2014 Autumn Statement - Update

We recently sent you our Autumn Statement summary. Draft legislation has now been published and we are enclosing further information with more detail on specific areas which we thought you might find helpful in answering any queries your clients may have.

The further details cover the following areas:

- changes to the operation of the Construction Industry Sceheme (CIS)

- changes to the IHT trust regime

- offshore tax evasion - enhanced civil penalties

Changes to the operation of THE CIS

The government will implement a package of improvements to the CIS. The aim of the changes is to reduce the administrative burden and related cost burden on construction businesses. The measures should result in more subcontracting businesses being able to achieve and maintain gross payment status so improving their cashflow. These changes are to be implemented in stages by the issue of Statutory Instruments.

From 6 April 2015 the following amendments will be made to the system:

- The requirement for a contractor to make a return to HMRC even if the contractor has not made any payments in a tax month will be removed. Contractors may make a voluntary nil return but will no longer be obliged to do so.

- The requirements for joint ventures to gain gross payment status will be relaxed where one member already has this status and that firm or company has a right to at least 50% of the assets or the income or holds at least 50% of the shares or the voting power in the joint venture.

- Earlier repayments can be made to liquidators in insolvency proceedings. Currently where a subcontractor is a company, no repayment of any amount deducted and paid over to HMRC by a contractor can be made to the subcontractor until after the end of the tax year in which the deduction was made. These rules will be amended so that in certain cases where the amount deducted by the contractor is excessive, a repayment can be made during the tax year.

From 6 April 2016 further changes are proposed:

- Mandatory online filing of CIS returns will be introduced with the offer of alternative filing arrangements for those unable to access an online channel by reason of age, disability, remote location or religious objection.

- The directors’ self assessment filing requirements will be removed from the initial and annual compliance tests.

- The threshold for the turnover test will be reduced to £100,000 in multiple directorship situations.

From 6 April 2017 mandatory online verification of subcontractors will be introduced.

Changes to the IHT Trust Regime

The Autumn Statement announced that a ‘single settlement nil rate band’ was not to be introduced. Although most taxation practitioners are supportive of the idea of simplification, they were generally opposed to HMRC’s proposals. The government is however concerned with the tax loss arising through the use of multiple trusts and has now issued further draft legislation for inclusion in FB 2015.

The proposals are much more targeted than the previous proposals. The aim is to stop people being able to access multiple nil rate bands by setting up multiple trusts on different days and then adding property to each of them on the same day.

The current rules on ‘related settlements’ will remain. Trusts created on the same day will continue to be classed as related for the purposes of calculating the rate of tax applicable to relevant property trusts. This regime is easily avoided by setting up ‘pilot trusts’ with a nominal amount of funds on different days. Substantial funds can then be added to each of these trusts at a later date, but on the same day.

The new proposals will mean that where property is added to two or more settlements on the same day, the property within the other settlements will also be brought into account for the purposes of calculating the IHT charges.

Part of the government’s original objective was to simplify the IHT trust rules. The proposed legislation removes the requirement to include non-relevant property in the calculation of the ten year and the exit charges.

Operative date

The anti-avoidance measure will apply to all charges arising on or after the proposed commencement date of 6 April 2015 in respect of relevant property trusts created on or after 10 December 2014.

To prevent forestalling, it will also apply to relevant property trusts created before 10 December 2014 where there are additions made to more than one trust on the same day.

The new rule about additions to existing trusts will not apply to a will executed before 10 December 2014 but this exclusion will be limited to deaths before 6 April 2016. This is to allow a period of time for those affected to change their will and avoid unwanted tax consequences.

The new rules which ignore non-relevant property in the calculation of the rate of charge on a 10 year anniversary will apply to all charges arising on or after 6 April 2015 regardless of when the trust was created.

Offshore tax evasion – ENHANCED CIVIL PENALTIES

More detail has been provided on the enhanced civil penalties for offshore tax evasion. The legislation will be introduced in FB 2015.

The existing offshore penalties regime will be amended to:

- include IHT

- apply to domestic offences where the proceeds of non-compliance are hidden offshore

- update the territory classification system to reflect the jurisdictions that adopt the new automatic exchance of information standard under the Common Reporting Standard ('CRS')

- include a new aggravated penalty of a further 50% of circumventing the CRS by moving hidden funds to jurisdictions not committed to it.

The changes will come into effect from April 2016, except for the aggravated penalty which will come into effect following Royal Assent.

For more information, please contact us.

2014 Autumn Statement - Update

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