Personal Taxes and Tax Credits
Personal Allowance, Rates of Tax, National Insurance Contributions for 2014 to 15
As announced at Budget 2013, people born after 5 April 1948 will be entitled to a basic personal allowance of £10,000 for 2014 to 15. The ‘higher rate threshold’ (the sum of the basic personal allowance and the basic rate limit) will be £41,865. As the personal allowance will be £10,000 for 2014 to 15, this means that the basic rate limit will be £31,865 the rates of tax will be announced at Budget 2014.
For 2014 to 15, there are no changes to the percentage rate of contribution for Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions but there are changes to all of the thresholds and limits. The weekly rates for Class 2 and Class 3 NICs will be increased. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for NICs will continue to be aligned with the point at which higher rate tax becomes payable £41,865.
Tax Credit, Child Benefit and Guardian’s Allowance: rates for 2014 to 2015
- Tax Credits – disability elements increased in line with the Consumer Price Index (CPI) of 2.7%. Other rates are increased by 1%. The family element of child tax credit is not increased annually and remains at £545
- Child Benefit – increased by 1%
- Guardian’s Allowance – increased in line with the CPI of 2.7%
Recognising marriage in the tax system
From April 2015, a spouse or civil partner who is not liable to Income Tax or not liable above the basic rate for a tax year will be entitled to transfer £1,000 of their personal allowance to their spouse or civil partner provided that the recipient of the transfer is not liable to Income Tax above the basic rate. The transferor’s personal allowance will be reduced by £1,000. The spouse or civil partner receiving the transferred allowance will be entitled to a reduced Income Tax liability of up to £200.
Class 3A National Insurance Contributions for enhanced state pension
From October 2015 a new class of voluntary National Insurance Contribution (Class 3A) will be introduced that gives those who reach state Pension age before 6 April 2016 an opportunity to boost their Additional State Pension.
Abolition of National Insurance Contributions for under 21s
From 6 April 2015 employers will no longer be required to pay Class 1 secondary National Insurance Contributions on earnings paid up to the Upper Earnings Limit to any employee under the age of 21.
Capital Gains Tax Private Residence Relief – Final period rule
The final period exemption applies to a property that has been a person’s private residence at some time even though they may not be living in the property at the time they dispose of it and they may be claiming private residence relief on another property at the same time. From 6 April 2014 the final period exemption will be reduced from 36 months to 18 months.
Capital Gains Tax: Non residents and UK residential 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 on how best to introduce this will be published in early 2014 on GOV.UK.
Capital Gains Tax: Annual Exempt Amount
The annual exempt amount will be £11,000 for the year 2014 to 15 and £11,100 for 2015 to 16 and subsequent years. The exemption for most trustees will be £5,500 and £5,550 respectively.
Social Investment Tax Relief
A new tax relief for investment in social enterprise will commence in April 2014. Following consultation investment in Social Impact Bonds will also be eligible.
Individual Saving Accounts , Child Trust Fund , Share Incentive Plans and Save As You Earn Annual subscription limits 2014 to 15
- for Share Incentive Plans the individual limits on the ‘free’ shares companies can award to employees from 6 April 2014 will be increased from £3,000 to £3,600 per year and the individual limits on the ‘partnership’ shares employees can purchase will be increased from £1,500 to £1,800 per year (or 10% of an employee’s annual salary)
- for Save as You Earn the amount that employees can save and apply towards the purchase of share from 6 April 2014 will be increased from £250 to £500 per month
- the overall annual Individual Savings Account subscription limit for 2014 to 15 will be £11,880, of which £5,940 can be invested in cash
- the annual subscription limit for Junior ISA and Child Trust Fund for 2014 to 15 will increase from £3,720 to £3,840
UK oil and gas fiscal regime: new onshore allowance
This provides a new onshore allowance to reduce the amount of adjusted ring fence profits subject to the supplementary charge. It will have effect in respect of capital expenditure incurred on and after 5 December 2013 in relation to an onshore oil and gas related activity. A Tax Information and Impact Note, draft legislation and explanatory note have also been issued today.
Bank levy change in rate
The Bank Levy full rate will be set at 0.156% from 1 January 2014.
Film Tax Relief
Subject to State aid approval, from April 2014 the rate of film tax credit for surrenderable losses will be 25% on the first £20 million of qualifying core expenditure (subject to a maximum of 80% of qualifying core expenditure) and 20% thereafter (to a maximum of 80% qualifying core expenditure). The minimum UK expenditure qualification will also change from 25% to 10%.
A consultation will be launched in spring 2014 on the introduction of a limited corporation tax relief for commercial theatre productions and a targeted relief for theatres investing in new writings or touring productions to regional theatres.
Banking Code of Practice
From 31 March 2015, HMRC will publish an annual report on the Code of Practice on Taxation for Banks (the Code). The report will list all banks, building societies and investment firms which have unconditionally adopted the Code as well as those that have not. In addition it may name any bank, building society or investment firm which HMRC considers has not complied with the Code.
Tackling Tax Avoidance and Evasion
The government has announced 5 measures to help tackle tax avoidance which have immediate effect from 5 December 2013.
Changes to the debt cap provisions
The measure comprises of 2 changes to improve the effectiveness of the World Wide Debt Cap. The first change is to the grouping rules and the second change is to the regulation-making powers. It will have effect in respect of the change to the grouping rules for accounting periods starting on or after 5 December 2013 and the change to the regulation-making powers will have effect on or after the date that Finance Bill 2014 receives Royal Assent.
Controlled foreign companies: profit shifting
The measure switches off the partial exemption rules for loan relationship credits of a Controlled foreign company 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 first part of the measure will apply to arrangements entered into on or after 5 December 2013 and the second part will have effect for accounting periods beginning on or after 5 December 2013.
Partnerships review: partnerships with mixed membership
The first element of the partnerships review measure will affect mixed membership partnerships where partnership profits are allocated to a non-individual partner in circumstances where an individual member may benefit from those profits. The second element will affect 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 with the exception of anti-avoidance rules concerning tax-motivated profit allocations. These rules come into force from 5 December 2013 in order to protect against risks to tax revenue.
Avoidance schemes using total return swaps
The measure blocks avoidance schemes where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits. It will apply from 5 December 2013 to schemes entered into on any date.
Double Taxation Relief: revenue protection
The measure will make two changes to the Double Taxation Relief rules to prevent avoidance. Both changes will have effect from 5 December 2013. It will have effect on non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this date. The amendment to the rules on refunded tax credits will take account of payments made by the foreign tax authority on or after 5 December 2013.
Further details of these 5 measures can be found in the Written Ministerial Statement, Tax Information and Impact Notes, Draft Finance Bill 2014 Legislation and Explanatory Notes.
Other measures included are found below.
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: users of failed avoidance schemes
This measure will 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 adviseHMRC 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.
The government will also consult on possible wider criteria for issuing a payment notice in avoidance enquiries.
Onshore Intermediaries – false employment
This is aimed at preventing employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment. Existing legislation will be strengthened to ensure that the correct tax and national insurance contributions are paid where the worker is employed, from April 2014.
Offshore evasion strategy – enhancing deterrents
In early 2014 HMRC will launch a project to ensure it is ready to exploit data under the new exchange of data agreements. And at Budget 2014, HMRCwill 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.
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’.
Fraud, Error and Debt
Expansion of use of Debt Collection Agencies for Tax Credit debts
HMRC will use a private sector provider to send letters and make phone calls to collect Tax Credit debts. This will enable HMRC significantly to expand its capacity to collect Tax Credit debt. The provider will be required to deliver the same level of customer journey as HMRC, so those who do not have the ability to pay will still be given options to pay in a more flexible way. In addition HMRC, which has a wider range of powers, will focus resources to pursue debts which have been returned uncollected from Debt Collection Agencies.
Tax credit error and fraud private sector initiative
HMRC is exploring whether it can increase capacity through the private sector to reduce error and fraud in the tax credit system. The aim is to reduce incorrect payments by identifying and checking high-risk claims, seeking further evidence where necessary, and making sure customers receive their correct entitlement from the outset.
Tax credits: stopping payments where annual entitlement already received
From April 2015 tax credit payments will stop in-year where claimants have already received their full year entitlement. This will help prevent claimants from building up unnecessary over payments that must be repaid at a later stage.
Oils fraud: increasing road fuel testing units
The resources and equipment in HMRC’s Road Fuel Testing Units are to be increased. This will help stop the road fuel market being hijacked by criminal gangs, provide a level playing field for legitimate UK businesses and protect the flow of oils revenue to the Treasury.
Alcohol fraud: registration of wholesalers
Following consultation, the government will introduce new measures to reduce the illicit trade in alcohol products, including a registration scheme for alcohol wholesalers that will start to take effect in 2016 and also a requirement that from early 2014 alcohol traders take reasonable steps to ensure that their suppliers and customers are legitimate.
Expand and restructure fiscal crime liaison officers
Two complementary elements aimed at enhancing HMRC’s international response to fiscal threats and associated criminality have been announced. These are expanding HMRC’s Fiscal Crime Liaison Officer Network to diversify its activities and consolidate coverage in key risk areas and the formation of a joint HMRC/Border Force Fiscal Border Debriefing and Intelligence Team in Dover aimed at improving the intelligence picture on near-continent tobacco smuggling.
Other Announcements including Excise Duties, Digitalisation, Inheritance Tax, Charities
Fuel Duty Main Rate Freeze
The increase due in September 2014 has been cancelled and there will be no further increase in the current Parliament.
Joint digital registration for Charities with Charity Commission
HMRC will develop a new IT system to allow organisations wanting to register with the Charity Commission for England & Wales 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 to 16 and will later be extended to enable charities in Scotland and Northern Ireland to register with their charity regulators at the same time as they apply toHMRC.
Inheritance Tax Online
HMRC will be investing in a new online service to support the administration of Inheritance Tax. 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. It will also improve the customer experience as well as HMRC’s ability to perform compliance activities. It is anticipated that the new online service will become available in 2016.
Corporate gift aid for Community Amateur Sports Clubs
Legislation in Finance Bill 2014 will extend corporate Gift Aid on gifts of money to include qualifying donations of gifts by companies to Community Amateur Sports Clubs.