Guest blog by, Mark Purdue, Digita Product Manager – Tax products
On Wednesday, George Osborne announced his first March budget since the Conservatives won a majority in 2015.
The new sugar tax and ISAs for under 40’s aside, this budget appeared quite light compared to the “death of tax returns” and the major dividend taxation changes, announced in the two previous budgets.
So what extra have we learnt about Making Tax Digital? Starting in 2018, businesses and the self employed will have the option to make pay as you go payments, with the aim of improving cash flow management. In addition, the government will be exploring tax simplification for these parties, so that regular updates of digital tax accounts are made smoother.
HMRC will also get an extra £71 million towards improving their services, which will be spent on delivering a 7 day a week service by 2017 and recruitment of 800 new call centre staff.
Consultations on the above along with detailed proposal documents on other areas of Making Tax Digital are expected this year. We will continue our involvement in this process, so watch this space.
Moving away from Making Tax Digital, what were the other main talking points that came out of the famous red briefcase?
Two new £1,000 allowances for “micro enterprises” have been announced for trading and property income, resulting in no tax being due on the first £1,000 of income from April 2017 onwards. This appears to be the start of the simplification process required in order to move self employed individuals onto digital tax accounts, mentioned above.
From April 2017, personal allowances have been increased again to £11,500, along with an overall increase in the higher rate band to £45,000.
From April 2016, capital gains tax rates have been reduced from 28% to 20% for disposals above the basic rate band and from 18% to 10% for disposals within basic rate. However, the previous rates have remained for carried interest and residential property disposals, continuing the chancellor’s offensive against non-resident and second home property owners.
Entrepreneur’s relief has been extended to external investors in unlisted trading companies, widening the scope of people who can claim the 10% rate of capital gains tax.
Following, the Office of Tax Simplification suggestion that the income tax and national insurance system was reviewed, it has also been announced that Class 2 NIC will be abolished from April 2018.
From a corporate tax point of view, most of the measures announced are scheduled for the future but there are a few things to look out for over the next few months.
The most immediate of the changes was the pegging of the charge on loans to participators to the higher dividend rate resulting in an increase from 25% to 32.5%. This change applies to all loans and advances made on or after 6 April 2016. A period straddling the commencement date will need to use two rates and the date of the loan becomes more important than it is now.
In terms of filing returns with the new rate, the online filing validation for the CT600A includes a calculation validation to check that the tax payment in Box A20 is equal to Box A15 multiplied by 25%. This means that until HMRC update their systems, it will not be possible to submit a return which includes the new rate.
We will look to include the new calculation as soon as possible and will update you when HMRC are able to accept these returns.
It had been previously announced that the rate of tax for companies would be reduced to 19% in 2017 and 18% in 2020. The budget made a change to this and the rate will now drop to 17% in 2020.
The accelerated payment of corporation tax by larger companies (profits in excess of £20million) was delayed by two years to allow more time for the transition.
The chancellor announced that he was looking to increase the flexibility of trading losses for companies. The business tax roadmap highlights that this will be consulted on in 2016 with implementation intended for 2017. The proposed change is that trading losses brought forward in a company will be able to be offset against all profits rather than just trading profits of the same trade. It will also be possible to group relieve brought forward losses. The new rules will not apply to past losses so the detail of how ‘old’ brought forward losses are used will be interesting to read.
There was also the announcement that for large companies, the offset of brought forward losses would be capped at 50% of profits.
With all the upcoming changes to Self Assessment and Corporation Tax over the next few years, it was refreshing to have a budget with very little impact, so that all parties can focus on getting the implementation of Making Tax Digital right. Let’s hope this continues.
What are your thoughts on the budget? Are there any changes you believe will majorly impact your client base?
Please comment below.
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