tighten the rules of Personal Service Companies as part of the Autumn Statement on 25th November.
The proposal is understood to oblige a consultant using a Personal Service Company to move onto the payroll of the client if the assignment lasts more than one month.
The Treasury claims that an extra £400m could be raised in tax by a “crack down on the loophole”.
A government source said: “This is about fairness in the tax system. It is just not fair to have people in the same company doing the same jobs paying different levels of tax.”
Ignoring the benefits and entitlements that an employee has over a contractor and the whole raft of additional bureaucracy that this proposal would cause, does the maths add up?
Take the example of two people working on an IT project each earning £90,000 a year where one is an employee and the other is a contractor. The contractor invoices through a Personal Service Company, pays themselves a salary of £8,000 a year, reclaims £6,000 of expenses and draws out the remainder of the available funds in Dividends.
For the current tax year, the total payments to the Treasury break down as follows:
| Employee | |
| Gross Salary | £90,000.00 |
| Income Tax | £25,403.00 |
| Employee’s NI | £5,070.80 |
| Net Salary | £59,526.20 |
| Employer’s NI | £11,307.72 |
| Total Payment to Treasury | £41,781.52 |
| Contractor | |
| Revenue | £90,000.00 |
| PAYE / NI | £0.00 |
| Income Tax – Dividend | £7,463.48 |
| Corporation Tax | £15,200.00 |
| Remuneration | £67,336.53 |
| VAT | £15,660.00 |
| Total Payment to Treasury | £38,323.48 |
Whilst it is true that the total remuneration of the contractor is more than the employee, surely that is reasonable compensation for the risk of working where the client can terminate the agreement without notice.
In addition, as the Personal Service Company revenue is over £82,000, the company is required to register for VAT. Assuming, the company adopts the Flat Rate Scheme, this brings an additional £15,660.00 to the Treasury.
As a result, in this scenario, the overall difference in revenue to the Treasury in tax year 2015-16 would be £3,458.05. There needs to be over 115,000 contractors earning £90,000 a year to raise £400m.
However, if the same model is applied to the 2016-17 tax year to take into account the changes to the taxation of Dividends that have already been announced, the result is very different:
| Employee | |
| Gross Salary | £90,000.00 |
| Income Tax | £25,200.00 |
| Employee’s NI | £4,909.60 |
| Net Salary | £59,890.40 |
| Employer’s NI | £11,307.72 |
| Total Payment to Treasury | £41,417.32 |
| Contractor | |
| Revenue | £90,000.00 |
| PAYE / NI | £0.00 |
| Income Tax – Dividend | £10,635.00 |
| Corporation Tax | £15,200.00 |
| Remuneration | £64,165.00 |
| VAT | £15,660.00 |
| Total Payment to Treasury | £41,495.00 |
As it stands, next year the overall revenue to the Treasury from the Personal Service Company would be marginally higher than that from the employee.
As has often been the case before, the facts simply do not support the headline.
The leaking of this proposal two week before the Autumn Statement smacks of the Treasury floating an idea to gauge public reaction.
As a result, it is vital to make your voice heard. You can send a message to your MP via https://www.writetothem.com/ and over the weekend we will be publishing a draft template letter that you can use to write to them.
In the meantime, if you would like any further information, please email us at welcome@cooperfaure.co.uk.