KPMG held its UK and Manx Budget Briefing at the Claremont on Friday 18 March, attracting nearly 200 local professionals and business leaders. Given the media coverage immediately following the UK Budget, the audience might have been forgiven for thinking that the session would include a lengthy analysis of the so-called “Sugar Tax”. However, proving that the devil is in the detail, the KPMG team had unearthed some potentially far-reaching issues in the documentation issued by HMRC which had gone largely unnoticed by more mainstream news sources.
Opening proceedings as only he can, Director Greg Jones started his review of the UK Budget by exploring the introduction of the Lifetime ISA. This will permit individuals to save for either a first time house purchase or a retirement pension. The UK Government intend to increase the scheme’s attractiveness by offering individuals a 25% “bonus” on all savings that meet the relevant criteria.
Greg also outlined the proposed new scope of SDLT which sees higher rates applying to “additional” residential properties (either for personal use, or those to be rented out). These rates will affect purchases completed from 1 April 2016 onwards, unless contracts were exchanged prior to 26 November 2015. Greg added that, in addition, SDLT for commercial properties has undergone a makeover - and (inevitably) a slight increase.
Greg concluded by stating: “To tackle what they perceive as historical misuse of Employee Benefit Trusts (“EBTs”), HMRC are proposing that any loan balances outstanding from an EBT to an individual as at 5 April 2019 will be treated as taxable – although the calculation of the sum upon which tax will be due has not yet been made public.” A consultation document is expected in the summer which will hopefully provide more detail.
The next session was presented by David Parsons (Director) who dealt with an unexpected, and potentially very unwelcome, development that will see profits from trading in UK land become fully taxable in the UK. The established position has long been that non-UK resident property companies undertaking work in the UK would pay little, or no, tax in the UK – depending upon whether the non-UK resident company has a place of business in the UK, how much of any profit arising can be said to be attributable to the UK and to what extent the profit would be covered by a Double Tax Treaty.
The new regime will charge to UK Corporation Tax all such profits arising in the UK, regardless of whether there is a UK place of business and what proportion of the profits might otherwise be attributable to UK activities. Needless to say, the new rules will be accompanied by Targeted Anti-Avoidance Regulations (“TAAR”) and came into immediate effect on 16 March (the day of the UK Budget). Interestingly, David explained that new wording for the UK – Isle of Man Double Tax Treaty had also been issued on the same day to specifically remove any shelter from the new scope of UK tax that might otherwise have existed.
Rob Rotherham (Tax Associate Director) tackled the Corporation Tax developments contained within the UK Budget – many of which are linked to the wider legislation relating to the Base Erosion and Profit Shifting (“BEPS”) initiative. He explained that this initiative was likely to see Isle of Man companies becoming less able to benefit from other countries’ tax treaty networks and considered whether the Isle of Man might sign up to a multilateral agreement – thereby limiting the use of Isle of Man treaties by non-Isle of Man residents.
Rob also flagged up “Action 4” of the action plan which proposes a restriction in interest relief available to 30% of Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). This could affect property lending structures if they are not exempted by the ?2m de minimis threshold in respect of net UK interest.
Sandra Skuszka (VAT Associate Director) then delivered an update on VAT issues which centred primarily on anti-avoidance measures (in particular the role of “fulfilment houses”) and changes to Remote Gaming Duty (“RGD”). “Fulfilment houses will typically store bulk orders from non-EU traders and then break them down, which can involve repackaging, for individual delivery within the EU. The intention is that from 2018, fulfilment houses will be required to keep evidence of the due diligence undertaken to ensure their overseas clients are compliant with the relevant VAT legislation.”
Turning to RGD, Sandra noted that, although this was not an Isle of Man duty, it would affect those gaming operators with a UK licence that pay RGD on poker, casino or Bingo. By changing the basis of the RGD to exclude a deduction for anything other than winnings (i.e. the cost of “free plays”) the UK Government is aiming to collect an extra?345m in the next four years.
Greg brought proceedings to a close with an overview of the Manx Budget. Changes will be introduced to permit employers to provide employees relocating to the Isle of Man with more generous financial assistance. The headline figure is an increase in the tax free limit from ?10,000 to ?20,000 but there will also be relaxation in the reimbursement of travel costs and the cost of temporary accommodation.
Greg’s final comment was that, from 6 April 2016, the Assessor of Taxes will be able to charge a penalty of up to 60% of the tax sought under a “Schedule 1” challenge where a transaction has been undertaken deliberately to avoid Manx tax, a rate which, coincidentally, is the same as that applicable under the UK’s General Anti-Avoidance Regulations”.
- Ends -
Image: KPMG tax team pictured from left to right: Rob Rotherham, Greg Jones, Sandra Skuszka and David Parsons
