FINANCE BILL 2017

Exclude asset leasing and on-lending, to ensure the scheme is well targeted – (investment in nursing homes and residential care homes will be excluded initially), however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future and also to exclude the use of money raised under the SITR to pay off existing loans.

To clarify that individuals will be eligible to claim relief under the SITR only if they are independent from the social enterprise.

Introduce a provision to exclude investments where arrangements are put in place with the main purpose of delivering a benefit to an individual or party connected to the social enterprise.

The changes will take effect for investments made on or after 6 April 2017.

Tax-Advantaged Venture Capital Schemes

The Government will amend  the requirements of the Enterprise Investment Scheme (EIS), the Seed  Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs).  These amendments are as follows:

To clarify the EIS and SEIS rules for share conversion rights – (the rights to convert shares from one class to another), will be excluded from being an arrangement for the disposal of those shares within the no pre-arranged exits requirements for the EIS and SEIS for shares issued on or after 5 December 2016.

To provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017.

To introduce a power to enable VCT regulations to be made in relation to certain share for share exchanges to provide greater certainty to VCTs, which will take effect on the date from which Finance Bill 2017 receives Royal Assent.

EMPLOYMENT AND BENEFITS IN KIND

Alignment of dates for making good on benefits in kind (BiKs)

The government will legislate to align the dates for making good on BiKs, where an employee makes a payment in return for the BiK they receive.  This has the effect of reducing the taxable value of the BiK, often to zero.

The government concluded that 6 July following the end of the tax year is an appropriate date, so the taxable value of the BiK will be reduced or removed if making good takes place by that date.

The change will affect making good on a tax liability arising in the tax year 2017 to 2018, and subsequent years.

Optional Remuneration Arrangements (Salary Sacrifice)

Income Tax and employer National Insurance contributions (NICs) advantages will be removed where BiKs are provided through salary sacrifice or other optional remuneration arrangements.  These changes will take effect from 6 April 2017.

A transitional rule will protect employees who are in contractual arrangements before 6 April 2017 until the earlier of a variation or renewal of the contract or 6 April 2018, except for cars with emissions above 75g CO2 per kilometre, accommodation and school fees for which the final date is 6 April 2021.  Employer-provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries, cycle to work schemes and ultra-low emissions cars, with emissions not exceeding 75g CO2 per kilometre will be excluded from this measure.

Reform of Tax Treatment of Termination Payments

The government will tighten and clarify the tax treatment of termination payments.  This will include making all contractual and non-contractual payments in lieu of notice taxable as earnings and requiring employers to tax the equivalent of an employee’s basic pay if notice is not worked.  Legislation will also be introduced in the NICs Bill 2017 to align the tax and employer NICs treatment of termination payments so that employer NICs will be payable on the elements of the termination payment exceeding £30,000 on which Income Tax is due.  The first £30,000 of a termination payment will remain exempt from Income Tax and NICs.  The changes, including to Foreign Service Relief, will take effect from 6 April 2018.  Following consultation on the draft  legislation, the government will include legislation to abolish Foreign Service Relief in Finance Bill 2017-18.

Off-Payroll working in the public sector

The government will reform the off-payroll rules and improve compliance in the public sector.  Responsibility for operating the off-payroll working rules, and deducting any tax and NICs due, will move to the public sector body, agency or other third party paying an individual’s personal service company.  The change will come into effect from 6 April 2017 and apply across the UK.

It will be optional for the agency or public sector body to take account of the worker’s expenses when calculating the tax due.  This change would put these workers in the same position as other employees, whose employers can choose whether or not to reimburse the expenses they incur.  This will not affect the individual’s right to claim tax relief on legitimate employment expenses from HM Revenue and Customs (HMRC).  The application of the rules to Parliament and statutory auditors will also be clarified.

Tackling disguised remuneration avoidance schemes

The governmnet will tackle existing and prevent future use of disguised remuneration avoidance schemes.  This will ensure scheme users pay their fair share of Income Tax and NICs.  The future use of schemes will be prevented by strengthening the current rules.  The existing use of schemes will be tackled by the introduction of a  new charge on disguised remuneration loans that were made after 5 April 1999 and remain outstanding on 5 April 2019.  Legislation will  also be introduced to ensure there is no double taxation.

Revisions are encted to ensure the loan charge and the exclusions operate as intended.  The close companies’ gateway will now be introduced in Finance Bill 2017-18 to commence from 6 April 2018.  This will allow for further consultation to ensure it is appropriately targeted at disguised  remuneration schemes.  Proposals on how the tax and NICs arising from the changes will be collected will be set out in a technical consultation later in 2017.  Further detail on the revisions can be  found in the technical update.

The Government will tackle existing and prevent future use of similar schemes used by the self-employed.  Legislation preventing the future use of these schemes will have effect from 6 April 2017.  The existing use of schemes will also be tackled by the introduction of a new charge on outstanding disguised remuneration loans.  This loan charge will operate in a similar way to the employment loan charge outlined in the technical consultation.  It will have effect from Royal Assent of Finance Bill 2017.

Legislation will be introduced to prevent employers claiming a deduction when computing their taxable profits for contributions to a disguised remuneration scheme unless Income Tax and NICs are paid within a specified period.  This will have effect for contributions made on or after 1 April 2017  (for Corporation Tax purposes) or 6 April 2017 (for Income Tax  purposes).

Life Insurance Policies – part surrenders and part assignments

The government will change the current tax rules for part surrenders and part assignments of life insurance policies to allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis.

PENSIONS TAX

Reducing the money purchase annual allowance

The government will legislate to reduce the money purchase annual allowance to £4,000 from April 2017.  This restricts the amount of tax relieved contributions an individual can  make in a year into a money purchase pension, if they have flexibly accessed their pension savings.

Changes to tax treatment of foreign  pension regimes

The government will legislate to more closely align the treatment of  foreign pensions with the UK’s domestic pension regime.  It has been revised to set out  the position for defined benefit specialist pension schemes for those employed abroad (Section 615 schemes) and clarify that all lump sums paid out of funds built up before 6 April 2017 will be subject to existing tax treatment.  These changes will have effect from 6 April 2017.

Qualifying recognised overseas pension schemes (QROPS): introduction of a transfer charge

The government will legislate to apply a 25% tax charge to pension transfers made to QROPS.  Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension, where:

both the individual and the pension scheme are in countries within the European Economic Area (EEA) or if outside the EEA, both the individual and the pension scheme are in the same country, or the QROPS is an occupational pension scheme provided by the individual’s employer.

If the individual’s circumstances change within 5 tax years of the transfer, the tax treatment of the transfer will be reconsidered.  The changes will take effect for transfers requested on or after 9 March 2017.

The government will apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a qualifying recognised overseas pension scheme. UK tax rules will apply to any payments made in the first 5 full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.

CORPORATION TAX

Offshore Property Developers

The government will amend the legislation on profits from trading in and developing land in the UK at sections 76 – 80 Finance Act 2016 to tax all profits arising on or after 8 March 2017.

Reform of the Substantial Shareholdings  Exemption

The government will legislate to simplify the rules, remove the investing company requirement within the Substantial Shareholdings Exemption, and provide a more comprehensive exemption for companies owned by qualifying institutional investors.  The changes will take effect  from 1 April 2017.

Loss relief reform

The government will reform the rules governing corporate losses carried forward from earlier periods.  The reform will:

Give all companies more flexibility by relaxing the way in which they can use losses arising on or after 1 April 2017 when they are carried forward – these losses will be usable against profits from different types of income and profits of other group companies.

Restrict the use of losses carried forward by companies so that they can’t reduce their profits arising on or after 1 April 2017 by more than 50% – this restriction will apply to a company or group’s profits above £5 million – carried forward losses arising at any time will be subject to the restriction.

The legislation published on 26 January will be revised to include provisions for oil and gas companies and oil contractors.  The loss relief reform will take effect from 1 April 2017.

Northern Ireland Corporation Tax change

The government will amend the Northern Ireland Corporation Tax to give all small and medium sized enterprises (SMEs) trading in Northern Ireland the potential to benefit.  Other amendments will minimise the risk of abuse and ensure the regime is ready for commencement if the Northern Ireland Executive demonstrates its finances are on a sustainable footing.

Corporation Tax – Hybrids and other mismatches

The government will make 2 minor changes to the hybrid mismatch regime.  The first change removes the need to make formal claim in relation to the permitted time period rules in chapter 3 and 4 of Part 6A Taxation (International and Other Provisions) Act 2010 (TIOPA 2010).

The second change provides that deductions for amortisation are not treated as relevant deductions for the purposes of chapter 5 to 8 of Part 6A.

The hybrid rules tackle aggressive tax planning, typically involving multinational groups, where either one party gets a tax deduction for a payment while the other party doesn’t pay tax on the receipt, or where there is more than one deduction for the same expense.  The changes will be effective from 1 January 2017.

Corporation Tax relief for museums and galleries

The government will introduce a new tax relief for museums and galleries who develop new exhibitions including those that are toured.  The rates for the relief as 25% for touring exhibitions and 20% for non-touring exhibitions.  The relief will allow museums and galleries to claim a credit worth up to £100,000 on exhibitions that are toured and £80,000 on  non-touring exhibitions.  The maximum credit allowable is the equivalent of qualifying expenditure of £500,000.  The legislation will be  revised to allow for exhibitions which have a live performances as part of the exhibition (but where a live performance is not the main focus of the exhibition).

The measure will take effect from 1 April 2017.

Corporation Tax deduction for contributions to grassroots sport

The government will expand the circumstances in which companies can get deductions for contributions to grassroots sports.  Following consultation, the legislation has been amended to extend  the treatment of a sport governing body to its 100% subsidiaries.  This measure will have effect from 1 April 2017.

Corporation Tax: Patent Box – cost sharing arrangements

The government will add specific provisions to the  revised Patent Box rules introduced in Finance Act 2016, covering the case where Research and Development (R&D) is undertaken collaboratively by 2 or more companies under a cost sharing arrangement.  The provisions will ensure that companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way.  These changes will take effect on or after 1 April  2017.

Corporation Tax: tax deductibility of  corporate interest expense

The government will introduce legislation with effect from 1 April 2017 to limit the tax deductions that companies can claim for their  interest expenses.  The new rules will restrict each group’s net deductions for interest to 30% of the earnings before interest, tax, depreciation and amortisation (EBITDA) that is taxable in the UK.  An optional group ratio rule, based on the net-interest to EBITDA ratio for the worldwide group, may permit a greater amount to be deducted  in some cases.  The legislation also provides for repeal of the existing debt cap legislation and its replacement by a modified debt cap which will ensure that the net UK interest deduction doesn’t exceed the total net interest expense of the worldwide group.  All groups will be able to deduct up to £2 million of net interest expense per annum, so groups below this threshold will not need to apply the rules.

Certain unintended restrictions arising from the modified debt cap that could prevent deductions for carried forward interest expense will be removed.

The optional alternative rules for public infrastructure will be easier to apply in practice – there will be no need to compare the level of indebtedness of companies qualifying for these rules with that of non-qualifying group companies, such as those outside the UK, transitional rules will apply in the first year so that business have time to restructure if necessary to qualify for the alternative rules.

The rules treat interest on debt guaranteed by related parties as related party interest, which can be subject to restriction – this rule will not apply to certain performance guarantees and all guarantees granted before 31 March 2017, nor will it apply to intra-group guarantees in the context of the group ratio rule.

The definition of interest will include income and expenses from dealing in financial instruments as part of a banking trade.

Rules will be introduced for insurers regarding the calculation of interest on an amortised cost basis to provide a practical alternative to fair value accounting.

Tax treatment of appropriations to trading stock

The government will remove the ability of businesses with loss-making capital assets to obtain an unfair tax advantage by converting those losses into more flexible trading losses.  The changes will take immediate effect from Budget on 8 March 2017.

Oil and gas – Petroleum Revenue Tax regime administrative savings

The government will simplify the process for opting fields out of the Petroleum Revenue Tax (PRT) regime.  It will also simplify certain reporting requirements for those participators who remain in the PRT regime by removing some elements which are no longer relevant.  The legislation will have retrospective effect from 23 November 2016.

INHERITANCE TAX

Reform of domicile rules and Inheritance Tax

From April 2017 non-UK domiciled individuals (‘non-doms’) will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years.  Additionally, individuals who were  born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax  purposes while they are UK resident.  Non-doms who set up a non-UK  resident trust before becoming deemed domiciled in the UK will not be  taxed on any income and gains retained in that trust.

Inheritance Tax (IHT) on UK residential property, the limit below which minor interests in UK property are disregarded has been increased from 1% to 5% of an individual’s total property interests.

From April 2017 IHT will  be charged on all UK residential property even when indirectly held by a non-dom through an offshore structure.

Non-doms will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed.  Following consultation on the draft legislation this will be extended by government amendment to income, gains and capital held in mixed funds from years before 2007 to 2008, as well as those from subsequent years.

Those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to  treat the cost base of their non-UK based assets as the market value of that asset on 5 April 2017.

INSURANCE PREMIUM TAX

Insurance Premium Tax

The government will increase the standard rate of Insurance Premium Tax (IPT) by 2% from June 2017.  It will also repeal the current anti-forestalling legislation in sections 67 to 67C of the Finance Act 1994 and  introduce anti-forestalling legislation to take effect from 8 March  2017.

INDIRECT TAX

Landfill Tax – definition of taxable disposal

The Governmnet will amend the definition of a taxable disposal for Landfill Tax.  The changes clarify the tax treatment of  material disposed of at landfill sites and give greater certainty to landfill site operators.  The measure will come into effect after Royal Assent of Finance Bill 2017 and the changes will apply to disposals to  landfill in England, Wales and Northern Ireland.

Fulfilment House Due Diligence  Scheme

The government will legislate for the Fulfilment House Due Diligence Scheme (FHDDS) in Finance Bill 2017.  The draft legislation was published for consultation on 5 December 2016.  The scheme will require all UK fulfilment houses to register with HMRC from 1 April 2018 and comply with record-keeping and due diligence standards.  Following the consultation, the draft legislation has been revised to  provide for a disclosure gateway that will permit HMRC to disclose  taxpayers’ information to fulfilment houses for the purpose of  meeting their obligations under the scheme.

 EXCISE DUTIES

Minimum Excise Tax

The Minimum Excise Tax (MET) will be set at £268.63 per 1000 cigarettes.  It will take effect  from 00:01am on 20 May 2017.  A MET sets a minimum level of total duty for all packets of cigarettes, which will tackle the very cheapest cigarettes.  This change applies to cigarettes sold in the UK.

Gaming Duty

The government will raise the Gross Gaming Yield (GGY) bandings for  Gaming Duty in line with inflation (based on Retail Prices Index  (RPI)).  The revised GGY bandings used to calculate Gaming Duty must be used for accounting periods starting on or after 1 April 2017.

Remote Gaming Duty: freeplays

The Government will amend the definition of gaming payments and prizes, and change the tax treatment of freeplays, for Remote Gaming  Duty.  The proposed legislation will ensure that, where appropriate, freeplays used to  participate in remote gaming will have a value as stakes when calculating the operator’s dutiable profit, and that freeplays given as prizes will not be deductible.

Soft Drinks Industry Levy

The Government will initiate for the Soft Drinks Industry Levy.  The two thresholds, at 5g and 8g of sugar per 100ml, have been designed so that, by taking reasonable steps to reduce sugar content, UK producers and importers of soft drinks can pay less or escape the charge altogether.  The rates will be 18 pence per litre (ppl) for the main rate and 24ppl for the higher rate.  Following consultation the legislation has been revised to include a criminal offence for evasion of the levy.  The levy will take effect from April 2018.

Air Passenger Duty rates

The Government will increase Air Passenger Duty rates in line with RPI from 1 April 2017.

Alcohol Duty rates

The Government will increase the duty rates on beer, cider, wine  and made-wine and spirits in line with inflation (based on RPI), in  line with previous forecasts.  These changes will take effect from 13 March 2017.

Tobacco Duty rates

The duty rates for all tobacco  products will be increased by 2% above RPI inflation from 6pm on 8 March 2017.

Vehicle Excise Duty uprating

The Government will increase Vehicle Excise Duty (VED) rates for cars, motorcycles and vans registered before 1 April 2017, by the RPI with effect from 1 April 2017.

AVOIDANCE AND EVASION

Disclosure of Indirect Tax Avoidance Schemes

The Government will strengthen the regime for the Disclosure of Indirect Tax Avoidance.  Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the legislation will be extended to include all indirect taxes, including the Soft Drinks Industry Levy.  These measures will come into effect on 1 September 2017.

VAT:  Penalty changes in fraud cases

The Government will introduce a penalty for participating in VAT fraud.

Following consultation on the draft legislation some minor changes have been made to improve the clarity of the measure and also to limit the naming of a company officer to instances where the amount of tax due exceeds £25,000.  The new penalty will take effect once the Finance Bill receives Royal Assent.

Promoters of Tax Avoidance Schemes

The Government will ensure that promoters of tax avoidance schemes can’t circumvent the Promoters of Tax Avoidance Schemes (POTAS) regime by re-organising their business by either sharing control of a promoting business or putting a person or persons between themselves and the promoting business.  This will ensure HMRC can apply the POTAS regime as intended.  The changes will take effect from 8 March 2017.

Strengthening tax avoidance sanctions and deterrents

The Government will introduce a new penalty on those individuals or entities who enable the use of tax avoidance arrangements which HMRC later defeats (‘enablers’).  This new regime reflects an extensive consultation and input from stakeholders.  The legislation will also provide clarification as to what constitutes ‘reasonable care’ in relation to the application of the penalties charged on taxpayers following the defeat of tax avoidance.

The enablers legislation has been revised to provide further detail of when and how the General Anti Abuse Rule (GAAR) Advisory Panel will consider enabler cases.  Further changes have been made to apply the enablers regime to arrangements that seek to avoid NICs, to make consequential changes to the Promoters of Tax Avoidance Scheme legislation and to provide further detail regarding when enablers will be named.  Minor amendments have also been made to further improve the clarity and targeting of both the legislation for enablers and reasonable care.

The changes relating to reasonable care come into effect at Royal Assent and apply to inaccuracies in documents relating to tax periods which begin on or after 6 April 2017.  The penalty for enablers will  apply prospectively to enabling activity after Royal Assent.

Offshore Evasion:  Requirement to correct previous non-compliance

The Government will provide for a new legal requirement for those who have failed to declare UK tax on offshore interests to correct that situation, with tougher sanctions for those who fail to do so before 1 October 2018.  This new ‘requirement to correct’ is expected to come into force when the Finance Bill 2017 receives Royal Assent and will apply to all taxpayers with offshore interests who have not complied with their UK tax obligations as at 5 April 2017.  Following consultation a response document was published on 5 December 2016.  The draft legislation will be revised to ensure the  reasonable excuse provision doesn’t apply where advice is  received from an adviser who is not independent.

TAX ADMINISTRATION

Tobacco: Illicit Trade Protocol – licensing of equipment and the supply chain

The Government will control the  use and ownership of tobacco manufacturing machinery in the UK.  This is to help prevent the illicit manufacture of tobacco products, by providing powers to establish a licensing regime for tobacco manufacturing machinery in secondary legislation.  This will include powers to make provision for forfeiture of unlicensed tobacco manufacturing machinery and penalties for failure to comply with  conditions of the licence.  The powers in the legislation will take effect from the date Finance Bill 2017 receives Royal Assent.

MAKING TAX DIGITAL

Increasing the cash basis entry threshold

The government will increase the trading cash basis thresholds for unincorporated businesses.  Increasing the cash basis thresholds will make it easier for businesses to work out if their expenditure is deductible for tax.  From the 2017 to 2018 tax year the general entry threshold for the trading cash basis will be increased to £150,000.  (For Universal Credit claimants, the entry threshold will be increased to £300,000.)  The exit threshold will be increased to £300,000 for all users of the trading cash basis.

Simplified cash basis for unincorporated businesses

The government will provide a simple list of disallowed expenditure in order to simplify the rules for allowable deductions within the cash basis.  These changes will have effect from April 2017, though for the 2017 to 2018 tax year trading profits can be calculated using either the new rules or the existing rules.

Simplified cash basis for unincorporated property businesses

The government will allow most unincorporated property businesses (other than Limited Liability partnerships, trusts, partnerships with corporate partners or those with receipts of more than £150,000) to calculate their taxable profits using a cash basis of accounting.  Landlords will continue to be able to opt to use Generally Accepted Accounting Principles (GAAP) to prepare their profits for tax purposes.

Those with both a UK and an overseas property business will be able to choose separately whether to use the cash basis or GAAP for each.  Those with a trade as well as a property business both eligible  for the cash basis, will be able to decide separately for each of  these, and persons other than spouses or civil partners who jointly own a rental property will be able to decide individually.

To align the treatment with those who opt to use GAAP, the initial cost of items used in a dwelling house will also not be an allowable expense under the cash basis.  The existing ‘replacement of domestic items relief’ will continue to be available for the replacement of these items when the expenditure is paid.  Interest expense will be treated consistently between those using the cash basis and those using GAAP.  The changes will have effect from 6 April 2017.

Making Tax Digital for Business

The government will implement digital record keeping and updating by businesses, the self-employed and landlords, as part of Making Tax Digital for Business.  As also announced the start date for mandation for unincorporated businesses and landlords with gross income (turnover) below the VAT registration threshold will be deferred until April 2019.  This change will be made through regulations.  The legislation includes powers to make regulations, including on the form and content of periodic updates and ‘end of period statements’.  There are also powers to set out the scope and operation of certain exemptions by regulations.  Following consultation, the legislation published in draft on 31 January 2017 has been revised and expanded to:

Provide explicitly for income-based exemptions to be introduced through regulations.

Allow businesses with profits chargeable to Income Tax to finalise their total income chargeable to Income Tax and National Insurance contributions for any tax year, make a final declaration about this income (outside of any ‘end of period statement’ in relation to business income) and any chargeable gains.  Replicate existing Income Tax compliance powers so that they apply to the Making Tax Digital for Business requirements.

Make miscellaneous consequential amendments to the Taxes Management Act 1970.

Introduce a clause amending Schedule 11 to the Value Added Tax Act 1994, to enable equivalent regulations and exemptions for VAT purposes to those proposed for Income Tax.

Measures unchanged following consultation

The following measures were published for consultation on the draft legislation on 5 December 2016 and following this consultation there has been no significant changes to the legislation, which will  appear in Finance Bill 2017.

Measure details:

Deduction of Income Tax at source from savings income.  Starting rate of savings.

PAYE Settlement Agreements (PSA) – simplifying the process for and clarifying use.

Power to use force to gain entry to vehicles or vessels – Amendment to the Customs and Excise Management Act 1979.  Employer Provided Pensions Advice Exemption.

VAT: Zero-rate on adapted motor vehicles for wheelchair users-reform.

Partial Enquiry Closure Notices.  Assets made available to employees without transfer.

Simplification of exemptions for employee liabilities and indemnity insurance.

Abolition of Employee Shareholder Status tax reliefs.  Personal portfolio bonds – reviewing the property categories.  Authorised Contractual Schemes – Reducing tax complexity for investors.

Personal Tax – Company Car Tax for ultra-low emission cars.

Business Tax – First-year allowances for electric charging points.  Northern Ireland top-up payments.  Corporation Tax charge for financial year 2018.  Business Investment Relief.

Power to examine and take account of goods at any place – Amendment to section 24 of the Finance Act 1994.  Hidden Economy – Data from Money Service Businesses.

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Article written by Haroon Rafique (Principal, Meer & Co Chartered Accountants and Tax Consultants)