Osborne Clarke’s tax and pensions teams comment on the last Budget of this Parliament.
“As expected the Chancellor confirmed that the new diverted profits tax will go ahead with effect from 1 April 2015. It was comforting to hear that notice had been taken of comments on the draft legislation but we must wait until the Finance Bill is published next week to see exactly how that will translate into the Finance Bill 2015.
The extension of Entrepreneurs’ Relief (“ER”) to academics setting up university spin out companies is very welcome and will cover a gap which was left when ER was extended to EMI option holders. It would be even better if it could be brought in in the 2015 Finance Bill rather than in future years as suggested. However, the targeted anti-avoidance measure against ER planning involving joint ventures and partnerships was unexpected and very unwelcome and will be felt by many to be a retrospective change in law.
The abolition of tax returns sounds like good news for business. A new online tax account that can be linked to a business’ accounting software will be a real simplification for small and large businesses alike, hopefully making the payment of taxes a much easier and efficient process for all. We need to be careful what we wish for, however, as this could also pave the way for the eventual abolition of annual tax payments, which will be greeted with slightly less enthusiasm!”
Erika Jupe, Partner – Corporate Tax
“As expected, it was a fairly uneventful Budget for share schemes – which is perhaps fortunate given that many employers are still grappling with HMRC’s new online registration and self-certification procedures!
Unsurprisingly, the Chancellor had bigger political points to make which focussed on employees’ pay (such as the increase to personal allowances and the national minimum wage).
Many of the proposed changes had previously been trailed in the Autumn Statement 2014, in particular the simplification of employee benefits and expenses. Clearly employers will welcome any provisions which will ease their administrative burden, in particular the new statutory framework for voluntary payrolling. The government has welcomed the Office of Tax Simplification’s report on the thorny area of Employment Status, it will be interesting to see which recommendations are taken forward in the next Parliament.”
Karen Cooper, Partner – Employee Incentives
“This pre-election Budget offered little on private client issues that had not been published in consultation or announced in last year’s Autumn Statement. The headline features were those tweaks designed to win low and middle income taxpayers such as the new savings allowance, the abolishing of bank interest withholding and a relaxation of the ISA rules allowing withdrawals to be added back within a year.
The announcement of a review of deeds of variation was worrying and the temptation may be to see its inclusion as response to comments in the press earlier this year. Their most common use remains the reorganisation of intestate estates, where assets passing directly to adult children can be passed back to the widow or widower and allow them to claim the spouse exemption from inheritance tax. A significant proportion of the population fail to make wills, believing that their entire estates will pass to their spouse, so the ability to vary an estate to rectify unintended consequences is an important one.
The (unsurprising) change likely to have the biggest long term effect was the introduction of automatic information sharing with the UK’s offshore jurisdictions from 2016, to be extended to over 50 Common Reporting Standard countries from 2017. Perhaps the only real surprise was the Treasury estimate that the administration of the scheme, gathering and distributing information on the residents of all these countries, would cost the banking industry only £2-4m per annum, which must surely be out by a significant factor.
Finally, following the publication of the consultation paper “Strengthening Sanctions for Tax Avoidance” in 2014, the Chancellor announced plans to introduce “enhanced reporting”, surcharges and public shaming of taxpayers who persistently use tax avoidance schemes that fail. Much is still to be clarified, not least how such a plan could be implemented when many schemes are not finally resolved by the Courts for 10 or more years following the transactions. Perhaps these issues will be resolved through further consultation as the plans are listed for a “future finance bill”.”
Andrew Goodman, Partner – Private Client
“The Government has announced that it is going to press ahead with measures to attack the way that employment intermediaries take advantage of the travel and subsistence expenses regime. It will change the rules to restrict travel and subsistence relief for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.
No legislation has been released but a detailed consultation on the form of the legislation will take place later this year, with legislation being enacted with effect from April 2016.
The devil will be in the detail of the legislation. It will be interesting to see how HMRC proposes to draft the rules to capture only employment intermediaries and to ensure that there is no scope for alternative models to evolve. We would expect it to formulate any new drafting around that already in Part 2 Chapter 7 ITEPA. A change in the rules in this way will have a significant impact on the business models and margins of so called ‘umbrella companies’ and is likely to have far reaching impacts in the contingent workforce sector.”
Tracey Wright, Associate Director – Employment Solutions
“While nothing could match the pensions revolution of last year’s Budget, the Chancellor has still kept pensions in the headlines.
The widely trailed reduction in the Lifetime Allowance (LTA) from £1.25 million to £1.0 million will yield an estimated £600 million annual saving. While this offers a very useful credit to meet the cost of the personal tax ‘give-aways’, its merits in terms of pensions policy are far from apparent. The LTA has been repeatedly cut at a time when all agree that people must save more for their retirement. Indexing the LTA from 2018, while a welcome development, has the flavour of jam tomorrow.
The other big headline is confirmation that annuity contracts will attract the new flexibilities. A marginal rate charge on their sale will replace the current punitive 55% rate. The Government’s intention is that providers will continue to make payments to annuity holders for their lifetime, but they will be able to assign these to a purchaser. It’s a very bold move, and full of complexities. The Financial Conduct Authority will need plenty of wisdom to ensure that the new market in annuities works fairly and efficiently.”
Mark Womersley, Partner – Pensions