1.    Spring Statement, NIC and dividend rates increase

Spring statement

On 23rd March, the Chancellor delivered his Spring Statement, and much of his speech to the House of Commons centred on taxation reform. His new ‘Tax Plan’ focuses on three key areas:

• Measures to help families and lower paid workers with the rising costs of living; 
• Measures to boost investment, innovation and growth in the private sector; and 
• “Sharing the proceeds of growth fairly.”

To learn more about what this could mean for people and businesses across the UK, please click here. 

NIC and dividend rates increase

From April 2022, NIC rates will be temporarily increased by 1.25% and from April 2023, this increase will be replaced by the Health and Social Care Levy on earned income which will also be applicable to employees over the state pension age. The 1.25% increase will apply to Class 1 employee and employer NICs, Class 4 NICs paid by the self-employed as well as Class 1A and Class 1B NICs paid by the employer.  Alongside these changes on social security, the government has also announced a 1.25% increase in dividend tax rates from 1 April 2022 (the £2k dividend allowance will remain).

Our team has written an article with further detail about these changes and the expected impact. Please feel free to read it here.

In light of the changes, we consider that it is particularly important to prepare for an increase in NIC costs from April 2022 i.e. payroll software and processes should be updated to accommodate for the changes and to the extent that there are any expatriate assignments then the increased costs and associated policies should be considered. We are happy to help you navigate through these new changes – please feel free to let us know if you have any questions in relation to these measures. 

2.    New tax regime for Qualifying Asset Holding Companies

The new tax regime for Qualifying Asset Holding Companies ("QAHCs") will be introduced in the UK on 1 April 2022. A key aim of this regime is to boost the UK's competitiveness as a location for asset managers and investment funds. Luxembourg, Jersey, Guernsey, and the Cayman Islands are current popular locations due to a number of reasons. It is yet to be seen whether many companies would choose to adopt the new UK regime - the idea is a very topical subject at the moment amongst asset managers. Click here for further details of the regime including tax considerations and how A&M can help. 

Please note that A&M has also reviewed HM Treasury’s responses to the ‘Review of the UK funds regime: a call for input’ published in February 2022, which can be found here and we will provide a further detailed update on this separately in the next briefing note.

3.    HMRC updated guidance on carried interest

Section 103KE of the Taxation of Chargeable Gains Act (“TCGA”) 1992, which forms part of the “Capital Gains Tax (“CGT”) carry” rules contains provisions which prevent carried interest from being taxed twice.

Broadly, where “tax” - such as income tax - has been paid on carried interest - for example, where the carried interest takes the form of dividend or interest income - this “tax” can be credited when calculating CGT payable by the carried interest holder under the CGT carry rules. This effectively has ensured that the carried interest is not subject to double taxation under, for example, income tax and CGT.

On 19 January 2022, HMRC updated the ‘Investment Funds Manual’ IFM37410 - Prevention of double taxation: Introduction - to indicate that “tax” in relation to section 103KE TCGA 1992 now only relates to UK tax. Consequently, based on this update, UK taxes should be the only taxes which can be credited under the CGT carry rules.

This change may have a particular impact on Fund Executives who are UK tax resident but are also US taxpayers.

We understand that The British Private Equity & Venture Capital Association are due to meet HMRC later this month and we will provide an update on any developments in due course.
 

4.    A reminder for Employment-Related Securities Annual Returns due by 6 July 2022 for reportable events in the 2021/22 tax year

Employers that have awarded securities, including carried interest and co-investment entitlements to employees including directors and salaried members should consider whether they need to report these on their Employment Related Securities return (previously called ‘Form 42’) due on the 6 July following the end of the tax year of such activity. For reportable events in the 2021/22 tax year, the returns need to be filed by 6 July 2022. 

A&M can provide advice and support to employers in respect of the ERS reporting process including:

• Assessing whether returns are required;
• Electronic registration;
• Preparation of online returns;
• Online submission; and
• Provision of guidance i.e. addressing any of your queries when it comes to submitting the form.

We can also help employers adopt robust compliant processes going forwards in relation to the tax treatment of such entitlements, valuation and reporting such that they are ready for any due diligences or HMRC enquiry.