Managing Your Cash Flow
The most important new tax changes for businesses during 2015
9 min read
16 April 2015
With the old adage stating “in this world nothing can be said to be certain, except death and taxes”, Real Business looks at all the important changes to the tax structure implemented at the start of the financial year.
From corporation tax to National Insurance, tax is a consideration all business owners and leaders must be firmly on top of.
Some move in a favourable direction for businesses, while others in one less so. To help you stay on top of the most important changes, we’ve documented nine alterations.
Corporation tax falls to 20 per cent
As one of the hallmarks of the coalition government, corporation tax has been in steady decline since 2013. Back then it stood at 28 per cent, before a drastic haircut took it to 24 per cent in April of that year. In 2014 another three per cent was taken off and now, as of 1 April 2015, it sits at 20 per cent – the lowest in the G7 and below that of Luxembourg.
Speaking back in 2013 when he kickstarted his corporation tax cut change, chancellor George Osborne said: “I want to send a message to anyone that wants to set up business here, or create jobs here, that Britain is open for business.”
The development has been widely popular, and means it sits well below that of European counterparts Germany (29 per cent) and France (33 per cent). However, with Irish corporation tax only 12.5 per cent, there will still be calls to keep it falling.
Labour has already indicated in its new manifesto that the rate would be going back up to 30 per cent for larger businesses, but remain at 20 per cent for smaller ones.
High street small businesses get £1,500 boost
Announced as part of Osborne’s last Autumn Statement before the general election, in December, this initiative added £500 to the business rate discount for retail, food and drinks businesses on the high street.
Some 30,000 eligible businesses located in properties with a rateable value below £50,000 were already taking advantage of the discount.
Local authorities will now apply the discount to business rates bills, with full reimbursements for this relief then available through state aid grants. It will be available for one year.
Diverted profits tax introduction
Aimed firmly at global technology businesses such as Google and Facebook, which are making big money in the UK but shifting profits overseas, this policy was unexpected when revealed at the end of 2014.
Osborne stated then that: “The UK will become the first to make sure that big multinationals pay their share of tax”. The so-called “Google tax” will be a 25 per cent tax on UK profits that were previously being artificially shifted out of Britain.
In October 2014 it was revealed that US social media giant Facebook had paid no UK corporation tax for a second successive year, after reporting a pre-tax loss of £11.6m in Britain.
HMRC has said the main objective of the diverted profits tax is to “counteract contrived arrangements” used by large groups (typically multinational enterprises) that result in the “erosion of the UK tax base”.
SME R&D tax credits rise to 230 per cent
In an effort to provide further stimulation to innovation and improvements to technology, R&D tax credits have received a further boost and hare now worth 230 per cent.
Boiled down, that means for each £100 of qualifying costs, a company could have the income on which corporation tax is paid reduced by an additional £130 on top of the £100 spent. Also now in force is an improvement on the above the line credit for large companies from 10 per cent to 11 per cent.
R&D tax credits now do not have a limit on qualifying expenditure.
Away from producing an entirely new product, R&D also includes developing a process or product that already exists in the industry, but where the information to resolve the technological uncertainty is not readily available to them; and making an improvement to an existing product or process, or duplicating an existing product in an appreciably improved way.
Read on to find out about changes to national insurance, expatriate employees and PAYE.
National insurance abolished for under 21s
An initiative that has been longed for since before the coalition came into power, from now on businesses will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the Upper Secondary Threshold (UST) for those employees.
Instead, each will now be required to choose one of seven new National Insurance categories when assessing their secondary contributions. The government has said it’s the employer’s responsibility to ensure the correct category letter has been applied based on the age and circumstances of the employee.
It is hoped that this initiative will help chip away at youth unemployment and encourage small and growing businesses to take on additional staff without having to foot a large initial cost.
Change to share scheme rules for expatriate employees
From now on, the way expatriate employees are subject to UK income tax on restricted shares and share options granted to them under an employer share arrangement will be different.
Previously expatriate staff granted share options or restricted shares as non-UK residents were not subject to UK income tax when these shares were exercised or the share vested. Not any more.
Now any exercising of vesting will restful in a British income tax charge, and the fee will apply to all transactions made after 6 April 2015. As a loophole, employees will be able to pro-rate any UK taxable gain to exclude that part of the gain relating to duties performed outside the UK during a period of non-residence.
Intermediaries must report non-PAYE employees to HMRC quarterly
This new law means that intermediaries (anyone making arrangements for an individual working for a third party) are required to send reports to HMRC about agency workers where they do not operate PAYE.
Counting for intermediaries such as agencies, organisations must return details of all workers placed with clients where they do not operate PAYE on the workers’ payments.
The new rules were introduced as a result of increasing abuse of the use of intermediary status, particularly through the use of false self-employment and supplying UK workers from an offshore location.
Construction Industry Scheme (CIS)
To minimise tax evasion in the sector, under the Construction Industry Scheme (CIS), contractors must now deduct money from a subcontractor’s payments and pass it to HM Revenue and Customs (HMRC).
The deductions count as advance payments towards the subcontractor’s tax and National Insurance.
Contractors must register for the scheme. Subcontractors don’t have to register, but deductions are taken from their payments at a higher rate if they’re not registered.
The ICAEW has stated that HMRC will be operating an “extremely tough” penalty regime for those within the CIS scheme.