Tax changes 2014 – Autumn Statement

Business taxes:

A new social investment tax relief for investments in social enterprise to begin in April 2014. Investment in Social Impact Bonds will also be eligible, subject to consultation.

A new limited corporation tax relief for commercial theatre productions and a targeted relief for theatres investing in new writings or touring productions to regional theatres will be introduced subject to consultations in 2014.

Changes to the debt cap provisions: Two changes basically; one is the grouping rules for accounting periods starting on or after 5 December 2013 and the second is the change to the regulation-making powers which will have effect on or after the date that Finance Bill 2014 receives Royal Assent.

Controlled foreign companies (CFC): the change removes the partial exemption rules for loan relationship credits of a CFC 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. The change is effective 05 December 2013

Partnership taxation: again two changes; the first one will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner so that an individual member may benefit from those profits. The second change affects 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 6 April 2014.

Double Taxation Relief (DTR) rules will be amended to check tax avoidance effective 5 December 2013 which will affect non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this date.

Charities established for tax avoidance purposes: 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 charity is tax avoidance. The definition of a charity for tax purposes will be amended to exclude such charities.

High-risk promoters: 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 HMRC.

Follower Penalties: A new measure to introduce a new obligation for users of an avoidance scheme that HMRC have defeated in a tribunal or court hearing in another party’s litigation, to concede their position to reflect that decision. When there has been a relevant decision HMRC will issue a notice to all users of the scheme in question requiring them to amend their return or advise HMRC why they believe they should not. A tax-geared penalty would be charged if they failed to amend their return and it was subsequently found that the avoidance scheme they used failed on the same point of law. Taxpayers will be able to appeal against the penalty.

Accelerated tax payment in avoidance cases: 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 which is expected mid July 2014. At present taxpayers (in most cases) can hold on to the disputed tax while the dispute is being investigated. This can take a number of years, and there is evidence that some taxpayers enter into avoidance schemes primarily for the cash flow benefit.

Onshore Intermediaries: Further measures to prevent employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment will be introduced. Existing legislation will be strengthened from April 2014.

Offshore tax evasion: At 2014 Budget HMRC will consult on a range of enhanced proposals to penalise those who hide their money offshore. This initiative underlines the commitment to pursue offshore evaders and to increase the deterrence for would-be evaders.

Dual Contracts: Legislation will be introduced in Finance Bill 2014 to prevent a small number of high earning non-domiciled individuals from avoiding tax by creating an artificial division of the duties of one employment between contracts in both the UK and overseas. These are commonly known as ‘dual contracts’.

Personal taxes:

Personal allowance and basic rate limit: Personal allowance for for people born after 5 April 1948 will be £10,000 for 2014-15. And as a result the basic rate limit will be £31,865. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for NICs will then be aligned accordingly but there are no changes to rate of contribution for Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions (NICs).

Marriage and tax: From April 2015, inter-spouse transfer of personal allowance up to £1,000 will be allowed where both the spouses are liable to income tax within the basic rate threshold.

New Class 3A NICs: A new voluntary Class 3A NIC will be introduced from October 2015 that gives those who reach state Pension age before 6 April 2016 an opportunity to boost their Additional State Pension.

No NICs for under 21s: Employers employing those under the age of 21 will no longer be required to pay Class 1 secondary NICs on earnings paid up to the Upper Earnings Limit (UEL) from 6 April 2015.

CGT – PPR change: For those claiming the principal private residence relief the final period exemption stands reduced to 18 months from the earlier 36 months effective 6 April 2014.

CGT – Non-residents: A capital gains tax charge apply on future gains made by non-residents disposing of UK property from April 2015 a capital gains tax charge will be introduced on future gains made by non-residents disposing of UK residential property. A consultation will be out early 2014.

CGT Annual Exempt Amount will be £11,000 for the year 2014-15 and £11,100 for 2015 -16 and subsequent years, and for most trustees £5,000 and £5,500 respectively.

A new joint digital registration for Charities with Charity Commission to allow organisations wanting to register with the Charity Commission for England & Wales (CCEW) and seeking charity tax status with HMRC to submit their applications through a single online portal. The new system is planned to be introduced in 2015-16.

Introduction of a new inheritance tax online service to support the administration of Inheritance Tax: Expected to go live in 2016 this will do away with the need to complete paper versions of forms and enable people to proceed with their application for probate and submit Inheritance Tax accounts online.

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