Budget 2017 – highlights and (more) lowlights!

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Mar 092017
 

Here is a summary of all the Budget 2017 proposals affecting mainly small and mediums sized businesses and private clients:

Corporation tax:

  • Offshore property developers: all profits arising on or after 8 March 2017 from trading in and developing land in the UK will be taxed in the UK.
  • Substantial Shareholding Exemption:   new rules will remove the investing company requirement within the Substantial Shareholdings Exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors.
  • Loss relief reform: the amended rules a) give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward – these losses will be usable against profits from different types of income and profits of other group companies and b) restrict the use of losses carried forward by companies so that they can’t reduce their profits arising on or after 1 April 2017 by more than 50% – this restriction will apply to a company or group’s profits above £5 million – carried forward losses arising at any time will be subject to the restriction
  • Tax treatment of appropriations to trading stock: new proposals will remove the ability of businesses with loss-making capital assets to obtain an unfair tax advantage by converting those losses into more flexible trading losses. The changes will take immediate effect from Budget on 8 March 2017.
  • Corporation tax rate has changed from 20% to 19% effective 01 April 2017

Income tax:

  • Income Tax charge and rates: tax year 2017 to 2018 will see 3 distinct groups of rates: the ‘main rates’, which will apply to ‘non-savings, non-dividend’ income of taxpayers in England, Wales and Northern Ireland, the ‘savings rates’, which will apply to savings income of all UK taxpayers, and the ‘default rates’, which will apply to a very limited category of income taxpayers that will not fall within the above 2 groups, made-up primarily of trustees and non-residents (details here)
  • Dividend allowance reduction: the 0% tax allowance for dividend income will be reduced from £5,000 to £2,000 from April 2018 ()
  • EIS and SEIS: the rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016.

………more to follow

 

Jan 182014
 

Tax residency in the UK has long been a highly contentious issue particularly for those with tax affairs in more than one jurisdiction. As there was no statutory definition of what makes a person a ‘resident’, often it was left to individual circumstances, general practice, judicial interpretations and at times even pure ‘common sense’! The system was so uncertain that the Gaines-Cooper case of 2008 demonstrated how unreliable HMRC’s published guidance in this regard could get. Well, that is all history now. Finance Act 2013 (Schedule 45) now clearly defines under what circumstances a person could be resident or non-resident, with the concept of ‘ordinary residence’ having gone the dinosaurs’ way!

Let us in this article consider the status of a person arriving in the UK.

 

First Test – Automatically resident in the UK

If you spend 183 or more days in the UK in a tax year you’re tax resident in the UK. You will be considered to have spent the day in the UK if you’re here at midnight. Even if you have not been in the UK at the end of the day (midnight) for 183 days, still you could be UK resident under the ‘deeming rule’ whereby a) you have been tax resident in the UK in one or more the last three years, b) you have at least 3 UK ties, and c) you have been present in the UK for at least 30 (qualifying) days without being present at the end of the day. However, transit days are not counted where you arrive in the UK whilst travelling from one country to another outside the UK and leave the next day. Transit passengers are not expected to engage in any activity substantially unrelated to your transit.

 

Second Test – Automatically resident overseas, so not resident in the UK

If you fail test 1 and is unsure of your residence then you need to check the following table and see if you’re automatically resident overseas. If you’re automatically resident overseas then obviously you’re not resident in the UK.

Days spent in the UK during the tax year Resident in any of the previous 3 years Not resident in any of the previous 3 years
Less than 16 Automatically Non-resident Automatically non-resident
Less than 46 days Take Test 3 Automatically non-resident

There is yet another way to be automatically resident overseas; i.e. if you work full time overseas. The conditions are:

a)    If you work full time overseas over the tax year without any significant breaks from overseas work during the tax year, and

b)   You spend fewer than 91 days in the UK during the tax year

c)     You work in the UK for more than 3 hours a day but fewer than 31 days in the tax year.

Broadly, fully time overseas work effectively means working 35 hours during a working week. Obviously days worked in the UK will be disregarded.

 

Third Test – Other cases of being automatically resident in the UK 

Having come this far and if you’re still unsure of whether you’re resident or not, follow these steps to see if you still automatically qualify to be a UK resident.

1. This is relevant if you have a home in the UK.

If you had a home in the UK and you spend at least 91 consecutive days in the UK and at least 30 of those days fall within the tax year, then you are conclusively tax resident in the UK

2. This is for those working work full time (broadly at least 35 hours a week) in the UK.

If you work in the UK for any period of 365 days without any significant break from UK work and:

a) all or part of the 365 days fall within the tax year,

b) 75% of the work days comprising more than 3 hours of work a day out of the 365 days are within the UK, and

d)   at least ONE of those of days per b) above fall within the tax year then

you’re automatically UK resident.

 

Finally the fourth sufficient ties test

Having taken the three tests above and still unsure of whether you’re tax resident in the UK you could now take this test which is based on your connections with the UK.

Days spent in the UK during the tax year UK resident in one or more of the last 3 years Non-resident in the last 3 years
< 16 days Always non-resident Always non-resident
16-45 days 4 ties Non-resident
46-90 days 3 ties 4 ties
91-120 days 2 ties 3 ties
120-182 1 tie 2 ties
> 182 days Always resident Always resident

 

And the four relevant ties are:

Tie 1 – Family tie: This tie is basically about the relationship of an individual with a family member who is tax resident in the UK. If your spouse, civil partner (not yet separated) or minor children (not those in full time education) are resident in the UK you satisfy the family tie test. Children under the age of 18 are considered for this tie and you should have spent at least 61 days with the child during the tax year to have had this tie.

Tie 2 – Accommodation tie: If you have a place available to you to live in the UK and a) that is available to you for 91 days or more during the tax year and, b) if you spend one or more nights there during the tax year, c) or if it the home of a close relative (parent, grandparent, brother, sister, children or grandchildren of 18 and above) you spend 16 or more nights there during the tax year you have had this tie.

Tie 3 – Work tie: If you work for 40 or more days in a tax year with each work day comprising 3 hours of work, you will have had this tie.

Tie 4 – 90 day tie: If you spend more than 90 days in either or both of the last two tax years in the UK you will have met this tie test.

Tie 5 – Country tie: You will have met this tie test if UK is the country where you spent more nights than any other country in the tax year.

Whilst this is a simplified version of a very elaborate rule-based statutory residence test, it nevertheless should give the reader a broad idea of how the whole test system works.

Tax Partners

Jun 102012
 

HMRC defines a ‘reasonable excuse’ as some unexpected or unusual event beyond your control and provides a few examples on its website such as: a) a failure in the HMRC computer system, b) taxpayer’s computer breaking down before or during the preparation of the online return, c) a serious illness making the taxpayer incapable of filing his tax return, or d) a taxpayer registered with HMRC for online services not getting the activation code in time.

However, many of the cases decided by the First-tier Tribunal seemed to differ in spirit with HMRC’s definition of what constitutes a reasonable excuse. Here are some examples:

TC01618 decided on 02/12/2011:

In this case the taxpayer logged onto the HMRC system in good time, and printed out a copy of what he thought was a completed P35 return and genuinely believed that he had filed the return. Whilst he didn’t wait for the online submission message, his behaviour was that of someone who seriously intended to honour his tax liabilities, and, in genuinely believing that he had filed the return, the tribunal decided that he had a reasonable excuse for filing the P35 return late.

TC01626 decided on 06/12/2011:

This case was about penalties imposed by HMRC for late payment of PAYE and NIC dues. The taxpayer’s severe financial difficulties leading to insufficiency of funds, which was attributable to events outside his control, was considered a ‘reasonable excuse’.

TC01634 decided on 07/12/2011:

HMRC’s failure to promptly notify and collect dues from the taxpayer was considered a reasonable excuse for not filing the return on time. The first P35 late filing notice was sent to the taxpayer after four months.

TC01636 decided on 07/12/2011

In this case a partnership did not file the paper return due by the end of October 2010 as it intended to file it online by the later filing date. When it tried online, it found that the HMRC website did not provide the necessary software for partnerships. Unlike other taxpayers, filing a partnership return online requires the taxpayer to purchase an HMRC accredited software from the market. The tribunal observed that the taxpayer did not know that it would be faced with an inability to file online, by reason of HMRC’s failure to provide the faciliy. So the appeal was allowed.

TC01706 decided on 04/01/2012

In this case the taxpayer filed the tax return for the year ended 05 April 2010 on time but his agent sent a cheque for the tax due by post to the HMRC by first class post on 24 February 2011, which should have been delivered to HMRC well before 28 February 2011, to avoid surcharge. HMRC received the payment on 02 March 2011. HMRC argued that it was not responsible for inefficiencies within the postal system. The tribunal found that the appellant exercised due diligence in instructing a professional agent to assist her and the agent did dispatch the payment at such time and in such manner that it was reasonable to expect that it would be received by HMRC within 28 days from the due date i.e. 28 February 2011 and the appeal was allowed.

‘Reasonable excuse’ is a very wide term and depending on individual situations, its interpretation can go far beyond that mentioned on the HMRC website.

Tax Partners

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