Professional May 2017

Payroll insight

from 2019–20 subject to the development of a robust control regime to manage particular risks and challenges associated with this mode of study. Repayments will be designed to mirror part-time fee loans and the full-time system. Childcare Tax-free childcare is rolling out as planned for working families with children under twelve, providing up to £2,000 a year for each child to help with childcare costs. Parents of younger children will be able to apply first and all eligible parents will be able to benefit by the end of this year. Parents will be able to apply for all of their children at the same time, when their youngest child qualifies. Parents can now sign-up to receive an email update which will notify them when they are able to apply. From September 2017, the free childcare offer will double, from fifteen to thirty hours a week for working families with three- and four-year olds in England; in total, worth up to £5,000 for each child. Dividend allowance Introduced in April 2016, the dividend allowance means that there is no tax payable on dividend payments up to the limit of the allowance, currently £5,000. From April 2018, the allowance will be reduced from £5,000 to £2,000. Any dividends received above this allowance will be taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate tax payers and 38.1% for additional-rate taxpayers. The Chancellor stated that this would reduce the tax differential between the employed and self-employed on the one hand and those working through a company on the other. A £2,000 dividend allowance will continue to mean that 80% of general investors pay no dividend tax, including those with sizeable investments (typically, up to £50,000). Pensions ● State pension age – The first statutory review of the state pension age is taking place and publication is due by May 2017. ● Money purchase annual allowance (MPAA) – The MPAA is the reduced amount of annual allowance of tax-free pensions savings that an individual is permitted if a defined contribution pension fund has been flexibly accessed under the pension flexibility reforms. Documents published alongside the Budget confirmed that the MPAA will

be reduced from £10,000 to £4,000 with effect from 6 April 2017. ● Overseas pension schemes – A number of changes are being made to the tax treatment of foreign pensions to more closely align UK and foreign pension savings. The changes will limit the inconsistencies in the remaining tax treatment of UK and foreign pension savings and, in particular, will address the gaps that arise as a result of only certain parts of the UK tax regime applying to foreign pension schemes. The changes will bring foreign pensions and lump sums paid to UK residents fully into tax. ...remove the defence of having relied on non- independent advice as taking ‘reasonable care’... Transfers to qualifying recognised overseas pension schemes (QROPS) requested on or after 9 March 2017 will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area or the QROPS is provided by the individual’s employer. If this is not the case, there will be a 25% tax charge on the transfer and the tax charge will be deducted before the transfer by the scheme administrator or scheme manager of the pension scheme making the transfer. As a result of these changes, an overseas scheme cannot be a QROPS unless the scheme manager has given HMRC an undertaking that they will operate the new overseas transfer charge and pay this to HMRC when due. For the purposes of these new undertakings only, HMRC will deem existing QROPS to continue to meet the ‘qualifying’ requirement to be a QROPS until 13 April 2017. If by 13 April 2017 HMRC has not received the new undertaking the overseas scheme will automatically cease to be a QROPS. If you are involved with QROPS you can find new and updated guidance in Pension schemes newsletter 85 (March issue). Making tax digital The government will provide an extra year, until April 2019, before making tax digital is mandated for unincorporated businesses

and landlords with turnover below the value added tax threshold. This will provide them with more time to prepare for digital record keeping and quarterly updates. There will also be consultation on the design aspects of the tax administration system, including interest and penalties, with the aim of adopting a consistent approach across taxes. Tax avoidance, evasion and compliance ● Promoters of tax avoidance schemes (POTAS) – New legislation aims to ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business. Legislative amendments have effect from 8 March 2017 for the purpose of determining whether a person should be treated as meeting a threshold condition. ● Strengthening tax avoidance sanctions and deterrents – A new penalty will be introduced for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements. ● Compliance – The government is aware that some employers pay image rights in respect of employees under separate contractual arrangements to employment income. HMRC will publish guidelines for employers who make payments of image rights to their employees to improve the clarity of the existing rules. This ‘clarity’ seems to be directed in particular at certain football clubs that have been receiving media attention regarding image rights and tax avoidance. Consultations in the pipeline The government also published an annex which set out forthcoming consultations and calls for evidence which may affect payroll and employers. The following were to be published on 20 March: employer-provided accommodation, employee business expenses, taxation of benefits in kind and digital tax administration. And expected in the summer: HMRC large business risk review and tackling disguised remuneration avoidance schemes. n

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Issue 30 | May 2017

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