KPMG presented its annual UK and Manx Budget Tax Update at the Claremont on Wednesday 15 March to over 230 local professionals and business leaders. In keeping with previous sessions, the speakers covered a wide range of topics in addition to the headline Budget commentaries.
Having opened proceedings as only he can, Director Greg Jones started the session with an overview of the 2017 UK Budget. Although the Budget itself might have been short of major new developments in tax, a number of areas were announced which may have direct relevance to Isle of Man residents with UK interests. These included:
changes to the CGT rules on appropriations to trading stock;
the extension of the Finance Act 2016 rules taxing offshore developers of UK property to profits arising from certain pre-5 July 2016 contracts;
a potential 25% tax charge on transfers from a UK registered pension scheme to a Qualifying Recognised Overseas Pension Scheme (QROPS); and
the publication of draft legislation related to ‘protected’ offshore trusts set up by UK residents who may become ‘deemed domiciled’ in the UK on 6 April 2017.
Greg also mentioned the reduction in the UK’s Dividend Allowance, the extent to which ‘salary sacrifice’ schemes can maintain their tax/National Insurance Contributions (NIC) efficient status and the extension of the ‘disguised remuneration’ legislation to encompass loans provided to self-employed workers via trusts.
Picking up on the problems faced by non-UK residents investing in UK property (both commercial and residential), David Parsons (Tax Director) then ran through the increasingly complex tax landscape that needs to be carefully navigated if unexpected tax bills are to be avoided.
He flagged up the proposal that non-resident landlord cases could be brought within the scope of UK corporation tax. While this initially might not appear too onerous, as UK rates of corporation tax are falling, the rules governing loan relationships and corporate interest restriction may be of concern to large groups that hold property in the UK.
David had also prepared ‘The List’. This set out no fewer than 11 different sets of rules and reporting obligations that determine how taxpayers’ information is now being collated, maintained and exchanged on a global basis (and the penalties for non-compliance).
Paul Cawley (VAT Senior Manager) then analysed the possible VAT position in a post-Brexit world. Paul outlined the various options which have been discussed to date at Government level and the customs issues that would arise from each. He stressed that any form of agreement is unlikely to be agreed within at least two years of the Brexit process being completed. To illustrate the point, he talked the audience through the obstacles that might face Isle of Man companies in the absence of trade arrangements.
Returning to the Budget theme, Paul finished his session by highlighting proposed changes to the UK construction sector (under which a recipient would self account for VAT) and a consultation process to consider the introduction of a ‘split payment model’ under which online market places would pay over VAT to HMRC as consumers make online purchases.
Paul was followed by Clare Kelly (Tax Manager) who tackled the topic of the Common Reporting Standard (CRS). Clare’s session set out how the Isle of Man has progressed in establishing a network of some 48 countries with which information will be exchanged, and the reporting deadlines that entities will have to meet in order to remain compliant.
Clare ran through a number of areas where it would be easy to make mistakes. This included assuming that the information to be reported under the CRS is the same as for FATCA: it is similar but certainly not identical. For those financial institutions that intend to collate the required information via a software package, she explained the key features that the software will need to include if it is to provide compliant end data.
The morning’s final session was from Rob Rotherham (Tax Assistant Director) who talked through the 2017 Manx Budget. In addition to the routine changes to personal allowances, mortgage/interest relief etc. Rob looked at the proposed increase to the annual tax cap from its current rate of £125,000 to £200,000 in 2020/21.
Although it will be possible to make an election for a five year period in the current year at the current rate - and hence avoid the impact of the increase until 2022/23 - Rob queried whether this increase was in line with the Budget’s underlying message of creating economic growth?
Rob concluded the session by pointing out that, unlike the UK, there had been very little adverse comment arising locally from the proposed increase to NIC payable by the self-employed. This was all the more surprising given that the increases proposed to the Manx rates were actually higher than those put forward in the UK - and which have since been completely withdrawn.
Photo - KPMG Tax Team. From L – R Paul Cawley, David Parsons, Clare Kelly, Greg Jones, Rob Rotherham.