Spring Tax Update - Bournemouth

pkf-francisclark.co.uk
Speaker
Spring tax update
Bournemouth March 2017

Speaker
Chairman’s welcome
James Robinson, Partner

pkf-francisclark.co.ukpkf-francisclark.co.uk
.
Housekeeping
@pkfFrancisClark
#FCSpringTax17 #Bournemouth
A copy of the
slides will be sent
to you by email
shortly

Staff update – newly appointed Partners
Holly Bedford
Tax Partner
Lucinda Coleman
Business Recovery Partner
Jason Mitchell
Partner

Staff update – East Region
Newly appointed Directors, 1 April 2017
Frances Kingsnorth,
Director, Salisbury
Lisa Macpherson,
Tax Director &
Head of Tax Technical,
Poole
…and Hot off the Press!

• Budget day changing to autumn from 2017
• This update will be in March again next year
 We have better information to share
 Access to consultations and draft legislation
Spring tax update

Programme for today
Budget overview Julian Smith, Tax Partner
Making tax digital Julian Smith, Tax Partner
Business tax update Lisa Whitbread, Manager
Personal tax update Victoria Christopher,
Assistant Manager
Financial planning update Peter Nyland, Chartered
Financial Planner

Speaker
Budget overview
Julian Smith, Tax Partner

Measured &
boring
Hammond’s speech

Overview

• Worries over the economy – Brexit
• Digitisation and automation
 Making tax digital (MTD)
• Changing employment patterns
 Attacks on self employment
 Concern over incorporations
• Pressure on property owners – business rates
• Crackdown on evasion and ‘bad’ avoidance
Spring tax update - themes

Speaker
Making tax digital
Julian Smith, Tax Partner

.
Making tax digital
New HMRC initiative revolutionising the way businesses file
online
• Landlords and unincorporated businesses with turnover over the
VAT registration limit start to file from 5 April 2018
• VAT will be filed via MTD from 5 April 2019, and businesses with
turnover below the VAT registration limit will start to file quarterly

.
Making tax digital
New HMRC initiative revolutionising the way businesses file
online
• Corporates and large (> £10m) partnerships 5 April 2020
• Run-off of existing returns, plus any other income where HMRC
doesn’t receive details through third parties
• First years will have multiple deadlines to meet

.
Making tax digital
• Deadline for submitting quarterly returns one month after the quarter
end
• Deadline for submitting final adjustments for year will be the sooner
of ten months after the year end, or 31 January following the year of
assessment (the existing tax return deadline)
• Applies to the first accounting period that begins after 5 April 2018,
so 5 April year ends’ first quarterly reporting date is 5 July 2018, and
first MTD deadline on 5 August 2018

.
Making tax digital
Government has given some assurances regarding small
businesses, and the digitally excluded:
• Businesses can use spreadsheets for record keeping, but must file
via MTD-compliant software
• Businesses eligible for three line accounts can submit quarterly
updates with only three lines of data (income, expenses and profit)
• Free software will be available to businesses with “the most
straightforward affairs” – in practice, this will mean those under the
VAT registration limit and with no employees

.
Making tax digital
• No need to scan in invoices
• Where more than one property is owned, only one update for the
entire property business required – originally appeared to be per
property
• Accounting adjustments not needed at quarterly updates – can be
made in final adjustment for year

.
Making tax digital
• Declaration of partnership splits now optional for quarterly updates –
must be notified in year end adjustment
• Partnerships must return all income and gains i.e. investment
income as well as trading income
• Will not include CIS returns for the time being – current quarterly
return system will continue

.
Making tax digital
• Government has yet to decide on de minimis limit below which MTD
will not apply
• Will clarify later in 2017
• £10,000 is too low (below the personal allowance) but unlikely that a
limit as high as the VAT registration threshold will be considered
acceptable

.
Cloud accounting?
• Multi-user & multi-location
• Immense server processing power
• Machine learning
• Application programming interface (API)

Why?
• Can help with making tax digital
• Automated bank feeds
• Invoice recognition
• Make business decisions based on real time data
• Dashboards
• Management accounts

.
Who to contact?
Jessica Tubbs MAAT
Head of CloudSourcing East region
Jessica.tubbs@pkf-francisclark.co.uk

Speaker
Business tax update
Lisa Whitbread, Manager

Research and development
• SMEs – tax relief on allowable R&D is 230%
• £4,600 tax saved for £10,000 of spend
• If loss making, a repayable tax credit of 14.5% is available.
A tax refund of up to £3,335 for a £10,000 spend.
• Large companies now must use ‘research and development
expenditure credit’ scheme – RDEC

• UK likely to remain in support of the OECD’s base
erosion and profit shifting (BEPS) project
• Potentially no immediate corporation tax consequences –
but non-discrimination against EU entities no longer
required?
• EU parent-subsidiary directive, EU interest and royalties
directive, EU merger directive
 may be the case that full relief for all withholding taxes, whether
on dividends, interest and royalties is not available in some
cases
Brexit

.
Corporation tax – interest deduction
• New rules will restrict each group’s net deductions for
interest to
 30% of EBITDA taxable in the UK or, if higher
 An amount based on the net-interest to EBITDA ratio for the
worldwide group
 If the group’s net interest deduction is below £2m then a full
deduction will be given regardless of the fixed ratio or group
ratio limits

Corporation tax – interest deductibility
Foreign
Holdco
UK
Tradeco
100%
Lent £50m –
interest at
10%
Equity funding - £50m
• The groups interest charge is £5m
• Group EBITDA £8m therefore
allowable interest deduction is
capped to £2.4m
• Disallowance of £2.6m which is
carried forward and available for
potential relief in future periods

.
Corporation tax - losses
• New rules will increase flexibility for relieving corporate
tax losses
• From 1 April 2017 losses can be carried forward and
offset against other income streams
• Losses can also be carried forward and group relieved
• Companies with profits > £5m – only 50% of profits in
excess of £5m can be relieved by losses brought
forward

Substantial shareholdings exemption
• SSE can apply to exempt gains on companies selling
shares (holding >10%)
• Changes to SSE following consultation:
 Removing investing company trading condition
 Making it easier to sell shareholdings in multiple tranches
 Removing post disposal investee trading condition
 Broader exemption for companies owned by qualifying
institutional investors

Liquidations and entrepreneurs’ relief
• 10% tax rate possible on liquidating trading company
• Now have targeted anti-avoidance rules to catch:
 Money boxing
 Phoenixism
• Are you carrying out a similar trade or activity within two
years?
• Those caught treated as receiving a dividend

.
Transactions in land
• Tightening of rules aimed at taxing gains on
development of land as trading income, not capital
• Previous rule – ‘sole or main object’ was to realise a
gain on disposal of land
• New rule – ‘main or one of main purposes’ is to realise
a gain
• Applies where other property (e.g. shares) derives
50+% of its value from land

• IR35 aims to stop incorporation as way of achieving
PAYE/NIC advantage over directly employed individual
• From April 2017 – changes for those engaged by
public sector bodies apply when:
 Worker personally performs services for end client
 End client is public authority
 If the contract had been directly with the end client the worker
would have been regarded as an employee
• Workers engaged in public sector via their own
‘personal service company’ will have their employment
status reviewed by public sector end client
IR35 public sector bodies

• Government also considering incorporations – will there
eventually be a ‘look through’ to tax undistributed profits
of close companies at rates effectively equivalent to
income tax rates?
IR35 private sector

.
• Increase in business rates from April 2017 -
revaluation of the rating list
• Wider review of business rates likely – is the tax fit for
purpose?
Business rates

• £435m for firms affected by increases in business rates
• £300m hardship fund for small businesses worst affected
 will be allocated to local authorities for discretionary use in ‘hard
cases’
• Pubs with rateable value of less than £100,000 to get a
£1,000 a year discount on rates they pay
• Any business losing existing small business rates relief
will not pay more than £50 a month extra
Business rates announcements

Personal tax update
Victoria Christopher, Assistant Manager

• Abolition of Class 2 NIC from April 2018
• Class 4 NIC will rise by 1% (to 10%) from 6 April 2018
• Further 1% increase (to 11%) on 6 April 2019
National insurance for the self-employed

• The Chancellor’s response to the ‘small company’
problem
• From 6 April 2018, this will reduce from £5,000 a year to
£2,000 a year
• This will largely impact company directors/shareholders
and investors with portfolios worth over £50,000
Reduction in the dividend allowance

Residential property
• Various ownership structures
• New tax rules where residential property owned
personally
• Increase in SDLT

Wear and tear allowance
• 10% allowance scrapped
from April 2016
• Replacement furniture
relief
• Initial furnishings
• FHLs retain capital
allowances

Financing costs – residential
• 100% financing cost deduction being phased out over a
number of years
• Replaced with a 20 % tax reducer
• Basic rate taxpayers, child benefit and personal allowance
impact
Tax Year Finance cost relief
2017/18 75% of finance costs deductible against rental income, 25% tax
reducer
reducer
reducer

Financing costs – an example
2016/17 2020/21
Rental income £50,000 £50,000
General expenses -£10,000 -£10,000
Allowable interest -£20,000 -
Rental profit £20,000 £40,000
Tax at 40% £8,000 £16,000
Tax reducer at 20% - -£4,000
Tax payable on rental
income
£8,000 £12,000

Residence nil rate band
• When a residence is passed on death to a direct
descendant:
• Property must have been occupied by the deceased as their
main residence at some point during the period of
ownership
Tax year Rate of RNRB
2017/18 £100,000
2018/19 £125,000
2019/20 £150,000
2020/21 £175,000

• Downsizing provisions
• Unused band is transferable between spouses –
potential for £1 million IHT free
• Tapered withdrawal of the nil rate band for
estates with a net value of more than £2 million
• Planning opportunities?
Residence nil rate band

• Full finance cost relief
• Corporation tax rate 19% from 1 April, reducing to 17%
• Tax costs of setup – capital gains tax and stamp duty
land tax
• Reliefs may be available to mitigate tax costs
• Profit extraction
• Director’s loan account
Incorporation of rental business

• 3% surcharge for additional residential property
purchase
• Applies to any acquisition of residential property by
a company
• Commercial and mixed use properties are
unaffected
• Available reliefs?
Stamp duty land tax

SDLT - residential rates
Main
residence
Second
home
or buy to let
Up to £40,000 Zero Zero*
Up to £125,000 Zero 3%
The next £125,000 (the portion from £125,001 to £250,000) 2% 5%
The next £675,000 (the portion from £250,001 to £925,000) 5% 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 10% 13%
The remaining amount (the portion above £1.5 million) 12% 15%

Speaker
Financial planning update
Peter Nyland, Director, Chartered Financial Planner

.
ISA update
There are now six types of ISA!
• Cash
• Stocks and shares
• Lifetime from 6 April 2017 (new)
• Help to buy (being withdrawn 30/11/2019)
• Junior
• Innovative finance

.
ISA limits from 6 April 2017
Reduction to tax free dividend allowance from April 2018
– increases benefit of ISA
• Cash and stocks & shares - £20,000 (2016/17 £15,240)
• Lifetime - £4,000 plus Government bonus 25%
• Help to buy - £1,200 in first month + £200pm thereafter plus
Government bonus of 25%
• Junior - £4,128 (2016/17 £4,080)
• Innovative finance - £20,000 (2016/17 £15,240)

.
Focus on lifetime ISA
Alternative to pension?
• Dual purpose – save for first home and/or retirement
• 25% Government top up
• Open to 18-40 year olds (can continue to age 50)
• Access before age 60 results in loss of Government top up and
investment growth unless
 Using funds to buy first property up to £450,000
 Terminal illness

.
Focus on junior ISA
Wealth transfer idea?
• Available from 0 to age 18 (becomes adult ISA at 18)
• Parents, grandparents, friends etc can contribute
• Using a calculator from Fidelity we can see that saving
£340 per month from birth to age 18 could produce a
fund of £101,322 assuming 5% annual growth
• An excellent way of transferring wealth down through
the generations with no tax consequences
• Could fund university fees or a property deposit

.
Pension update
Key changes/considerations
Budget confirmed reduction of annual allowance to
£4,000 from 6 April 2017 if money purchase annual
allowance triggered
What triggers it?
• Uncrystallised pension fund lump sum (UFPLS)
• Flexible access drawdown (income taken), but not if
just tax free lump sum
• Exceeding the income cap in capped drawdown

.
Pension update
• From 6 April 2016 tapered annual allowance applies if
‘adjusted income’ exceeds £150,000
• Lifetime allowance reduced to £1m
• Individual protection 2014 deadline is 5 April 2017 for
those who had pension funds valued at more than
£1.25m at 5 April 2014
• Pension scams – consultation closed in February,
feedback due later this spring
• Aiming to tackle cold calling
• Giving powers to schemes to refuse pension transfers

.
Pension carry forward
• Carry forward still available from previous three tax
years
• Useful for those caught by tapered annual allowance
• Be aware that 2013/14 carry forward (£50,000) drops
away on 6 April 2017
• Can only carry forward if you had a registered pension
plan in place for the tax years used in carry forward
• No pension plan but may want to save in future? Start
one now to ensure full scope of carry forward is open
to you when you need it

.
Non earners’ pension contributions
• Can contribute up to £3,600 per annum gross
• Net cost £2,880 per annum
• Tax relief each year of £720
• Can contribute for children
• Pension funds generally free of inheritance tax
• In a low interest rate environment, 25% instant uplift in
value is significant
• Wealth transfer opportunity, grandparents contributing
for grandchildren?

Pension allowances restricted?
• Venture capital trusts
• High risk but with significant tax advantages
• HMRC approved
• £200,000 annual investment limit
• 30% up front tax rebate
• Tax free growth and dividends
• Must be held for five years to retain tax benefits
Alternative tax efficient investing

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly
recommend that no action should be taken before obtaining detailed professional advice.
Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an
investor may not get back the amount invested.
PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised
and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF.
Registered in England No. 05413603.
Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not
accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro
Disclaimer & copyright
fcpp.co.uk

Speaker
Chairman’s closing remarks
James Robinson, Partner

(c) copyright PKF Francis Clark, 2017
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