Tax Connect – October 2015
Update on the Scottish Rate of Income Tax
The Scottish Rate of Income Tax (SRIT) will come into effect on April 6th next year and, depending on the rate at which it is set, it could have a real impact on whether Scotland becomes more – or less -attractive as a place to work. Given the shortage of skilled workers in several sectors, this could have a significant impact on our economy, one way or another.
A key question for many people is – am I a Scottish taxpayer? An even bigger question may be – do I want to be a Scottish taxpayer? That question cannot be answered until the Scottish rate of income tax is announced.
Draft guidance has recently been published by HMRC detailing how they will determine if you are a Scottish taxpayer. First and foremost you must be UK resident for tax purposes, a complex decision process in itself. After that you must meet one of the following three conditions:
- You are a member of the Scottish parliament
- You have a ‘close connection’ with Scotland
- If you have no ‘close connection’ then you spend more days in the tax year in Scotland than in any other part of the UK.
Many people may want to claim that they have a ‘close connection’ with Scotland, but in this context it means you have only one residence and that residence is in Scotland. If you have more than one residence, one of which is not in Scotland, then it will be necessary to establish which residence is your main residence.
SRIT may have a significant influence on the availability of skilled workers in Scotland. The rate will apply to non-savings income. If set below 10% (the amount by which the UK income tax rate will be reduced before adding the SRIT) then Scotland may attract more professionals and academics to work here. If set above 10% the converse may apply, and many non-skilled workers may also choose to move south of the border if a more attractive tax regime is in operation there.
An interesting example in the guidance relates to students coming to study in Scotland. If that student has a job here to help fund their studies and, therefore, does not travel home in between terms, then they will most likely be considered a Scottish taxpayer. Will this influence students in coming to study in Scotland?
Employers need to be prepared to apply the SRIT through their payroll. This will be effected by the issue of appropriate PAYE codes. It is not clear at the moment how an individual can challenge HMRC’s decision on their tax status. Do they appeal their PAYE code? Further guidance is required.
For the majority of individuals their status will be straightforward. As always with tax legislation the difficulty will be in determining the status of the few complex cases and the draft guidance fails to address some of these areas, particularly in relation to someone who may only be UK resident for part of the year. It will be important to keep records to support your position.
The Scottish Rate of Income Tax, together with changes to the taxation of savings income and dividends all commencing 6 April 2016, will make a big difference for many people to their take home pay and for some, where they call home.
Annual Tax on Enveloped Dwellings (ATED)
The annual tax on enveloped dwellings (ATED) is a tax that applies specifically to high value UK residential property which is owned, completely or partly by a company, a partnership (where one or more of the partners is a company), or a collective investment vehicle such as a unit trust or collective investment scheme, with effect from 1 April 2013. This tax is payable each year.
ATED is payable by companies or partnerships with a corporate member that own UK residential property (a dwelling) valued above a certain amount. This tax is payable each year.
Most residential properties are owned directly by individuals. However in some cases a dwelling may be owned by a company or partnership with a corporate member and in these circumstances the dwelling is said to be “enveloped” because the ownership sits within a corporate “envelope”.
An ATED return will need to completed if the property:
- Is a dwelling
- Is in the UK
- Was valued at more than £2m on 1 April 2012 or at acquisition if later for returns for 2013 and 2014
- Was valued at more than £1m on 1 April 2012 or at acquisition if later for returns for 2015
- Was valued at more than £500k on 1 April 2012 or at acquisition if later for returns for 2016
- Is owned completely or partly by a company or a partnership where one or more of the partners is a company
The amount of ATED payable is based on property values by reference to a banding system. Please refer to tables below.
Clients need to self-assess the value of a property. They can do this themselves or obtain a valuation from a professional valuer. The valuation is reported on the ATED return. Valuations must be on an open market, willing buyer willing seller basis. The value should be a specific price, an “in the range of valuation” is not acceptable.
The value of the property is its value at 1 April 2012, or its value when it was acquired, built or converted if later.
Chargeable amounts for chargeable period 1 April 2015 to 31 March 2016
Property value Annual chargeable amount 2015 to 2016
More than £20m £218,200
More than £10m but not more than £20m £109,050
More than £5m but not more than £10m £54,450
More than £2m but not more than £5m £23,350
More than £1m but not more than £2m £7,000
Chargeable amounts for chargeable period 1 April 2016 to 31 March 2017
Property value Annual chargeable amount 2016 to 2017
More than £20m £218,200 + CPI
More than £10m but not more than £20m £109,050 + CPI
More than £5m but not more than £10m £54,450 + CPI
More than £2m but not more than £5m £23,350 + CPI
More than £1m but not more than £2m £7,000 + CPI
More than £500k but not more than £1m £3,500
Consumer Prices Index (CPI)
Returns and payment
If a dwelling falls within the scope of ATED, then regardless of any reliefs that may apply, an ATED returns needs to be completed and submitted to HMRC. Any reliefs that may be due are claimed on the ATED return.
If a property is owned on the first day of a chargeable period, the ATED return and payment must be made by 30 April at the beginning of each ATED period. An ATED period lasts for one year and begins on 1 April.
For the ATED period 1 April 2015 to 31 March 2016 both the return and payment are due by 30 April 2015. For the 2015 to 2016 period , ATED returns for properties falling within the new £1m to £2m band are due by 1 October 2015 and payment by 31 October 2015.
For the ATED period 1 April 2016 to 31 March 2017 both the return and payment are due by 30 April 2016.
If a dwelling first falls within ATED on a date after 1 April in an ATED period, then the return and payment are due within 30 days where purchased or 90 days where the dwelling is newly built. For example a dwelling purchased on 1 August would have a return and payment due by 31 August.
The ATED may apply on a proportionate basis calculated by reference to the number of days the property is within the ATED regime, for example, where it is only owned for part of the year or its use changes.
Late returns and payment may be subject to penalties and interest.
There are reliefs that could reduce the tax completely but you can only claim them if you complete and send in a return.
See the following link to the return portal on the gov.uk website which has only just been announced – https://www.gov.uk/government/publications/annual-tax-on-enveloped-dwellings-relief-declaration-returns
There are also a number of exemptions from the tax, such as, charitable companies using the dwelling for charitable purposes, which mean that a return may not have to be filed.
Clients who fall within the ATED regime may wish to consider de-enveloping a property by taking the property into personal ownership depending on their circumstances and we can assist you in reviewing and costing your options.
Employee Share Schemes – failure of the new HMRC online system
As you’ll be aware, the new online filing process for share scheme returns, ERS Online, was introduced earlier this year.
HMRC had set a deadline of 6 July 2015 for companies operating share schemes to complete the share scheme registration process and submit their returns online.
ERS Online was launched almost a year prior to the deadline to enable companies to ensure their schemes were registered well in advance of the filing deadline. However, there were IT issues around the deadline date and the system was forced to be suspended whilst these were investigated. Given these issues, HMRC extended the deadline to 4 August 2015.
HMRC have recently announced that they have been unable to extract all of the data submitted via ERS Online before 20 July for up to 3,500 employee share scheme returns.
As a result, they will now be in contact with the companies concerned by letter, most likely addressed to the Company Secretary, to alert them to this failure and request that the returns are resubmitted. The letters will be issued to the companies even where the return was submitted by an agent.
HMRC have confirmed that companies affected will not be liable for late submission penalties, as the original submissions were properly made within the period given.
As HMRC will not notify us directly if a share scheme return has been accurately received, we would request you contact us if you receive a letter. This will allow to resubmit the necessary returns to meet the company’s filing obligations.
The content of the newsletter should be treated as general information and is not mean to be a substitute for taking specific professional advice.