A to Z guide to the tax announcements.
Three measures were announced with immediate effect from 23 November:
• first-year capital allowances for electric vehicle charging points: from 23 November 2016 to the end of March 2019, the government will offer 100% first-year allowances to companies investing in charging points for electric vehicles;
• removal of tax relief linked to employee shareholder status: the tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016 (except where an individual has received independent advice regarding entering into an employee shareholder agreement before 23 November 2016). The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is being used primarily for tax planning instead of supporting a more flexible workforce; and
• opting out of petroleum revenue tax: from 23 November 2016, the process for opting fields out of the PRT regime will be simplified, by allowing the responsible person for a taxable oil field to remove the oil field from the PRT regime simply by making an election, and certain reporting requirements will also be removed from PRT forms.
The Chancellor of the Exchequer, Philip Hammond, delivered his first (and last, for which see below) Autumn Statement on Wednesday 23 November 2016.
The watchword was ‘productivity’, in particular investing in infrastructure and innovation to provide the foundations to reduce the productivity gap in the UK, which lags behind many of our trading partners. Given reduced growth forecasts and increased borrowing costs caused by sterling depreciation and uncertainty following Brexit, the chancellor is keen to ensure our economy is resilient and match-fit as we exit the EU and transition to the UK’s new status.
From a tax perspective, the government focused on certainty and, as has now become customary, shutting down a number of perceived abuses of the tax system. On the certainty front, the government reconfirmed its commitment to the Business Tax Roadmap, published in March 2016, which includes reducing the rate of corporation tax to 17% by 2020.
The tax announcements have been made, unusually, in two documents:
• the Autumn Statement 2016 document (AS 2016); and
• Tax updates and technical changes document (TUTC 2016).
The second document is stated to be a supplement to the AS 2016 document with updates on tax consultations, confirmations of standard uprating changes and technical changes where there is no substantive policy change.
The government announced that it will be publishing a summary of the responses received in respect of the consultation on how to support regional airports in England from the potential effects of APD devolution. The government does not intend to take any specific measures at this time due to the fact that there is a strong interaction with EU law. However, this area will be reviewed once the UK has left the EU.
See: AS 2016 (para 4.37).
The annual tax on enveloped dwellings (ATED) will only rise in line with inflation for the 2017 to 2018 chargeable period. The previous increase (on 1 April 2015) was much greater.
See: AS 2016 (para 2.6).
FB 2017 will contain provisions that clarify employees will only be taxed on business assets for the period of time the asset is made available for the employee’s private use. This clarification will take effect from 6 April 2017.
See: TUTC 2016 (para 1.3).
As first announced at Summer Budget 2015, the government confirms that the bank levy charge will be restricted to UK balance sheet liabilities from 2021 and that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and non-UK branches. Details will be included in the government’s response to the 2015 consultation, Re-scoping of the bank levy, and legislation is expected to be included in FB 2017/18.
See: AS 2016 (para 4.27).
‘Making good’ on BIKs
As announced at Budget 2016 and following a consultation, FB 2017 will ensure an employee who wants to ‘make good’ (i.e. make payment) on a non-payrolled benefit in kind (in order to reduce its taxable value) will have to make the payment to the employer by 6 July in the following tax year. This legislation will have effect from April 2017.
See: TUTC 2016 (para 1.2).
Valuation of BIKs
The government has announced it will consider how to value benefits in kind for tax purposes. A consultation on employer-provided living accommodation will be published at Budget 2017 alongside a call for evidence on the valuation of all other benefits in kind.
See: AS 2016 (para 4.13).
The reason this was the chancellor’s last Autumn Statement is because the budget timetable is being amended from 2017, so that there will be only one ‘fiscal event’ a year. The plan for the next year or so is:
• 2016/17 tax year: Budget as normal in March 2017, followed by the FB 2017 parliamentary process, with royal assent expected in July 2017;
• 2017/18 tax year: Autumn Budget 2017 followed by publication of Finance Bill 2018 which will go through its parliamentary process and obtain royal assent before April 2018;
• Spring Statement 2018 will be a review of the Office for Budget Responsibility’s report, but should not, barring emergencies, include any tax announcements;
• 2018/19: legislation for Finance Bill 2019 will be published in the summer of 2018, followed by Autumn Budget 2018, with Finance Bill 2019 going through parliamentary process and obtaining royal assent before April 2019; and
• future years will follow the same process as 2018/19.
It has not been made clear what legislation will be published in the summer from 2018 onwards if no tax announcements are made at spring statement time. It may be that this will be legislation that follows consultations that were announced at the previous Autumn Budget, for implementation in the following year (although that would result in a lead time of approximately 21 months between announcement of a tax measure and the enactment of legislation). If the government is going to stick to its promise of one fiscal event, it must avoid the temptation to make significant announcements at ‘legislation day’.
The government announced that to remove the inconsistency between rural rate relief and small business rate relief, rural rate relief will be doubled to 100%.
A business in a rural area with a population below 3,000, will qualify for rural rate relief where it is:
• the only village shop or post office, with a rateable value of up to £8,500; or
• the only public house or petrol station, with a rateable value of up to £12,500.
Presently, local councils can top up the mandatory 50% rate of relief to 100% and give relief of up to 100% to other rural businesses with properties with a rateable value under £16,500.
The government had announced at AS 2015 that it would extend the doubling of the small business rate relief for a further year until 31 March 2017 (it was due to be withdrawn on 31 March 2016).
The measure will be effective from April 2017.
See: AS 2016 (para 4.33) and AS 2015 (para 3.74)
A 100% first-year capital allowance is available for expenditure incurred in the period from 23 November 2016 to 31 March 2019 for corporation tax (5 April 2019 for income tax) on new, unused electric charge-point equipment installed solely for the purpose of charging electric vehicles. This should be a further incentive to businesses to use, or provide to employees, electric vehicles but they should be aware of the short period in which the allowance is available.
In a further measure to incentivise the purchase of cars with low CO2 emissions, new lower company car tax bands will be introduced in 2020/21 for the lowest emitting cars and the percentage for cars emitting greater than 90g/km will be increased by 1%.
See: AS 2016 (para 4.36).
Following an initial consultation at the end of last year and a further more detailed consultation this summer, the government will proceed with its proposal to introduce rules restricting corporation tax deductions for interest expenses from April 2017. The announcement is short on detail but confirms that the rules will limit deductions for net interest expenses to 30% of UK taxable earnings, subject to the ability for multinational groups to deduct net interest expenses up to a higher level based on the net interest to earnings ratio for the worldwide group. Only groups with net interest expenses of more than £2m annually will be affected and the proposed exclusion protecting the provision of finance for public infrastructure projects will be widened. Importantly, the government has confirmed that banking and insurance groups will be subject to the new restrictions in the same way as groups in other sectors.
See: AS 2016 (para 4.24).
Generally, payments made to sports clubs or in connection with sporting events are not likely to be allowable deductions in calculating profits of a trade for tax purposes, as the payments would not normally meet the test of being ‘wholly and exclusively for the purposes of the trade’. However, there are three specific ways in which a deduction can be given:
• sponsorship;
• payments to community amateur sports clubs (CASCs); or
• payments to charitable bodies.
Payments made to CASCs can be deducted as if the CASC was a charitable body and sporting bodies registered as charities can receive payments that can be deducted against the donating company’s tax.
The government conducted a consultation in March 2016, and the chancellor has announced at AS 2016 that in FB 2017 the circumstances in which companies can get corporation tax deductions for contributions to grassroots sport from 1 April 2017 will expand.
See: TUTC 2016 (para 2.2).
As announced at Budget 2016 and following consultation this summer, legislation will be included in FB 2017 that will provide more flexibility on the types of profit that can be relieved by losses incurred after 1 April 2017 and also restrict the amount of losses than can be carried forward to 50% (of profits above £5m) from 1 April 2017.
See: AS 2016 (para 4.25).
The government has stated that legislation will be introduced in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from royal assent of finance Bill 2017.
See: TUTC 2016 (para 6.3).
The existing disguised remuneration rules are to be extended to tackle schemes entered into by the self-employed. Disguised remuneration schemes are artificial arrangements that usually involve an individual’s income being funnelled through a third party, with the money often then being paid to the individual as a ‘loan’ that is never repaid. There is no further detail provided today and indeed no clarification as to whether the new rules will follow those set out in the original consultation document. However the self-employed should review their contracts and documentation to ensure that any genuine commercial transactions may not inadvertently be caught by these rules.
Employers will also be denied tax relief for an employer’s contributions to such schemes, unless tax and NICs are paid within a specified period, in order to deter them from using disguised remuneration schemes.
See: AS 2016 (paras 4.46 and 4.47).
Following the OTS’s March 2016 report highlighting the differences between the income tax and NICs treatment of employee expenses, the government will publish a call for evidence on the use of income tax relief for employees’ business expenses, including those not reimbursed by the employer. This call for evidence will be published at Budget 2017.
See: AS 2016 (para 4.13) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, fourth bullet).
The ability to offer tax-favoured employee shareholder shares (ESS), which is commonly used in private equity company arrangements, has been removed with almost immediate effect. The government has announced the removal of the following reliefs in relation to ESS shares:
• the income tax and NICs relief which applies to the first £2,000 worth of employee shareholder shares received by an individual;
• the capital gains tax exemption in respect of all or a portion of the ESS shares; and
• the provision which ensures that, when a company buys employee shareholder shares back from an employee shareholder, the consideration is not a distribution in the shareholder’s hands.
The changes are in respect of any employer shareholder agreements made on or after 1 December 2016.
Any individual who has received independent advice regarding entering into an employer shareholder agreement before 23 November 2016 has the opportunity to enter into the agreement before 1 December 2016 and still receive the beneficial income and CGT tax advantages. Any individual who receives independent advice on 23 November 2016 before 1:30pm, will have the opportunity to receive the tax advantages currently available provided they enter into the employee shareholder agreement on or before 1 December 2016. As there has to be a minimum seven clear days’ notice between the employee receiving such advice on the implications of employee shareholder status and the issue of the shares, this effectively means that unless employees have already received that advice, no further issues of ESS shares will be possible from today.
The announcement comes following evidence suggesting that the employer shareholders status is being used for tax planning purposes instead of for its originally intended use of supporting a more flexible workforce.
The measure does not affect the availability of the status itself; it simply removes most of the tax benefits associated with accepting the status. However, the government has announced its intention to close the status to new users at the earliest opportunity.
See: AS 2016 (para 4.31) and a policy paper and draft clause which are available on the gov.uk website.
Following a consultation, Strengthening tax avoidance sanctions and deterrents, that ran from 17 August 2016 to 12 October 2016, the government will introduce new penalties for persons who enable other persons or businesses to use tax avoidance arrangements that are later defeated by HMRC.
See: AS 2016 (para 4.48).
The government has announced that it will legislate to provide earlier certainty on individual matters in large, high risk and complex enquiries. No further detail is provided on this announcement, but it is likely to address issues that were highlighted following a 2015 consultation which proposed a new power for HMRC to achieve early resolution and closure. The proposals included payment of any aspect of a tax enquiry even where other issues were left open and the proposal that only HMRC, and not the taxpayer, would be able to seek partial closure was met with ‘overwhelming’ disagreement. HMRC stated that it would develop some alternative models to achieve this result.
See: AS 2016 (para 4.44).
Fuel duty will be frozen again with effect from April 2017.
See: AS 2016 (para 4.35).
Authorised contractual schemes
As announced at Budget 2016 and following consultation, the government has confirmed that it will introduce legislation in FB 2017 and secondary legislation to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS.
Authorised contractual schemes (ACSs) are collective investment schemes that have no legal personality. Participants in an ACS account for tax (and therefore, where appropriate, claim capital allowances) in respect of their investment. ACSs can take one of two forms (a partnership or CoACS). ACSs were introduced in 2013. The consultation related to:
• capital allowances and CoACs (as the usual partnership provisions apply to partnership ACSs); and
• the type of information all ACSs should be required to give to investors and HMRC to enable tax obligations to be met.
The TUTC 2016 suggests that the new rules on information requirements will only apply to CoACSs (and not partnership ACSs).
See: TUTC 2016 (para 2.4).
Authorised investment funds
In a move likely to be welcomed by pension funds and other exempt investors, the government has announced that the rules governing the taxation of dividend distributions paid by authorised investment funds (AIFs) are going to be modernised in a way that enables exempt investors to obtain credit for any tax paid by such funds. Draft legislation is expected in early 2017.
See: AS 2016 (para 4.29).
Offshore funds
Offshore funds are resident in, or based in, a territory outside the UK.
The exact CGT treatment of a participant in an offshore fund depends on whether the offshore fund is a ‘reporting’ fund or a ‘non-reporting’ fund. If the fund has ‘reporting’ status (so that income and gains are reported to HMRC on the participant’s self-assessment), gains realised on disposal of an investment are treated as subject to CGT. UK participants are also subject to UK income tax on ‘reported’ income (even if it is undistributed).
However, if a gain is realised on disposal of investments in a ‘non-reporting’ fund, the gains are known as offshore income gains and are taxed as income.
At AS 2016, it was announced that the government will introduce legislation to ensure that performance fees incurred by offshore reporting funds, and which are calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017. Instead, the fees will reduce any tax payable on disposal gains. This measure will align the tax treatment of onshore and offshore funds.
See: AS 2016 (para 4.32).
At Budget 2016, the government, as it had done in Autumn Statement 2014 and Budget 2015, confirmed that intermediaries will be given a greater role in administering gift aid. It was anticipated that legislation would be introduced in FA 2016 but in the intervening period the government consulted on the gift aid donor benefit rules, but this was inconclusive. A further consultation period ending in February 2017 has been announced. (See: Response to the consultation and further consultation).
It is perhaps as a result of the uncertainty surrounding the issue of gift aid that the chancellor at AS 2016 found it necessary to again announce that the government will continue with its policy to give intermediaries a greater role in administering gift aid in order to assist the process for donors making digital donations.
See: AS 2016 (para 4.17).
As announced at Budget 2016 and following a consultation in August 2016, the government will legislate to extend HMRC’s data-gathering powers. The extension will enable HMRC to collect data from money services businesses (businesses that provide money transmission, cheque cashing or currency exchange services).
The government will, following consultation, consider whether it would be appropriate to make access to licences or services for businesses conditional on the business being registered for tax. It is also intending to develop proposals that will strengthen sanctions for businesses who repeatedly and deliberately participate in the hidden economy. Further details will be included in Budget 2017.
See: AS 2016 (paras 4.55 and 4.56).
The government announced that FB 2017 will make minor changes to the hybrid rules, which will have effect from 1 January 2017 (when the hybrid rules take effect), to ensure the rules work as intended.
See: TUTC 2016 (para 2.5).
The chancellor noted in his speech that the Office for Budget Responsibility has highlighted the growing cost to the exchequer of incorporation as tax revenues are eroded. The government will therefore be considering how to ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base. It will consult in due course on any proposed changes.
In the ordinary course of events donations made to charities are exempt from IHT. Political organisations are not established for charitable purposes and cannot, therefore, be charities. This has been the view of the courts for some time. The Charity Commission endorses the courts’ views that an institution with a political purpose cannot be a charity.
However, despite this view political parties do enjoy a unique position in respect of IHT. Transfers of value are exempt to the extent that the values transferred by a person are attributable to property which becomes the property of a political party qualifying for exemption. A political party qualifies for exemption if, at the last general election preceding the transfer of value, two members of that party were elected to the House of Commons, or one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party (see IHTA 1984 s 24(2) and IHTM11191).
In an extension to this relief, the chancellor at AS 2016 announced that from royal assent of FA 2017 the IHT relief for donations to political parties will apply to parties with representatives in the devolved legislatures through by-elections. This will now regularise the situation with regard to all political parties with elected representatives throughout the UK.
See: AS 2016 (para 4.16).
At Budget 2015, the government announced that it would develop a new competitive corporate structure and tax regime for insurance special purpose vehicles (ISPVs) that issue insurance linked securities (ILS). ILS are a means of transferring insurance risk to capital market investors. The government consulted on its overall approach to the framework for ISPVs in March 2016.
The government has considered responses to the initial consultation and has now launched a further consultation on its proposed regulatory framework for ILS. The consultation includes draft regulations on
• the tax regime (The Risk Transformation (Tax) Regulations 2017); and
• a new corporate structure.
The draft regulations include an exemption from corporation tax for the profits from the activity of insurance risk transformation and remove the obligation to deduct an amount representing income tax on interest paid to investors. The consultation closes on 18 January 2017.
Following the increase in the rate of IPT to 10% with effect from 1 October 2016, the rate will further increase to 12% from 1 June 2017.
See: AS 2016 (para 4.40).
Increase in the annual ISA limit
As announced in Budget 2016, the annual ISA limit will increase from £15,420 to £20,000 for 2017/18.
See: AS 2016 (para 4.18).
Junior ISAs and child trust fund limit
In addition to the increase to the ISA subscription limit from £15,240 to £20,000 announced at Budget 2016, the government announced an uprate to the annual subscription limit for junior ISAs and child trust funds to £4,128, in line with the CPI.
The government had announced at AS 2015 that the jnior ISA and child trust fund annual subscription limits would remain at £4,080 for 2016.17.
The measure will be effective from 6 April 2017.
See: TUTC 2016 (para 1.6) and AS 2015 (para 3.32).
The government announced in Budget 2016 that following consultation, it will amend the definition of a taxable disposal for landfill tax purposes in Finance Bill 2017. This is said to will bring greater clarity and certainty for taxpayers on the landfill tax liability of activities carried out at a landfill site. This will come into effect after royal assent of Finance Bill 2017, on a day to be appointed by Treasury Order.
See: TUTC 2016 (para 3.1).
From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support provided by their employer. Currently only employees requiring legal support because of allegations against them are entitled to this relief.
See: AS 2016 (para 4.12).
Following Budget 2016, the government ran a consultation on part surrenders and part assignments of life insurance policies from 20 April 2016 to 13 July 2016. Currently, a policy holder who surrenders in part or assigns in part a life insurance policy can be subject to disproportionate tax charges. In response to the consultation, the government will legislate in FB 2017 to allow taxpayers to apply to HMRC to have the charge recalculated on a just and reasonable basis. The changes will take effect from 6 April 2017.
See: TUTC 2016 (para 1.4).
The government has announced that it will publish its response to the making tax digital consultations in January 2017, along with provisions to be included in FB 2017 which will implement previously announced changes.
A collection of closed consultations ran from 15 August 2016 to 7 November 2016, following the government’s announcement in Budget 2016 that it would explore options to simplify the tax rules for businesses, self-employed people and landlords, including adopting pay-as-you-go tax payments from 2018.
See AS 2016 (para 4.42).
Following an announcement in Budget 2016, the government set up a consultation over Summer 2016 in respect of a new tax relief for museums and galleries effective from 1 April 2017. The relief was to be available for temporary and touring exhibition costs but at AS 2016 the chancellor has announced that this will be broadened to include permanent exhibitions so that it will have a wider countrywide effect. The rates of relief will be set:
• at 25% for touring exhibitions;
• 20% for non-touring exhibitions; and
• and capped at £500,000 of qualifying expenditure per exhibition.
As previously indicated the relief will be available from 1 April 2017. If not renewed on review in 2020, it will expire in April 2022.
See: AS 2016 (para 4.30).
The national living wage will increase by 30p per hour from 1 April 2017 to £7.50 and in addition to this 4% increase in wages, in most cases, employers will also have to pay employer’s NIC on the increase.
See: AS 2016 (para 3.46).
Class 2 NICs
As announced at Budget 2016, class 2 NICs will be abolished from April 2018. Following that abolition, self-employed contributory benefit entitlement will be accessed through the payment of class 3 and class 4 NICs. The government has confirmed that all self-employed women will continue to be eligible to access the standard rate of maternity allowance. In addition, self-employed individuals with profits below the small profits limit (£5,965 for 2016/17) will be able to access contributory employment and support allowance through class 3 NICs, with support being provided for those individuals during the transition.
See: AS 2016 (para 4.8) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, third bullet).
Employer NICs
In his letter to the OTS, the chancellor confirms that, following the OTS setting out options for reform of employer NICs, officials will consider the details of the options and keep the topic under review.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the chancellor to the OTS (para 6).
Removal from the effects of the Limitation Act
From April 2018, NICs will be removed from the effects of the Limitation Act 1980. This will ensure the time limits and recovery process for enforcing NICs debts and other taxes are aligned. The government will consult on the details in due course.
Currently if HMRC wants to recover NICs debt it must raise a protective assessment within six years of the end of the tax year in question. The collection of arrears of tax is not covered by the Limitation Act so this leads to a mismatch in dealing with historic tax investigations where there is an associated national insurance liability (Limitations Act 1980 s 9(1)).
This is an interesting measure as it will enable HMRC to collect more NICs arrears, but by aligning the treatment for tax and NICs it means it can be badged as a simplification measure and a step towards income tax and NICs alignment.
See: AS 2016 (para 4.9) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, second bullet).
Thresholds
As suggested by the OTS in its March 2016 report The closer alignment of income tax and national insurance, the government has announced the primary and secondary NICs thresholds (being the amounts at which NICs are paid by employees and employers respectively) will be aligned.
The alignment, which will take place from April 2017, will require both employers and employees to begin paying NICs on weekly earnings above £157 (removing the current £1 difference). This is intended to simplify the payment of NICs for employers.
See: AS 2016 (para 4.7) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, first bullet).
At AS 2016, the government confirmed that it will implement previously announced reforms to the taxation of non-domiciled individuals. Although many practitioners had lobbied for a delay in the implementation of these changes, they will now take effect as planned from 6 April 2017. The reforms include:
• an individual who has been resident in the UK for at least 15 of the past 20 tax years will be treated as deemed UK domiciled for income tax, CGT and IHT purposes;
• non-domiciled individuals who have established offshore trusts before they become deemed UK domiciled ‘will not be taxed on income and gains arising outside of the UK and retained in the trust’. It is not clear whether this is a departure from HMRC’s August consultation document which suggested that trust income and gains could be taxed when they arise, and not when they leave the trust, where ‘protections’ are lost;
• an individual who has acquired a non-UK domicile of choice, but was born in the UK with a UK domicile of origin, will be treated as UK domiciled for tax purposes while resident in the UK and will not be able to claim the remittance basis; and
• the rules for the business investment relief (BIR) scheme will be changed to make it easier for non-domiciled individuals who are remittance basis users to bring offshore money into the UK for the purpose of investing in UK businesses. The government has also announced that it will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.
See: AS 2016 (para 4.15).
The government will consult at Budget 2017 on bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. The stated rationale is to subject all companies to corporation tax rules, and in particular the new restrictions on corporate interest and loss relief that will come into effect in April 2017.
Until 5 July 2016, non-resident companies were only subject to UK corporation tax if they had a UK permanent establishment through which they carried on a trade. From 5 July 2016, the corporation tax net was extended to catch offshore property developers who trade in or develop UK land, whether or not they have a permanent establishment. Other (non-trading) forms of UK-source income received by a non-resident company may be subject to UK income tax.
The government appears to be concerned that non-resident companies within the charge to income tax (rather than corporation tax) will not be within the new corporation tax restrictions applying to interest expenses and carried forward losses. The impact of the change would be limited to non-resident companies that have UK-source income but that are not already within the corporation tax net.
Property companies will be particularly affected by this change, as under current rules non-resident companies investing in UK property are liable to UK income tax on the rent, but can set interest expenses against this charge. The measure could also catch companies trading in the UK but not through a permanent establishment, as well as companies with non-trading income from, for instance, intellectual property or other investments. On the positive side, companies that are caught by this provision should benefit from the future planned decreases in UK corporation tax rates.
No date is given for implementation of this measure, although with the consultation beginning at Budget 2017 it seems unlikely it would be for FB 2017.
See: AS 2016 (para 4.26).
The government intends to make amendments in FB 2017 to the Northern Ireland corporation tax (NICT) regime (set out in Corporation Tax (Northern Ireland) Act 2015) to:
• give all small and medium size enterprises (SMEs) trading in Northern Ireland the opportunity to benefit; and
• make other changes to ensure the regime is not open to abuse.
The NICT regime is not yet in force and can only be brought into force when the NI Executive demonstrates its finances are on a sustainable footing. No further detail is included on the SME extension but it may be to remove the requirement in the existing rules that an SME must also be a ‘Northern Ireland Employer’.
See: TUTC 2016 (para 2.1).
Alongside the Autumn Statement, the government has also published correspondence with the Office for Tax Simplification (OTS), providing its response on two recent OTS recommendations:
• confirming that they will not go ahead with the recommendation to annualise NICs and that the proposed ‘sole enterprise with protected assets’ (SEPA) vehicle for sole traders may be considered, subject to investigating non-tax consequences (such as insolvency); and
• establishing two new areas for review: the VAT system, with a particular focus on small and medium-sized enterprises (SMEs), and stamp duty on share transactions.
Separately, in correspondence released on 23 November 2016, the government has responded to OTS suggestion made during the autumn on aligning the calculation of income tax and NICs. In a letter, the chancellor announced that the government would not pursue the OTS’s recommendation (as published in OTS reports earlier in 2016) that employees’ NICs should be amended to operate on an annual, cumulated and aggregated basis of assessment along the lines of income tax so that the NICs outcome would have been the same regardless of whether an individual had two part time jobs or one full time job. The reason given for not pursuing these recommendations is that the change would be ‘a major upheaval’ and that it was not the right time to make such changes.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the chancellor to the OTS.
There were also responses to points in OTS reports concerning class 2 NICs, employee business expenses and the reform of employer NICs (covered separately in this guide).
Requirement to correct
Following its consultation which closed on 24 October 2016, the government has confirmed that it will introduce a new legal requirement to correct (RTC) a past failure to pay UK tax on offshore interests by 30 September 2018. Those who do not comply with this new RTC will be subject to sanctions. This measure will have effect from royal assent of FB 2017.
See: AS 2016 (para 4.53), AS 2016: policy costings (page 28).
Requirement to register offshore structures
The government has announced that it will consult on introducing a new legal duty for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. Although this measure was not pre-announced, it is a continuation of the government’s policy to crackdown on offshore tax avoidance and evasion.
A similar reporting requirement already exists under IHTA 1984, s 218, which provides that any person in the course of their trade or profession (unless they are a barrister) who has been concerned with the creation of a settlement of which:
• the settlor is UK domiciled; and
• the trustees of the settlement are not/will not be resident in the UK.
must make a return to HMRC within three months of the creation of the settlement stating the names and addresses of the settlor and the trustees.
See: AS 2016 (para 4.54).
The government is ‘recommitting’ to Driving investment, a consultation document that was published in July 2014 (under the Coalition government). This is described as a long term plan for the oil and gas ring-fence fiscal regime. The original consultation proposed a number of reforms, some of which have already been implemented (such as the introduction of a new investment allowance). The document is out of date in several respects (most obviously, it pre-dates the effective abolition of petroleum revenue tax (PRT)), so it remains to be seen which of the original proposals the government now intends to implement.
Since 1 January 2016, PRT has been charged at a zero rate, but it has not been abolished, largely to enable companies to create losses that can be carried back to recover past PRT paid. As the tax still exists, various administrative requirements remain. The government has now announced that it will significantly simplify the process for opting out of PRT, and for companies that do not opt out, various reporting requirements have been removed.
The PRT simplifications allow companies to opt out from 23 November 2016 (i.e. the date of AS 2016) to take effect for periods beginning on or after 1 January 2017. The reporting requirement simplifications come into force immediately, although the HMRC forms won’t be updated until a later date. In the meantime companies can leave the relevant sections of the forms blank.
See: AS 2016 (para 4.38) and HMRC’s policy paper Petroleum revenue tax: cutting administration costs for the oil industry.
Following a consultation that ran until November 2016, the government has confirmed that it will publish draft legislation to clarify certain areas of partnership taxation which will ensure fair calculation of partner profit allocations.
See: TUTC 2016 (para 2.7).
Legislation will be included in FB 2017 to ensure that companies that undertake R&D in conjunction with others under a ‘cost-sharing arrangement’ do not benefit or lose out under the patent box rules by organising their R&D in this way. The specific provisions will have effect for accounting periods starting on or after 1 April 2017.
See: TUTC 2016 (para 2.3).
As announced at Budget 2016 and following a consultation, FB 2017 will simplify the process for applying for and agreeing PAYE settlement agreements. These changes will have effect in relation to agreements from 2018/19.
See: TUTC 2016 (para 1.1).
Foreign pensions
The government has announced that it will align the tax treatment of foreign pensions more closely with that of UK domestic pensions. Proposed measures include the following:
• Where a UK resident individual receives a pension or lump sum from a foreign pension scheme, the receipt will be subject to UK tax to the same extent as a pension or lump sum from a UK pension scheme. Currently, UK residents who receive overseas pension income are only subject to income tax on 90% of the amount received, provided that they are taxed on the arising basis
• So-called ‘section 615’ schemes will be closed to new saving. A section 615 scheme is an occupational pension scheme established under ICTA 1988, s 615(6) which: is established under trust by an employer that operates wholly or partly outside the UK; and provides retirement benefits for employees that work wholly outside the UK. Currently, a section 615 scheme is exempt from many, but not all, of the regulatory provisions that apply to UK pension schemes. In particular, it benefits from the same IHT exemptions as a UK pension scheme. For tax purposes, it is neither a registered pension scheme nor an employer-financed retirement benefits scheme (EFRBS).
• The UK will extend from five to ten years its taxing rights over payments received by individuals who have recently left the UK and where the payment is a foreign lump sum paid out of funds that at some time have received UK tax relief. Similar rights already apply to payments from qualifying recognised overseas pension schemes (QROPS).
• The tax treatment of funds transferred between UK registered pension schemes is to be aligned.
• The eligibility criteria for foreign schemes to qualify as overseas pension schemes is to be updated.
See AS 2016 (para 4.21).
Money purchase annual allowance
The government announced that the money purchase annual allowance will be reduced to £4,000, but will launch a consultation on the detail.
The government does not consider that earners over the age of 55 should be able to benefit from double pension tax relief (e.g. on recycled pension savings) but does wish to offer scope for those who, out of necessity have had to access their savings, to rebuild them.
The measure will be effective from April 2017.
See: AS 2016 (para 4.20).
AS 2016 confirms that the personal allowance will rise to £11,500 and the higher rate threshold will increase to £45,000 in 2017/18. By the end of this parliament in 2020, the personal allowance is set to increase to £12,500 and the higher rate threshold to £50,000. In order for personal allowance increases not to be eroded by inflation going forward, once the personal allowance reaches £12,500, it will then rise in line with CPI.
See: AS 2016 (paras 4.5 and 4.6).
Following Budget 2016, the government ran a consultation on personal portfolio bonds, reviewing the property categories on the types of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. In response to the consultation, the government will legislate in FB 2017 to amend by regulations the list of ‘safe’ assets.
See: TUTC 2016 (para 1.5).
As announced at Budget 2016, from April 2017 there will be two new £1,000 allowances for property and trading income for individuals. Individuals with property income below £1,000 or trading income below £1,000 will no longer be required to declare or pay tax on that income. Individuals with property income or trading income above those amounts will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance from income.
The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.
See: AS 2016 (para 4.14).
Following its consultation on changing the way IR35 applies to public sector bodies, the government has confirmed the reform will go ahead as planned with effect from April 2017. This reform will shift the responsibility for determining whether IR35 applies to a particular engagement from the personal service company involved to the public sector body, agency or other third party paying the worker’s company.
However, the government has confirmed the 5% allowance (which can be deducted when calculating an IR35 liability) will be removed for those operating in the public sector to take account of the fact those personal service companies will no longer bear the administrative burden of ascertaining whether IR35 applies.
There was no indication of whether a similar reform will take place for the private sector.
See: AS 2016 (para 4.11).
In her speech at the CBI annual conference on 21 November 2016, the Prime Minister, Theresa May, outlined the government’s commitment to invest an extra £2bn a year in research and development (R&D) tax incentives by the end of this Parliament. Mr Hammond reconfirmed this in the Autumn Statement. In addition, the government announced its intention to review the current tax environment for R&D and ‘build on the introduction’ of the above the line R&D tax credit (also referred to as RDEC). No further detail was provided but it may be an indication that the above the line credit is to be extended to small companies with the existing SME reliefs being phased out (currently a ‘super-deduction’ or surrender of losses for a payable tax credit).
We await further detail and clarification, but in the meantime it may be sensible to review any R&D expenditure with a view to maximising claims under the current SME regime, which operates on a simpler accounting basis than the existing ATL regime for large companies.
See: AS 2016 (para 3.30).
The government is implementing its proposal, described in the Strengthening tax avoidance sanctions and deterrents consultation, to remove the ‘reasonable care’ defence for inaccuracy penalties in certain avoidance cases. Taxpayers who use marketed tax avoidance schemes that HMRC has defeated, and who are faced with a penalty for submitting an inaccurate tax return, often argue that it was reasonable for them to rely on information they received from the scheme promoter or other enabler. In these circumstances, HMRC is proposing to prevent taxpayers from citing generic advice or marketing material to demonstrate that they have taken reasonable care.
See: AS 2016 (para 4.48).
Following the consultation announced in Budget 2016, the government will legislate in Finance Bill 2017 to bring the tax treatment of freeplays for remote gaming more in line with the treatment for free bets under general betting duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.
See: TUTC 2016 (para 4.1).
From April 2017, the tax and NICs benefits of salary sacrifice schemes will no longer apply except for those schemes relating to pension arrangements, pensions advice, childcare, cycle to work and ultra-low emission cars. Therefore, unless the scheme falls under one of these exemptions, employees swapping salary for benefits under a salary sacrifice scheme will be subject to income and NICs as if the benefits had been paid as salary. Arrangements that are in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
See: AS 2016 (para 4.13).
As part of the measures to encourage savers, the government has announced the issue of a new three year National Savings & Investments (NS&I) bond from April 2017.
The bond will be available for 12 months for savers aged 16 years and above for investments of between £100 and £3,000 and with an indicative rate of 2.2%, although this may be amended to reflect market conditions in April 2017.
See: AS 2016 (para 6.3).
AS 2016 confirms that the band of savings income that is subject to the starting rate of 0% will remain at its current level of £5,000 for 2017/18.
See: AS 2016 (para 4.19).
Changes are expected to be made to social investments tax relief (SITR) with effect from 6 April 2017:
• the investment limit for qualifying social enterprises aged up to seven years old will increase to £1.5m;
• nursing homes and residential care homes will be classed as excluded activities, although the government intends to revisit these activities in future with the aim of introducing an accreditation system which will allow fundraising via SITR; and
• the limit on the number of full-time equivalent employees will be reduced from 500 to 250.
The Autumn Statement also says, rather unhelpfully, that ‘other changes will be made to ensure the scheme is well targeted’.
See: AS 2016 (para 4.34) and the social investment tax relief factsheet published on the gov.uk website.
Draft legislation on the soft drink industry levy will be published on 5 December 2016.
See: AS 2016 (para 4.39).
The government has asked the OTS to carry out a review of stamp duty on share transactions, particularly on how stamp duty is collected on share transactions, i.e. physical stamping of documents. The information available in the letter to the OTS indicates that the review might only cover stamp duty and not extend to stamp duty reserve tax (SDRT), but this remains to be seen.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the financial secretary to the Treasury to the OTS.
The substantial shareholding exemption (SSE) rules will be simplified, including removing the ‘investing requirement’ and extending the exemption for companies owned by qualifying institutional investors. This follows a consultation that ran from 26 May 2016 to 18 August 2016.
The consultation included a number of options for reform. As expected, the more radical suggestions (such as removing all requirements regarding the trading status of the companies involved) appear to have been rejected. Instead the government has announced that it will remove the investing requirement, meaning that it will no longer be necessary for the disposing company or group to satisfy a trading status test. This is a welcome development because assessing the activities of the entire disposing group (which could be international) can pose significant practical difficulties. The ‘investee requirement’ (the trading status test for the target company) will, presumably, be retained.
The consultation included some further options that have not been mentioned in AS 2016, including replacing the trading test with a requirement to carry on some sort of active business (that might or might not be a trade), and removing the requirement for both the disposing and target companies to be trading immediately after the sale. These options may have been rejected, although we may find out more when the draft legislation and/or consultation response is published.
The consultation document also considered the case of sovereign wealth funds and pension funds, which are generally exempt from UK corporation tax on gains. This exemption does not extend to UK resident companies owned by these tax-exempt funds, and these companies cannot generally benefit from the SSE because the groups of which they are members will normally fail the trading test. The government has now confirmed the SSE will be extended to cover these institutional investors. At this stage, it would appear that these companies would be covered by the removal of the investing requirement generally, so it remains to be seen whether there will be any special provisions applying to this category of investor.
The reforms will take effect from April 2017.
See: AS 2016 (para 4.28).
As announced at Budget 2016, all post-April 2018 termination payments over £30,000 which are subject to income tax will be subject to employer NICs. Following the technical consultation on the draft legislation, and presumably in response to negative feedback on its proposals, the government appears to have backtracked from its original intention of subjecting all pay (including expected bonuses) due during a notice period to tax by announcing that only the equivalent of an employee’s basic pay in respect of an unworked notice period will be subject to tax. The announcement is light on detail, but it is expected the updated draft legislation, which is likely to be published on 5 December 2016, will confirm this position. The government will monitor the change and will ‘address any further manipulation’.
See: AS 2016 (para 4.10).
Following consultation, the government will introduce legislation in Finance Bill 2017 in order to introduce a licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally. Applications for licences will be accepted from January 2018 and the scheme will come into force on 1 April 2018.
See: TUTC 2016 (para 4.2).
Adapted cars for wheelchair users
Currently it is possible for the supply of a specially adapted vehicle to certain individuals to be zero-rated if certain conditions have been satisfied. The government has become aware that this legislation is being abused and therefore intends to clarify the application of the VAT zero-rating for adapted motor vehicles to stop the perceived abuse.
See: AS 2016 (para 4.50).
Fulfilment House due diligence scheme
Previously announced in Budget 2016, following consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House due diligence scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.
See: TUTC 2016 (para 4.3).
Penalty for participating in VAT fraud
As previously announced in Budget 2016 and following consultation that ended on 11 November 2016, the government will introduce a new and more effective penalty for participating in VAT fraud in FB 2017. The penalty will apply to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The new penalty will be a fixed rate penalty of 30% (option A in the consultation) and will be implemented following royal assent of FB 2017.
See: TUTC 2016 (para 6.2).
VAT avoidance disclosure regime
As announced at Budget 2016 and following consultations earlier this summer and in 2014, legislation will be introduced in FB 2017 to strengthen the rules on disclosure of avoidance of indirect tax. The government has confirmed that the regime will be extended to include all indirect taxes, with scheme promoters being primarily responsible for disclosure to HMRC.
See: TUTC 2016 (para 6.1).
VAT flat rate scheme
From 1 April 2017, there will be a new 16.5% VAT flat rate for businesses with limited costs, such as labour only businesses. This rate is higher than the existing flat rates and anti-forestalling provisions apply from 23 November 2016.
The VAT flat rate scheme applies to businesses with a turnover of no more than £150,000 a year (excluding VAT). The purpose of the scheme is to simplify VAT record keeping for small businesses. The scheme allows the tax payer to apply a fixed flat rate percentage to gross turnover to arrive at the VAT due. The fixed rate percentage varies depending on the type of business. Businesses within the scheme will now need to determine whether they fall within the definition of ‘limited cost trader’ to establish if the new rate will apply to them. Draft legislation will be published on 5 December 2016 for comment.
See: AS 2016 (para 4.15) and the technical note Tackling aggressive abuse of the VAT flat rate scheme.
VAT groups
The government has confirmed that it will consult on the rules relating to VAT grouping. This consultation was expected following the Larentia + Minerva and Marenave and Skandia cases and Revenue and Customs Brief 3/2016.
See: AS 2016 (para 4.14).
Following wholesale changes from November 2015 and small tweaks in Finance Act 2016, the government will include in FB 2017 further changes to the enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trust (VCT) regimes to:
• clarify the rules for share conversion rights in EIS and SEIS with effect from 5 December (i.e. the date of publication of draft clauses for FB 2017);
• provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS (with effect from 6 April 2017); and
• give the government the power to make regulations in the context of share for share exchanges in the VCT regime.
The government also announced:
• it will release a consultation into the options for streamlining and prioritising the advance assurance service. It is not clear if this is alongside or instead of the commitment (from the July 2015 consultation response (para 2.17)) to introduce a new digital process for EIS and SEIS investors by the end of 2016; and
• it will not, currently, be extending the regimes to allow ‘replacement capital’ (i.e. enabling relief for secondary investors, rather than subscribers only), but will keep it under review.
See: TUTC 2016 (para 2.8).
This commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide advisers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service that combines tax technical commentary with practical guidance.
A to Z guide to the tax announcements.
Three measures were announced with immediate effect from 23 November:
• first-year capital allowances for electric vehicle charging points: from 23 November 2016 to the end of March 2019, the government will offer 100% first-year allowances to companies investing in charging points for electric vehicles;
• removal of tax relief linked to employee shareholder status: the tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016 (except where an individual has received independent advice regarding entering into an employee shareholder agreement before 23 November 2016). The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is being used primarily for tax planning instead of supporting a more flexible workforce; and
• opting out of petroleum revenue tax: from 23 November 2016, the process for opting fields out of the PRT regime will be simplified, by allowing the responsible person for a taxable oil field to remove the oil field from the PRT regime simply by making an election, and certain reporting requirements will also be removed from PRT forms.
The Chancellor of the Exchequer, Philip Hammond, delivered his first (and last, for which see below) Autumn Statement on Wednesday 23 November 2016.
The watchword was ‘productivity’, in particular investing in infrastructure and innovation to provide the foundations to reduce the productivity gap in the UK, which lags behind many of our trading partners. Given reduced growth forecasts and increased borrowing costs caused by sterling depreciation and uncertainty following Brexit, the chancellor is keen to ensure our economy is resilient and match-fit as we exit the EU and transition to the UK’s new status.
From a tax perspective, the government focused on certainty and, as has now become customary, shutting down a number of perceived abuses of the tax system. On the certainty front, the government reconfirmed its commitment to the Business Tax Roadmap, published in March 2016, which includes reducing the rate of corporation tax to 17% by 2020.
The tax announcements have been made, unusually, in two documents:
• the Autumn Statement 2016 document (AS 2016); and
• Tax updates and technical changes document (TUTC 2016).
The second document is stated to be a supplement to the AS 2016 document with updates on tax consultations, confirmations of standard uprating changes and technical changes where there is no substantive policy change.
The government announced that it will be publishing a summary of the responses received in respect of the consultation on how to support regional airports in England from the potential effects of APD devolution. The government does not intend to take any specific measures at this time due to the fact that there is a strong interaction with EU law. However, this area will be reviewed once the UK has left the EU.
See: AS 2016 (para 4.37).
The annual tax on enveloped dwellings (ATED) will only rise in line with inflation for the 2017 to 2018 chargeable period. The previous increase (on 1 April 2015) was much greater.
See: AS 2016 (para 2.6).
FB 2017 will contain provisions that clarify employees will only be taxed on business assets for the period of time the asset is made available for the employee’s private use. This clarification will take effect from 6 April 2017.
See: TUTC 2016 (para 1.3).
As first announced at Summer Budget 2015, the government confirms that the bank levy charge will be restricted to UK balance sheet liabilities from 2021 and that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and non-UK branches. Details will be included in the government’s response to the 2015 consultation, Re-scoping of the bank levy, and legislation is expected to be included in FB 2017/18.
See: AS 2016 (para 4.27).
‘Making good’ on BIKs
As announced at Budget 2016 and following a consultation, FB 2017 will ensure an employee who wants to ‘make good’ (i.e. make payment) on a non-payrolled benefit in kind (in order to reduce its taxable value) will have to make the payment to the employer by 6 July in the following tax year. This legislation will have effect from April 2017.
See: TUTC 2016 (para 1.2).
Valuation of BIKs
The government has announced it will consider how to value benefits in kind for tax purposes. A consultation on employer-provided living accommodation will be published at Budget 2017 alongside a call for evidence on the valuation of all other benefits in kind.
See: AS 2016 (para 4.13).
The reason this was the chancellor’s last Autumn Statement is because the budget timetable is being amended from 2017, so that there will be only one ‘fiscal event’ a year. The plan for the next year or so is:
• 2016/17 tax year: Budget as normal in March 2017, followed by the FB 2017 parliamentary process, with royal assent expected in July 2017;
• 2017/18 tax year: Autumn Budget 2017 followed by publication of Finance Bill 2018 which will go through its parliamentary process and obtain royal assent before April 2018;
• Spring Statement 2018 will be a review of the Office for Budget Responsibility’s report, but should not, barring emergencies, include any tax announcements;
• 2018/19: legislation for Finance Bill 2019 will be published in the summer of 2018, followed by Autumn Budget 2018, with Finance Bill 2019 going through parliamentary process and obtaining royal assent before April 2019; and
• future years will follow the same process as 2018/19.
It has not been made clear what legislation will be published in the summer from 2018 onwards if no tax announcements are made at spring statement time. It may be that this will be legislation that follows consultations that were announced at the previous Autumn Budget, for implementation in the following year (although that would result in a lead time of approximately 21 months between announcement of a tax measure and the enactment of legislation). If the government is going to stick to its promise of one fiscal event, it must avoid the temptation to make significant announcements at ‘legislation day’.
The government announced that to remove the inconsistency between rural rate relief and small business rate relief, rural rate relief will be doubled to 100%.
A business in a rural area with a population below 3,000, will qualify for rural rate relief where it is:
• the only village shop or post office, with a rateable value of up to £8,500; or
• the only public house or petrol station, with a rateable value of up to £12,500.
Presently, local councils can top up the mandatory 50% rate of relief to 100% and give relief of up to 100% to other rural businesses with properties with a rateable value under £16,500.
The government had announced at AS 2015 that it would extend the doubling of the small business rate relief for a further year until 31 March 2017 (it was due to be withdrawn on 31 March 2016).
The measure will be effective from April 2017.
See: AS 2016 (para 4.33) and AS 2015 (para 3.74)
A 100% first-year capital allowance is available for expenditure incurred in the period from 23 November 2016 to 31 March 2019 for corporation tax (5 April 2019 for income tax) on new, unused electric charge-point equipment installed solely for the purpose of charging electric vehicles. This should be a further incentive to businesses to use, or provide to employees, electric vehicles but they should be aware of the short period in which the allowance is available.
In a further measure to incentivise the purchase of cars with low CO2 emissions, new lower company car tax bands will be introduced in 2020/21 for the lowest emitting cars and the percentage for cars emitting greater than 90g/km will be increased by 1%.
See: AS 2016 (para 4.36).
Following an initial consultation at the end of last year and a further more detailed consultation this summer, the government will proceed with its proposal to introduce rules restricting corporation tax deductions for interest expenses from April 2017. The announcement is short on detail but confirms that the rules will limit deductions for net interest expenses to 30% of UK taxable earnings, subject to the ability for multinational groups to deduct net interest expenses up to a higher level based on the net interest to earnings ratio for the worldwide group. Only groups with net interest expenses of more than £2m annually will be affected and the proposed exclusion protecting the provision of finance for public infrastructure projects will be widened. Importantly, the government has confirmed that banking and insurance groups will be subject to the new restrictions in the same way as groups in other sectors.
See: AS 2016 (para 4.24).
Generally, payments made to sports clubs or in connection with sporting events are not likely to be allowable deductions in calculating profits of a trade for tax purposes, as the payments would not normally meet the test of being ‘wholly and exclusively for the purposes of the trade’. However, there are three specific ways in which a deduction can be given:
• sponsorship;
• payments to community amateur sports clubs (CASCs); or
• payments to charitable bodies.
Payments made to CASCs can be deducted as if the CASC was a charitable body and sporting bodies registered as charities can receive payments that can be deducted against the donating company’s tax.
The government conducted a consultation in March 2016, and the chancellor has announced at AS 2016 that in FB 2017 the circumstances in which companies can get corporation tax deductions for contributions to grassroots sport from 1 April 2017 will expand.
See: TUTC 2016 (para 2.2).
As announced at Budget 2016 and following consultation this summer, legislation will be included in FB 2017 that will provide more flexibility on the types of profit that can be relieved by losses incurred after 1 April 2017 and also restrict the amount of losses than can be carried forward to 50% (of profits above £5m) from 1 April 2017.
See: AS 2016 (para 4.25).
The government has stated that legislation will be introduced in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from royal assent of finance Bill 2017.
See: TUTC 2016 (para 6.3).
The existing disguised remuneration rules are to be extended to tackle schemes entered into by the self-employed. Disguised remuneration schemes are artificial arrangements that usually involve an individual’s income being funnelled through a third party, with the money often then being paid to the individual as a ‘loan’ that is never repaid. There is no further detail provided today and indeed no clarification as to whether the new rules will follow those set out in the original consultation document. However the self-employed should review their contracts and documentation to ensure that any genuine commercial transactions may not inadvertently be caught by these rules.
Employers will also be denied tax relief for an employer’s contributions to such schemes, unless tax and NICs are paid within a specified period, in order to deter them from using disguised remuneration schemes.
See: AS 2016 (paras 4.46 and 4.47).
Following the OTS’s March 2016 report highlighting the differences between the income tax and NICs treatment of employee expenses, the government will publish a call for evidence on the use of income tax relief for employees’ business expenses, including those not reimbursed by the employer. This call for evidence will be published at Budget 2017.
See: AS 2016 (para 4.13) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, fourth bullet).
The ability to offer tax-favoured employee shareholder shares (ESS), which is commonly used in private equity company arrangements, has been removed with almost immediate effect. The government has announced the removal of the following reliefs in relation to ESS shares:
• the income tax and NICs relief which applies to the first £2,000 worth of employee shareholder shares received by an individual;
• the capital gains tax exemption in respect of all or a portion of the ESS shares; and
• the provision which ensures that, when a company buys employee shareholder shares back from an employee shareholder, the consideration is not a distribution in the shareholder’s hands.
The changes are in respect of any employer shareholder agreements made on or after 1 December 2016.
Any individual who has received independent advice regarding entering into an employer shareholder agreement before 23 November 2016 has the opportunity to enter into the agreement before 1 December 2016 and still receive the beneficial income and CGT tax advantages. Any individual who receives independent advice on 23 November 2016 before 1:30pm, will have the opportunity to receive the tax advantages currently available provided they enter into the employee shareholder agreement on or before 1 December 2016. As there has to be a minimum seven clear days’ notice between the employee receiving such advice on the implications of employee shareholder status and the issue of the shares, this effectively means that unless employees have already received that advice, no further issues of ESS shares will be possible from today.
The announcement comes following evidence suggesting that the employer shareholders status is being used for tax planning purposes instead of for its originally intended use of supporting a more flexible workforce.
The measure does not affect the availability of the status itself; it simply removes most of the tax benefits associated with accepting the status. However, the government has announced its intention to close the status to new users at the earliest opportunity.
See: AS 2016 (para 4.31) and a policy paper and draft clause which are available on the gov.uk website.
Following a consultation, Strengthening tax avoidance sanctions and deterrents, that ran from 17 August 2016 to 12 October 2016, the government will introduce new penalties for persons who enable other persons or businesses to use tax avoidance arrangements that are later defeated by HMRC.
See: AS 2016 (para 4.48).
The government has announced that it will legislate to provide earlier certainty on individual matters in large, high risk and complex enquiries. No further detail is provided on this announcement, but it is likely to address issues that were highlighted following a 2015 consultation which proposed a new power for HMRC to achieve early resolution and closure. The proposals included payment of any aspect of a tax enquiry even where other issues were left open and the proposal that only HMRC, and not the taxpayer, would be able to seek partial closure was met with ‘overwhelming’ disagreement. HMRC stated that it would develop some alternative models to achieve this result.
See: AS 2016 (para 4.44).
Fuel duty will be frozen again with effect from April 2017.
See: AS 2016 (para 4.35).
Authorised contractual schemes
As announced at Budget 2016 and following consultation, the government has confirmed that it will introduce legislation in FB 2017 and secondary legislation to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS.
Authorised contractual schemes (ACSs) are collective investment schemes that have no legal personality. Participants in an ACS account for tax (and therefore, where appropriate, claim capital allowances) in respect of their investment. ACSs can take one of two forms (a partnership or CoACS). ACSs were introduced in 2013. The consultation related to:
• capital allowances and CoACs (as the usual partnership provisions apply to partnership ACSs); and
• the type of information all ACSs should be required to give to investors and HMRC to enable tax obligations to be met.
The TUTC 2016 suggests that the new rules on information requirements will only apply to CoACSs (and not partnership ACSs).
See: TUTC 2016 (para 2.4).
Authorised investment funds
In a move likely to be welcomed by pension funds and other exempt investors, the government has announced that the rules governing the taxation of dividend distributions paid by authorised investment funds (AIFs) are going to be modernised in a way that enables exempt investors to obtain credit for any tax paid by such funds. Draft legislation is expected in early 2017.
See: AS 2016 (para 4.29).
Offshore funds
Offshore funds are resident in, or based in, a territory outside the UK.
The exact CGT treatment of a participant in an offshore fund depends on whether the offshore fund is a ‘reporting’ fund or a ‘non-reporting’ fund. If the fund has ‘reporting’ status (so that income and gains are reported to HMRC on the participant’s self-assessment), gains realised on disposal of an investment are treated as subject to CGT. UK participants are also subject to UK income tax on ‘reported’ income (even if it is undistributed).
However, if a gain is realised on disposal of investments in a ‘non-reporting’ fund, the gains are known as offshore income gains and are taxed as income.
At AS 2016, it was announced that the government will introduce legislation to ensure that performance fees incurred by offshore reporting funds, and which are calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017. Instead, the fees will reduce any tax payable on disposal gains. This measure will align the tax treatment of onshore and offshore funds.
See: AS 2016 (para 4.32).
At Budget 2016, the government, as it had done in Autumn Statement 2014 and Budget 2015, confirmed that intermediaries will be given a greater role in administering gift aid. It was anticipated that legislation would be introduced in FA 2016 but in the intervening period the government consulted on the gift aid donor benefit rules, but this was inconclusive. A further consultation period ending in February 2017 has been announced. (See: Response to the consultation and further consultation).
It is perhaps as a result of the uncertainty surrounding the issue of gift aid that the chancellor at AS 2016 found it necessary to again announce that the government will continue with its policy to give intermediaries a greater role in administering gift aid in order to assist the process for donors making digital donations.
See: AS 2016 (para 4.17).
As announced at Budget 2016 and following a consultation in August 2016, the government will legislate to extend HMRC’s data-gathering powers. The extension will enable HMRC to collect data from money services businesses (businesses that provide money transmission, cheque cashing or currency exchange services).
The government will, following consultation, consider whether it would be appropriate to make access to licences or services for businesses conditional on the business being registered for tax. It is also intending to develop proposals that will strengthen sanctions for businesses who repeatedly and deliberately participate in the hidden economy. Further details will be included in Budget 2017.
See: AS 2016 (paras 4.55 and 4.56).
The government announced that FB 2017 will make minor changes to the hybrid rules, which will have effect from 1 January 2017 (when the hybrid rules take effect), to ensure the rules work as intended.
See: TUTC 2016 (para 2.5).
The chancellor noted in his speech that the Office for Budget Responsibility has highlighted the growing cost to the exchequer of incorporation as tax revenues are eroded. The government will therefore be considering how to ensure that the taxation of different ways of working is fair between different individuals, and sustains the tax-base. It will consult in due course on any proposed changes.
In the ordinary course of events donations made to charities are exempt from IHT. Political organisations are not established for charitable purposes and cannot, therefore, be charities. This has been the view of the courts for some time. The Charity Commission endorses the courts’ views that an institution with a political purpose cannot be a charity.
However, despite this view political parties do enjoy a unique position in respect of IHT. Transfers of value are exempt to the extent that the values transferred by a person are attributable to property which becomes the property of a political party qualifying for exemption. A political party qualifies for exemption if, at the last general election preceding the transfer of value, two members of that party were elected to the House of Commons, or one member of that party was elected to the House of Commons and not less than 150,000 votes were given to candidates who were members of that party (see IHTA 1984 s 24(2) and IHTM11191).
In an extension to this relief, the chancellor at AS 2016 announced that from royal assent of FA 2017 the IHT relief for donations to political parties will apply to parties with representatives in the devolved legislatures through by-elections. This will now regularise the situation with regard to all political parties with elected representatives throughout the UK.
See: AS 2016 (para 4.16).
At Budget 2015, the government announced that it would develop a new competitive corporate structure and tax regime for insurance special purpose vehicles (ISPVs) that issue insurance linked securities (ILS). ILS are a means of transferring insurance risk to capital market investors. The government consulted on its overall approach to the framework for ISPVs in March 2016.
The government has considered responses to the initial consultation and has now launched a further consultation on its proposed regulatory framework for ILS. The consultation includes draft regulations on
• the tax regime (The Risk Transformation (Tax) Regulations 2017); and
• a new corporate structure.
The draft regulations include an exemption from corporation tax for the profits from the activity of insurance risk transformation and remove the obligation to deduct an amount representing income tax on interest paid to investors. The consultation closes on 18 January 2017.
Following the increase in the rate of IPT to 10% with effect from 1 October 2016, the rate will further increase to 12% from 1 June 2017.
See: AS 2016 (para 4.40).
Increase in the annual ISA limit
As announced in Budget 2016, the annual ISA limit will increase from £15,420 to £20,000 for 2017/18.
See: AS 2016 (para 4.18).
Junior ISAs and child trust fund limit
In addition to the increase to the ISA subscription limit from £15,240 to £20,000 announced at Budget 2016, the government announced an uprate to the annual subscription limit for junior ISAs and child trust funds to £4,128, in line with the CPI.
The government had announced at AS 2015 that the jnior ISA and child trust fund annual subscription limits would remain at £4,080 for 2016.17.
The measure will be effective from 6 April 2017.
See: TUTC 2016 (para 1.6) and AS 2015 (para 3.32).
The government announced in Budget 2016 that following consultation, it will amend the definition of a taxable disposal for landfill tax purposes in Finance Bill 2017. This is said to will bring greater clarity and certainty for taxpayers on the landfill tax liability of activities carried out at a landfill site. This will come into effect after royal assent of Finance Bill 2017, on a day to be appointed by Treasury Order.
See: TUTC 2016 (para 3.1).
From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support provided by their employer. Currently only employees requiring legal support because of allegations against them are entitled to this relief.
See: AS 2016 (para 4.12).
Following Budget 2016, the government ran a consultation on part surrenders and part assignments of life insurance policies from 20 April 2016 to 13 July 2016. Currently, a policy holder who surrenders in part or assigns in part a life insurance policy can be subject to disproportionate tax charges. In response to the consultation, the government will legislate in FB 2017 to allow taxpayers to apply to HMRC to have the charge recalculated on a just and reasonable basis. The changes will take effect from 6 April 2017.
See: TUTC 2016 (para 1.4).
The government has announced that it will publish its response to the making tax digital consultations in January 2017, along with provisions to be included in FB 2017 which will implement previously announced changes.
A collection of closed consultations ran from 15 August 2016 to 7 November 2016, following the government’s announcement in Budget 2016 that it would explore options to simplify the tax rules for businesses, self-employed people and landlords, including adopting pay-as-you-go tax payments from 2018.
See AS 2016 (para 4.42).
Following an announcement in Budget 2016, the government set up a consultation over Summer 2016 in respect of a new tax relief for museums and galleries effective from 1 April 2017. The relief was to be available for temporary and touring exhibition costs but at AS 2016 the chancellor has announced that this will be broadened to include permanent exhibitions so that it will have a wider countrywide effect. The rates of relief will be set:
• at 25% for touring exhibitions;
• 20% for non-touring exhibitions; and
• and capped at £500,000 of qualifying expenditure per exhibition.
As previously indicated the relief will be available from 1 April 2017. If not renewed on review in 2020, it will expire in April 2022.
See: AS 2016 (para 4.30).
The national living wage will increase by 30p per hour from 1 April 2017 to £7.50 and in addition to this 4% increase in wages, in most cases, employers will also have to pay employer’s NIC on the increase.
See: AS 2016 (para 3.46).
Class 2 NICs
As announced at Budget 2016, class 2 NICs will be abolished from April 2018. Following that abolition, self-employed contributory benefit entitlement will be accessed through the payment of class 3 and class 4 NICs. The government has confirmed that all self-employed women will continue to be eligible to access the standard rate of maternity allowance. In addition, self-employed individuals with profits below the small profits limit (£5,965 for 2016/17) will be able to access contributory employment and support allowance through class 3 NICs, with support being provided for those individuals during the transition.
See: AS 2016 (para 4.8) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, third bullet).
Employer NICs
In his letter to the OTS, the chancellor confirms that, following the OTS setting out options for reform of employer NICs, officials will consider the details of the options and keep the topic under review.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the chancellor to the OTS (para 6).
Removal from the effects of the Limitation Act
From April 2018, NICs will be removed from the effects of the Limitation Act 1980. This will ensure the time limits and recovery process for enforcing NICs debts and other taxes are aligned. The government will consult on the details in due course.
Currently if HMRC wants to recover NICs debt it must raise a protective assessment within six years of the end of the tax year in question. The collection of arrears of tax is not covered by the Limitation Act so this leads to a mismatch in dealing with historic tax investigations where there is an associated national insurance liability (Limitations Act 1980 s 9(1)).
This is an interesting measure as it will enable HMRC to collect more NICs arrears, but by aligning the treatment for tax and NICs it means it can be badged as a simplification measure and a step towards income tax and NICs alignment.
See: AS 2016 (para 4.9) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, second bullet).
Thresholds
As suggested by the OTS in its March 2016 report The closer alignment of income tax and national insurance, the government has announced the primary and secondary NICs thresholds (being the amounts at which NICs are paid by employees and employers respectively) will be aligned.
The alignment, which will take place from April 2017, will require both employers and employees to begin paying NICs on weekly earnings above £157 (removing the current £1 difference). This is intended to simplify the payment of NICs for employers.
See: AS 2016 (para 4.7) and the letter dated 23 November 2016 from the chancellor to the OTS (para 2, first bullet).
At AS 2016, the government confirmed that it will implement previously announced reforms to the taxation of non-domiciled individuals. Although many practitioners had lobbied for a delay in the implementation of these changes, they will now take effect as planned from 6 April 2017. The reforms include:
• an individual who has been resident in the UK for at least 15 of the past 20 tax years will be treated as deemed UK domiciled for income tax, CGT and IHT purposes;
• non-domiciled individuals who have established offshore trusts before they become deemed UK domiciled ‘will not be taxed on income and gains arising outside of the UK and retained in the trust’. It is not clear whether this is a departure from HMRC’s August consultation document which suggested that trust income and gains could be taxed when they arise, and not when they leave the trust, where ‘protections’ are lost;
• an individual who has acquired a non-UK domicile of choice, but was born in the UK with a UK domicile of origin, will be treated as UK domiciled for tax purposes while resident in the UK and will not be able to claim the remittance basis; and
• the rules for the business investment relief (BIR) scheme will be changed to make it easier for non-domiciled individuals who are remittance basis users to bring offshore money into the UK for the purpose of investing in UK businesses. The government has also announced that it will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.
See: AS 2016 (para 4.15).
The government will consult at Budget 2017 on bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. The stated rationale is to subject all companies to corporation tax rules, and in particular the new restrictions on corporate interest and loss relief that will come into effect in April 2017.
Until 5 July 2016, non-resident companies were only subject to UK corporation tax if they had a UK permanent establishment through which they carried on a trade. From 5 July 2016, the corporation tax net was extended to catch offshore property developers who trade in or develop UK land, whether or not they have a permanent establishment. Other (non-trading) forms of UK-source income received by a non-resident company may be subject to UK income tax.
The government appears to be concerned that non-resident companies within the charge to income tax (rather than corporation tax) will not be within the new corporation tax restrictions applying to interest expenses and carried forward losses. The impact of the change would be limited to non-resident companies that have UK-source income but that are not already within the corporation tax net.
Property companies will be particularly affected by this change, as under current rules non-resident companies investing in UK property are liable to UK income tax on the rent, but can set interest expenses against this charge. The measure could also catch companies trading in the UK but not through a permanent establishment, as well as companies with non-trading income from, for instance, intellectual property or other investments. On the positive side, companies that are caught by this provision should benefit from the future planned decreases in UK corporation tax rates.
No date is given for implementation of this measure, although with the consultation beginning at Budget 2017 it seems unlikely it would be for FB 2017.
See: AS 2016 (para 4.26).
The government intends to make amendments in FB 2017 to the Northern Ireland corporation tax (NICT) regime (set out in Corporation Tax (Northern Ireland) Act 2015) to:
• give all small and medium size enterprises (SMEs) trading in Northern Ireland the opportunity to benefit; and
• make other changes to ensure the regime is not open to abuse.
The NICT regime is not yet in force and can only be brought into force when the NI Executive demonstrates its finances are on a sustainable footing. No further detail is included on the SME extension but it may be to remove the requirement in the existing rules that an SME must also be a ‘Northern Ireland Employer’.
See: TUTC 2016 (para 2.1).
Alongside the Autumn Statement, the government has also published correspondence with the Office for Tax Simplification (OTS), providing its response on two recent OTS recommendations:
• confirming that they will not go ahead with the recommendation to annualise NICs and that the proposed ‘sole enterprise with protected assets’ (SEPA) vehicle for sole traders may be considered, subject to investigating non-tax consequences (such as insolvency); and
• establishing two new areas for review: the VAT system, with a particular focus on small and medium-sized enterprises (SMEs), and stamp duty on share transactions.
Separately, in correspondence released on 23 November 2016, the government has responded to OTS suggestion made during the autumn on aligning the calculation of income tax and NICs. In a letter, the chancellor announced that the government would not pursue the OTS’s recommendation (as published in OTS reports earlier in 2016) that employees’ NICs should be amended to operate on an annual, cumulated and aggregated basis of assessment along the lines of income tax so that the NICs outcome would have been the same regardless of whether an individual had two part time jobs or one full time job. The reason given for not pursuing these recommendations is that the change would be ‘a major upheaval’ and that it was not the right time to make such changes.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the chancellor to the OTS.
There were also responses to points in OTS reports concerning class 2 NICs, employee business expenses and the reform of employer NICs (covered separately in this guide).
Requirement to correct
Following its consultation which closed on 24 October 2016, the government has confirmed that it will introduce a new legal requirement to correct (RTC) a past failure to pay UK tax on offshore interests by 30 September 2018. Those who do not comply with this new RTC will be subject to sanctions. This measure will have effect from royal assent of FB 2017.
See: AS 2016 (para 4.53), AS 2016: policy costings (page 28).
Requirement to register offshore structures
The government has announced that it will consult on introducing a new legal duty for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. Although this measure was not pre-announced, it is a continuation of the government’s policy to crackdown on offshore tax avoidance and evasion.
A similar reporting requirement already exists under IHTA 1984, s 218, which provides that any person in the course of their trade or profession (unless they are a barrister) who has been concerned with the creation of a settlement of which:
• the settlor is UK domiciled; and
• the trustees of the settlement are not/will not be resident in the UK.
must make a return to HMRC within three months of the creation of the settlement stating the names and addresses of the settlor and the trustees.
See: AS 2016 (para 4.54).
The government is ‘recommitting’ to Driving investment, a consultation document that was published in July 2014 (under the Coalition government). This is described as a long term plan for the oil and gas ring-fence fiscal regime. The original consultation proposed a number of reforms, some of which have already been implemented (such as the introduction of a new investment allowance). The document is out of date in several respects (most obviously, it pre-dates the effective abolition of petroleum revenue tax (PRT)), so it remains to be seen which of the original proposals the government now intends to implement.
Since 1 January 2016, PRT has been charged at a zero rate, but it has not been abolished, largely to enable companies to create losses that can be carried back to recover past PRT paid. As the tax still exists, various administrative requirements remain. The government has now announced that it will significantly simplify the process for opting out of PRT, and for companies that do not opt out, various reporting requirements have been removed.
The PRT simplifications allow companies to opt out from 23 November 2016 (i.e. the date of AS 2016) to take effect for periods beginning on or after 1 January 2017. The reporting requirement simplifications come into force immediately, although the HMRC forms won’t be updated until a later date. In the meantime companies can leave the relevant sections of the forms blank.
See: AS 2016 (para 4.38) and HMRC’s policy paper Petroleum revenue tax: cutting administration costs for the oil industry.
Following a consultation that ran until November 2016, the government has confirmed that it will publish draft legislation to clarify certain areas of partnership taxation which will ensure fair calculation of partner profit allocations.
See: TUTC 2016 (para 2.7).
Legislation will be included in FB 2017 to ensure that companies that undertake R&D in conjunction with others under a ‘cost-sharing arrangement’ do not benefit or lose out under the patent box rules by organising their R&D in this way. The specific provisions will have effect for accounting periods starting on or after 1 April 2017.
See: TUTC 2016 (para 2.3).
As announced at Budget 2016 and following a consultation, FB 2017 will simplify the process for applying for and agreeing PAYE settlement agreements. These changes will have effect in relation to agreements from 2018/19.
See: TUTC 2016 (para 1.1).
Foreign pensions
The government has announced that it will align the tax treatment of foreign pensions more closely with that of UK domestic pensions. Proposed measures include the following:
• Where a UK resident individual receives a pension or lump sum from a foreign pension scheme, the receipt will be subject to UK tax to the same extent as a pension or lump sum from a UK pension scheme. Currently, UK residents who receive overseas pension income are only subject to income tax on 90% of the amount received, provided that they are taxed on the arising basis
• So-called ‘section 615’ schemes will be closed to new saving. A section 615 scheme is an occupational pension scheme established under ICTA 1988, s 615(6) which: is established under trust by an employer that operates wholly or partly outside the UK; and provides retirement benefits for employees that work wholly outside the UK. Currently, a section 615 scheme is exempt from many, but not all, of the regulatory provisions that apply to UK pension schemes. In particular, it benefits from the same IHT exemptions as a UK pension scheme. For tax purposes, it is neither a registered pension scheme nor an employer-financed retirement benefits scheme (EFRBS).
• The UK will extend from five to ten years its taxing rights over payments received by individuals who have recently left the UK and where the payment is a foreign lump sum paid out of funds that at some time have received UK tax relief. Similar rights already apply to payments from qualifying recognised overseas pension schemes (QROPS).
• The tax treatment of funds transferred between UK registered pension schemes is to be aligned.
• The eligibility criteria for foreign schemes to qualify as overseas pension schemes is to be updated.
See AS 2016 (para 4.21).
Money purchase annual allowance
The government announced that the money purchase annual allowance will be reduced to £4,000, but will launch a consultation on the detail.
The government does not consider that earners over the age of 55 should be able to benefit from double pension tax relief (e.g. on recycled pension savings) but does wish to offer scope for those who, out of necessity have had to access their savings, to rebuild them.
The measure will be effective from April 2017.
See: AS 2016 (para 4.20).
AS 2016 confirms that the personal allowance will rise to £11,500 and the higher rate threshold will increase to £45,000 in 2017/18. By the end of this parliament in 2020, the personal allowance is set to increase to £12,500 and the higher rate threshold to £50,000. In order for personal allowance increases not to be eroded by inflation going forward, once the personal allowance reaches £12,500, it will then rise in line with CPI.
See: AS 2016 (paras 4.5 and 4.6).
Following Budget 2016, the government ran a consultation on personal portfolio bonds, reviewing the property categories on the types of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. In response to the consultation, the government will legislate in FB 2017 to amend by regulations the list of ‘safe’ assets.
See: TUTC 2016 (para 1.5).
As announced at Budget 2016, from April 2017 there will be two new £1,000 allowances for property and trading income for individuals. Individuals with property income below £1,000 or trading income below £1,000 will no longer be required to declare or pay tax on that income. Individuals with property income or trading income above those amounts will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance from income.
The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.
See: AS 2016 (para 4.14).
Following its consultation on changing the way IR35 applies to public sector bodies, the government has confirmed the reform will go ahead as planned with effect from April 2017. This reform will shift the responsibility for determining whether IR35 applies to a particular engagement from the personal service company involved to the public sector body, agency or other third party paying the worker’s company.
However, the government has confirmed the 5% allowance (which can be deducted when calculating an IR35 liability) will be removed for those operating in the public sector to take account of the fact those personal service companies will no longer bear the administrative burden of ascertaining whether IR35 applies.
There was no indication of whether a similar reform will take place for the private sector.
See: AS 2016 (para 4.11).
In her speech at the CBI annual conference on 21 November 2016, the Prime Minister, Theresa May, outlined the government’s commitment to invest an extra £2bn a year in research and development (R&D) tax incentives by the end of this Parliament. Mr Hammond reconfirmed this in the Autumn Statement. In addition, the government announced its intention to review the current tax environment for R&D and ‘build on the introduction’ of the above the line R&D tax credit (also referred to as RDEC). No further detail was provided but it may be an indication that the above the line credit is to be extended to small companies with the existing SME reliefs being phased out (currently a ‘super-deduction’ or surrender of losses for a payable tax credit).
We await further detail and clarification, but in the meantime it may be sensible to review any R&D expenditure with a view to maximising claims under the current SME regime, which operates on a simpler accounting basis than the existing ATL regime for large companies.
See: AS 2016 (para 3.30).
The government is implementing its proposal, described in the Strengthening tax avoidance sanctions and deterrents consultation, to remove the ‘reasonable care’ defence for inaccuracy penalties in certain avoidance cases. Taxpayers who use marketed tax avoidance schemes that HMRC has defeated, and who are faced with a penalty for submitting an inaccurate tax return, often argue that it was reasonable for them to rely on information they received from the scheme promoter or other enabler. In these circumstances, HMRC is proposing to prevent taxpayers from citing generic advice or marketing material to demonstrate that they have taken reasonable care.
See: AS 2016 (para 4.48).
Following the consultation announced in Budget 2016, the government will legislate in Finance Bill 2017 to bring the tax treatment of freeplays for remote gaming more in line with the treatment for free bets under general betting duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.
See: TUTC 2016 (para 4.1).
From April 2017, the tax and NICs benefits of salary sacrifice schemes will no longer apply except for those schemes relating to pension arrangements, pensions advice, childcare, cycle to work and ultra-low emission cars. Therefore, unless the scheme falls under one of these exemptions, employees swapping salary for benefits under a salary sacrifice scheme will be subject to income and NICs as if the benefits had been paid as salary. Arrangements that are in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
See: AS 2016 (para 4.13).
As part of the measures to encourage savers, the government has announced the issue of a new three year National Savings & Investments (NS&I) bond from April 2017.
The bond will be available for 12 months for savers aged 16 years and above for investments of between £100 and £3,000 and with an indicative rate of 2.2%, although this may be amended to reflect market conditions in April 2017.
See: AS 2016 (para 6.3).
AS 2016 confirms that the band of savings income that is subject to the starting rate of 0% will remain at its current level of £5,000 for 2017/18.
See: AS 2016 (para 4.19).
Changes are expected to be made to social investments tax relief (SITR) with effect from 6 April 2017:
• the investment limit for qualifying social enterprises aged up to seven years old will increase to £1.5m;
• nursing homes and residential care homes will be classed as excluded activities, although the government intends to revisit these activities in future with the aim of introducing an accreditation system which will allow fundraising via SITR; and
• the limit on the number of full-time equivalent employees will be reduced from 500 to 250.
The Autumn Statement also says, rather unhelpfully, that ‘other changes will be made to ensure the scheme is well targeted’.
See: AS 2016 (para 4.34) and the social investment tax relief factsheet published on the gov.uk website.
Draft legislation on the soft drink industry levy will be published on 5 December 2016.
See: AS 2016 (para 4.39).
The government has asked the OTS to carry out a review of stamp duty on share transactions, particularly on how stamp duty is collected on share transactions, i.e. physical stamping of documents. The information available in the letter to the OTS indicates that the review might only cover stamp duty and not extend to stamp duty reserve tax (SDRT), but this remains to be seen.
See: AS 2016 (para 4.43) and the letter dated 23 November 2016 from the financial secretary to the Treasury to the OTS.
The substantial shareholding exemption (SSE) rules will be simplified, including removing the ‘investing requirement’ and extending the exemption for companies owned by qualifying institutional investors. This follows a consultation that ran from 26 May 2016 to 18 August 2016.
The consultation included a number of options for reform. As expected, the more radical suggestions (such as removing all requirements regarding the trading status of the companies involved) appear to have been rejected. Instead the government has announced that it will remove the investing requirement, meaning that it will no longer be necessary for the disposing company or group to satisfy a trading status test. This is a welcome development because assessing the activities of the entire disposing group (which could be international) can pose significant practical difficulties. The ‘investee requirement’ (the trading status test for the target company) will, presumably, be retained.
The consultation included some further options that have not been mentioned in AS 2016, including replacing the trading test with a requirement to carry on some sort of active business (that might or might not be a trade), and removing the requirement for both the disposing and target companies to be trading immediately after the sale. These options may have been rejected, although we may find out more when the draft legislation and/or consultation response is published.
The consultation document also considered the case of sovereign wealth funds and pension funds, which are generally exempt from UK corporation tax on gains. This exemption does not extend to UK resident companies owned by these tax-exempt funds, and these companies cannot generally benefit from the SSE because the groups of which they are members will normally fail the trading test. The government has now confirmed the SSE will be extended to cover these institutional investors. At this stage, it would appear that these companies would be covered by the removal of the investing requirement generally, so it remains to be seen whether there will be any special provisions applying to this category of investor.
The reforms will take effect from April 2017.
See: AS 2016 (para 4.28).
As announced at Budget 2016, all post-April 2018 termination payments over £30,000 which are subject to income tax will be subject to employer NICs. Following the technical consultation on the draft legislation, and presumably in response to negative feedback on its proposals, the government appears to have backtracked from its original intention of subjecting all pay (including expected bonuses) due during a notice period to tax by announcing that only the equivalent of an employee’s basic pay in respect of an unworked notice period will be subject to tax. The announcement is light on detail, but it is expected the updated draft legislation, which is likely to be published on 5 December 2016, will confirm this position. The government will monitor the change and will ‘address any further manipulation’.
See: AS 2016 (para 4.10).
Following consultation, the government will introduce legislation in Finance Bill 2017 in order to introduce a licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally. Applications for licences will be accepted from January 2018 and the scheme will come into force on 1 April 2018.
See: TUTC 2016 (para 4.2).
Adapted cars for wheelchair users
Currently it is possible for the supply of a specially adapted vehicle to certain individuals to be zero-rated if certain conditions have been satisfied. The government has become aware that this legislation is being abused and therefore intends to clarify the application of the VAT zero-rating for adapted motor vehicles to stop the perceived abuse.
See: AS 2016 (para 4.50).
Fulfilment House due diligence scheme
Previously announced in Budget 2016, following consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House due diligence scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.
See: TUTC 2016 (para 4.3).
Penalty for participating in VAT fraud
As previously announced in Budget 2016 and following consultation that ended on 11 November 2016, the government will introduce a new and more effective penalty for participating in VAT fraud in FB 2017. The penalty will apply to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The new penalty will be a fixed rate penalty of 30% (option A in the consultation) and will be implemented following royal assent of FB 2017.
See: TUTC 2016 (para 6.2).
VAT avoidance disclosure regime
As announced at Budget 2016 and following consultations earlier this summer and in 2014, legislation will be introduced in FB 2017 to strengthen the rules on disclosure of avoidance of indirect tax. The government has confirmed that the regime will be extended to include all indirect taxes, with scheme promoters being primarily responsible for disclosure to HMRC.
See: TUTC 2016 (para 6.1).
VAT flat rate scheme
From 1 April 2017, there will be a new 16.5% VAT flat rate for businesses with limited costs, such as labour only businesses. This rate is higher than the existing flat rates and anti-forestalling provisions apply from 23 November 2016.
The VAT flat rate scheme applies to businesses with a turnover of no more than £150,000 a year (excluding VAT). The purpose of the scheme is to simplify VAT record keeping for small businesses. The scheme allows the tax payer to apply a fixed flat rate percentage to gross turnover to arrive at the VAT due. The fixed rate percentage varies depending on the type of business. Businesses within the scheme will now need to determine whether they fall within the definition of ‘limited cost trader’ to establish if the new rate will apply to them. Draft legislation will be published on 5 December 2016 for comment.
See: AS 2016 (para 4.15) and the technical note Tackling aggressive abuse of the VAT flat rate scheme.
VAT groups
The government has confirmed that it will consult on the rules relating to VAT grouping. This consultation was expected following the Larentia + Minerva and Marenave and Skandia cases and Revenue and Customs Brief 3/2016.
See: AS 2016 (para 4.14).
Following wholesale changes from November 2015 and small tweaks in Finance Act 2016, the government will include in FB 2017 further changes to the enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trust (VCT) regimes to:
• clarify the rules for share conversion rights in EIS and SEIS with effect from 5 December (i.e. the date of publication of draft clauses for FB 2017);
• provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS (with effect from 6 April 2017); and
• give the government the power to make regulations in the context of share for share exchanges in the VCT regime.
The government also announced:
• it will release a consultation into the options for streamlining and prioritising the advance assurance service. It is not clear if this is alongside or instead of the commitment (from the July 2015 consultation response (para 2.17)) to introduce a new digital process for EIS and SEIS investors by the end of 2016; and
• it will not, currently, be extending the regimes to allow ‘replacement capital’ (i.e. enabling relief for secondary investors, rather than subscribers only), but will keep it under review.
See: TUTC 2016 (para 2.8).
This commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide advisers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service that combines tax technical commentary with practical guidance.
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