As a new tax year begins, we highlight below some of the key changes coming into force from April 2015.
Corporation tax rates
Corporation tax rates are finally aligned with a 20% tax rate for all companies big and small to meet the Chancellor’s aim of creating one of the most competitive tax regimes in the G20.
Companies that are currently within the quarterly instalment payments (QIPs) regime for corporation tax, by virtue of having associated companies, could now be taken out of QIPs following a change to the definition of “associated company”.
Broadly, from 1 April 2015 companies will now only be treated as associated if one company is controlled by the other or if they are both under the common control of another company. Control through an individual, partnership or LLP will be ignored for these purposes. So, for example, if Mr Hazlewood owned five individual companies, they would not be associated under the new rules. However, if one of those five companies owned the others, in a group structure, they would be associated.
There may be planning opportunities, depending on the circumstances, to ensure that companies do not fall into the QIPs regime.
Zero-rated CO2 emissions company cars
Eco friendly has historically equalled tax friendly, with 100% capital allowances afforded to companies purchasing zero-rated CO2 emissions company cars for their employees and no income tax charge on the benefit received by the individual. However, from April 2015 the tax free benefit-in-kind is no more and employees with zero emission vehicles will now be subject to tax at 5% of the list price. This upward trend is set to continue with the rates also increasing across all other cars for 2015/16 and then by a further 2% in the following year.
The choice of company car can have a huge impact on the tax charge paid by the individual and zero/low emission cars, although not tax free, will continue to be more tax efficient. Set out below is an example of what £30,000 might buy you in the current market and the difference it could make to your tax bill depending on whether it is an eco car or a gas guzzler.
The below example is based on a higher rate taxpayer, but your bill will be halved if you only pay tax at the basic rate.
The personal allowance is to increase by £600 to £10,600. From 6 April 2015 it is also possible to transfer up to £1,060 of personal allowance between married couples/civil partners. In practice this will be mainly applicable to single earner households, where the non-working spouse’s personal allowance would have otherwise been wasted. This relief will not be available where the receiving spouse is a higher or additional rate payer (i.e. they must be paying tax at the basic rate to benefit).
Tax of up to £212, i.e. £1,060 x 20% basic rate, could be saved through the transfer and although not the same as winning the lottery is nevertheless a simple way to save some tax.
Starting rate for savings income
The starting rate for savings income reduced from 10% to 0% and the savings starting rate tax band will increase from £2,880 to £5,000. In reality this change will only be likely to apply to a small minority, such as pensioners and low income savers.
With a personal allowance of £10,600 plus the £5,000 savings band, this means that an individual will not be subject to tax on savings until their total taxable income (excluding dividends and capital gains) exceeds £15,600. For example, an individual receiving a salary of, say, £8,000 plus interest income of £7,600 would not be subject to any tax as it would be covered by the personal allowance plus the nil rate savings band. However, if their salary was to increase to, say, £12,000 then £4,000 of the interest would become taxable at 20%.
In the first scenario, as all of the interest income would be tax free it would be possible to register for gross interest payments with your bank, however, under the second scenario it would be necessary to claim the excess tax deducted at source back from HMRC.
There may be remuneration planning opportunities following the introduction of the nil rate savings band depending on the individual’s circumstances.
Class 2 national insurance (NI) contributions
Changes to the collection of class 2 national insurance (NI) contributions will come into force from April. Rather than a monthly or quarterly direct debit, or bi-annual bill, collection will be under self assessment and class 2 NI will become due on 31 January of the year following assessment e.g. 31 January 2017 for the 2015/16 tax year.
The last payments under the old collection process will be due on 10 July 2015 and, in the meantime, no new direct debit applications are being accepted by HMRC. HMRC will automatically cancel any direct debits following the last payment in July 2015, but it’s always worth checking!
If you pay class 2 NI you should have already received a letter from HMRC explaining this and a separate payment request for the period to 11 April 2015 will be sent out during April 2015 for those who do not pay by direct debit.
VAT on prompt payment discounts
Changes to the rules on declaration and recovery of VAT on prompt payment discounts also come into effect. Previously, suppliers could account for VAT on the discounted price even if, subsequently, the full amount was paid by the customer. From 1 April 2015 the VAT accounted for and paid must be based on the monies actually received by the supplier.
These rules are already in effect from 1 May 2014 for supplies of broadcasting and telecommunications services. The table below summarises the before and after position for all other supplies.
Going forward the supplier must detail the full price on their VAT invoice to the customer and the VAT based on that price. It should also show the discount rate offered for prompt payment and associated terms (e.g. timescale to receive the discount), as well as a statement that the customer can only recover the input VAT actually paid. If the invoice doesn’t include these details then the supplier would need to issue a credit note for the discount element if subsequently taken up by the customer.