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CCH Autumn Statement 2014 Special Feature: Contributed by CCH’s in-house team of tax writers

Autumn 2014

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We hope this supplement will gently introduce you to the tax issues you need to get your

head around over the next few months but in some cases (eg the stamp duty land tax

changes – see Mark Cawthron’s comments below) you may need to act right now.

Wherever possible, we have indicated which of the changes ‘announced’ in the Statement

have already appeared (the ‘sounds familiar’ ones) and importantly those which as far as is

known are:

1. likely to pass into law before the election; or

2. likely to pass into law after the election.

As regards the former, it will be interesting to see whether cross-coalition consensus

continues as the election comes nearer and, indeed, which survive the change of government.

As regards the latter it is tempting to look on them as easy promises waiting not to be kept.

I had assumed that the diverted profits tax would fall into this category but it looks like it

will be in the first Finance Bill. It will doubtless earn some good headlines (and some serious

money apparently) but as Meg Wilson points out below the devil will very much be in the

detail.

Predictably there is a large number of other anti-avoidance measures some of which come

into effect immediately – more below.

Those colleagues more cynical than I smile wryly at the prospect of tax simplification

suggesting that the best form of tax simplification is simply less tax legislation. However,

reassuringly, the measures proposed largely stem from work done by the Office of Tax

Simplification on tax administration.

And all that’s just the UK as a whole. There are some big developments affecting the

constituent countries too. I assume most are now aware of the imminent changes in

Scotland (but if not try the CCH Scottish Master Tax Guide, www.cch.co.uk/smtg) and

the prospect of even more significant ones coming before long. Incidentally the wholesale

changes to SDLT will give those faced with the land and buildings transaction tax in Scotland

from April 2015 extra food for thought and a short period to think. It may be more of a

surprise to learn that plans are well advanced to give Northern Ireland control of corporation

tax and to give Wales some measure of revenue-raising devolution.

Usually we are able to read the Autumn Statement as a summary of the tax changes for the

following twelve months. However, the forthcoming election means we can only know part

of the picture. We probably have a clearer idea of what will be in the first Finance Act 2015

than normal but know very little about the contents of F(No. 2)A 2015 or indeed F(No. 3)

A 2015 (if it happens). So the 2015 tax landscape remains unclear and will not fully emerge

until the second half of the year. Having up-to-date online information has never been more

important and for those who like books we are planning special editions of old favourites. Let

our services help you take the strain.

Introduction

Paul Robbins, BA, ACA, CTA

After graduating, Paul worked in the tax

departments of two large accounting

firms, now absorbed into the Big 4, before

joining CCH as a tax writer specialising in

corporates.

As well as managing our team of in-house

tax writers, Paul is now lead technical

editor of the Red and Green Books, the

Tax Reporter, Tax Planning Online and

the CCH Tax Workflow system. As Tax

Content and Innovation Manager he

is also responsible for the quality and

development of the entire

tax information portfolio.

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1. Rates of charge

SDLT on the purchase of residential property is being reformed with immediate effect (from

4 December 2014). SDLT will be payable at each rate on the portion of the purchase price

which falls within each band, rather than at a single rate on the whole transaction value.

This does away with the so-called ‘slab’ or ‘cliff-edge’ system of

rates. The rates and thresholds themselves are also amended as part of this reform.

Non-residential property transactions, the 15% higher rate charge and the charge on rent

are not affected.

There are separate tables of rates for acquisitions of ‘residential’ and ‘non-residential

property’ (which latter includes mixed residential and non-residential property). The tables

as they stood before this change are:

Residential Property

(from 22 March 2012) Non-residential property

Purchase Price Rate Purchase price Rate

£0-£125,000 0% £0-£150,000 0%

£125,001-£250,000 1% £150,001-£250,000 1%

£250,001-£500,000 3% £250,001-£500,000 3%

£500,001-£1,000,000 4% Over £500,000 4%

£1,000,001- £2,000,000 5%

Over £2,000,000 7%

(The alternative 15% higher rate charge applies to certain acquisitions of dwellings for more

than £500,000 by a company, a partnership including a company or a collective investment

scheme).

For residential property transactions with an effective date (normally the date of completion,

but see further below) on or after 4 December 2014, each rate of tax will be payable on the

portion of the chargeable consideration which falls within the relevant band, as follows:

Residential Property (from 4 December 2014)

Part of relevant consideration Rate

£0 - £125,000 0%

£125,001 - £250,000 2%

£250,001 - £925,000 5%

£925,001 - £1,500,000 10%

The remainder (if any) 12%

The change includes transitional provisions which allow purchasers in transactions where

contracts were exchanged before 4 December 2014, but completion takes place on or after

that date, to elect whether the new or the old rates will apply. This is subject to the proviso

(other than where the contract was substantially performed before 4 December 2014) that

there is no event on or after that date, of a kind listed in the draft legislation (variations,

option exercise, assignments, etc).

An election must be made in a land transaction return or an amendment to such a return

and must meet any requirements specified by the Commissioners for Her Majesty’s Revenue

and Customs

Stamp Duty Land Tax

Property and stamp taxes

Mark Cawthron, LLB, Solicitor, CTA

Mark is a tax lawyer and was formerly

a partner in the City office of law firm

Pinsent Masons and its predecessor

firms from 1990 to 2007 and of the

US law firm, Bryan Cave, from 2007

to 2010.

He has wide experience of corporate

and business tax fields, particularly in:

M&A; corporate finance and corporate

restructurings; private equity (for

institutional investors and management

teams); real estate investment and

development; employee share incentives;

employment arrangements and their

termination; handling disputes with

tax authorities.

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Relevant to this ‘choice’ for purchasers, it should be noted that the Autumn Statement

material includes guidance that, under the changes, purchasers of residential property for

£937,500 or less will pay the same or, in most cases, less tax than they would have paid

under the old rules. Purchasers of residential property between £1m and £1.125m will also

pay less tax. Purchasers of residential property for between £937,500 and £1m and above

£1.125m will in most cases pay more.

This measure will be legislated by way of a separate Stamp Duty Land Tax Act 2014. The

Government’s estimate of the cost of this measure to the Exchequer is around £800m

annually.

Scotland

Owners or prospective purchasers of residential property in Scotland will be interested

to compare the new rates from 4 December against the anticipated rates (as previously

announced by the Scottish Government) of the new Land and Buildings Transaction Tax,

to take effect in Scotland from April 2015. These are set out below:

Residential Property

Part of relevant consideration Rate

£0 - £135,000 0%

£135,001 - £250,000 2%

£250,001 - £1,000,000 10%

The remainder (if any) 12%

The remainder (if any) 12%

Linked transactions

The draft legislation published with this announcement further provides that if the relevant

land consists entirely of residential property and the transaction is one of a number of linked

transactions, the amount of tax chargeable in respect of the particular transaction under

consideration is determined by an apportionment process as follows:

Step 1:

Apply the (new) rates to the parts of the relevant consideration (which is the aggregate

chargeable consideration for all the linked transactions) that fall within the (new) bands.

Step 2:

Add together the amounts calculated at Step 1 (if there are two or more such amounts).

Step 3:

Multiply the amount given by Step 1 or Step 2, as the case may be, by:

C/R

where,

C is the chargeable consideration for the particular transaction, and

R is the relevant consideration.

Consequential changes

The measure also makes consequential amendments to SDLT provisions at section 74

(collective purchase of freehold by flat lessees), section 75 (crofting community right to

buy), Schedule 6B (multiple dwellings relief) and Schedule 7 (acquisition relief) of Finance

Act 2003, which provisions operate to reduce or limit the amount of tax due in respect of a

transaction, rather than exempting it from charge altogether.

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2. Treatment of shared ownership properties

The SDLT multiple dwellings relief will be extended to include superior interests in residential

property, such as shared ownership. This will apply where the transaction is part of a lease

and leaseback arrangement, if acquired from a qualifying body such as a housing association.

The change will take effect from the date on which Finance Bill 2015 receives Royal Assent.

3. Alternative property finance reliefs

The definition of a ‘financial institution’ for the purposes of the SDLT alternative property

finance reliefs will be changed to include all persons authorised to provide Home Purchase

Plans. The change will take effect from the date on which Finance Bill 2015 receives Royal

Assent.

4. Application of SDLT on certain authorised property funds

In Finance Bill 2016, a seeding relief will be introduced for property authorised investment

funds (PAIFs) and co-ownership authorised contractual schemes (CoACSs) and changes made

to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the

transactions in units, subject to the resolution of potential avoidance issues.

Background

At Budget 2014, the Government said it recognised that the way in which SDLT applied to

certain collective investment schemes was perceived by the industry as presenting barriers to

their effective use as property funds. It announced that it would consult on the way property

authorised investment funds (PAIFs) and co-ownership authorised contractual schemes

(CoACSs) are treated for SDLT purposes. A joint HM Treasury/HMRC Consultation document

(Stamp Duty Land Tax: rules for property investment funds) was published in July 2014.

A PAIF is a diversely owned, open-ended corporate investment vehicle specialising in holding

real estate where the point of taxation on the profits of its property investment business

lies with its investors. The Consultation document contemplated the introduction of a relief

for the seeding (that is, the transfer of property into a new or empty fund) of PAIFs. The

Government said it believed that if a similar seeding transfer of property was made to a

regulated foreign domiciled fund which is deemed to be equivalent to a PAIF, then it may

also be eligible, under EU law, for the SDLT seeding.

Authorised Contractual Schemes (ACSs) are collective investment schemes that are ‘tax

transparent’, so that income accrues to investors directly as it arises. Assets in an ACS are

legally held by a depositary on behalf of the unit holders or investors, who are the beneficial

owners of the assets. There are two types of ACS: ‘co-ownership schemes’ (CoACSs) and

‘limited partnership schemes’. Both types are subject to authorisation by the Financial

Conduct Authority and are intended for use as schemes authorised under the Undertakings

for Collective Investment in Transferable Securities (UCITS) Directive as well as Non-UCITS

Retail Schemes (NURS) and Qualified Investor Schemes (QIS).

When CoACSs are first seeded with property by one investor and that investor then holds

all the units in the scheme, there is no SDLT due as the transparent and contractual nature

of the scheme means there is no change in effective ownership of the property. Subsequent

changes in the ownership of units in the scheme (through new investment or as existing

investors redeem their units) can cause SDLT to arise, with the unit holders liable for the

tax. This is because a change in the ownership of units represents the transfer of a beneficial

interest in the underlying property. Further purchases of property into the CoACS would also

be subject to SDLT and this would be payable by the unit holders. The Consultation document

contemplated a number of steps in relation to the SDLT treatment of CoASCs, viz:

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– Introduce a new exemption from SDLT which would otherwise arise from transactions

in units of a CoACS;

– Change the responsibility for paying SDLT from unit holders to scheme operator;

– Introduce an SDLT charge on CoACSs acquiring property from connected parties;

– Introduce a seeding relief for CoACSs fulfilling certain criteria (including diversity of

ownership).

It was not immediately clear from the Consultation document why these steps, by

themselves, would not open up scope for avoidance. The Autumn Statement announcement

notes that there is still work to be done in this respect.

Stamp duty/Stamp duty reserve taxIn the M & A world, it is common for takeovers of larger companies (provided the takeover

is an ‘agreed’ one, this mechanism is not available in the case of ‘hostile’ bids) to be effected

by a scheme of arrangement involving the cancellation of the target company’s shares. The

advantage here is a commercial one, namely that schemes of arrangement can be effected

with a 75% threshold for target company shareholder approval (rather than the 90%

threshold required to trigger the Companies Act ‘squeeze out’ provisions in the case of a

takeover by way of an ‘offer to purchase’). There is a tax benefit too, in that the cancellation

route avoids any charge to Stamp duty or Stamp duty reserve tax (SDRT).

The Autumn Statement announces that the government will, by early 2015, ‘bring forward

amendments to section 641 of the Companies Act to prohibit reductions in share capital

by target companies in takeovers conducted using schemes of arrangement in order to

protect the stamp tax base’. The Government’s rationale for this is that takeover structures

that achieve the same outcome should have the same stamp tax treatment. It seems that

‘scheme of arrangement’ takeovers will still be available for stampable acquisitions of the

target company’s shares, as distinct from their cancellation.

ATED (Annual Tax on Enveloped Dwellings)The annual charges of the ATED will increase by 50% above inflation for residential properties

worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016. This

measure will be included in Finance Bill 2015. The Chancellor said this was to tackle the

continued use of enveloped properties to avoid stamp duty (perhaps not surprisingly, given

that, at the top end, the new 12% rate is much closer to the 15% higher rate).

From 1 April 2015, the charge on such enveloped residential properties worth more than £2

million but less than £5 million will be £23,350; for properties worth more than £5 million

but less than £10 million the charge will be £54,450; for properties worth more than £10

million but less than £20 million the charge will be £109,050; and for properties worth more

than £20 million the charge will be £218,200.

Changes will also be made to the filing obligations and information requirements with

respect to properties within the ATED that are eligible for a relief. These changes will be

included in Finance Bill 2015, to take effect from 1 April 2015.

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Business ratesA number of changes are announced in relation to the Business rates regime, viz:

1. The doubling of Small Business Rate Relief for a further year from 1 April 2015.

2. Extension of the transitional arrangements for properties with a rateable value of

£50,000 and below facing significant bill increases due to the ending of Transitional Rate

Relief from 1 April 2015 to 31 March 2017.

3. Change to the rules so that alterations to rateable values can only be backdated to

the period between 1 April 2010 and 1 April 2015 for Valuation Office Agency (VOA)

alterations made before 1 April 2016 and ratepayers’ appeals made before 1 April 2015.

4. Increase in the business rates discount for retail and food and drink premises with a

rateable value of £50,000 and below to £1,500 up to the state aids limit for 1 year from

1 April 2015.

5. Continuation of the 2% cap on the RPI increase in the business rates multiplier for an

additional year from 1 April 2015.

The Government also announced that it will, in December 2014, publish:

(a) its interim findings under the Business rates administration review, setting out a summary

of stakeholder responses and providing an update on how the government proposes to

respond to businesses’ calls for clearer billing, better sharing of information and a more

efficient appeals system, and

(b) a discussion paper on the nature and scale of business rates avoidance.

The Government will also conduct a review of the future structure of business rates to report

by Budget 2016. The announcement says the review will be fiscally neutral and consistent

with the government’s agreed financing of local authorities. The Government will publish

terms of reference in due course.

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Personal allowancesThe personal allowance will increase to £10,600 for 2015-16 rather than £10,500 announced

at Budget 2014.

The basic rate limit will be £31,785 for 2015-16 so that the higher rate threshold above

which individuals pay income tax at 40 per cent will be increased to £42,385. The National

Insurance upper earnings and upper profits limits will increase to stay in line with the higher

rate threshold.

Unlike previous increases in the personal allowance threshold, the increase will be passed

on in full to higher rate taxpayers paying 40% tax and this is the first increase in the higher

threshold in line with inflation for five years.

The Chancellor has committed to increase the personal allowance to £12,500 by 2020 if

elected next May.

For income tax rates and allowances, see the table below.

Bands of taxable income and corresponding tax rates

per cent of income / £ a year

2014-15 2015-16

Basic rate 20% 20%

Higher rate 40% 40%

Additional rate 45% 45%

Starting rate for savings income* 10% 0%

Dividend ordinary rate 10% 10%

Dividend upper rate 32.5% 32.5%

Dividend additional rate 37.5% 37.5%

Trust rate 45% 45%

Starting rate limit (savings income) £2,880 £5,000

Basic rate band £0 - 31,865 £0 - 31,785

Higher rate band £31,866 – 150,000 £31,786 – 150,000

Additional rate band Over £150,000 Over £150,000

*From 2008-09 there is a 10 per cent starting rate for savings income only. If an individual’s taxable non-savings income exceeds the starting rate limit, then the 10 per cent starting rate for savings will not be available for savings income.

Armed Forces Early Departure schemeLegislation in Finance Bill 2015 will ensure that lump sum payments made under the new

Armed Forces Early Departure scheme are exempt from income tax and NICs. This will take

effect from 1 April 2015, when the new scheme is introduced.

Taxation of resident non-domicilesLegislation in Finance Bill 2015 will increase the annual charge paid by non-domiciled

individuals resident in the UK for 12 out of the last 14 years who wish to retain access to

the remittance basis from £50,000 to £60,000. The charge paid by people who have been UK

resident for seven out of the last nine years will remain at £30,000. A new charge of £90,000

will be introduced for people who have been UK resident for the 17 of the last 20 years. The

Government will also consult on making the election to pay the charge apply for a minimum

of three years.

Personal Taxes

Julie Clift, BA, CTA

Julie joined CCH as a senior technical

writer in 2003 and has worked on some

of our leading tax products including

British Tax Reporter, Inheritance Tax

Reporter, British Tax Guide and Tax

Adviser.

Julie began her career at Arthur Andersen

before joining Ernst & Young where she

specialised in personal tax issues. She was

deputy editor of The Tax Journal before

returning to practice as a tax editor in the

Deloitte & Touche Tax Policy Group.

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The Chancellor has committed to continuing with the remittance basis but the cost for

longer term residents of being taxed on this basis has significantly increased. There may also

be concern about losing the flexibility to elect annually.

Employment and Share–related income

1. Support for carers

The Carer’s Allowance earnings limit will increase in April 2015 from £102 to £110 per week.

The £2,000 annual National Insurance contributions Employment Allowance will be extended

to those households that employ care and support workers. A family will, as a result, be able

to employ a care worker on a salary of up to £22,500 and pay no employer NICs. In addition,

care workers will be exempted from the impacts of removing the £8,500 threshold below

which employees do not pay income tax on benefits in kind.

2. Apprentices

The Chancellor has announced that from April 2016 employer National Insurance

Contributions (NICs) up to the upper earnings limit for apprentices under age 25 will

be abolished.

This will be welcomed by employers by making it easier for them to take on apprentices

and may boost youth employment.

3. Employment intermediaries

Overarching contracts of employment and temporary workers

The Government has announced a review of the increasing use of overarching contracts

of employment by employment intermediaries such as ‘umbrella companies’. These

arrangements, the Government says, enable workers to obtain tax relief for home to

work travel that would not ordinarily be available. A discussion paper will be published

shortly to inform possible action at Budget 2015.

Penalties

A minor amendment will be made to correct legislation underpinning the penalty regime

for the late filing or non submission of quarterly returns from employment intermediaries.

This will be included in Finance Bill 2015, to take effect from 6 April 2015.

4. Tax exemption for travel expenses of members of local authorities

Expenses paid to councillors by their local authority will be exempt from income tax

and employee NICs (emphasis added). The exemption will be limited to the Approved

Mileage Allowance Payment (AMAP) rates where it applies to mileage payments.

This change will take effect from 6 April 2015.

Outcome of ConsultationsA number of Consultations were announced in Budget 2014. The position on these is

updated by the Government as follows:

i. Simplification of the administration of employee benefits and expenses

From April 2015 a statutory exemption will be introduced for trivial benefits in kind costing

less than £50. From April 2016, the £8,500 threshold below which employees do not pay

income tax on certain benefits in kind will be removed, and replaced with new exemptions

for carers and for ministers of religion. The Government will also exempt certain reimbursed

expenses and introduce a statutory framework for voluntary payrolling. The new exemption

for reimbursed expenses will not be available if used in conjunction with salary sacrifice.

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‘Payrolling’ arrangements aim to include the value of the benefits and expenses provided

in taxable pay as if they were cash payments and to deduct the tax due in each pay period,

at the same time as the tax and Class 1 NICs due on cash earnings. The result is that the

tax due on benefits and expenses is deducted and accounted for in the year of provision

rather than through estimates in the coding with an end of year reconciliation.

These measures will be included in Finance Bill 2015.

ii. Travel and subsistence review

The Government says that it has undertaken the initial stages of this review and continues

to ‘take this work forward towards a full public consultation on the framework for new rules’.

Background:

The review arose out of the OTS (Office of Tax Simplification) report which identified a

number of issues with the tax treatment of travel and subsistence expenses which were a

cause of error, misunderstanding, and concern for employers. The Government considered

that these problems were symptomatic of more fundamental issues in the tax rules on travel

and subsistence expenses, and wanted a longer term review of these rules alongside the

consultations on expenses and benefits.

The purpose of the review is, per the Government, ‘ to aim to produce a new system that

reflects working patterns in the 21st century’. Since the rules were last updated there have

been significant changes in the way the workforce operates, including the growth in the

temporary labour market and an increase in the number of employees who work at home,

neither of which is properly catered for in the current system. It is not intended that any

new system would provide tax relief for private travel or ordinary commuting. However the

Government said it was open to exploring different principles and methods for determining

the circumstances when travel expenses should attract tax relief and would invite views on

this in a structured way as part of the review.

iii. Non tax-advantaged share schemes

The Government says it has decided not to proceed with two matters (also first put forward

by the OTS), on which it has consulted:

(a) changes to the taxation of employee shares that would have introduced a ‘marketable

security’; and

(b) a new ‘employee shareholding vehicle’.

This latter had been very much on the ‘wish list’ for advisers in the employee share schemes

arena. The OTS had recommended that a new vehicle - possibly a statutory ‘safe harbour’

Employee Benefit Trust - be made available, designed for (or primarily for) unquoted

companies, to enable companies to provide employee shareholders with a ‘market’ for their

shares, and to give companies a ‘warehouse’ within which to hold surplus shares pending

their allocation or sale out to employees, without getting caught by punitive anti-avoidance

provisions.

Social investment tax relief (SITR): enlarging the schemeSITR was introduced by Finance Act 2014 with income and capital gains tax reliefs available

to individual investors who invest in new shares or new qualifying debt investments in

qualifying social enterprises from 6 April 2014.

The Government has announced that they will seek EU approval to increase the investment

limit to £5 million per annum per organisation up to a maximum of £15 million per

organisation and to extend the relief to small-scale community farms and horticultural

activities. These changes will come into effect on or after 6 April 2015, subject to state

aids clearance.

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The Government will also make special purpose vehicles for subcontracted and spot-purchase

social impact bonds eligible for SITR through secondary legislation in autumn 2015 and will

also consult in early 2015 on introducing a Social Venture Capital Trust in a future finance bill.

Venture capital schemesWith effect from 6 April 2015 all community energy generation undertaken by qualifying

organisations will be eligible for social investment tax relief (SITR) with effect from the

date of the expansion of SITR, at which point it will cease to be eligible for the Enterprise

Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital

Trusts (VCTs). All other companies benefiting substantially from subsidies for the generation

of renewable energy will be excluded from also benefiting from EIS, SEIS and VCTs with

effect from 6 April 2015. Legislation will be introduced in Finance Bill 2015.

A new digital process for investors and companies qualifying for the tax-advantaged venture

capital schemes (EIS, SEIS and SITR) will be introduced in 2016, designed to make it easier

to use the schemes. A new format for VCT returns will also be developed.

Individual Savings Accounts (ISAs)For 2015-16 the ISA limit will be increased to £15,240. The Junior ISA and Child Trust Fund

limits will both be increased to £4,080.

The Chancellor has announced that when an individual dies, on or after 3 December 2014,

ISAs transferred to a surviving spouse or civil partner will retain tax relief.

This is good news for married savers, currently when an individual dies, leaving their ISA

savings to their spouse, the favourable ISA tax treatment dies with them.

The Government will consult on whether to allow crowdfunded debt-securities into ISAs

and on how this could be implemented.

PensionsLegislation to be included in Finance Bill 2015, to take effect from 6 April 2015, will mean

that beneficiaries of individuals who die under the age of 75 with remaining uncrystallised

or drawdown defined contribution pension funds, or with a joint life or guaranteed term

annuity, will be able to receive any future payments from these policies tax free where no

payments have been made to the beneficiary before 6 April 2015. The tax rules will also be

changed to allow joint life annuities to be paid to any beneficiary. Where the individual was

over 75, the beneficiary will pay the marginal rate of income tax, or 45 per cent if the funds

are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary’s

marginal rate from 2016-17.

To assess means-tested benefits for those over the pension credit qualifying age, the

Government has announced it will change the notional income tax rules applied to pension

pots which have not been accessed, or have been accessed flexibly, from 150 per cent to

100 per cent of the income an equivalent annuity would offer, or the actual income taken

if higher.

Following informal consultation since Budget 2014, the Government has decided not to

make changes to the age limit at which tax relief can be claimed on pension contributions.

This will remain at age 75.

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Two changes are made to entrepreneur’s relief. The first prevents individuals from claiming

the relief where there is a disposal of goodwill on transfer of the business to a close company.

The second allows gains eligible for 10 per cent relief but which are deferred into investments

qualifying for enterprise investment scheme or social investment tax relief to remain eligible

for the relief when the gain is realised.

Both look likely to appear in the first Finance Bill of 2015. Indeed the former came into effect

on 3 December.

Oh and a digital capital gains tax calculator is promised – no more details available.

Capital Gains Tax

Paul Robbins, BA, ACA, CTA

After graduating, Paul worked in the tax

departments of two large accounting

firms, now absorbed into the Big 4, before

joining CCH as a tax writer specialising in

corporates.

As well as managing our team of in-house

tax writers, Paul is now lead technical

editor of the Red and Green Books, the

Tax Reporter, Tax Planning Online and

the CCH Tax Workflow system. As Tax

Content and Innovation Manager he

is also responsible for the quality and

development of the entire

tax information portfolio.

13

The following measures on inheritance tax will be included in Finance Bill 2015.

– Following consultation, the Government has announced that the existing IHT exemption

for members of the armed forces whose death is caused or hastened by injury while on

active service will be extended to members of the emergency services and humanitarian

aid workers responding to emergency circumstances. It will have effect for deaths on or

after 19 March 2014.

– From 3 December 2014, the IHT exemption for medals and other decorations that are

awarded for valour or gallantry will be extended to apply to all decorations and medals

awarded to the armed services or emergency services personnel, and to awards made

by the Crown for achievements and service for public life.

– Again following consultation, the Government has decided not to introduce a single

settlement nil-rate band but will introduce new rules to target avoidance through

the use of multiple trusts instead. This will be welcome news to many practitioners.

The Government will also simplify the calculation of trust rules.

– Legislation will be introduced dealing with interest to support the introduction of the

new IHT digital service announced in Autumn Statement 2013.

Inheritance tax

Julie Clift, BA, CTA

Julie joined CCH as a senior technical

writer in 2003 and has worked on some

of our leading tax products including

British Tax Reporter, Inheritance Tax

Reporter, British Tax Guide and Tax

Adviser.

Julie began her career at Arthur Andersen

before joining Ernst & Young where she

specialised in personal tax issues. She was

deputy editor of The Tax Journal before

returning to practice as a tax editor in the

Deloitte & Touche Tax Policy Group.

14

The government continues to reward innovation and creativity in certain sectors of the

economy whilst restricting reliefs to others with enhancements to the research and

development tax relief rules; the oil and gas tax code; and proposals for new creative

industry tax reliefs. Tax reliefs for banks will however be restricted where it is estimated

that losses incurred during the aftermath of the 2008 financial crisis would otherwise

mean that banks will be non-corporation tax paying for many years into the future.

Creative Industry tax reliefsA new tax relief for the production of children’s television programmes will be enacted in

Finance Bill 2015. The new relief, at a rate of 25% on qualifying production expenditure, will

be effective from 1 April 2015. The government will also consult on modernising the cultural

test and reducing the minimum UK expenditure requirement to 10% for TV production tax

relief. It will also consult on the introduction of a new tax relief for orchestras effective

1 April 2016.

Northern Ireland corporation tax ratesThe government has concluded that devolution of corporation tax rate-setting powers to the

Northern Ireland Executive is not only desirable, given the shared border with the Republic

of Ireland, but that devolution can go ahead provided the Executive is able to manage the

financial implications. As a precursor, this will involve putting the Executive’s finances on

a sustainable footing including agreeing budgets for 2015-16.

Oil and gas taxationFinance Act 2015 will introduce the following measures relating to oil and gas taxation:

– The Supplementary Charge will be reduced from 32% to 30% effective 1 January 2015;

– The ring fence expenditure supplement will be extended from 6 to 10 accounting

periods for all ring fence oil and gas losses and qualifying pre-commencement

expenditure incurred on or after 5 December 2013; and

– A high pressure, high temperature cluster allowance will be introduced to encourage

development of such projects and encourage activity in the surrounding ‘cluster’ area.

R&D tax creditsThe rate of relief for the above-the-line credit will be increased to 11% (from 10%) and

the rate of the enhanced deduction for SMEs will be increased to 230% however the

costs of materials incorporated in products that are sold will no longer be eligible for

relief. The measures will be introduced in Finance Act 2015 effective 1 April 2015.

Restriction of trading losses for banksEffective 1 April 2015, tax relief for the carry forward of trading losses to future accounting

periods will be restricted to 50% of a bank’s profits arising in those future periods. The

restriction will apply to all trading losses incurred in periods up to 1 April 2015. Losses

incurred in the first five years following a bank’s authorisation will be exempt. These

measures will be enacted in Finance Bill 2015.

Loan relationships and derivate contractsFollowing the 2013 modernisation review, Finance Bill 2015 will include wide-ranging

measures to ‘update, simplify and rationalise’ the tax code for loan relationships and

derivative contracts. Taxable profits or losses will be based on accounting profits and losses

as a starting point and there will be new tax reliefs for companies in financial distress and

new anti-avoidance provisions. Finance Bill 2015 will also repeal the late paid interest rules.

Transitional adjustments arising on the introduction of IFRS 9 will be spread over 10 years

irrespective of when the debt falls due.

Corporation tax

Paul Davies ACA

Paul qualified as a Chartered Accountant

with PWC where he gained experience

of audit and business advisory services

and specialised in corporate tax matters.

From PWC he moved to become Head

of Tax for Northern Rock where he spent

16 years.

More lately Paul has experience of

managing the worldwide tax affairs of

a fast growing hi-technology company

in the communications sector.

Paul has a wide range of tax experience

ranging from employee share schemes to

VAT partial exemption matters and many

more besides. He was awarded North East

Tax Advisor of the Year in 2010.

15

Miscellaneous other measures– Business contributions to the Flood and Coastal Erosion Risk Management (FCERM)

projects will be deductible expenditure for corporation (and income) tax from

1 January 2015;

– A new exemption from withholding tax on interest on qualifying private placements

(a type of unlisted debt) will be introduced in Finance Bill 2015;

– As expected, all requirements related to the relocation of the ‘link company’ for

consortium claims to group relief will be removed with effect from 10 December 2014.

Indirect taxesVAT refunds and shared services From 1 April 2015, ‘non-criminal legal services’ are added to the VAT refunds scheme to

facilitate legal advice being shared across departments. Non-departmental public bodies

will benefit from this shared service if their parent department agrees.

VAT help for hospices The government will refund the VAT that hospice charities incur.

VAT refunds for search and rescue and air ambulance charities From April 2015, UK search and rescue and air ambulance charities may claim refunds

of VAT they have paid on purchases of goods and services for their non-business activities.

This measure should be in the Finance Bill 2015.

VAT refunds and the Highways Agency The Highways Agency will be replaced by a government-owned company. From 1 April 2015,

the law will be updated to ensure that the new company is eligible for VAT refunds. This

measure should be in the Finance Bill 2015.

Government departments and eligibility for refunds of VAT Early in 2015, the results of a review of government bodies eligible for VAT refunds will be

published in the London, Edinburgh and Belfast Gazettes.

VAT and the London Legacy Development Corporation From 1 April 2015, the London Legacy Development Corporation is eligible for VAT refunds.

VAT and prompt payment discounts From 1 April 2015, following Finance Act 2014, s. 108, businesses must account for VAT on

the actual consideration received when prompt payment discounts are offered. Shortly,

HMRC will respond to the recent consultation.

Air Passenger Duty (APD) There will be an exemption from the reduced rate of APD from 1 May 2015 for children

under 12 and from 1 March 2016 for children under 16. This measure should be in the

Finance Bill 2015.

Stanley Dencher, BCom, FCA, CTA (Fellow), AIIT

Stanley was a practitioner for nine

years before joining CCH as a technical

editor in 1984, working primarily on VAT

publications. He wrote Personal Trading

Losses and is co-author of Company

Cars, both published by CCH.

For many years Stanley presented

tax seminars for the ICAEW and CIOT

and for training organisations all over

the UK.

16

Air Passenger Duty transparency Following a review of transparency in ticket prices, there will be consultation on amending

the Air Services (Pricing) Regulations to require the display of APD.

Landfill Tax: compliance work in relation to the lower rate From 1 April 2015, there will be a loss on ignition testing regarding fines produced from

the processing of waste at mechanical treatment plants. Only qualifying fines below a 10%

threshold will be eligible for the lower rate of landfill tax (LFT). However, during a 12-month

transitional period the threshold will be 15%. This measure should be in the Finance Bill 2015.

Landfill Tax: reform of the Landfill Communities Fund There will be consultation on getting funds for community projects more efficiently.

Aggregates Levy: credits in Northern Ireland Between 1 April 2004 and 30 November 2010, there will be an 80% levy credit for

aggregate commercially exploited in Northern Ireland following its importation from

another EU Member State. This measure should be in the Finance Bill 2015.

CharitiesVAT refunds for search and rescue and air ambulance charities From April 2015, UK search and rescue and air ambulance charities may claim refunds

of VAT they paid on purchases of goods and services for their non-business activities.

This measure should be in the Finance Bill 2015.

Gift Aid digital Legislation will allow regulations to be made which give intermediaries a greater role

in administering Gift Aid. This measure should be in the Finance Bill 2015.

Charity donor benefits and Gift Aid entrance and membership fees The review of donor benefits will include the rules for claiming Gift Aid on membership

and entrance fees. Also, the guidance will be updated.

Stanley Dencher, BCom, FCA, CTA (Fellow), AIIT

Stanley was a practitioner for nine

years before joining CCH as a technical

editor in 1984, working primarily on VAT

publications. He wrote Personal Trading

Losses and is co-author of Company

Cars, both published by CCH.

For many years Stanley presented

tax seminars for the ICAEW and CIOT

and for training organisations all over

the UK.

17

As has become customary the Autumn Statement contained the usual promises to crack

down on tax avoidance, evasion and aggressive tax planning. The Chancellor’s speech focused

on four specific groups: big multinational businesses; banks; people aggressively trying to

avoid tax; and non-doms. The measures aimed at ensuring these groups pay their ‘fair share’

are forecast to bring in a further £9 billion in tax over the next five years.

Business tax

1. Diverted Profits Tax

As part of the Chancellor’s efforts to make sure that big multinational businesses, especially

tech companies, pay their fair share, he announced a new 25% tax on profits generated

by multinationals from economic activity in the UK which they then artificially shift out

of the country. This measure is to apply from 1 April 2015 and will be legislated for in

Finance Bill 2015.

The Autumn Statement predicts that the diverted profits tax will raise c. £1.5bn between

fiscal years to 2019-20. This is clearly a significant volume of tax revenue so it will be

interesting to see how the tax will operate while remaining compliant with existing OECD

transfer pricing guidelines.

2. Country-by-country reporting

Measures will also be included in Finance Bill 2015 to give the UK the power to implement

the Organisation for Economic Co-operation and Development (OECD) model for country-

by-country reporting. These rules, developed under the auspices of the OECD’s Base

Erosion and Profit Shifting (BEPS) project, will require multinational enterprises to provide

information to HMRC on their global allocation of profits and taxes paid, as well as indicators

of economic activity in a country.

3. Consultation on addressing hybrid mismatch arrangements

The government is to consult on the UK’s plans for implementing the OECD’s BEPS project

recommendations for addressing hybrid mismatch arrangements. The rules aim to prevent

multinational companies avoiding tax through the use of certain cross-border business

structures or finance transactions.

4. Corporation Tax: restricting unfair tax advantages on incorporation

With immediate effect the government is going to restrict the corporation tax relief a

company may obtain for the acquisition of goodwill when a business is acquired from a

related individual or partnership. As such relief has always been denied where the acquisition

was from a related party and the underlying asset existed before 1 April 2002, it was

previously only ‘new’ businesses that could benefit from the relief. The legislation for this

measure will be included in Finance Bill 2015.

5. Use of umbrella companies as employment intermediaries

The government is to publish a discussion paper shortly to set out the action it may take

at Budget 2015 to target the use of ‘umbrella companies’ which currently enable workers

to obtain tax relief for home to work travel that would not ordinarily be available.

6. Employment intermediaries: penalties

With effect from 6 April 2015 legislation to be included in Finance Bill 2015 will make a

minor amendment to correct legislation introduced by Finance Act 2014 underpinning the

penalty regime for the late filing or non-submission of quarterly returns from employment

intermediaries.

Tax avoidance and evasion

Meg Wilson, BA, ATT, CTA

Meg joined CCH as a full-time tax writer

in September 2012.

She qualified as a Chartered Tax Adviser

in 1999 and has worked for HLB Kidsons

(now Baker Tilly), KPMG and Hazlewoods,

a top 40 firm in Gloucestershire. At

Hazlewoods Meg was Tax Development

Manager, responsible for the efficient

running of the tax team and the external

promotion of its services. This included

writing internal and external tax

newsletters and client factsheets

and managing the firm’s annual

Budget coverage.

18

7. Accelerated payments and group relief

Finance Bill 2015 will include legislation to ensure that the accelerated payments legislation

(introduced by Finance Act 2014, Pt. 4, Ch. 3) also applies where avoidance arrangements

give rise to losses surrendered as group relief.

Personal tax

8. Miscellaneous loss relief

As a result of the government becoming aware of avoidance activity that seeks to exploit

income tax relief for losses from miscellaneous transactions, with immediate effect the

government will legislate to counter the avoidance of income tax through miscellaneous

loss relief by introducing anti-avoidance rules. From 6 April 2015 it will also limit the

miscellaneous income against which a miscellaneous loss can be claimed. Both measures

will be included in Finance Bill 2015.

9. Special purpose share schemes

The government will legislate in Finance Bill 2015 to remove the unfair tax advantage

provided by special purpose share schemes, commonly known as ‘B share schemes’. The

effect is that from 6 April 2015 all returns made to shareholders through such schemes

will be taxed in the same way as dividends.

10. Disguising of fee income by investment managers

With effect from 6 April 2015, legislation is to be included in Finance Bill 2015 is to ensure

that sums which arise to investment fund managers for their services are chargeable to

income tax. The aim is to prevent tax avoidance caused by sums which arise to managers

who have entered into arrangements involving partnerships or other transparent vehicles,

but is not to affect sums linked to performance, often described as ‘carried interest’, nor

returns which are exclusively from investments by partners.

11. No changes to close company loans to participators

Following concerns raised during the government’s consultation into the Reform of

close company loans to participators rules launched on 9 July 2013, the government has

completed its review into the tax charge on loans from close companies to individuals, trusts

and partnerships that have a share or interest in them. The government has confirmed that

following its review it does not intend to make any changes to the structure or operation of

the tax charge.

Tax evasion and fraud

12. Strengthening civil deterrents for offshore tax evasion

Following the consultation which closed on 31 October 2014 and very much in line with the

suggestions put forward in the consultation, the government is to introduce legislation in

Finance Bill 2015 on enhanced civil penalties for offshore tax evasion. The existing offshore

penalties regime is to be amended to:

– include inheritance tax;

– apply to domestic offences where the proceeds of non-compliance are hidden offshore;

– update the territory classification system to reflect the jurisdictions that adopt the new

global standard of automatic tax information exchange; and

– include a new aggravated penalty of up to a further 50% for moving hidden funds to

circumvent international tax transparency agreements

19

The changes are to come into effect from April 2016, except for the aggravated penalty

which will come into effect following Royal Assent of Finance Bill 2015.

The consultation document is available at https://www.gov.uk/government/uploads/

system/uploads/attachment_data/file/345236/140819_Tackling_offshore_tax_evasion_-_

Strengthening_civil_deterrents.pdf

13. Enhancing financial incentives for offshore intelligence

HMRC is to review its existing framework for offering financial incentives for information on

offshore tax evaders and in particular those who remain outside the reach of international

efforts to achieve tax transparency.

Marketed avoidance schemes

14. Promoters of tax avoidance schemes

Following consultation, the government is to update and further clarify the legislation

covering ‘high risk’ promoters of tax avoidance schemes. The changes are being made to

ensure that the rules introduced by Finance Act 2014, Pt. 5 work as intended. The changes

will include a broader range of connected persons under the common control of a promoter

in the regime and clarify the time limits within which HMRC can issue conduct notices to

promoters who fail to disclose a scheme.

15. Serial avoiders

The government is to consult on action that it could take to impose further financial costs,

compliance and reporting requirements on repeat users of known avoidance schemes. The

government will consult on whether ‘naming and shaming’ individuals who have engaged in

several tax avoidance schemes could help deter them from using such schemes in the future.

16. General Anti-Abuse Rule (GAAR) penalties

The government is to consult on whether and how to introduce penalties for tax compliance

cases where the GAAR applies.

Disclosure of Tax Avoidance Schemes (DOTAS) changes

Three key changes to the DOTAS regime have been announced:

1. In a further push to educate potential tax avoidance scheme users, Finance Bill 2015

will enable HMRC to publish summary information about tax avoidance promoters and

schemes notified under the DOTAS regime.

2. Following the consultation which closed on 23 October 2014 the government will

legislate in Finance Bill 2015 to strengthen the DOTAS regime, including through

updating existing scheme hallmarks, adding new hallmarks, and removing ‘grandfathering’

provisions for the future use of schemes that were excluded by those provisions. The

consultation is available at https://www.gov.uk/government/uploads/system/uploads/

attachment_data/file/339105/DOTAS-VADR_consultation_2014.pdf

3. The government is to increase HMRC resources involved in policing the DOTAS regime

with the introduction of a new taskforce.

Fraud, error and debt

18. Direct recovery of debts (DRD)

As announced at Budget 2014 and much discussed ever since, measures are to be introduced

in Finance Bill 2015 to enable HMRC to recover tax and tax credit debts directly from the

bank and building society accounts (and ISAs) of debtors.

20

As previously publicised, since the initial announcement and following consultation,

the government has tried to limit the opposition to the proposals by strengthening the

safeguards applying to DRD. The new safeguards include:

– guaranteeing all affected debtors a face to face visit from an HMRC agent;

– slower implementation of DRD in the first year to allow HMRC to start the process

on a small, targeted basis, and gain experience and feedback;

– judicial oversight of the process enshrined in legislation, by allowing for appeal to the

County Court; and

– removing Scotland from the scope of DRD.

Given that 90% of tax experts rejected the proposed DRD when they were first announced

it will be interesting to see if more are in favour of them when the draft legislation, including

the new safeguards, is published next week.

19. Improved debt collection

HMRC has worked with the private sector over the last few years to improve their debt

collection capacity and will continue to use the private sector to collect tax debts. However

they will now access the market through the ‘debt market integrator’, which provides a single

route for all government departments to access private sector debt services.

20. Stopping tax credit overpayments

Building on the announcement made at Autumn Statement 2013, from April 2015 tax

credit payments will be reduced in-year where, due to a change of circumstance, a claimant

would otherwise receive an overpayment.

Tax compliance and administration

HMRC enquiries: closure rules

The government is to consult on a proposal to introduce a new power, enabling HMRC

to close one or more aspects of a tax enquiry whilst leaving other aspects open.

Support for mid-sized businesses

HMRC is aiming to launch a new approach to support mid-sized businesses in 2015.

This includes a new mid-size business unit to provide a gateway to the specialist tax

help needed by mid-size businesses. HMRC is also piloting a new model to support the

fastest growing businesses.

Bolstering large business risk working

The government will provide further resources to the Large Business Directorate to

improve tax compliance levels amongst the UK’s largest and riskiest businesses.

21

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