Talking Tax Autumn 2024 8pp AW SP

Page 1


Talking Tax

The Budget: the economy’s black hole

INSIDE

• Autumn Budget 2024

• Furnished Holiday Lettings regime –to be abolished

• Does your company have non-resident directors?

• VAT on private school fees

• HMRC’s latest nudge campaigns

Autumn Budget 24 –key headlines and possible impact

Employers’ NIC

Headline changes

From April 2025, employers’ NIC to increase from 13.8% to 15%.

The threshold at which employers will be liable to pay NIC will also decrease from £9,100 to £5,000. Employment allowance to increase from £5,000 to £10,500.

Commentary

Although this is not a direct tax on the working people, could it still have an impact as employers may rethink any planned salary increases and recruitment decisions for 2025?

Business Asset Disposal Relief (BADR)

Headline change

BADR rates to increase from 10% to 14% in April 2025 and to 18% in April 2026.

Commentary

Will the increase in BADR rates be significant enough to spur people on to try and dispose of business assets prior to April or will it cause a general slowdown in business disposals?

Capital Gains Tax (CGT)

Headline change

From Budget Day, CGT rates increased from 10% to 18% at the lower rate and from 20% to 24% at the higher rate.

Commentary

Will this immediate increase impact behaviour and deter individuals from selling assets, in the hope of a reduction in the future, or even move abroad for five years?

Inheritance Tax (IHT)

Headline changes

100% IHT relief for agricultural and business property to be capped at £1 million with the excess to be taxed at a reduced rate of 50% from April 2026. AIM listed shares will only be eligible for 50% BPR (previously 100%).

Commentary

Has the Government fully considered the potential financial issues for passing down family companies and farms to the next generation and the knock-on effect this could have on the UK economy and its food production?

Non-domicile reform

Headline change

Non-dom reform to go ahead as previously announced from April 2025 moving to a residency-based regime.

Commentary

Will this change bring only a temporary boost to the treasury coffers as many non-doms may look to relocate abroad?

Stamp Duty Land Tax (SDLT)

Headline changes

With effect from 31 October 2024, SDLT rates on additional residential properties in England and Northern Ireland increased from 3% to 5%.

The temporary increase to the current SDLT thresholds are to revert back to previous thresholds from April 2025.

Commentary

Will the property market stagnate again as SDLT will be higher on most property purchases?

Taxable benefits

Headline change

The benefit-in-kind charge on company cars is set to increase over the next few years with hybrid vehicles that have a high electric mileage range being hit the hardest.

Commentary

With beneficial rates for fully electric vehicles, along with the NIC increases, will more employers look to offer company electric cars via a salary sacrifice scheme as part of their employees’ remuneration packages?

VAT

Headline change

VAT at the standard rate of 20% to be levied on private school fees from January 2025.

Commentary

Will this be the revenue raiser the government are hoping for with the opportunity for VAT reclaims on prior expenditure along with a reduced number of private school attendees?

Furnished Holiday Lettings regime – to be abolished

It was announced in the Spring Budget that the advantageous tax regime for furnished holiday lets (FHL’s) will be abolished from April 2025. Labour has since confirmed that they will go ahead with the Conservative’s plans, with further detail on transitional measures including:

Capital allowances will no longer be available for expenditure after April 2025, but it will be possible to continue to claim writing down allowances on pools of expenditure already in existence;

Losses from a FHL business can currently only be carried forward for offset against the same FHL business, however, it will be possible to utilise these against the profits of the UK (or overseas) property business going forward;

It will no longer be possible to claim a deduction for the full amount of mortgage interest where the FHL business is owned by an individual after April 2025 and, instead, there will be a tax reducer for mortgage interest at 20%, as with other non-FHL residential properties;

FHL profits will no longer be treated as net relevant earnings for pension purposes;

Rollover and gift holdover relief are currently available to defer gains made on FHL’s and on other business asset gains which are reinvested into FHL’s, but these will no longer be available; and

An anti-forestalling rule will apply to prevent the use of unconditional contracts to obtain business asset disposal relief (if it is still here!) where the contract is entered into on or after 6 March 2024 but not completed until after April 2025. In order to fall outside of these rules, it will be necessary to confirm that the contract was either entered into for wholly commercial reasons or the parties are unconnected and that the purpose of the contract was not to take advantage of the reliefs under the old FHL regime.

Does your company have non-resident directors?

If so, you could be at risk of breaching PAYE regulations. Although perhaps counterintuitive, the after-effects of the pandemic and the UK’s exit from the European Union appear to have encouraged global mobility, rather than stifled it. It seems that UK business of all sizes have found themselves seeking expertise from outside this ‘green and pleasant land’, particularly against the backdrop of remote working and a reduced need or desire for office space. This article deals with the challenges that UK payroll teams will have to deal with for overseas directors.

Overseas directors

Directors of UK companies occupy a special place in the work force, and the role of officer rather than employee causes additional challenges when it comes to payroll, taxation and national insurance. HMRC take the view that ‘shadow’ directors (directors in all but name only) and non-executive directors (board members that hold no operational responsibility) also fall within these provisions.

Residency

These rules focus on directors that are not UK tax resident. Tax residency is a complicated subject, determined by the Statutory Residence Test, but if an individual has not been UK tax resident for at least the previous three UK tax years and spends less than 46 midnights here per tax year, they will not be UK tax resident. This is often the case where overseas talent is recruited, on the understanding that they will perform most of their duties overseas, and only come to the UK for occasional board or team meetings.

Incidental duties and short-term business visitors

For non-resident employees, there are certain exemptions where visits to the UK are either less than 60 days, or if the visit is for work that is not “of similar importance” to the person’s main role; in such scenarios reporting is simpler and possibly not taxable in the UK. However, these relaxations do not apply to directors and, therefore, even if a work visit to the UK is for just one day, a PAYE responsibility arises.

What are the rules for tax?

The default position is that if any payment is made to a director, which consists of UK and non-UK duties, then

the whole amount is taxable as PAYE. However, the company may apply for a direction from HMRC to tax only a proportion under UK payroll. This direction is commonly referred to as a ‘section 690 election’ and is made on an annual basis, although it is possible for elections to last longer. The proportion is agreed in advance and then applied throughout the tax year. This means that only UK duties are taxed, and non-UK duties are left out of PAYE.

What are the rules for national insurance (NIC)?

A helpful concession exists so that NIC is not chargeable if there are only a few visits to the UK each year for board meetings, and they are of short duration. Where this concession does not apply, if the director is resident in an EU country, or other jurisdiction where there is a reciprocal agreement, it may be possible to obtain relief from NIC in the UK, if a certificate of coverage is produced by the other tax authority. Otherwise, NIC is usually chargeable on the full earnings, whether from UK or overseas duties.

Getting it right!

Given that under declarations of PAYE are subject to a tax geared penalty regime that can go back 20 years in the worst cases, it is important that employers identify risk areas. As directors tend to be amongst the highest paid, financial sanction is greater and they could suffer reputational damage as well.

At Hazlewoods we can steer you through this hazardous landscape and make sure you are fully compliant. Get in touch with our expert team for advice.

VAT on private school fees

One of the first tax announcements for the new Labour government was the hotly anticipated introduction of 20% VAT on private school fees and boarding services, applying from 1 January 2025.

The announcement came on 29 July 2024, along with confirmation that any pre-payment of fees from this date relating to a term starting on or after 1 January 2025 would be subject to VAT.

The standard rate of VAT will apply to all education services and vocational training supplied by a private school, or a “connected person”, from 1 January next year. The draft legislation defines a private school as a school at which full-time education is provided for pupils of compulsory school age or, in Scotland, school age (whether or not such education is also provided for pupils under or over that age).

Boarding services closely related to such a supply will also be subject to VAT at 20%, as will before and after school clubs that are not related to education, such as extra-curricular activities. However, the VAT treatment of other services provided by private schools will not change, meaning that there will be no change to the provision of school meals, wrap around childcare, nursery fees etc.

Where pupils placed in a private school because their needs cannot be met in the state sector and their places are funded by a Local Authority, devolved government or a non-departmental public body, VAT will be chargeable on these fees. In such cases the funder will be able to recover the VAT incurred on such pupils’ fees. However, there are no special provisions where parents and carers of children with SEND have chosen to enrol their child to private school, if their needs could not be met in the state sector – 20% VAT will also apply to these fees.

HMRC’s draft legislation does highlight that non-maintained special schools (NMSS) under section 342 of the Education Act 1996 are not considered as private schools for VAT purposes, thus the income from school fees for these institutions will remain exempt. NMSS operate on a not-forprofit basis, teach students with special educational needs and are independent of local authority control.

Action to take

Schools will be required to register for VAT, once its taxable income has exceeded the current VAT registration of £90,000 and, once registered, schools must charge VAT on its school fees. Schools will be entitled to recover input VAT on costs incurred in relation to the provision of education. Where schools exceed the VAT threshold after 30 October 2024 due to school fees income related to the January term, it will trigger the requirement to register for VAT.

From the date VAT registration commences, schools will also be entitled to recover retrospective VAT costs in respect of goods and services consumed and directly linked to its taxable supplies. For goods, providing the goods are still on hand at the time of registration, VAT can be recovered up to four years before the registration date. For services, VAT costs can be backdated up to six months from the date of registration.

The introduction of VAT to school fees will mean that schools will need to assess the potential impact of this change, to determine to what extent its school fees need to be increased, and how much of the VAT charged to parents can be absorbed by the school.

Schools are likely to be partially exempt where they provide both taxable education services and exempt education related services such as the provision of school meals. This will add a layer of complexity to its VAT position with partial exemption calculations and annual adjustments needing to be completed.

Additionally, the capital goods scheme is likely to come into play where capital expenditure is above £250,000 (VAT exclusive), which will require schools to monitor the use of capital items over a ten-year period.

With the change in rules imminent, it is imperative that private schools are prepared for this change and understand the implications and impact the addition of VAT will have to the school and its pupils.

HMRC’s latest nudge campaigns

HMRC uses nudge letters or ‘one to many’ campaigns to target specific groups of taxpayers. HMRC sends out letters in bulk to the risk profile that meet the criteria that they are targeting, often with a suggestion that the taxpayer may not have disclosed all relevant income and hence there could be tax to pay.

These can be quite daunting to receive as the letters put the onus on the taxpayer to determine whether there is anything to disclose and so we would always recommend seeking professional advice if unsure about your obligations/exposure to tax.

Some of the most recent campaigns include:

Pet breeders – dog and cat owners that have failed to declare income from the sale of animals have received letters suggesting that they may wish to make a voluntary disclosure. HMRC have sent letters to regular breeders as well as those that may have just had one or two litters over a period of time, particularly during the COVID pandemic when demand for pets was high.

Persons with significant control (PSC) – HMRC have used information available on Companies House for this campaign, sending letters to individuals who are registered as a PSC asking them to check that all relevant income (including dividends) has been disclosed on their latest tax return, or asking them to check if they should have filed a tax return.

Non-domiciled individuals – HMRC have sent one-to-many letters to those individuals that they believe should have paid the remittance basis charge in 2022-23.

Crypto assets – again, letters have been sent out to individuals whom HMRC believe may have disposed of crypto-assets but have not declared any income or gains on a tax return.

HMRC’s letters are based on information to which they have access, whether from their internal ‘Connect’ AI system or from third party databases and, although often sent out in their thousands, are based on specific criteria and not entirely speculative. In a number of cases, the information may be out of date or incorrect, but the letter should still be considered carefully to determine whether any action needs to be taken.

HMRC also sometimes include a Certificate of Tax Position (CTP) with a request that the taxpayer completes and signs to confirm that they have nothing to disclose. We would not recommend completing these without at least discussing with a professional adviser first, as there is no statutory requirement to do so, and it could leave the taxpayer open to a criminal offence and higher penalties if inaccuracies are later discovered.

Nick Haines nick.haines@hazlewoods.co.uk

Gemma Read gemma.read@hazlewoods.co.uk

Tom Woodcock tom.woodcock@hazlewoods.co.uk

Bernardo Almeida

bernardo.almeida@hazlewoods.co.uk

Nicholas Smail nicholas.smail@hazlewoods.co.uk

Jemma Vaughan

jemma.vaughan@hazlewoods.co.uk

tom.verity@hazlewoods.co.uk

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.