Corporation tax rates
The main rate of corporation tax is currently 20% and this rate will continue for the Financial Year beginning on 1 April 2016. The main rate of corporation tax will then be reduced as follows:
- 19% for the Financial Years beginning on 1 April 2017, 1 April 2018 and 1 April 2019
- 17% for the Financial Year beginning on 1 April 2020.
Corporate tax loss relief
The government will introduce two reforms to corporate tax losses from April 2017. First, losses arising on or after 1 April 2017 will be useable, when carried forward, against profits from other income streams or other companies within a group. Second, from 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.
Capital allowances on business cars
The current 100% first year allowance (FYA) on businesses purchasing low emission cars will be extended to April 2021. A low emission car is one where the CO2 emissions do not exceed 75 gm/km and this threshold will fall to 50 gm/km from April 2018. In addition, the CO2 emission threshold for the main rate of capital allowances for business cars will reduce from 130 gm/km to 110 gm/km from April 2018.
Loans to participators
The 25% rate of tax charged on loans to participators and other arrangements by close companies will increase to 32.5%. This applies to loans made and benefits conferred on or after 6 April 2016. This increased rate mirrors the dividend upper rate. The government has noted that this will prevent individuals gaining a tax advantage by taking loans or making other arrangements to extract value from their company rather than remuneration or dividends.
Removal of statutory renewals allowance
The government will withdraw the statutory renewals allowance, which provides businesses with tax relief for the cost of replacing tools. The changes ensure that tax relief for expenditure incurred on the replacement of tools will be obtained under the same rules as those which apply to other capital equipment. Businesses will be able to claim tax relief under the normal capital allowance regime or, in the case of residential landlords, for the cost of replacing domestic items such as furnishings and appliances. The withdrawal will come into effect for expenditure on or after 6 April 2016 for income tax purposes and from 1 April 2016 for corporation tax.
Legislation will be introduced with effect from 6 April 2016 to:
- amend the Transactions in Securities legislation, which is designed to prevent tax advantages in certain circumstances. The amendments, for example, include liquidations as potentially coming within the scope of the legislation
- introduce a new Targeted Anti-Avoidance Rule, which would prevent some distributions in a liquidation being taxed as capital, where certain conditions are met and there is an intention to gain a tax advantage.
In some situations shareholders of close companies can receive a payment from the company which is taxed as a capital gain instead of as dividend income. If Entrepreneurs’ Relief is available the gain will be subject to only 10% tax. The government is concerned that the new dividend tax rates introduced from 6 April 2016 will encourage shareholders to convert to capital what might otherwise be taxed as income. This will need to be closely monitored.
Abolition of Class 2 National Insurance Contributions (NIC)
The government will abolish Class 2 NIC from April 2018. The government will publish its response to the recent consultation on state benefit entitlement for the self-employed in due course. This will set out details of how the self-employed will access contributory benefits after Class 2 is abolished.
Property and trading income allowances
From April 2017, the government will introduce a new £1,000 allowance for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.
Making tax digital
From 2018 businesses, self-employed people and landlords who are keeping records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments. This will enable them to choose payment patterns that suit them and better manage their cash flow.
The government will change the deduction of tax at source regime to bring all international royalty payments arising in the UK within the charge to income tax, unless those taxing rights have been given up under a double taxation agreement or the EU Interest and Royalties Directive. This only affects larger multinational businessess – essentially the so-called Google Tax.
NIC for apprentices under 25
From 6 April 2016 employer NICs are 0% for apprentices under 25 who earn less than the upper secondary threshold (UST) which is £827 per week (£43,000 per annum). Employers are liable to 13.8% NIC on pay above the UST. Employee NICs are payable as normal.
An apprentice needs to:
- be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
- have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.
Employers need to identify relevant apprentices and generally assign them NIC category letter H to ensure the correct NICs are collected.
The proposals exclude apprenticeships which do not follow government approved frameworks, also known as common law apprenticeships. A similar 0% rate of employer NIC already applies for employees under the age of 21.
Employee benefits and expenses changes from 6 April 2016
From 6 April 2016 a number of changes are introduced relating to the tax treatment of employee benefits in kind and expenses:
- There will be a statutory exemption for certain expenses, such as travelling and subsistence expenses, reimbursed to an employee. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D).
- Employers will be able to include taxable benefits in pay and thus account for PAYE on the benefits. However, in order to payroll benefits for 2016/17, employers will have to register with HMRC for the service before the start of the new tax year. Employers will then not have to include these payrolled benefits on forms P11D.
- The £8,500 threshold below which employees do not pay income tax on certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.
The statutory exemption for reimbursed expenses will mean that all employees will automatically get the tax relief they are due on qualifying expenses payments.
Another option is introduced which allows amounts based on scale rates to be paid or reimbursed, instead of the employee’s actual costs. The rates that can be used are either HMRC approved figures or figures specifically agreed with HMRC in writing.
The approved figures only cover meals purchased by an employee in the course of business travel.
Simplification of the administration of tax on employee benefits and expenses
The government will introduce a package of measures to further simplify the tax administration of employee benefits and expenses by:
- extending the voluntary payrolling framework to allow employers to account for tax on non-cash vouchers and credit tokens in real time from April 2017
- consulting on proposals to simplify the process for applying for and agreeing PAYE Settlement Agreements
- consulting on proposals to align the dates by which an employee has to make a payment to their employer in return for a benefit-in-kind they receive to ‘make good’
- legislating to ensure that if there is a specific statutory provision for calculating the tax charge on a benefit in kind, this must be used.
Employer provided cars
The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO2 emissions. There is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.
From 6 April 2016 there will be a 2% increase in the percentage applied by each band with similar increases in 2017/18 and 2018/19. For 2019/20 the rate will increase by a further 3%.
From 6 April 2017 the appropriate percentage for cars which have neither a CO2 emissions figure nor an engine cylinder capacity, and which cannot produce CO2 emissions in any circumstances by being driven, will be set at 9%. From 6 April 2018 this will be increased to 13%, and from 6 April 2019 to 16%.
Van benefit charge for zero emissions vans
The van benefit charge for 2015/16 is £3,150 increasing to £3,170 in 2016/17.
The government will extend van benefit charge support for zero-emission vans so that from 6 April 2016 the charge will be 20% of the main rate in 2016/17 and 2017/18, and will then increase on a tapered basis to 5 April 2022. The government will review the impact of this incentive at Budget 2018 together with enhanced capital allowances for zero-emission vans.
Taxation of termination payments
From April 2018 the government will tighten the scope of the income tax exemption for termination payments to prevent manipulation.
Termination payments over £30,000 which are subject to income tax will also be subject to employer NIC. The government will undertake a technical consultation on tightening the scope of the exemption.
Travel and subsistence expenses rules
In September 2015 the government published a discussion document aimed at modernising the tax rules for travel and subsistence (T&S). The government has analysed responses and concluded that, although complex in parts, the current T&S rules are generally well understood and work effectively for the majority of employees and has decided not to make further changes to the T&S rules at this time.
Employment intermediaries and relief for travel and subsistence
As announced at March Budget 2015, the government will introduce legislation in Finance Bill 2016 to restrict tax relief for home to work travel and subsistence expenses for workers engaged through an employment intermediary. This will bring the rules into line with those that apply to employees.
Simplifying the NIC rules
The government will commission the Office of Tax Simplification to review the impact of moving employee NIC to an annual, cumulative and aggregated basis and moving employer NIC to a payroll basis.
Disguised remuneration schemes
The government will introduce a package of measures to tackle the current and historic use of disguised remuneration schemes, which are used to avoid income tax and NIC. Legislation will be included in Finance Bill 2016 which will prevent a relief in the existing legislation from applying where it is used as part of a tax avoidance scheme from Budget Day.
The government will hold a technical consultation on further changes to the legislation which will be included in a future Finance Bill. This will include a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019.
Employee share schemes: simplification of the rules
The government will make a number of technical changes to simplify the tax-advantaged and non-tax-advantaged employee share scheme rules.
The NIC Employment Allowance was introduced from 6 April 2014. It is an annual allowance which is available to many employers and can be offset against their employer NIC liability.
From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new National Living Wage without paying any NIC.
To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016 companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
Employers who hire an illegal worker face civil penalties from the Home Office. The government will build on this deterrent by removing a year’s Employment Allowance from those receiving civil penalties, starting in 2018.
The government is considering limiting the range of benefits that attract income tax and NIC advantages when provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare, and health-related benefits such as Cycle to Work should continue to benefit from income tax and NIC relief when provided through salary sacrifice arrangements.
Off-payroll working in the public sector
From April 2017 the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector. The rules will remain unchanged for those working in the private sector. Liability to pay the correct employment taxes will move from the worker’s own company to the public sector body or agency/third party paying the company.
The government will consult on a clearer and simpler set of tests and online tools.