Budget 2009
BUDGET NOTES
22 April 2009
Budget Notes contain technical information additional to the press notices issued by HM Treasury with the Budget. They are not the same as press notices, which are primarily used as brief explanations of new policy for the media, but rather contain additional, more detailed information on the finer points and application of taxation changes announced in the Budget. As such they are designed to assist businesses that may be immediately affected by the changes, and to provide more technical information to those with a specialist interest such as tax consultants and advisers, City financial institutions and local HM Revenue and Customs offices. This information is also published on the Treasury and HM Revenue and Customs internet sites. Contact details for each note were correct at the time of publication. Please refer to HMRC’s individual web versions as these are updated as required.
CONTENTS: BN Budget Note Page 1 Additional Rate of Income Tax and Income-Related 5 Reduction of the Personal Allowance from 2010-11 2 Corporation Tax Main Rates 9 3 Corporation Tax Small Companies’ Rate 11 4 Capital Allowances: Plant and Machinery: Temporary 13 First-Year Allowances 5 Taxation of Foreign Profits 15 6 Corporation Tax: Loan Relationships: Connected 19 Companies 7 Corporation Tax: Agreements to Forgo Tax Reliefs 21 8 Improvements to the Venture Capital Schemes 23 9 North Sea Fiscal Regime 27 10 North Sea Fiscal Regime: Incentivising Production 31 11 Enhanced Capital Allowances for Energy-Saving and 33 Water Efficient (Environmentally Beneficial) Technologies 12 Sale of Lessor Companies: Anti-Avoidance and Fairness 35 13 Extension of Trading Loss Carry Back for Business 37 14 Life Insurance Companies: Consultation Outcomes and 39 Simplification 15 Financial Services Compensation Scheme: Payments 43 Representing Interest 16 UK Dividend Exemption for Lloyd’s Corporates 45 17 Group Relief: Preference Shares 47 18 Stock Lending and Repurchase Arrangements: Stamp 49 Duty, Stamp Duty Reserve Tax and Tax on Chargeable Gains 19 Foreign Denominated Losses 53
20 Transfers of Business Between Mutual Societies 55 21 Taxation of Personal Dividends 57 22 Taxation of Personal Dividends Distributions from Offshore 59 Funds 23 Tax Elected Funds 61 24 Chargeable Gains and Offshore Funds 63 25 Offshore Funds 65 26 Certainty on Trading and Investment for Authorised 67 Investment Funds and Investors in Equivalent Offshore Funds 27 New Tax Rules for Investment Trust Companies Investing 69 in Interest Bearing Assets 28 Groups: Reallocation of Chargeable Gains 71 29 Double Taxation Relief on Dividends 73 30 Save as You Earn Process Simplification 75 31 Corporate Intangible Fixed Asset Regime 77 32 Financial Arrangements Avoidance 79 33 Anti-Avoidance: Plant and Machinery Leasing 81 34 North Sea: Accelerated Decommissioning Relief 83 35 Foreign Exchange Losses: Targeted Anti-Avoidance Rule 85 36 Transfers of Income Streams 87 37 Disguised Interest 89 38 Anti-Avoidance: Interest Relief 91 39 Manufactured Interest 93 40 Hedging Proceeds from Future Share Issues 95 41 Real Estate Investment Trusts: Artificial Restructuring 97 42 Real Estate Investment Trusts: Amendments 99 43 Stamp Duty Land Tax, Capital Allowances and Tax on 101 Capital Gains: Alternative Finance Investment Bonds 44 Stamp Duty Land Tax: Treatment of Shared Ownership 103 45 Stamp Duty Land Tax: Temporary Increase in Thresholds 105 46 Stamp Duty Land Tax: Leasehold Enfranchisement 107 47 Pensions: Limiting Tax Relief for High Income Individuals 109 (Anti-Forestalling) 48 Taxation of Payments from the Financial Assistance 113 Scheme 49 Avoiding Unintended Tax Consequences in Relation to 115 Pension Savings 50 Inheritance Tax: Extension of Agricultural Property and 117 Woodlands Reliefs to Land in the European Economic Area 51 Individual Savings Accounts (ISAs): Increasing ISA Limits 119 for People Aged 50 and Over and Increasing ISA Limits for All 52 Child Trust Fund: Payments for Disabled Children 121 53 Charities: Substantial Donors Regulations 123 54 UK Personal Allowances and Reliefs for Non-Resident 125 Individuals 55 The Remittance Basis: Minor Amendments 127
56 Living Accommodation Provided by Reason of 131 Employment: Payment of Lease Premiums 57 Avoidance Using Life Insurance Policies 133 58 Avoidance Using Employment Income Legislation 135 59 Double Taxation Relief Avoidance: Banks Using 137 Manufactured Overseas Dividends 60 Double Taxation Relief Avoidance: Credit Abuse 139 61 Double Taxation Relief Avoidance: Repayment of Foreign 141 Tax 62 Corporate Transparency: Personal Tax Accountability of 143 Senior Accounting Officers of Large Companies 63 Publishing the Names of Deliberate Tax Defaulters 145 64 Changes to Company Car Tax from 2011-12 147 65 Modernising Tax Relief for Business Expenditure on Cars 149 66 Hydrocarbon Oils: Duty Rates 153 67 VAT: Simplifying the Procedure for Opting to Tax Land and 157 Buildings 68 VAT: Reduced Rate for Children’s Car Seat Bases 159 69 VAT: Changes in Fuel Scale Charges 161 70 VAT: Increased Turnover Thresholds for Registration and 165 Deregistration 71 VAT: Change of Standard Rate 167 72 VAT: Change of Standard Rate: Anti-Forestalling 169 Legislation 73 VAT and Excise: Exemption for Gaming Participation Fees 171 and Other Miscellaneous Amendments 74 Cross-Border VAT Changes 2010: Place of Supply of 175 Services Rules 75 Cross-Border VAT Changes 2010: Time of Supply Rules 179 76 Cross-Border VAT Changes 2010: EC Sales Lists 181 77 Cross-Border VAT Changes 2010: VAT Refund Procedure 183 78 Landfill Tax: Standard Rate 185 79 Landfill Tax: Taxable Disposals of Waste at a Landfill Site 187 80 Climate Change Levy: Restricted Entitlement to Levy 189 Relief for Plastics Sector 81 Climate Change Levy: Recovery of Levy Relief 191 82 Climate Change Levy: Low Value Solid Fuel 193 83 Amusement Machine Licence Duty: Changes to Rates and 195 Machine Categories 84 Withdrawal of the Warehousing for Export Drawback 197 Scheme for Alcoholic Liquors 85 Tobacco Products Duty: Rates 199 86 Alcohol Duty: Rates 201 87 Reclaiming Income Tax, Capital Gains Tax and 203 Corporation Tax Overpayments 88 Review of HMRC Powers, Deterrents and Safeguards: 205 Payments, Repayments and Debt 89 Review of HMRC Powers, Deterrents and Safeguards: 207 Compliance Checks 90 Review of HMRC Powers, Deterrents and Safeguards: 211
Penalties for Late Filing of Returns and Late Payment of Tax 91 Interest Harmonisation 215 92 HMRC Charter 219 93 Changes to Customs Powers 221
HM REVENUE AND CUSTOMS PRESS OFFICE
Press enquiries: 020 7147 0798 / 2328 (Business Tax Desk) 020 7147 2318 / 0051/ 0394 / 2331 (Personal Tax Desk) 020 7147 2314 / 0052 (Law Enforcement Desk) 07860 359544 (Out of hours)
GOVERNMENT DEPARTMENT INTERNET SITES
Further information and all published documents relating to the Budget may be found on the Internet at the following addresses:
HM Treasury: www.hm-treasury.gov.uk
HM Revenue and Customs: www.hmrc.gov.uk
BN01
ADDITIONAL RATE OF INCOME TAX AND INCOME-RELATED REDUCTION OF THE PERSONAL ALLOWANCE FROM 2010-11
Who is likely to be affected?
1. Income tax payers.
General description of the measure
2. Budget 2009, has announced the following income tax changes: • from 2010-11, there will be an additional higher rate of 50 per cent for taxable income above £150,000; • from 2010-11 the basic personal allowance for income tax will be gradually reduced to nil for individuals with “adjusted net incomes” above £100,000; • from 2010-11 there will be increases to the trust rate and dividend trust rate to match those for income tax; and • the measure includes new powers to vary the income tax rates for the charges that apply to registered pension schemes. These changes replace the announcements made at the 2008 Pre-Budget Report. The reduction of personal allowances affects those with incomes over £100,000 and the new tax rate affects those with incomes over £150,000.
Operative date
3. The additional rate of income tax, the reduction to the personal allowance and the increases to the trust rate and dividend trust rate will have effect on and after 6 April 2010.
Current law and proposed revisions
4. For 2009-10, there are two main rates of income tax. The 20 per cent basic rate of income tax applies to taxable income up to £37,400. The 40 per cent higher rate applies to taxable income above £37,400. From April 2010, a 50 per cent additional rate of tax will apply to taxable income above £150,000.
5. From 2010-11 there will be three rates of tax for dividends. Dividends otherwise taxable at the 20 per cent basic rate will continue to be taxable at the 10 per cent dividend ordinary rate and dividends otherwise taxable at the 40 per cent higher rate will continue to be taxable at the 32.5 per cent dividend upper rate. Dividends otherwise taxable at the new
2009 Budget Notes Page 5 of 222 50 per cent additional rate will be taxable at a new 42.5 per cent dividend additional rate.
6. From 2010-11, the dividend trust rate will be increased from 32.5 per cent to 42.5 per cent and the trust rate will be increased from 40 per cent to 50 per cent.
7. The basic personal allowance provides an amount of tax free income. All individuals entitled to the basic personal allowance receive the same amount. From 2010-11, the basic personal allowance will be subject to a single income limit of £100,000. Where an individual’s adjusted net income (see paragraph 9) is below or equal to the £100,000 limit, they will continue to be entitled to the full amount of the basic personal allowance.
8. From 2010-11, where an individual’s adjusted net income is above the income limit of £100,000, the amount of the allowance will be reduced by £1 for every £2 above the income limit. The personal allowance will be reduced to nil from this income limit instead of the two-stage reduction announced at the Pre-Budget Report.
9. “Adjusted net income” is the measure of an individual’s income that is used for the calculation of the existing income-related reductions to personal allowances those aged between 65 and 74, and for those aged 75 and over. Adjusted net income is calculated in a series of steps. The starting point is “net income” which is the total of the individual’s income subject to income tax less specified deductions, the most important of which are trading losses and payments made gross to pension schemes. This net income is then reduced by the grossed-up amount of the individual’s Gift Aid contributions and the grossed-up amount of the individual’s pension contributions which have received tax relief at source. The final step is to add back any relief for payments to trade unions or police organisations deducted in arriving at the individual’s net income. The result is the individual’s adjusted net income.
10. The tax rates for charges applying to registered pension schemes are generally linked to the highest rate of income tax. There are existing powers to vary the rates for some of these charges by Statutory Instrument. This measure includes powers to vary the rates for the remaining charges, again through secondary legislation, taking into account the new additional higher rate of income tax.
Further advice
11. If you have any questions about this change except in connection with registered pension schemes, please contact Paul Thomas on 020 7147 2479 (email: [email protected]).
2009 Budget Notes Page 6 of 222 12. If you have any questions about the change in connection with registered pension schemes, please contact Claire Gough on 020 7147 0548 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 7 of 222
2009 Budget Notes Page 8 of 222
BN02
CORPORATION TAX MAIN RATES
Who is likely to be affected?
1. Companies with profits above the upper relevant maximum amount (URMA) (currently £1.5 million), companies that are part of a group with profits above the URMA, and companies with profits from oil extraction and oil rights in the UK and the UK Continental Shelf (‘ring fence profits’).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to set the main rate of corporation tax (CT) at 28 per cent on and after 1 April 2010.
3. The main rate of CT for companies’ ring fence profits will remain at 30 per cent on and after 1 April 2010.
Operative date
4. These rates will have effect on and after 1 April 2010.
Current law and proposed revisions
5. The various CT rates are legislated annually in the Finance Act (FA). The current provisions for the charge of CT can be found at sections 6 and 7 of FA 2008.
6. Where companies have profits of more than £1.5 million, the whole of those profits are chargeable to the main rate of corporation tax. Section 6 of FA 2008 sets the main rate at 28 per cent for companies with profits other than ring fence profits and at 30 per cent for companies with ring- fence profits.
7. The main rate of CT will remain at 28 per cent and the main rate of CT for ring fence profits will remain at 30 per cent.
Further advice
8. If you have any questions about this measure, please contact your local HMRC office. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 9 of 222
2009 Budget Notes Page 10 of 222
BN03
CORPORATION TAX SMALL COMPANIES’ RATE
Who is likely to be affected?
1. Companies with profits chargeable to corporation tax (CT) lower than the lower relevant maximum amount (LRMA) (currently £300,000), companies with CT profits between LRMA and the upper relevant maximum amount (URMA) (currently £1.5 million), and companies with profits from oil extraction and oil rights in the UK and the UK Continental Shelf (‘ring fence profits’).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to keep the small companies’ rate for all profits, apart from ring fence profits, at 21 per cent from 1 April 2009 and keep the fraction used in smoothing the difference between the main rate of CT and the small companies’ rate (marginal small companies’ rate) at 7/400.
3. The small companies’ rate for ring fence profits will remain at 19 per cent from 1 April 2009 and the marginal small companies’ relief fraction for ring fence profits will remain at 11/400.
Operative date
4. The measure will have effect on and after 1 April 2009.
Current law and proposed revisions
5. The various CT rates are found in the Income and Corporation Taxes Act 1988 (ICTA) and are legislated annually in the Finance Act (FA). The current provisions for the charge of CT can be found at sections 6 and 7 of FA 2008.
6. The current rules at section 13 of ICTA provide that where a company is not a close investment-holding company and its CT profits (other than ring fence profits) are lower than the LRMA (currently £300,000), those profits are taxed at the lower rate of CT, known as the ‘small companies’ rate’ (currently 21 per cent).
7. Legislation will be introduced in Finance Bill 2009 to maintain the small companies’ rate at 21 per cent for non-ring fence profits. The small companies’ rate for ring fence profits will also remain at 19 per cent for the financial year 2009-10.
2009 Budget Notes Page 11 of 222
8. Section 13(2) of ICTA entitles companies with a profit of between £300,000 and £1.5 million to marginal relief (‘marginal small companies’ relief’) from tax computed at the main rate. The fraction used in calculating this relief is currently 7/400 for non-ring fence profits and 11/400 for ring fence profits.
9. As there is no change to the small companies’ rate, the fraction for non- ring fence profits will remain at 7/400 and for ring fence profits the fraction will also remain at 11/400.
10. The upper and lower limits for the small companies’ rate are set at section 13 (3) of ICTA. These will remain unchanged.
Further advice
11. If you have any questions about this measure, please contact your local HMRC office. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 12 of 222
BN04
CAPITAL ALLOWANCES: PLANT AND MACHINERY: TEMPORARY FIRST-YEAR ALLOWANCES
Who is likely to be affected?
1. Businesses investing in plant and machinery between April 2009 and April 2010.
General description of the measure
2. Legislation in Finance Bill 2009 will introduce a new temporary 40 per cent first-year allowance (FYA) for expenditure on general plant and machinery. That is expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.
3. The temporary FYA will be available to: • any individual carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office); • any partnership; and • any company.
Operative date
4. The temporary FYA will apply to qualifying spending incurred in the 12 month period beginning on 1 April 2009 for the purpose of corporation tax, and on 6 April 2009 for the purpose of income tax.
Current law and proposed revisions
5. Capital allowances allow business to deduct the costs of capital assets, such as plant and machinery, against their taxable income. They take the place of commercial depreciation, which is not allowed for tax.
General plant and machinery
6. Since 1 April 2008 (corporation tax) or 6 April 2008 (income tax) most businesses, regardless of size, have been able to claim the new Annual Investment Allowance (AIA) on the first £50,000 spent on plant or machinery (subject to certain exclusions). Businesses have been able to claim the AIA in respect of special rate expenditure such as long-life assets, and integral features, as well as on general plant and machinery.
2009 Budget Notes Page 13 of 222 7. Where businesses spend more than £50,000 in any chargeable period, any additional expenditure will be dealt with in the normal capital allowances regime, entering either the main pool or “special rate” pool, where it will attract writing-down allowances (WDAs) at the appropriate rate.
8. The main rate of plant and machinery WDA is currently 20 per cent per annum on a reducing balance basis. For “special rate” expenditure the rate of plant and machinery WDA is currently 10 per cent per annum on a reducing balance basis.
9. Businesses incurring expenditure in excess of the AIA cap that would normally be allocated to the main pool and qualify for a 20 per cent WDA in the 12 month period beginning on 1 April 2009 and 6 April 2009 will now be able to claim a 40 per cent FYA instead.
Exclusions
10. As with previous and existing first-year allowances there are exceptions where the expenditure will not qualify for the temporary first-year allowance, the main exceptions include “special rate” expenditure (including long-life assets and integral features), expenditure on cars, and on assets for leasing.
Further advice
11. If you have any questions about this change, please email [email protected] or [email protected] or telephone 020 7147 2610. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 14 of 222
BN05
TAXATION OF FOREIGN PROFITS
Who is likely to be affected?
1. UK companies that are members of groups. The four elements of the foreign profits package will have the following impact: • changes to the rules governing the tax treatment of distributions received apply to all companies receiving foreign or UK dividends and other company distributions; • groups other than those consisting entirely of companies that are small or medium sized may be affected by the restriction of interest and other finance expense; • consequential changes to the Controlled Foreign Company (CFC) rules apply to companies that are subject to the existing CFC legislation; and • the repeal of the Treasury Consents rules applies generally and their replacement with a post-transaction information-reporting requirement applies to companies that undertake transactions of £100 million or more involving foreign investments.
2. UK companies that are not members of groups and receive dividends or other distributions, in relation to the changes to the rules governing the tax treatment of distributions.
General description of the measure
3. The foreign profits package will be introduced in Finance Bill 2009 after a long period of consultation and consists of four elements: • dividends and other distributions received from foreign companies will largely be exempt from corporation tax (CT) and UK distributions will be exempt to the same extent; • finance expense payable by UK members of a group of companies will be subject to a cap equal to the consolidated gross finance expense of that group; • the CFC (superior and non-local) holding company exemptions and Acceptable Distribution Policy (ADP) exemption will be removed; and • the Treasury Consents rules (that requires approval from HM Treasury before certain transactions are undertaken) will be repealed and replaced by a post-transaction information-reporting requirement.
Operative date
4. The changes to the taxation of distributions will apply to dividends and other distributions received on or after 1 July 2009.
2009 Budget Notes Page 15 of 222
5. The changes to the CFC regime have effect for accounting periods starting on or after 1 July 2009 with provision made for accounting periods that straddle this date. However, the exemption for non-local and superior holding companies may be available for qualifying companies in a transitional form until 1 July 2011.
6. The new reporting requirement applies to transactions undertaken on or after 1 July 2009.
7. The debt cap applies to finance expense payable in accounting periods beginning on or after 1 January 2010.
Current law and proposed revisions
Dividends
8. Foreign dividends and other distributions received are currently chargeable to CT, with credit given for any foreign tax withheld from a dividend and (for shareholdings of 10 per cent or more) for foreign tax charged on the profits out of which the dividend is paid (underlying tax). Currently UK distributions received are generally exempt from CT.
9. The new legislation will treat foreign and UK distributions in the same way. Distributions will generally be exempt if they fall into an exempt class and anti-avoidance provisions do not apply. The vast majority of distributions are expected to be exempt from CT. In addition to the changes announced in the 2008 Pre-Budget Report, exemption for dividends or other distributions arising from holdings of ten per cent or more will be extended to all companies.
Debt cap
10. Interest is generally deductible in computing taxable profits, with various pieces of anti-avoidance legislation restricting relief in some circumstances.
11. The new legislation caps the tax deduction for finance expense payable by UK members of a group of companies to the consolidated gross finance expense of that group. Draft legislation was published on 9 December 2008. Following consultation a number of changes are proposed. These include: • the way in which the net finance expense is calculated; • the calculation of the consolidated gross finance expense; and • introducing or amending a number of exclusions to deal with, for example, financial services, finance expense in respect of short term debt, group treasury companies and relatively small amounts of net finance expense
2009 Budget Notes Page 16 of 222 Controlled Foreign Companies (CFC)
12. The CFC regime currently provides an exemption from apportionment (and therefore from the resulting UK tax charge) for profits of a foreign company that qualifies as a holding company under the exempt activities test. The regime also exempts from apportionment profits of a foreign company that pays a dividend of at least 90 per cent of those profits within 18 months of the end of the accounting period concerned (the ADP exemption).
13. The changes to the CFC regime will remove the exemption for superior and non-local holding companies (subject to a two year transitional period) and the ADP exemption. The exemption for local holding companies will be retained.
Treasury Consents
14. The existing legislation requires companies to obtain approval from HM Treasury before undertaking certain transactions involving subsidiary companies resident outside the UK. The legislation includes a criminal sanction for non-compliance. For movements of capital between residents of EU Member States, the existing legislation imposes a reporting requirement.
15. The changes announced today will repeal the existing legislation. In its place the Government intends to introduce a modernised post-transaction reporting requirement that applies to transactions with a value of £100 million or more subject to a number of exclusions. These include several based on the existing ‘general consents’ rules and an exclusion for trading transactions. Companies must make a report within six months of the transaction.
Loan Relationships and derivative contracts: anti-avoidance
16. The draft legislation published on 9 December 2008 included provision for loan relationships and derivative contracts forming part of arrangements that have a tax avoidance purpose. The case for further legislation in this area will be kept under review, but the measure will not form part of Finance Bill 2009.
Further advice
17. If you have any questions about: • distributions please contact Andrew Page on 020 7147 2673 (email: [email protected]); • debt cap please contact Neil Nagle on 020 7147 2459 (email: [email protected]); and • CFCs and Treasury consents please contact David Hannigan on 020 7147 2736 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 17 of 222
2009 Budget Notes Page 18 of 222
BN06
CORPORATION TAX: LOAN RELATIONSHIPS: CONNECTED COMPANIES
Who is likely to be affected?
1. Companies that are subject to the corporation tax legislation on corporate debt (the ‘loan relationships’ rules).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to amend the loan relationships rules affecting connected companies.
3. The first change amends the rules on the release of trade debts between connected companies.
4. The second change amends the rules on the late payment of interest between connected companies.
Operative date
5. The first change will apply to releases of trade debts that take place on or after 22 April 2009. The second change will have effect for company accounting periods beginning on or after 1 April 2009.
Current law and proposed revisions
6. Two companies are ‘connected’ under the loan relationships rules if one controls the other, or they are both under common control – so companies in the same group are connected. A creditor that formally releases a connected debtor from a trade debt (or a debt incurred in a UK or overseas property business) is denied a deduction for the loss on the debt, but currently the debtor may be taxed on its ‘profit’.
7. Legislation will be introduced so that, where a trade or property business debt is released, the loan relationships rules apply to the debtor as well as to the creditor. This means that if the debtor company is connected with the creditor, no tax charge arises on the debt release. If the creditor and debtor companies are not connected, the debtor is taxed (unless the release is part of a statutory insolvency arrangement) and the creditor gets relief – just as at present.
2009 Budget Notes Page 19 of 222 8. The second change concerns the rule that allows a debtor company a deduction for interest payable to a connected creditor that is outside the loan relationships rules only on a ‘paid basis’, rather than on the ‘accruals basis’ that normally applies. This ‘late interest rule’ will be amended in cases where the connected creditor is a ‘connected company’ (as defined in the loan relationships rules), or a company that is a close company participator in the debtor company, or where either debtor or creditor have a ‘major interest’ in the other party. In such cases, the late interest rule will only apply if the creditor company is resident in a ‘non-qualifying territory’ (broadly, a tax haven). If this relaxation of the rule is abused, an anti-avoidance provision will be introduced in a future Finance Bill.
9. Rules similar to the late interest rule apply where connected and close companies issue deeply discounted securities. Equivalent changes will be made so that those rules also only apply to a creditor company that is resident in a non-qualifying territory.
10. A company will be able to elect for the ‘paid basis’ to continue for the first accounting period which begins on or after 1 April 2009.
Further advice
11. If you have any questions about these changes, please contact Sue Davies on 020 7147 2565 (email: [email protected]) or Tony Sadler on 020 7147 2608 (email: [email protected].) Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 20 of 222
BN07
CORPORATION TAX: AGREEMENTS TO FORGO TAX RELIEFS
Who is likely to be affected?
1. Groups of companies that enter into agreements with the Treasury or another Government Department or agency to surrender their rights to certain tax losses or other reliefs in connection with arrangements such as the Asset Protection Scheme.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to ensure that provisions of the Corporation Tax Acts do not override an undertaking by a company to surrender its rights to tax losses and other reliefs given in connection with the Government’s Asset Protection Scheme, or similar arrangements designated by the Treasury.
Operative date
3. The legislation will apply to qualifying arrangements entered into on or after 22 April 2009.
Current law and proposed revisions
4. The Corporation Tax Acts provide that certain reliefs for losses and other allowances are given automatically, for example by deduction from income in a later period, without the need for a claim. For example, losses incurred in a trade in one accounting period are, in the absence of any other claim, automatically carried forward to the next period, and will reduce the amount of profit that is taxable in that later period, by virtue of section 393(1) of the Income and Corporation Taxes Act 1988.
5. The new legislation will ensure provisions that grant such automatic reliefs from tax can be switched off in circumstances where a person has undertaken to forgo these tax reliefs in connection with schemes that provide taxpayer support. The legislation will also ensure that there is no tax relief for any expense or loss representing the amount of, or rights to, reliefs forgone under the arrangements.
2009 Budget Notes Page 21 of 222 Further advice
6. If you have any questions about this change, please contact Philip Donlan on 020 7147 2633 (email: [email protected]) or Aidan Reilly on 020 7147 2575 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 22 of 222
BN08
IMPROVEMENTS TO THE VENTURE CAPITAL SCHEMES
Who is likely to be affected?
1. The measure will affect: • investors receiving tax relief under the Enterprise Investment Scheme (EIS), Corporate Venturing Scheme (CVS) and the Venture Capital Trust (VCT) scheme; • companies attracting investment under those schemes; • Venture Capital Trusts; and • EIS Investment Funds.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to make a number of improvements to the Venture Capital Schemes.
3. For EIS, the measure: • relaxes the time limits concerning the employment of money invested; • removes the link to other shares of the same class issued at the same time as qualifying shares; • extends the period for carry back of relief and allows the full amount subscribed (subject to the overriding limit) to be carried back; and • corrects an anomaly regarding the capital gains position for investors in the event of a share for share exchange.
4. For CVS and VCT, the measure relaxes the time limits concerning the employment of money by companies receiving investment.
Operative date
5. The measure in respect of the employment of money will have effect for EIS and CVS investments made on or after 22 April 2009. The removal of the link to other shares issued at the same time will apply to shares issued on or after 22 April 2009 and the correction of the capital gains anomaly to new holdings issued on or after 22 April 2009. In relation to the carry back of relief it will apply to the tax year 2009-10 and subsequent years. For VCT schemes the changes will apply to investments made out of funds raised by VCTs on or after 22 April 2009.
2009 Budget Notes Page 23 of 222 Current law and proposed revisions
EIS
6. The EIS currently requires that 80 per cent of the money raised by the issue of shares be employed for the purposes of a qualifying activity within 12 months of the issue of the shares or, if later, of the commencement of a qualifying activity. The balance is required to be employed within a further 12 months. Finance Bill 2009 will replace these rules with a single requirement that all of the money raised by the issue of shares be wholly employed within two years of the issue of shares or, if later, within two years of the commencement of a qualifying activity.
7. In addition, the investee company is currently required to use money raised from the issue of other shares on the same day and of the same class as the EIS shares within the same time limits. This link is being removed and there will be no restriction on the use of money raised by the issue of non EIS shares.
8. Currently an investor may carry back income tax relief to the previous year by claiming that qualifying shares are treated as having been issued in the previous year. This is restricted to shares issued before 6 October and subject to a limit of half of the subscriptions in that period, up to an overall limit of £50,000 subscribed. Finance Bill 2009 will remove these restrictions. The total investment that can be taken into account for the purposes of calculating income tax relief for any particular year will remain subject to a limit, currently £500,000 subscribed.
9. It is currently possible that a charge to capital gains tax can occur on a share for share exchange where such a gain would not normally be charged. Finance Bill 2009 removes the rules that prevent the normal share for share exchange capital gains tax rules from applying to the gain on the disposal of shares when all deferral relief has been recovered. Now on the occasion of a qualifying (under sections 135 and 136 of the Taxation of Chargeable Gains Act 1992) share for share exchange any deferral relief given will be recovered as before but no gain or loss will be brought into charge in respect of the disposal of the shares that form the subject of the exchange.
CVS and VCT
10. The CVS and VCT schemes currently require that 80 per cent of the money received by the investee companies must be wholly employed for the purposes of the relevant trade within 12 months and the balance within a further 12 months. Finance Bill 2009 will replace these rules with a single requirement that all the money raised must be wholly employed within two years, or, if later, within two years of the commencement of the qualifying activity.
2009 Budget Notes Page 24 of 222
Further advice
11.These improvements were identified following consultation undertaken in 2008 with representatives of the Venture Capital Schemes industry bodies.
12.If you have any questions about this change, please contact David Halliday on 020 7147 2626 (email: [email protected]), Kathryn Robertson on 020 7147 2589 (email [email protected]) or Des Ryan on 020 7147 0818 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 25 of 222
2009 Budget Notes Page 26 of 222
BN09
NORTH SEA FISCAL REGIME
Who is likely to be affected?
1. Oil and gas companies that operate in the UK or on the UK Continental Shelf (UKCS).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to include the measures outlined below.
3. Changes will be made to the ring fence corporation tax (RFCT) and Petroleum Revenue Tax (PRT) rules to facilitate change of use activities where North Sea assets and infrastructure are reused for purposes other than oil and gas production.
4. The chargeable gains rules will be amended to make it easier to allow companies to transfer their UK and UKCS assets to those most able to maximise the potential of those assets.
5. The PRT rules that provide relief for decommissioning costs will be extended to cover the situation where, as a result of licence expiry, a company is no longer a licensee. In addition, changes will be made to the PRT legislation to reduce the compliance burden and further simplify the regime.
6. The RFCT legislation will be amended to fully align the definition of a consortium with the general corporation tax (CT) definition.
Operative date
7. The change of use measures will have effect respectively for RFCT in relation to expenditure incurred on or after 22 April 2009; and for PRT in relation to chargeable periods beginning after 30 June 2009.
8. The changes to the chargeable gains rules will have effect in relation to disposals made on or after 22 April 2009.
9. The changes to the PRT rules extending relief for decommissioning costs where the company is no longer a licensee will have effect for chargeable periods beginning after 30 June 2009.
2009 Budget Notes Page 27 of 222 10. The repeals and other changes to simplify the PRT regime will, where appropriate, have effect for chargeable periods beginning after 30 June 2009.
11. The change to the RFCT legislation to modify the definition of a consortium will have effect on or after 22 April 2009.
Current law and proposed revisions
Facilitating Change of Use
12. Under the current law as it relates to decommissioning: • companies carrying on a ring fence trade can carry decommissioning losses back against ring fence profits to 17 April 2002. However, where ring fence plant and machinery used for some other purpose is decommissioned, losses can only be carried back under the general CT rules (up to a maximum of three years); • companies can, after a ring fence trade has ceased, allocate all the decommissioning costs incurred after cessation to the final period of trading and thus benefit from the loss carry back described above. However there are no equivalent rules for ex-ring fence assets that are then used for some other purpose; and • the PRT rules allow relief for all of the costs of decommissioning. However, the relief is restricted if the asset in question has at some time been used for a non-PRT purpose.
13. Under the current law as it relates to the operation of PRT: • where a PRT asset is then used for some other purpose, part of the cost relieved for PRT is clawed back; and • the scope of income chargeable to PRT is extended to include income received in respect of the use of a qualifying asset and this could potentially include income arising from a change of use project.
14. The new rules for decommissioning will: • allow companies to set off decommissioning costs of change of use ex-ring fence assets against their ring fence profits and get equivalent relief for PRT change of use assets; and • allow companies access to full PRT relief for decommissioned ex-PRT assets. The effect of the new rules will be to allow access to RFCT and PRT relief for the decommissioning costs of those North Sea assets that have been put to use in change of use projects, mirroring the treatment where decommissioning takes place after the asset ceases to be used for oil and gas production.
15. The new rules for the operation of PRT will: • remove the claw-back PRT relief, where the asset has been wholly put to use for a qualifying change of use purpose; and • remove income from change of use activities from the scope of PRT.
2009 Budget Notes Page 28 of 222 Chargeable Gains
16. Under the current law as it applies to ring fence chargeable gains: • where companies swap UK or UKCS licence interests post development, a chargeable gain can potentially arise; and • where ring fence assets are disposed of, and the proceeds reinvested in other ring fence assets, the chargeable gain arising from the disposal can be ‘held over’ for up to 10 years before coming into charge.
17. The new rules for the calculation of chargeable gains will: • provide that no chargeable gains arise on the swap of UK/UKCS licences, to the extent that the value of one licence matches another that it has been swapped for, bringing the treatment of developed assets in line with undeveloped ones; and • provide that where the proceeds from the disposal of a chargeable asset in the ring fence are reinvested in another chargeable ring fence asset, no chargeable gain will arise.
PRT licence expiry
18. Under the current law, companies cannot access PRT relief for decommissioning costs which occur more than 12 months after they have ceased to be a licence holder in respect of a taxable field.
19. The new rules will: • allow companies decommissioning relief where they cease to be a participator in a field because a licence has expired; and • ensure that any income that may arise in respect of the assets in question will also be chargeable to PRT.
PRT Simplification
20. The current law as it relates to the operation of PRT will be simplified and repealed as described below: • the statutory information requirement for commingled fields is to be replaced by a simpler “just and reasonable” allocation methodology. • provisional expenditure allowance, introduced in order to mitigate the timing effects when expenditure relief was deferred is to be partially repealed. The new rules will immediately cease to apply the relieving provisions going forward, but will continue to apply for a further 12 months in order to claw back relief provisionally given in previous periods; and • there will also be minor repeals of redundant legislation.
2009 Budget Notes Page 29 of 222 Definition of a consortium within the ring fence
21. For the purposes of determining whether or not companies are associated, the current RFCT rules as they relate to the definition of a consortium, apply the general CT definition, but with certain modifications. The new rules will amend this definition to bring it into line with the general CT definition.
Further advice
22. If you have any questions about these changes, please contact Mike Crabtree on 020 7438 6576 (email: [email protected]) or Paul Philip on 020 7438 6993 (email: [email protected]. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 30 of 222
BN10
NORTH SEA FISCAL REGIME: INCENTIVISING PRODUCTION
Who is likely to be affected?
1. Oil and gas companies that operate in the UK or on the UK Continental Shelf (UKCS).
General description of the measure
2. Budget 2009 announced a package of measures which will provide support through the North Sea fiscal regime for investment in the UK and UKCS.
3. Legislation in Finance Bill 2009 will introduce a new ‘Field Allowance’ which will reduce the rate of tax paid in respect of certain challenging new developments. Specific types of new fields will receive a field allowance which, when the field is producing, can be offset against supplementary charge.
Operative date
4. The new Field Allowance will apply to fields given development consent on or after 22 April 2009.
Current law and proposed revisions
5. Companies that produce oil and gas from the UK and UKCS from new fields are subject to ring fence corporation tax (30 per cent) and supplementary charge (20 per cent).
Field Allowance
6. A new ‘Field Allowance’ is to be introduced which will provide certain categories of new field with a fixed allowance which can, over time be offset against the supplementary charge payable by the companies involved in the field. Once that allowance is exhausted the field will, in effect, pay the full North Sea rate of tax. The speed of exhaustion will depend on the profitability of the company – i.e. if oil prices rise then, all other things remaining equal, the allowance will be exhausted more quickly.
2009 Budget Notes Page 31 of 222 7. The field allowance applies to small fields, ultra heavy oil fields and ultra high temperature/high pressure fields: • the field allowance for small fields is £75 million for fields with oil reserves (or gas equivalent) of 2.75 million tonnes or less, reducing on a straight line basis to nil for fields over 3.5 million tonnes. In any one year the maximum field allowance (for a field with total allowance of £75 million) is £15 million; • the field allowance for ultra heavy oil fields is £800 million for fields with an American Petroleum Institute gravity below 18 degrees and a viscosity of more than 50 centipoise at reservoir temperature and pressure. In any one year the maximum field allowance is £160 million; and • the field allowance for ultra high temperature/pressure fields is £800 million for fields with a temperature of more than 176.67 degrees Celsius and pressure of more than 1034 bar in the reservoir formation. In any one year the maximum field allowance is £160 million.
Further advice
8. If you have any questions about this change, please contact Mike Crabtree on 020 7438 6576 (email: [email protected]) or Paul Philip on 020 7438 6993 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 32 of 222
BN11
ENHANCED CAPITAL ALLOWANCES FOR ENERGY-SAVING AND WATER EFFICIENT (ENVIRONMENTALLY BENEFICIAL) TECHNOLOGIES
Who is likely to be affected?
1. Businesses purchasing designated plant and machinery which is energy efficient, reduces water use or improves water quality.
General description of the measure
2. The Energy Saving and Water Efficient (environmentally beneficial) Enhanced Capital Allowance (ECA) schemes allow businesses investing in designated technologies that reduce energy consumption, save water or improve water quality to write off 100 per cent of the cost against the taxable profits of the period during which the investment was made.
3. This measure amends the lists of technologies covered by the schemes.
Operative date
4. The changes to the schemes will have effect on and after a date to be appointed by Treasury order to be made prior to the Summer 2009 Parliamentary recess.
Current law and proposed revisions
5. Capital expenditure by business on plant and machinery normally qualifies for tax relief by way of capital allowances, normally given at the rate of 20 per cent a year on a reducing balance basis.
6. Two schemes exist that provide 100 per cent first year allowances for expenditure on certain energy-saving and water efficient technologies. The qualifying technologies are published in the Lists: the Energy Technology Criteria List and Water Technology Criteria List. Every year these lists are reviewed by the Department of Energy and Climate Change (DECC) and the Department for Environment, Food and Rural Affairs (Defra) respectively, to ensure that the qualifying technologies, and the criteria that technologies must meet if they are to qualify for the relief, are still relevant.
2009 Budget Notes Page 33 of 222 7. Following this year’s review, the energy efficient scheme list will be revised to include one new technology (uninterruptible power supplies) and two new sub-technologies (air to water heat pumps and close control air conditioning systems). Three existing sub-technologies (air source: single duct and packaged double duct heat pumps, ground source: brine to air heat pumps and water source: packaged heat pumps) will be removed. Minor housekeeping changes will also be made to the existing criteria of both schemes.
8. All revisions will be incorporated in new Lists which will be published later in 2009 by DECC and Defra. Once these have been published, a Treasury Order links them to the schemes. The Lists are available on the internet at www.eca.gov.uk.
Further advice
9. If you have any questions about this change, please contact Nick Williams on 020 7147 2541 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 34 of 222
BN12
SALE OF LESSOR COMPANIES: ANTI-AVOIDANCE AND FAIRNESS
Who is likely to be affected?
1. Companies carrying on a trade of leasing plant or machinery either alone or in partnership.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to make changes to Schedule 10 to the Finance Act (FA) 2006 ("Sale of Lessor Companies") to ensure that it operates appropriately in complex transactions involving partnerships and consortia.
3. It will also extend the period over which losses arising as a consequence of Schedule 10 can be utilised by the wider purchasing group.
Operative date
4. The legislation will have effect where the transaction takes place on or after 22 April 2009 and, in relation to losses, it will have effect where those losses are incurred in accounting periods ending on or after 22 April 2009.
Current law and proposed revisions
5. Schedule 10 to FA 2006 prevents a loss of tax when a lessor company changes hands. It achieves this by calculating a charge and relief designed to recoup the tax timing advantage gained from a claim to capital allowances. The legislation ensures that the charge affects the selling group and the relief benefits the buying group.
6. Complex transactions involving leasing businesses carried on by companies owned by consortia and by companies in partnership have exposed areas where the legislation may not give the expected result.
7. Changes will be made to ensure that companies carrying on a leasing business in partnership benefit from the full amount of relief due as a consequence of an increase in their interest in the business and to prevent a charge being calculated when a partnership is dissolved or ceases to carry on a leasing business. Where there is an intra-group transfer involving a lessor company owned by a consortium the measure similarly prevents the calculation of a charge.
2009 Budget Notes Page 35 of 222 8. Other changes address the calculation of a charge when an asset has been transferred between connected parties prior to 5 December 2005 when the sale of lessor companies legislation was brought into effect. The changes ensure that the calculation takes into account only assets transferred between parties connected on or after that date.
9. The measure also extends the period over which a loss derived from the relief can be surrendered to other group companies and preserves the value of that relief when it remains unutilised over the same period.
Further advice
10. Draft legislation and an explanatory note have been published today and are available on the HM Revenue & Customs website at www.hmrc.gsi.gov.uk.
11. If you have any questions about this change, please contact Jo Brindley on 020 7147 2571 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 36 of 222
BN13
EXTENSION OF TRADING LOSS CARRY BACK FOR BUSINESS
Who is likely to be affected?
1. All companies and unincorporated businesses making losses from carrying on trades, professions or vocations (referred to below as trading losses).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to extend the ability of businesses to carry trading losses back against profits of earlier years to get a repayment of tax.
Operative date
3. The measure will have effect on and after 22 April 2009 for company accounting periods ending in the period 24 November 2008 to 23 November 2010 and for tax years 2008-09 and 2009-10 for unincorporated businesses.
Current law and proposed revisions
4. Under current rules, businesses already have a number of mechanisms to ensure tax from profitable years is repaid through set-off against losses that arise in subsequent periods.
5. Firstly, businesses can offset unlimited trading losses against profits in the preceding year and reclaim tax previously paid. Secondly, start-up unincorporated businesses in the early years of operation can carry trading losses back for three years. Thirdly, any business ceasing to trade can also carry trading losses back for three years. Lastly, ongoing trading losses can be offset against profits in future years.
6. Finance Bill 2009 will extend the period for which trading losses can be carried back against previous profits. This extension will apply to trading losses made by companies in accounting periods ending between 24 November 2008 and 23 November 2010 and to trading losses made in tax years 2008-09 and 2009-10 by unincorporated businesses.
7. Trade loss carry back will be extended from the current one year entitlement to a period of three years, with losses being carried back against later years first.
2009 Budget Notes Page 37 of 222
8. The amount of trading losses that can be carried back to the preceding year remains unlimited. After carry back to the preceding year, a maximum of £50,000 of unused losses will be available for carry back to the earlier two years. This £50,000 limit applies separately to the unused losses of each 12 month period or tax year within the duration of the extension. For companies this means a cap of £50,000 on the extended carry back of losses incurred in accounting periods ending in the 12 months to 23 November 2009 and a separate £50,000 cap on the extended carry-back of losses incurred in accounting periods ending in the 12 months to 23 November 2010. For unincorporated businesses, a separate £50,000 cap will apply to the extended carry-back of losses made in each of the tax years 2008-09 and 2009-10.
Further advice
9. A Technical Note with more details of how this measure would apply to trading losses made in company accounting periods ending between 24 November 2008 and 23 November 2009, and to trading losses made in the tax year 2008-09 for unincorporated businesses, was published on the HM Revenue & Customs website on 24 November 2008. The extension will apply in a similar way to trading losses made in company accounting periods ending between 24 November 2009 and 23 November 2010, and for trading losses made in tax year 2009-10 by unincorporated businesses.
10. If you have any questions about this change, please contact Simon Moulden on 020 7147 2629 (email: [email protected]) for incorporated businesses or Mark Anderson on 020 7147 2621 (email: [email protected]) for unincorporated businesses. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 38 of 222
BN14
LIFE INSURANCE COMPANIES: CONSULTATION OUTCOMES AND SIMPLIFICATION
Who is likely to be affected?
1. Companies and friendly societies carrying on life insurance business.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to: • clarify the law relating to the tax treatment of amounts introduced by shareholders into the long term insurance fund (LTIF) of a life insurance company; • restrict the Case I deduction for amounts allocated to policyholders in certain exceptional circumstances; • clarify the transitional rules governing relief for repayments of contingent loans taxed under section 83ZA of the Finance Act (FA) 1989; • amend the rules governing the calculation of the ‘floor’ for gross roll-up business investment return to ensure consistent treatment of foreign business assets; and • change the anti-avoidance rules relating to value shifting to ensure that they will not apply when a reduction in value arises as result of a transfer of long-term insurance business between companies in the same group.
3. These changes are further products of the consultation on the simplification and modernisation of certain aspects of the tax law relating to life insurance companies launched by HM Revenue & Customs (HMRC) in May 2006.
Operative date
4. The changes to the tax treatment of amounts added to the LTIF will have effect for accounting periods ending on or after 22 April 2009 in respect of additions made on or after 22 April 2009.
5. Restrictions in relief for amounts allocated to policyholders will have effect for accounting periods ending on or after 22 April 2009 in respect of allocations made on or after 22 April 2009.
6. Changes to the floor calculation will have effect for accounting periods beginning on or after 1 January 2009 and ending on or after 22 April 2009.
2009 Budget Notes Page 39 of 222
7. The change to the value shifting rules will apply to disposals of assets taking place on or after 22 April 2009.
Current law and proposed revisions
Amounts added to the LTIF
8. Currently the tax treatment of an addition to the fund is governed by a combination of case law and an unpublished concession. Generally life insurance companies make additions to their LTIFs for commercial or regulatory reasons. But HMRC has seen cases where additions facilitate the creation of a Case I loss which does not reflect a commercial loss and that Case I loss is used to reduce the other (non-life assurance) taxable profits of the company or other group companies.
9. Legislation will be introduced in Finance Bill 2009 to make it clear that additions to funds are not taxable receipts. A Case I loss will not be available to reduce the company’s other taxable profits or to surrender as group relief where it arises in the same period as, or following, an addition to a non profit fund, and there is either a book value election or arrangements whose purpose is to reduce the admissible value of the assets. The legislation will not affect the use of losses arising in with profit funds or non profit funds which support with profit funds.
Restriction on relief for amounts allocated to policyholders
10. Current legislation allows a deduction for all amounts allocated to policyholders without restriction. There are circumstances in which amounts allocated to policyholders are not an allocation of profits but are instead made as a result of the policyholder giving up rights, or changes in the basis on which past or future profits of the fund are allocated between policyholders and shareholders. Legislation will be introduced in Finance Bill 2009 to restrict the deduction of amounts allocated to policyholders where those amounts are capital in nature or made to facilitate an attribution of inherited estate and the amounts allocated are not funded out of the fund’s taxable income.
Contingent Loans Transitional Provisions
11. Legislation introduced in Finance Act 2008 provided relief when contingent loans were repaid and all, or part, of the contingent loan had been taxed under section 83ZA of FA 1989. This legislation will be amended to ensure that the tax treatment on repayment of such a loan is effectively the same as it would have been had section 83ZA of FA 1989 not been repealed.
2009 Budget Notes Page 40 of 222 Foreign Business Assets and the ‘floor’
12. The FA 2008 amendments to section 432E of the Income and Corporation Taxes Act 1988 introduced an unintended distortion. The mean value of foreign business assets is included in the calculation required by section 432E(3)(a) and in the definition of amount A in subsection (4). But it is not included in subsection (3)(b) or in the definition of amount ‘B’ subsection (4). Legislation now to be introduced will correct this.
Value shifting and transfers of business
13. The anti-avoidance rules in section 30 of the Taxation of Chargeable Gains Act 1992 (TCGA) may apply when the reduction in value of shares of a company arises as result of a transfer of the company’s life assurance business. Legislation will be introduced to ensure that section 30 of TCGA does not apply when the reduction in value arises from the transfer of life assurance business to a company within the same group provided that the transfer is not part of tax avoidance arrangements.
Further advice
14. If you have any questions about these changes, please contact Carol Johnson on 020 7147 0517 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 41 of 222 2009 Budget Notes Page 42 of 222
BN15
FINANCIAL SERVICES COMPENSATION SCHEME: PAYMENTS REPRESENTING INTEREST
Who is likely to be affected?
1. Individuals who have received or will receive compensation from the Financial Services Compensation Scheme (FSCS) because of the default of a financial institution, such as a bank, where the compensation includes a payment in respect of accrued interest.
General description of the measure
2. Compensation paid by the FSCS to the customers of defaulting financial institutions has included an amount representing accrued interest from the last date interest was paid to the customer by the financial institution to the date that the financial institution defaulted (or for a fixed term deposit to the date of maturity if this is later than the date of default).
3. Income tax payers will be charged to income tax on the amount representing accrued interest paid by the FSCS to them as part of the compensation. Legislation will be introduced in Finance Bill 2009 to ensure that the financial institution’s customers are in the same position as if the accrued interest were paid by the defaulting financial institution.
4. The measure only applies for income tax purposes because for companies, the taxation of bank deposits is within the loan relationship provisions in Parts 5 and 6 of the Corporation Tax Act 2009.
Operative date
5. The measure applies to payments made by the FSCS on or after 6 October 2008.
Current law and proposed revisions
6. Part of the compensation payment is described as interest by the FSCS and calculated as if the tax deduction rules on interest apply. However, the legal nature of this part of the compensation paid by the FSCS is unclear, and without legislation treating this payment as interest for income tax purposes the normal tax rules cannot apply.
2009 Budget Notes Page 43 of 222 7. This measure introduces two new pieces of legislation. The first is a new section 380A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA). This section brings payments made by the FSCS that represent accrued interest within the charge to income tax.
8. Where the FSCS has calculated the amount representing accrued interest as if it were subject to deduction of tax then the amount brought into charge is the total of the amount representing the accrued interest plus the amount calculated as if it were the tax deducted.
9. New section 380A of ITTOIA applies to payments made by the FSCS itself or payments made by HM Treasury or any other person through the FSCS.
10. The second new piece of legislation is section 979A of the Income Tax Act 2007 (ITA) which applies where the FSCS has calculated the amount representing accrued interest as if tax had been deducted from it.
11. The amount treated as if it were the tax deducted is taken into account under section 59B of the Taxes Management Act 1970 in determining the amount of income tax payable on the accrued interest. This ensures that the customer can make a repayment claim if a non-taxpayer or treat the amount of notional tax deducted as if it were basic rate tax when calculating any liability to higher rate tax on the accrued interest.
12. New section 979A of ITA also requires the FSCS to provide the customer with a statement showing the gross and net amounts paid and the tax deducted if requested to do so in writing.
Further advice
13. If you have any questions about this change, please contact Lesley Hamilton on 020 7147 2564 (email: [email protected]) or Mark Lafone on 020 7147 2602 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 44 of 222
BN16
UK DIVIDEND EXEMPTION FOR LLOYD’s CORPORATES
Who is likely to be affected?
1. Corporate members of the Lloyd’s insurance market.
General description of the measure
2. Corporate members of the Lloyd’s insurance market will no longer pay corporation tax (CT) on dividends and other distributions received from UK companies.
3. This will bring them into line with general insurance companies, who are not currently chargeable on UK dividends and distributions received.
Operative date
4. These changes will apply to dividends and other distributions received on or after 1 July 2009.
Current law and proposed revisions
5. Corporate members of the Lloyd’s insurance market are subject to special tax provisions in Finance Act 1994. The effect of these is that both UK and foreign dividends received by a corporate member are charged to CT as part of its insurance trading profits.
6. Finance Bill 2009 will introduce provisions that repeal this part of the special Lloyd’s tax code, with the effect that both UK and foreign dividends received by Lloyd’s corporate members will become exempt from CT.
7. This will bring the tax treatment of dividends received by Lloyd’s corporate members into line with those of general insurance companies.
Further advice
8. If you have any questions about this change, please contact Victor Baker on 020 7147 2616 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 45 of 222 2009 Budget Notes Page 46 of 222
BN17
GROUP RELIEF: PREFERENCE SHARES
Who is likely to be affected?
1. Groups of companies where some subsidiaries are funded in part by preference shares issued to external investors. The most commonly affected groups will be those including regulated financial institutions issuing preference shares that qualify as Tier 1 regulatory capital.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to change paragraph 1 of Schedule 18 to the Income and Corporation Taxes Act 1988 (ICTA) to ensure that companies issuing particular types of new preference share capital to external investors do not lose the ability to enter into arrangements to claim and surrender group relief with other members of their group.
3. The same rules in Schedule 18 to ICTA are also used to define group relationships for other purposes, for example a chargeable gains group, or in some anti-avoidance rules. The changes will make it more difficult to inadvertently break a group structure or trigger an anti-avoidance provision through issuing a common commercial financing instrument to external investors.
Operative date
4. The changes apply to all accounting periods that commenced on or after 1 January 2008, unless an election is made to retain the existing treatment of shares issued before 18 December 2008 (or shortly after where a commitment to issue the shares was entered into before that date).
Current law and proposed revisions
5. Schedule 18 to ICTA identifies the equity holders in a company, and the amount of their entitlement to the profits or assets available for distribution. These rules are used to determine whether related companies are able to claim or surrender group relief, as well as, for example, whether they form a group for chargeable gains purposes. ‘Equity holders’ includes the holders of the company’s ordinary shares, which are all the company’s shares except for fixed-rate preference shares. Thus the rights of fixed-rate preference share holders are ignored when determining whether companies can enter into group relief arrangements.
2009 Budget Notes Page 47 of 222 6. These changes remove the references to ‘fixed-rate preference shares’, and instead exclude the holders of a wider range of preference shares from being treated as equity holders in the company. These are the newly defined ‘relevant preference shares’. In addition, to shares that carry rights to fixed rate dividends, relevant preference share dividends can be at a rate linked to a variable published market interest rate, or a rate linked to an index of consumer prices.
7. Preference shares where the dividend may not be paid, either at all or only in part, may in certain circumstances also be ‘relevant preference shares’. Those circumstances cover companies in severe financial difficulties and companies for whom dividend payments are restricted by regulatory capital considerations.
Further advice
8. The changes introduced by this measure were announced by the Financial Secretary to the Treasury in a Written Ministerial Statement on 18 December 2008.
9. If you have any questions about this change, please contact Philip Donlan, on 020 7147 2633 (email: [email protected]) or Aidan Reilly on 020 7147 2575 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 48 of 222
BN18
STOCK LENDING AND REPURCHASE ARRANGEMENTS: STAMP DUTY, STAMP DUTY RESERVE TAX AND TAX ON CHARGEABLE GAINS
Who is likely to be affected?
1. Market makers, securities dealers and financial institutions that enter into stock lending or sale and repurchase (‘repo’) arrangements.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to provide relief from unexpected stamp duty and stamp duty reserve tax (SDRT) charges that would otherwise arise where a stock lending or repo arrangement terminates, so that stock is not returned to the originator under the terms of the arrangement owing to the entry into insolvency of one of the parties to the arrangement.
3. As announced by the 2008 Pre-Budget Report (see PBR Note 06), parallel provisions will also be introduced in Finance Bill 2009 disapplying the rule that treats the non-return of borrowed securities in these circumstances as a disposal by the lender for the purposes of capital gains tax and corporation tax on chargeable gains (see paragraphs 11 and 12 below).
4. The measure disapplies the stamp duty and SDRT rules that impose an SDRT charge on the borrower under a stock lending arrangement or purchaser under a repo where the arrangement terminates on the insolvency of the borrower or purchaser. Similarly, where, under a stock lending arrangement, it is the lender that becomes insolvent, the SDRT charge on the lender in respect of any collateral stock or securities provided by the borrower will also be removed.
5. In addition, where the lender/seller buys securities to replace those lost owing to the insolvency of the borrower/purchaser, the purchase will be relieved from stamp duty or SDRT. And where the borrower under a stock loan arrangement needs to replace lost collateral securities, any replacement purchase will not incur a stamp duty or SDRT charge.
Operative date
6. The reliefs in question will apply where the insolvency of the borrower or lender occurs on or after 1 September 2008.
2009 Budget Notes Page 49 of 222 Current law and proposed revisions
7. Under sections 80C and 89AA of the Finance Act (FA) 1986, transactions under arrangements for the lending and return, or sale and re-purchase, of securities are ignored for stamp duty/SDRT purposes, provided that the securities of the same kind and amount are returned to the lender or seller in accordance with the terms of the arrangement. Where securities of the same kind and amount are not, for whatever reason, returned to the lender/seller, an SDRT charge arises in respect of the original loan/sale.
8. In future, where the reason for the non-return of securities is that the borrower/purchaser has become insolvent, no SDRT will be chargeable upon the borrower/purchaser.
9. Similarly, where the borrower has provided collateral in the form of chargeable securities, and the lender becomes insolvent so that the collateral securities are not returned to the borrower, no SDRT charge will arise upon the lender who has effectively acquired the collateral securities.
10. Where the borrower does not, owing to the insolvency, return the borrowed stock to the lender, and the lender acquires replacement securities in the market, the normal stamp duty or SDRT charge will not apply. Similar reliefs will be available for purchases of replacement securities made by sellers under sale and repurchase arrangements and by borrowers under a stock loan arrangement that need to replace lost collateral securities in the event of the insolvency of the lender.
Chargeable Gains
11. As outlined in the 2008 Pre-Budget Report Note 06, where the borrower does not, owing to the insolvency, return the borrowed stock to the lender, and the lender uses the collateral provided by the borrower to acquire replacement securities in the market, the rule that provides for a disposal of the borrowed stock by the lender will not apply. The acquisition of replacement stock by the use of the collateral will be treated as though it were the return of the borrowed stock by the borrower. The effect will be to allow the normal stock lending rules to continue to apply so that no capital gains or losses will arise to the lender.
12. The 2008 Pre-Budget Report also announced that similar capital gains treatment for stock transferred under repo arrangements was under consideration. No such changes will be made in respect of repos.
2009 Budget Notes Page 50 of 222 Further advice
13. If you have any questions about the stamp duty/SDRT changes please contact Miles Harwood on 020 7147 2801 (email: [email protected]). For questions about the capital gains changes please contact Colin Weston on 020 7147 0127 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 51 of 222
2009 Budget Notes Page 52 of 222
BN19
FOREIGN DENOMINATED LOSSES
Who is likely to be affected?
1. Companies that compute their profits and losses in a currency other than sterling and have losses that are carried forward or back to other accounting periods. It will also affect companies that have losses originating in an accounting period computed in one currency that are then offset against profits computed for a different accounting period in a different currency.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to ensure that, where a company incurs a tax loss computed in a currency other than sterling and then offsets that loss (or part of that loss) against profits in a different accounting period, then the exchange rate for conversion of the losses into sterling will be the same rate as that used for conversion of those profits.
3. When a company changes its functional currency, losses carried forward or backwards into periods across the change in the functional currency will be converted into that other functional currency at the spot exchange rate for the date of change. These losses will then be translated into sterling on the basis set out in paragraph 2 above.
Operative date
4. These changes, first announced on 18 December 2008, will apply to all accounting periods commencing on or after 29 December 2007 unless an election is made to defer the commencement date for these provisions to the first accounting period beginning on or after the date that Finance Bill 2009 receives Royal Assent.
Current law and proposed revisions
5. Section 92 of the Finance Act (FA) 1993 sets out the basic rule that profits and losses for the purposes of corporation tax must be calculated in sterling. Sections 92A, 92B and 92C of FA 1993 contain further provisions relating to the currency in which profits or losses are to be computed for corporation tax purposes and the conversion of those profits and losses into sterling.
2009 Budget Notes Page 53 of 222 6. A consequence of those provisions is that, where losses have been computed in a currency other than sterling they are translated into sterling at the exchange rate for the period in which they arose even if not being used in that period. Therefore, where those losses are carried forward or back, they are offset against profits of other accounting periods which have been translated into sterling at the exchange rate for the later or earlier period in question.
7. The exchange rate at which the profits are translated into sterling is therefore likely to be different than the exchange rate at which the losses were translated. The value of those losses will therefore vary from one accounting period to another unless, by chance, exchange rates remain unchanged.
8. The same problem applies where a company changes its functional currency between the accounting period in which a loss arises and the accounting period in which the loss is relieved. As all losses are converted into sterling in the accounting period in which the loss arises, the value of that loss will normally be different in the accounting period in which the tax loss is relieved.
9. Changes to FA 1993 will ensure that where there are losses in one accounting period that have been computed in a currency other than sterling, the exchange rate for conversion of those losses into sterling will be the same as the rate used for conversion of the profits against which the losses are offset. Where a company changes its functional currency, losses carried forward or back into periods across the change in functional currency will be converted into that other functional currency at the spot exchange rate for the date of change.
Further advice
10. The changes introduced by this measure were announced by the Financial Secretary to the Treasury in a Written Ministerial Statement on 18 December 2008.
11. If you have any questions about this change, please contact Aidan Reilly on 020 7147 2575 (email: [email protected]) or Paul Gilham on 020 7147 2619 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 54 of 222
BN20
TRANSFERS OF BUSINESS BETWEEN MUTUAL SOCIETIES
Who is likely to be affected?
1. Building societies, industrial and provident societies and friendly societies.
General description of the measure
2. Legislation in Finance Bill 2009 will introduce a power to make regulations in relation to the taxation consequences on the amalgamations of mutual societies and those arising on transfers of the whole or part of a business of a mutual society to another mutual society; to a company or to a subsidiary company of a mutual society.
Operative date
3. Regulations made under the power will have effect for transfers of business taking place on or after 22 April 2009.
Current law and proposed revisions
4. The power allows regulations in respect of taxation to be made for amalgamations and transfers effected under: a. sections 93 to 102D of the Building Societies Act 1986; b. sections 50 to 52 of the Industrial and Provident Societies Act 1965; c. sections 86, 88 and 91 of and Schedule 15 to the Friendly Societies Act 1992; d. sections 3 and 4 of the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007; and e. provisions contained in subordinate legislation (within the meaning of the Interpretation Act 1978) made under any provisions mentioned in paragraphs (a) to (d) above.
5. Under current law, different tax consequences arise where transfers are made to a company as opposed to transfers between mutual societies. Different tax consequences also arise where the same type of transfer takes place but different types of mutual society are involved. Additionally, in some circumstances, where accounting rules determine taxation treatment, the correct position for taxation is not clear.
2009 Budget Notes Page 55 of 222
6. A power is needed to make regulations: • to ensure that, where possible, equivalent taxation treatment applies for transfers of business effected under the above rules so that taxation concerns do not act as a barrier to commercial decisions; • to provide certainty of taxation treatment where current rules are unclear; and • to counter potential future avoidance activity.
7. The focus of the proposed regulations to be made under the new powers will be on building societies, industrial and provident societies and transfers made under the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007. This is because the issues that need to be addressed mainly apply to those societies and transfers under the 2007 Act. The measures in place for transfers under the Friendly Societies Act 1992 or transfers of insurance business under Part VII of the Financial Services and Markets Act 2000 already achieve these outcomes for other transfers. Nevertheless, the powers to cover all the legislation set out in paragraph 4 above are needed to ensure that new regulations can be made as required.
Further advice
8. Background information can be found in HM Treasury’s Consultation Paper The Building Societies (Funding) and Mutual Societies (Transfers) Act 2007: A Consultation which can be accessed via the Treasury website at www.hm-treasury.gov.uk/consultations
9. If you have any questions about this change, please contact David Moran on 020 7147 2612 (email: [email protected].) or Nicola Rass on 020 7147 2802 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 56 of 222
BN21
TAXATION OF PERSONAL DIVIDENDS
Who is likely to be affected?
1. Individuals in receipt of dividends from non-UK resident companies.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to make changes to the system of taxation for individuals who own foreign shares.
3. Individuals in receipt of dividends from UK resident companies are entitled under current law to a non-payable dividend tax credit. Since 6 April 2008, individuals with shareholdings of less than 10 per cent in non-UK resident companies have also been entitled to a non-payable tax credit.
4. From 22 April 2009, individuals with shareholdings of 10 per cent or more in receipt of dividends from non-UK resident companies will become entitled to a non-payable tax credit, subject to certain conditions.
Operative date
5. These changes will have effect on and after 22 April 2009.
Current law and proposed revisions
6. Dividends received by individual shareholders are currently taxed at rates of 10 per cent for basic rate and 32.5 per cent for higher rate taxpayers.
7. When dividends from UK resident companies are charged to tax, shareholders are entitled to a non-payable tax credit of one ninth of the distribution under the provisions of section 397(1) of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA). Because tax is charged on the gross dividend received, including the tax credit, this lowers the effective rate on these dividends at the personal level to 0 per cent and 25 per cent.
8. Section 397A of ITTOIA, introduced by the Finance Act 2008, extended the non-payable tax credit of one ninth of the distribution to individuals in receipt of dividends from non-UK resident companies, if they own less than a 10 per cent shareholding in the distributing non-UK resident company and the company is not an offshore fund.
2009 Budget Notes Page 57 of 222 9. Legislation in Finance Bill 2009 will amend section 397A of ITTOIA to extend further eligibility for the non-payable tax credit to individuals in receipt of dividends from non-UK resident companies where the individual owns a 10 per cent or greater shareholding in the distributing non-UK resident company. The tax credit will only be available if the source country is a “qualifying territory”. A territory is a “qualifying territory” if there is a double taxation agreement with the UK, with a non- discrimination article. Regulations will permit HM Treasury to vary the list of qualifying and non-qualifying territories.
10. The legislation will include anti-avoidance measures, including a targeted anti-avoidance rule to counter the use of conduit structures designed to secure the tax credit for dividend income originating other than in a qualifying territory, to ensure that these new rules are not subject to abuse.
11. The new rules for offshore funds paying dividends for all investors are covered in BN22.
Further advice
12.If you have any questions about this change, please contact Andrea Pierce on 020 7147 2591 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 58 of 222
BN22
TAXATION OF PERSONAL DIVIDENDS DISTRIBUTIONS FROM OFFSHORE FUNDS
Who is likely to be affected?
1. Individuals in receipt of distributions from offshore funds.
General description of the measure
2. Since 6 April 2008, individual shareholders with shareholdings of less than 10 per cent in non-UK resident companies have been entitled to a non-payable dividend tax credit. However, the tax credit was withdrawn for offshore funds as some collective investment schemes were seeking to exploit the extension by locating their cash or bond fund ranges offshore, with the intention of securing tax advantages.
3. Legislation will be introduced in Finance Bill 2009 to restore the non-payable dividend tax credit for offshore funds which are largely invested in equities. It also provides that where the offshore fund is substantially invested in interest bearing assets, individuals receiving distributions will be treated for tax purposes as having received interest and not a dividend or other type of distribution.
4. These rules apply equally to all holdings in offshore funds (whether less than 10 per cent, or 10 per cent or more).
Operative date
5. These changes will have effect on and after 22 April 2009.
Current law and proposed revisions
6. Distributions made as dividends from offshore funds received by individual shareholders are currently taxed at rates of 10 per cent for basic rate and 32.5 per cent for higher rate taxpayers. Where the distributions are from non-corporate offshore funds they may be taxable at different rates depending on the type of fund and (in some cases) the nature of the fund income.
7. See BN21 for further background on the taxation of foreign dividends and the changes now being made.
2009 Budget Notes Page 59 of 222 8. Legislation in Finance Bill 2009 will amend section 397A of the Income Tax (Trading and Other Income) Act 2005 to extend further eligibility for the non-payable tax credit to individuals in receipt of dividends from non-UK resident companies including offshore funds that are companies.
9. However, where the offshore fund holds more than 60 per cent of its assets in interest bearing (or economically similar) form, any distribution will be treated in the hands of the UK individual investor as a payment of yearly interest. This will mean that no tax credit will be available and the tax rates applying will be those applying to interest.
10. This mirrors the current treatment of UK corporate investors with holdings in similar funds (in the UK or offshore) and also means that UK individuals will pay tax on interest-like distributions at the same rate as tax is borne by individual investors on interest received by UK authorised funds.
11. This change will not affect the taxation of UK investors in offshore funds which are transparent for the purposes of tax on income as in such cases the investor is taxed on their share of the underlying fund income according to the type of income received and not on the distribution made.
Further advice
12. If you have any questions about this change, please contact John Buckeridge on 020 7147 2560 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 60 of 222
BN23
TAX ELECTED FUNDS
Who is likely to be affected?
1. Authorised Investment Funds (AIFs) and their investors.
General description of the measure
2. This measure will introduce an elective regime for UK AIFs that will move the point of taxation from the AIF to the investor, so that the investor is treated as though they had invested in the underlying assets directly.
Operative date
3. The new regime will have effect on and after 1 September 2009.
Current law and proposed revisions
4. Under current rules, UK AIFs are normally chargeable to corporation tax on taxable income at a special rate of 20 per cent.
5. That will remain the case under the new regime, but UK AIFs that meet certain conditions will be able to elect to be treated as a tax elected fund (TEF). TEFs will be required to make two types of distribution of the income they receive - a dividend and a non dividend (interest) distribution. UK dividend income will remain non taxable in the fund and will be distributed as a dividend. For all other income that is distributed as a non-dividend (interest) distribution, the fund will receive a tax deduction up to the same amount. The new regime will be introduced by secondary legislation.
6. UK investors are treated as receiving UK dividend income (including the non payable dividend tax credit) and a payment of yearly interest.
Further advice
7. If you have any questions about this change, please contact Angela Nagarajah on 020 7147 2787 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 61 of 222 2009 Budget Notes Page 62 of 222
BN24
CHARGEABLE GAINS AND OFFSHORE FUNDS
Who is likely to be affected?
1. Investors in offshore funds that are transparent for the purposes of tax on income and gains.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to provide similar treatment to that given by section 99 of the Taxation of Chargeable Gains Act 1992 (TCGA) for investments in unit trusts to investments in other types of offshore funds which are not companies, unit trusts or partnerships.
3. The effect of this change will be that an interest in a transparent offshore fund will be an asset for the purpose of calculating capital gains tax on chargeable gains (as is already the case for shares in a company or units in a unit trust). Investors will no longer be required to consider disposals of the underlying assets for calculating capital gains tax on chargeable gains.
4. The Government will also discuss with industry how to make similar changes to the tax treatment of chargeable gains for investors subject to corporation tax.
5. There will be no effect on interests in tax transparent foreign partnerships which will continue to be treated as transparent for both income and gains in the same way as United Kingdom partnerships.
Operative date
6. The new treatment will apply to investments in contract-based offshore funds on and after 1 December 2009.
7. Elections into the new treatment can be made on and after 22 April 2009 and can be applied retrospectively back to the tax year 2003-04 (see para 12 below).
2009 Budget Notes Page 63 of 222
Current law and proposed revisions
8. Under current legislation, for the purpose of tax on chargeable gains, units in a unit trust are treated as if they were shares in a company. However rights in funds in foreign jurisdictions which are not companies, unit trusts or partnerships (mostly those constituted by contractual arrangements) are often treated differently depending on the structure.
9. Where such a fund comes within the new definition of an offshore fund (see BN25) then a new section of TCGA will apply similar treatment to rights in such funds.
10. Partnerships that are transparent for tax purposes will not be affected as they will be specifically excluded from the definition of offshore funds.
11. There will be transitional rules covering the timing and other aspects of the effect of this measure for existing investments in contract-based funds.
12. These will allow investors to elect to apply the new rules retrospectively, where they consider this will be an advantage. Elections can be made by capital gains taxpayers from the tax year 2003-04. Once made, an election will be irrevocable and will apply for all relevant tax years after the date of election. Investors making such an election will be treated as having been invested in an offshore fund that is certified by HM Revenue & Customs as a qualifying fund.
13. Investors subject to corporation tax will continue to treat their gains as transparent for the purposes of tax until discussions have taken place with industry about how similar changes can be made.
Further advice
14. If you have any questions about this change, please contact John Buckeridge on 020 7147 2560 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 64 of 222
BN25
OFFSHORE FUNDS
Who is likely to be affected?
1. UK investors in certain offshore arrangements.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to change the definition of an offshore fund for UK tax purposes and amend the existing powers (in Finance Act (FA) 2008) to provide for the modernisation of the regime in regulations.
3. Transitional rules will provide “grandfathering” for investors in existing arrangements. Details of the transitional rules will be included in the primary legislation.
4. Draft legislation was published following the 2008 Pre-Budget Report and changes have been made following comments received during the consultation. The detailed rules for the operation of the offshore funds tax regime will be in regulations, as announced in Budget 2008.
Operative date
5. In order to provide sufficient time for transition, the new regime will have effect on and after 1 December 2009.
Current law and proposed revisions
6. Under current legislation, the definition of an investment in an offshore fund is based upon the regulatory definition of ‘collective investment scheme’ as set out in the Financial Services and Markets Act 2000, with modifications for tax purposes.
7. The new definition of an offshore fund uses a characteristics based approach which has been the subject of detailed consultation with the funds industry as set out in the relevant HM Treasury documents. There are also exceptions specified in the legislation to ensure that fixed share capital arrangements that do not mimic open-ended arrangements will remain outside the definition. This includes specific provisions for continuation votes and capital only arrangements.
2009 Budget Notes Page 65 of 222
Further advice
8. For further details of the development of the offshore funds regime and consultations to date please see the HM Treasury website.
9. If you have any questions about this change, please contact John Buckeridge on 020 7147 2560 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 66 of 222
BN26
CERTAINTY ON TRADING AND INVESTMENT FOR AUTHORISED INVESTMENT FUNDS AND INVESTORS IN EQUIVALENT OFFSHORE FUNDS
Who is likely to be affected?
1. Authorised investment funds (AIFs) and UK-resident investors in equivalent offshore funds.
General description of the measure
2. Legislation will be introduced to give AIFs and UK-resident investors in equivalent offshore funds certainty that defined transactions will not be treated as trading transactions for tax purposes.
3. The legislation will set out a “white list” of transactions which, when undertaken by an AIF or equivalent offshore fund meeting a genuine diversity of ownership condition, will be treated as non-trading transactions. The legislation will also contain rules designed to ensure that financial traders cannot shelter profits from tax by routing them through an AIF or equivalent offshore fund. The rules applying to financial traders will not affect the tax treatment of the AIF or equivalent offshore fund.
Operative date
4. The legislation applying to AIFs will have effect on and after 1 September 2009 and the legislation applying to equivalent offshore funds will have effect on and after 1 December 2009.
Current law and proposed revisions
5. Section 468 of the Income and Corporation Taxes Act 1988 (ICTA), section 100 of the Taxation of Chargeable Gains Act 1992 and Statutory Instrument 964/2006 govern the tax treatment of AIFs. AIFs pay corporation tax (CT) on their income, but not on capital gains or capital profits from loan relationships and derivative contracts. Because profits from trading transactions are classed as income, an AIF is exposed to CT if any of its transactions are characterised as trading for tax purposes. Statutory Instrument 964/2006 will be amended by secondary legislation to ensure that transactions appearing on a “white list” will not be characterised as trading when carried out by a qualifying AIF. This means that a qualifying AIF can be certain that these transactions will not give rise
2009 Budget Notes Page 67 of 222 to trading income in any circumstances.
6. Chapter 5 of Part 17 and Schedules 27 and 28 to ICTA set out the rules for taxing UK-resident investors in offshore funds. These rules are being revised by secondary legislation, using the powers in section 41 of Finance Act 2008. Under the proposed new rules, the tax treatment of investors in an offshore fund will depend upon whether that fund is a “reporting fund”. A reporting fund will be required to calculate its “reportable income” which includes all profits from trading transactions but not capital gains or losses. The regulations will provide that, where the offshore fund is equivalent to an AIF (that would itself qualify to use the “white list”), transactions which appear on the “white list” will not be characterised as trading transactions for these purposes. This means that gains from these transactions will not be included in “reportable income” for the purposes of taxing UK-resident investors.
7. The secondary legislation being introduced will contain two safeguards. The first applies to the fund itself, which must meet a genuine diversity of ownership condition. This is to prevent abuse of the provisions by limiting their benefit to funds which are made available to a wide range of investors. For such funds, the characterisation of transactions as trading or non-trading will remain to be determined on the facts and by reference to general principles. The second safeguard applies to investors in the fund who are financial traders, for example banks and securities dealers.
8. Financial traders who hold interests in AIFs and equivalent offshore funds with access to the “white list” will be required to calculate realised and unrealised profits and losses on those interests and include these in their own trading results for tax purposes. This requirement will be overridden, however, where the financial traders already recognise those profits and losses as part of their trading result on the basis of fair value accounting. This second safeguard does not affect in any way the tax treatment of the fund and is designed to ensure that financial traders cannot gain an advantage by routing transactions through an AIF or equivalent offshore fund.
Further advice
9. If you have any questions about this change, please contact Lee Harley on 020 7147 2597 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 68 of 222
BN27
NEW TAX RULES FOR INVESTMENT TRUST COMPANIES INVESTING IN INTEREST BEARING ASSETS
Who is likely to be affected?
1. Investment trust companies (ITCs) and their shareholders.
General description of the measure
2. This measure will introduce a new elective tax framework that will allow ITCs to invest in interest bearing assets in a tax efficient way. The rules move the point of taxation from the ITC to the shareholder, with the result that shareholders face broadly the same tax treatment as they would have, had they owned the interest bearing asset directly.
Operative date
3. The measure will have effect for any interest distributions made on or after 1 September 2009.
Current law and proposed revisions
4. Under current tax rules ITCs are liable to corporation tax (CT) on any interest income that they receive.
5. That will remain the case, but the new optional tax rules will allow an ITC that invests in interest bearing assets to receive a tax deduction for any interest distributions made, effectively removing any CT liability that would otherwise arise on distributed interest type income. The new rules will be introduced by secondary legislation.
6. Where an ITC makes an interest distribution this income will be treated in the hands of the shareholder as if it was a payment of yearly interest.
Further advice
7. If you have any questions about this change, please contact Angela Nagarajah on 020 7147 2787 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 69 of 222
2009 Budget Notes Page 70 of 222
BN28
GROUPS: REALLOCATION OF CHARGEABLE GAINS
Who is likely to be affected?
1. Groups of companies.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to make it easier for groups to match gains and losses that arise on disposals of chargeable assets without the need to transfer ownership of assets within the group.
Operative date
3. The legislation will apply to losses or gains arising on or after the date that Finance Bill 2009 receives Royal Assent.
Current law and proposed revisions
4. Where a company elects, section 171A of the Taxation of Chargeable Gains Act 1992 (TCGA) deems an asset to have been transferred from one group company to another group company before a disposal outside of the group. An election could not be made unless the disposal was to a third party and that third party acquired an asset. Consequently, the election could not be made for some types of gains and losses, for example, where an asset is subject to a claim that it has become of negligible value.
5. The changes to section 171A of TCGA mean that instead of deeming a transfer of an asset from one group company to another before the disposal, it transfers a gain or loss from the company making the disposal to one or more other specified companies within the group when they jointly elect. The former restrictions on the type of asset, and the circumstances under which the gain or loss arises no longer apply.
Further advice
6. If you have any questions about this change, please contact Dipti Shah on 020 7147 2349 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 71 of 222 2009 Budget Notes Page 72 of 222
BN29
DOUBLE TAXATION RELIEF ON DIVIDENDS
Who is likely to be affected?
1. UK resident companies in receipt of dividends paid by foreign companies.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to ensure that the reduction in the rate of corporation tax (CT) to 28 per cent does not unjustly affect the amount of double taxation relief available to companies.
Operative date
3. The measure will have retrospective effect from the financial year beginning 1 April 2008.
Current law and proposed revisions
4. UK companies in receipt of foreign dividends are charged CT on those dividends. To calculate the amount of CT charged on a dividend received in an accounting period, section 834 of the Income and Corporation Taxes Act 1988 (ICTA) requires that the dividend is apportioned between financial years.
5. Companies are entitled to double taxation relief for foreign tax suffered on dividends in accordance with Double Taxation Conventions (section 788 of ICTA), or unilaterally (sections 790 and 801 of ICTA).
6. In some circumstances, a company in receipt of a foreign dividend is entitled to relief for underlying tax suffered on that dividend. A dividend suffers underlying tax where it is paid out of a company’s taxed profits.
7. Section 799 of ICTA restricts the amount of relief available to companies according to a formula (the “mixer cap” formula). This formula limits the amount of relief by reference to the CT rate in force on the date on which a dividend is paid.
8. The reduction in the CT rate from 30 per cent to 28 per cent which came into effect on 1 April 2008 caused a mismatch. As foreign dividends are apportioned between financial years, unless the accounting period matches a financial year, the dividends are taxed at an average CT rate.
2009 Budget Notes Page 73 of 222 9. For accounting periods straddling 1 April 2008 the CT rate charged is greater than 28 per cent. However, for all dividends paid after 1 April 2008, double taxation relief is limited according to a CT rate of 28 per cent.
10. The measure will ensure that the amount of double taxation relief available is not limited by reference to the CT rate in force on the date the dividend is paid. Instead it is limited by reference to the actual blended CT rate suffered on those dividends.
11. The effect of the measure will be that the amount of double taxation relief available to companies is calculated as it has always been intended so that the amount of CT paid and double taxation relief available correctly match.
Further advice
12. If you have any questions about this change, please contact Stephen Denyer on 020 7147 0330 (email: [email protected]) or Andrew Page on 020 7147 2673 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 74 of 222
BN30
SAVE AS YOU EARN PROCESS SIMPLIFICATION
Who is likely to be affected?
1. Banks, building societies and European institutions authorised by HM Treasury to provide Save As You Earn (SAYE) savings contracts to employees participating in HM Revenue & Customs (HMRC) approved SAYE share option schemes offered by companies.
2. Share scheme administrators providing SAYE related services to those companies.
General description of the measure
3. Legislation will be introduced in Finance Bill 2009 to transfer the process of specifying bonus rates and early leaver interest rates on SAYE savings and of authorising savings providers from HM Treasury to HMRC.
4. The legislation will also provide that, following a change of bonus rates, HMRC may specify in a notice of withdrawal or variation of certified savings arrangements that certain savings contracts using the previous bonus rates will be valid even though they are entered into after the date the new rates come into effect.
5. The legislation will also modernise the process by allowing electronic communications with the banks and building societies when issuing revised or updated SAYE notifications with new bonus or interest rates.
6. The minimum period between a date when a notice with revised SAYE certifications including interest rates is issued and the date when the new rates come into force will be reduced to 15 days.
Operative date
7. The changes will have effect on and after 29 April 2009; the day after the Budget Resolutions are passed.
Current law and proposed revisions
8. Legislation in Chapter 4 of Part 6 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) allows HM Treasury to certify the SAYE savings arrangements provided by banks, building societies and European authorised institutions. Interest and bonuses payable under a certified
2009 Budget Notes Page 75 of 222 SAYE savings arrangements linked to HMRC approved SAYE option schemes are free of income tax. HM Treasury may also withdraw or vary the certifications and connected requirements. In addition, HM Treasury authorises the savings providers, so that they can offer savings contracts to employees; and may withdraw or vary those authorisations. To enable HMRC to take over these administrative functions, references in the legislation to HM Treasury will be replaced with references to the Commissioners for HMRC.
9. Section 706 of ITTOIA provides for the withdrawal or variation of the savings arrangements which form part of the SAYE scheme. This measure will amend section 706, so that the notices of withdrawal and variation may specify that where savings contracts with the withdrawn or varied interest and bonus rates have been entered into after the date of withdrawal or variation they will be valid in certain specified circumstances. This will, for example, allow employees to enter into savings contracts at the bonus rate set out in the savings invitation, even if they enter into their contract on or after the date of the change in bonus rates.
10. Currently the notices relating to the withdrawal and variation of certifications and connected requirements and the withdrawal and variation of authorisations of savings providers have to be made by post. This requirement in sections 706 and 708 of ITTOIA will be removed, to allow electronic communications of the notices.
11. Notices to savings providers under section 706 of ITTOIA to withdraw or vary certifications have to be issued at least 28 days before the notice comes into effect. This period will be changed to 15 days, to allow more prompt adjustment of bonus rates to reflect market conditions.
Further advice
12. Draft legislation and explanatory notes have been published today, under the title ‘Certification of Save As You Earn savings arrangements’, on the HM Revenue & Customs website at www.hmrc.gov.uk
13. If you have any questions about this change, please contact Andrew Ellis on 020 7147 2658 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 76 of 222
BN31
CORPORATE INTANGIBLE FIXED ASSET REGIME
Who is likely to be affected?
1. Companies applying the corporate intangible regime (“the regime”) to goodwill, or to other internally generated assets, such as assets representing non-qualifying expenditure.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to confirm that for the purposes of the regime, goodwill includes internally-generated goodwill. It also confirms that all goodwill is created in the course of carrying on the business in question and is subject to rules determining whether goodwill is treated as created before or after 1 April 2002. Some amendments will also be made to the definition of intangible asset and to rules determining whether assets representing non-qualifying expenditure are treated as being created before or after 1 April 2002.
Operative date
3. The legislation will have effect on or after 22 April 2009 and shall be treated as always having had effect. For example, the legislation prevents future debits in respect of goodwill where a business, which commenced before 1 April 2002, has been acquired from a related party before 22 April 2009.
Current law and proposed revisions
4. The corporate intangibles regime (Part 8 of the Corporation Tax Act 2009 (CTA)) applies, generally, to companies’ intangible fixed assets and goodwill created on or after 1 April 2002, or acquired from an unrelated party on or after that date. However, goodwill is specifically excluded from the regime if a business commenced before 1 April 2002, unless or until that business is acquired by an unrelated party. The legislation confirms this treatment.
5. The legislation confirms that for the purposes of the regime, intangible assets (such as goodwill) include internally-generated assets (such as internally-generated goodwill).
2009 Budget Notes Page 77 of 222 6. The legislation confirms that for the purposes of the regime, all goodwill is treated as created in the course of carrying on the business in question. It is confirmed that goodwill is treated as created before 1 April 2002 where the business was carried on at any time before 1 April 2002 by the company or a related party (and that otherwise goodwill is treated as created on or after 1 April 2002).
7. The legislation also confirms that all assets representing non-qualifying expenditure are subject to the provisions in section 885 of CTA, and that these assets are treated as created before 1 April 2002 where the asset was held by the company (or a related party) at any time before 1 April 2002.
Further advice
8. If you have any questions about this change, please contact Kerry Pope on 020 7147 2617 (email: [email protected]) or John Williams on 020 7147 3117 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 78 of 222
BN32
FINANCIAL ARRANGEMENTS AVOIDANCE
Who is likely to be affected?
1. Large companies involved in avoidance of corporation tax involving intra-group convertibles and derecognition of income from derivative contracts.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to tackle two schemes that have been notified to HM Revenue & Customs (HMRC) under the avoidance disclosure rules.
3. In the first, intra-group finance is arranged under the terms of a bond that is highly likely to convert into shares of the issuing company. The debtor company accrues a deduction for a finance cost that is greater than the finance return that the creditor company brings into account.
4. In the second, a company “derecognises” in its accounts a derivative contract that is carried at fair value with the result that profits arising to the company on the contract fall out of account for tax purposes.
Operative date
5. The legislation has effect for debits and credits arising on or after 22 April 2009.
Current law and proposed revisions
6. Where a company borrows money from a fellow group member, the interest deduction claimed by the debtor company generally matches the credit brought into account by the creditor company.
7. In the scheme involving intra-group finance, the loan is structured so that this is not the case. The new legislation will require the creditor company to recognise additional credits (to match the debtor’s debits) in any case where: • the debt is convertible debt; • the debtor and creditor are connected (part of the same consolidated group); and • the debtor has a larger tax deduction (excess deductions) in respect of the debt than the amount on which the creditor is chargeable.
2009 Budget Notes Page 79 of 222
8. The derivatives scheme will be blocked by requiring full tax recognition of profits and losses of a derivative contract even if not recognised in the company’s accounts.
Further advice
9. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 80 of 222
BN33
ANTI-AVOIDANCE: PLANT AND MACHINERY LEASING
Who is likely to be affected?
1. Businesses leasing plant or machinery.
General description of the measure
2. Legislation, which was announced and published in draft on 13 November 2008, will be introduced in Finance Bill 2009 to counter avoidance involving the leasing of plant or machinery. It will ensure that: • a business entering into a sale and leaseback or lease and leaseback does not gain more relief than it would have done had it obtained loan finance; • tax is not avoided when a lessor grants a long funding lease; and • when a long funding lease ends the lessee has obtained an appropriate amount of relief.
3. In addition: • the definitions of sale and leaseback arrangements in existing anti-avoidance legislation will be amended for consistency and to achieve their objective; and • amendments will be made to ensure initial payments under a lease do not escape taxation and to ensure consistency with the taxation of chargeable gains.
Operative date
4. The measure will generally have effect for transactions entered into on or after 13 November 2008 (as previously announced); some aspects of the measure will have effect on or after 22 April 2009, as explained below.
Current law and proposed revisions
5. In addition to the details of this measure previously announced the following changes will be made.
Sale and leaseback arrangements
6. The two definitions of sale and leaseback at section 216 and section 221 of the Capital Allowances Act 2001 (CAA) do not cover all the ways in which sale and leaseback arrangements can be structured, allowing some opportunities for tax avoidance involving the refinancing of existing assets.
2009 Budget Notes Page 81 of 222
7. This measure will amend the definitions in those sections to provide certainty and remove these avoidance opportunities. Amendments will be made to ensure the definitions will cover a sale and leaseback to a person connected to the seller where that person continues to use the asset in their qualifying activity after the date of the sale.
8. This change will have effect for sales on or after 22 April 2009.
Minor amendments and clarifications
9. Amendments will also be made to the published draft legislation to make it clear that where any part of an initial payment under a lease is not taken into account for capital allowances purposes then that part is taxed as income under section 785C of the Income and Corporation Taxes Act 1988. In addition, amendments will be made to section 25A of the Taxation of Chargeable Gains Act 1992 to reflect the revised capital allowance disposal value rules at item 5A of the Table at section 61 of CAA. These amendments will have effect on and after 22 April 2009. Other minor amendments will be made to clarify the legislation.
Further advice
10. If you have any questions about these changes, please contact Ann Sterenberg on 020 7147 2710 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 82 of 222
BN34
NORTH SEA: ACCELERATED DECOMMISSIONING RELIEF
Who is likely to be affected?
1. Companies that produce oil and gas in the UK and on the UK Continental Shelf (UKCS) that have entered into arrangements to incur decommissioning expenditure in advance of the decommissioning process.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to prevent oil and gas companies claiming tax relief for infrastructure decommissioning costs too far in advance of the actual decommissioning being undertaken. It does so by ensuring that tax relief for decommissioning will only be given in respect of those costs that relate to the work actually carried out in the accounting period.
Operative date
3. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
4. Companies producing oil and gas in the UK and UKCS have a statutory requirement, administered by the Department of Energy and Climate Change (DECC), to decommission oil and gas fields at the end of their life, under abandonment programmes agreed with DECC.
5. Companies are able to claim capital allowances for the cost of decommissioning against ring fence profits when the decommissioning costs are incurred. Some companies have entered into intra-group arrangements which are designed to accelerate access to decommissioning allowances well in advance of the time when decommissioning will actually take place.
6. With effect from today, companies will be able to claim capital allowances for decommissioning expenditure where it is incurred to comply with: • an approved abandonment programme; • any condition to which the approval of an abandonment programme is subject; or • any other condition imposed by, or agreement entered into with the Secretary of State for DECC in relation to decommissioning.
2009 Budget Notes Page 83 of 222 In addition the expenditure must have been incurred and paid out in respect of the decommissioning work carried out or undertaken in the accounting period.
Further advice
7. If you have any questions about this change, please contact Mike Crabtree on 020 7438 6576 (email: [email protected]) or Paul Philip on 020 7438 6993 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 84 of 222
BN35
FOREIGN EXCHANGE LOSSES: TARGETED ANTI-AVOIDANCE RULE
Who is likely to be affected?
1. Companies that hold investments in “foreign operations” – subsidiaries or other business enterprises that operate in a different currency to the company.
General description of the measure
2. A number of tax avoidance schemes have been disclosed to HM Revenue & Customs that abuse the provisions for “foreign exchange (forex) matching”. Legislation will be introduced in Finance Bill 2009 to stop such schemes by providing that exchange gains or losses on borrowings or currency derivatives can only be “matched” if they do not arise from tax avoidance arrangements.
3. Two specific types of scheme are targeted. The first type – “one way bets” – involves arrangements that create an allowable foreign exchange loss if a foreign currency moves in one direction, but do not give rise to a taxable gain if the currency moves in the opposite direction. The second type tries to give a company a tax deduction for a forward premium on a forward currency contract – a loss dependent only on interest rates – without the counterparty being taxed on a corresponding profit.
Operative date
4. The measure will apply to company accounting periods beginning on or after 22 April 2009. Where an accounting period straddles 22 April 2009, it will apply only to exchange gains or losses arising between 22 April 2009 and the end of the period.
Current law and proposed revisions
5. Companies that have an investment in a foreign operation will normally hedge the resultant foreign exchange risk. For example, if a company which draws up its accounts in sterling holds shares in a US subsidiary, the value of its investment on its balance sheet will change if the US dollar weakens or strengthens against sterling. If it borrows in US dollars, or enters into a US dollar currency derivative, the exchange gains or losses on the shares will be offset by corresponding losses or gains on the loan or derivative. But this creates a mismatch for tax purposes, because the
2009 Budget Notes Page 85 of 222 exchange differences on the hedging instrument are taxable, whereas those on the shares are not. The distortion is eliminated by special “forex matching” rules that do not tax exchange differences on the loan or derivative until the shares are sold.
6. These forex matching rules have been exploited for avoidance purposes. Typical arrangements involve the use of options or similar instruments, such that an exchange gain is sheltered by forex matching, whereas if the foreign currency moves the other way, there is no such elimination of a forex loss. Some schemes of this type were countered by secondary legislation in 2006 (SI 2006/843), but new schemes circumvent these rules.
7. This measure revokes SI 2006/843 with effect from 22 April 2009, and replaces it with a more wide-ranging provision. Under this provision exchange gains or losses on derivative contracts are not eligible to be matched in two circumstances.
8. The first of these is if there is a “one-way exchange effect”. This is where an asymmetry exists between the exchange gains or losses to be brought into account by the “matching” company and companies connected with it, and those which would arise had the foreign currency moved in the other direction to the same extent. But the anti-avoidance rule will not apply if the asymmetry does not bring about any tax advantage, or if it does not result from forex matching.
9. The second restriction excludes from forex matching any element of an exchange gain or loss on a derivative that is not computed with respect to spot rates of exchange. This means that “forward points” on a currency contract, which depend only on the interest rate differential between the two currencies involved, are not eligible for matching.
10. There are provisions about forex matching both in primary legislation and in secondary legislation (SI 2004/3256 – the so-called “Disregard Regulations”). A Statutory Instrument to apply the new rules to matching under the Disregard Regulations will be laid after Finance Bill 2009 receives Royal Assent.
Further advice
11. If you have any questions about this change, please contact Sue Davies on 020 7147 2565 (email: [email protected]) or Aidan Reilly on 020 7147 2575 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 86 of 222
BN36
TRANSFERS OF INCOME STREAMS
Who is likely to be affected?
1. Companies and individuals, including partnerships, that dispose of rights to receive future income streams without disposing of any underlying asset.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to ensure that receipts derived from a right to receive income (and which are an economic substitute for income) are taxed as income for the purposes of corporation tax and income tax.
3. The legislation is the result of consultation on the use of principles-based drafting to counter arrangements that could otherwise be used to reduce tax liabilities through the sale of income streams. The new legislation sets out a rule that comprehensively taxes the sale of income streams as income, for both corporation tax and income tax purposes.
4. As a result of the consultation changes have been made to exempt certain types of transaction.
Operative date
5. The legislation will have effect for transfers of income taking place on or after 22 April 2009.
Current law and proposed revisions
6. In many cases where a person sells or otherwise disposes of a right to receive income (whether one amount or many) without selling the underlying asset from which the income derives, tax law provides that the sum obtained by the seller is taxed as income rather than as a chargeable gain.
7. This may be the result of case law or of specific statutory provisions, the most important of which are sections 730 (dividends), 775A (annual payments) and 785A (chattel lease rentals) of the Income and Corporation Taxes Act 1988 (ICTA).
2009 Budget Notes Page 87 of 222 8. These statutory rules are not comprehensive. The proposed new rules will introduce a comprehensive principles-based code to ensure receipts of this type are dealt with appropriately for tax purposes.
9. Following consultation since the 2008 Pre-Budget Report, the draft legislation has been amended to include exceptions for transfers of income that result from the grant or surrender of leases or the disposal of any interest in an oil licence. The legislation has also been amended to ensure that it will not apply in relation to sales of income that arise from loan relationships or derivative contracts where that income would have been subject to any exclusions under those rules.
10. There are provisions to exclude amounts which are already taxed as income, or where the transfer of the income is by way of security.
11. The measure allows repeal of existing piecemeal legislation that currently taxes as income transfers of certain types of income streams (for instance, the sale of income from shares).
12. Where the transferee is a company the company will be taxable only on its accounting profit from acquiring the income stream.
Further advice
13. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 88 of 222
BN37
DISGUISED INTEREST
Who is likely to be affected?
1. Large companies that enter into arrangements to avoid tax on returns from investments that are economically equivalent to interest.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 so that, subject to exceptions, returns from arrangements that produce amounts economically equivalent to interest will be treated in the same way as interest for the purposes of corporation tax (CT).
Operative date
3. The legislation will generally apply to arrangements to which a company becomes party to on or after 22 April 2009. But it will also apply to certain arrangements in place before that date that are within the scope of existing disguised interest legislation which is to be repealed.
Current law and proposed revisions
4. The current law contains a number of targeted anti-avoidance rules to ensure that amounts that are economically equivalent to interest are charged to CT in the same way as interest.
5. The new legislation is the result of consultation on the use of “principles-based drafting” to tackle avoidance involving disguised interest. It replaces a number of existing piecemeal responses to avoidance in this area with a comprehensive rule ensuring that a return equivalent to interest is charged to CT in all circumstances where it would not currently be taxed as income.
6. There are exclusions from the legislation where: • the return arises to a company purely from an increase in the value of shares that it holds if those shares are in a company with which it is connected. For this purpose “connected” includes shares in certain joint venture companies; and • it is reasonable to assume that it is not a main purpose of the arrangements to secure that the return is not charged to tax as income.
2009 Budget Notes Page 89 of 222 Further advice
7. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 90 of 222
BN38
ANTI-AVOIDANCE: INTEREST RELIEF
Who is likely to be affected?
1. Individuals who claim relief for interest payments on loans used to invest in partnerships or small (“close”) companies when this is done for the purpose of tax avoidance.
General description of the measure
2. As announced by the Financial Secretary to the Treasury on 19 March 2009, legislation will be introduced in Finance Bill 2009 to block schemes notified to HM Revenue & Customs (HMRC) whereby provisions that allow individuals to claim relief for interest payments are used in avoidance arrangements that guarantee that the borrower will be able to make a profit as a result of the availability of the relief.
Operative date
3. The measure has effect for interest payments made on or after 19 March 2009.
Current law and proposed revisions
4. Under current law, interest paid by individuals on loans used to invest in certain small businesses (close companies or partnerships) may qualify for income tax relief against the individuals’ other income.
5. Schemes have been notified to HMRC that exploit these provisions by means of arrangements that eliminate any investment risk. This guarantees that the investor will be in a profitable position by virtue of the interest being eligible for relief.
6. The new measure will deny relief for interest if the interest is paid as part of an arrangement that is certain (ignoring insignificant risk) to allow the investor to exit the arrangement with more money than was originally invested where the investor’s main purpose in being party to the arrangements is to secure that result.
2009 Budget Notes Page 91 of 222 Further advice
7. This measure was announced on 19 March 2009 by a Written Ministerial Statement. Draft legislation was published on the HMRC website on 20 March 2009. The draft legislation has been amended since then to ensure that normal commercial transactions are not affected.
8. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 92 of 222
BN39
MANUFACTURED INTEREST
Who is likely to be affected?
1. Large companies that make payments of manufactured interest.
General description of the measure
2. As announced by the Financial Secretary to the Treasury on 27 January 2009, legislation will be introduced in Finance Bill 2009 to prevent a recent decision of the High Court from affecting the tax treatment of real payments of manufactured interest. The legislation will ensure that the tax treatment follows the treatment of the payments in company accounts prepared in accordance with Generally Accepted Accounting Practice.
Operative date
3. To ensure that the decision of the High Court does not have adverse consequences for the Exchequer or for taxpayers, the legislation will apply to manufactured payments made before the date of the Financial Secretary’s statement as well as to those made afterwards. For “deemed payments” of manufactured interest, the legislation will apply only to payments made on or after 27 January 2009.
Current law and proposed revisions
4. A recent High Court case involving the tax treatment of deemed manufactured payments has cast doubt on the tax treatment of real manufactured payments for both payers and recipients. The decision could result in payers being able to claim additional deductions for tax purposes that bear no relation to their economic position, and recipients being taxable on amounts in excess of their actual income.
5. Before the High Court decision, the tax treatment of real payments of manufactured interest had never been questioned. To ensure the decision does not have adverse consequences either for the Exchequer or for taxpayers, the legislation will apply to past payments as well as to payments made before the date of the announcement. This will ensure that existing practice is followed. The legislation has no effect on deemed manufactured payments of the type considered in the High Court case.
2009 Budget Notes Page 93 of 222 Further advice
6. This measure was announced on 27 January 2009 by a Written Ministerial Statement tabled by the Financial Secretary to the Treasury.
7. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 94 of 222
BN40
HEDGING PROCEEDS FROM FUTURE SHARE ISSUES
Who is likely to be affected?
1. Companies that use currency derivative contracts to hedge the value of the future proceeds from a rights issue of shares against the risk of currency fluctuations.
General description of the measure
2. The Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004 (Statutory Instrument 2004/3256) will be amended to bring in special rules that apply when a company announces a rights issue of shares denominated in a currency other than its functional currency and enters into a currency derivative contract that seeks to hedge the risk to the value of the future share issue proceeds from currency fluctuations. Where this is the case, any exchange gain or loss on the currency derivative contract will be excluded from being brought into account for tax purposes.
3. Any such exchange gain or loss will be permanently excluded from being brought into account unless, in the case of a gain, any part of that gain is subsequently distributed to shareholders. In that case, the gain will be brought back into charge for tax purposes in the accounting period in which the distribution takes place and to the extent that the gain has been distributed.
Operative date
4. The new rules will apply to all currency derivative contracts (with one exception – see paragraph 5 below) entered into on or after 1 January 2009 with the intention of hedging the exchange risk to the future share proceeds.
5. Where the hedge was entered into before 10 March 2009, the new rules will only apply where it was still current on 10 March. In that case, any latent exchange loss on the contract between the date it was entered into and 9 March will be taken into account for tax purposes provided there is an exchange loss when the contract is closed out. Where the final exchange loss is smaller than the latent exchange loss at 9 March, the loss to be brought into account will be restricted to the final loss.
2009 Budget Notes Page 95 of 222 Current law and proposed revisions
6. Statutory Instrument 2004/3256 already allows for the disregard of exchange profits and losses on derivative contracts that are hedging the cash flow risk from certain forecast transactions and firm commitments.
7. Consequently, hedges of future share issue proceeds could come within these provisions. However, exchange gains and losses left out of account are brought back into charge for tax purposes once the derivative contract performing the hedging function is closed or ceases to perform the hedging function.
8. As there would be no matching debit or credit brought into account for tax purposes on the share proceeds, the derivative contract would not form an effective hedge after tax.
9. The changes to Statutory Instrument 2004/3256 will ensure that any gains or losses on relevant currency derivative contracts will not be brought into account for tax purposes as they arise. Also, they will be permanently excluded from being brought into account for tax purposes unless overall there is an exchange gain made on the relevant derivative contract and that gain is subsequently distributed to shareholders. This will ensure that tax hedging treatment applies only where the gain on the derivative to compensate for the reduction in the value of the capital raised remains within the business to boost the capital of the business.
Further advice
10. The changes introduced by this measure were announced by the Financial Secretary to the Treasury in a Written Ministerial Statement on 10 March 2008.
11. If you have any questions about this change, please contact Aidan Reilly on 020 7147 2575 (email: [email protected]) or Paul Gilham on 020 7147 2619 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 96 of 222
BN41
REAL ESTATE INVESTMENT TRUSTS: ARTIFICIAL RESTRUCTURING
Who is likely to be affected?
1. Companies or groups of companies considering joining the Real Estate Investment Trust (REIT) regime.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 providing a power to make regulations that will prevent restructuring within groups from enabling companies to meet the REIT conditions and tests when, without the restructuring, they would not.
3. The measure will also exclude owner occupied properties from the regime.
4. The measure will also remove an obstacle in tax legislation that would stop potential REITs with ‘tied premises’ from entering the regime.
Operative date
5. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
6. The rules for the REIT regime are contained in Part 4 of the Finance Act (FA) 2006, in Schedules 16 and 17 to FA 2006 and in Regulations.
7. Property rental companies or groups can elect to join the REIT regime if they meet the entry requirements in the legislation and, on an ongoing basis, the conditions for staying in the regime. The requirements include conditions relating to the company itself; to the properties it rents; and to the nature of its business and assets.
8. A number of groups have proposed ways of restructuring their activities that would allow properties to be let by one member of a group to another without the properties leaving the group, while still meeting the REIT conditions. It was not the intention of the REIT legislation that this should be allowed. As a result, previously non-qualifying groups could become groups to which the legislation applies.
2009 Budget Notes Page 97 of 222 9. Primary legislation will be amended to introduce a power for HM Treasury to make regulations concerning the use of artificial structures to circumvent the existing REIT legislation.
10. Legislation will also be amended so that owner occupied properties are excluded from the tax exempt business of the REIT.
11. Finally, the REIT legislation will be amended so that the ‘tied premises’ legislation in the Income and Corporation Taxes Act 1988 is disapplied for companies or groups of companies seeking to join the REIT regime.
Further advice
12. If you have any questions about this change, please contact Tony Linehan on 020 7147 0527 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 98 of 222
BN42
REAL ESTATE INVESTMENT TRUSTS: AMENDMENTS
Who is likely to be affected?
1. Existing and future Real Estate Investment Trusts (REITs).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to make the existing legislation clearer and more consistent following discussions with the industry.
Operative date
3. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
4. A REIT is restricted in the type of share it can issue. The measure will allow a REIT to raise funds by issuing convertible preference shares.
5. The existing legislation for the ‘balance of business asset’ test (where a REIT has to have 75 per cent of its assets involved in the property rental business) has different definitions of asset for grouped REITs and single company REITs. The amendment will provide an accounting based definition for all REITs.
6. When a REIT disposes of a property involved in its property rental business the current legislation allows funds from the disposal that are awaiting reinvestment to be treated, for up to 24 months, as an asset of the property rental business for the purpose of the balance of business asset test (see 5 above). The legislation allows apportionment of these funds when the asset has been partly used for the property rental business and partly for non-rental purposes. The measure will clarify how the apportionment is to be applied.
7. In addition, when a REIT elects to join the regime the legislation allows that two of the REIT conditions to be met before a company can become a REIT do not have to be met on joining the regime. Currently these two conditions are linked. The measure will uncouple the conditions with the result that either or both the conditions do not have to be complied with on joining the regime.
2009 Budget Notes Page 99 of 222 Further advice
8. If you have any questions about this change, please contact Tony Linehan on 020 7147 0527 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 100 of 222
BN43
STAMP DUTY LAND TAX, CAPITAL ALLOWANCES AND TAX ON CAPITAL GAINS: ALTERNATIVE FINANCE INVESTMENT BONDS
Who is likely to be affected?
1. Anyone wishing to obtain finance by issuing Alternative Finance Investment Bonds using land assets as securities under the arrangements for issuing the bonds in the United Kingdom.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to provide relief from the provisions of stamp duty land tax (SDLT) and the Taxation of Chargeable Gains Act 1992 for persons wishing to raise finance by using land assets in the United Kingdom.
3. Further legislation will also set out the capital allowances consequences of the SDLT and capital gains measures.
Operative date
4. The relief from SDLT and from tax on capital gains is available in respect of land transactions whose effective date for SDLT purposes is on or after the date that Finance Bill 2009 receives Royal Assent. The capital allowances changes apply to the same transactions.
Current law and proposed revisions
5. The current SDLT rules mean it is not currently economically viable to issue land assets as securities in alternative finance arrangements. Land asset based securities will be a key element in structuring alternative finance investment bonds.
6. One of the main barriers to issuing such bonds is the SDLT charges that arise both on the transfer of the land asset to the bond issuer and the eventual return of the asset back to the person seeking to obtain finance. There is also a potential charge to SDLT arising on bond-holders. These charges put such alternative financing structures at an economic disadvantage compared to normal bond issuances.
2009 Budget Notes Page 101 of 222 7. The SDLT relief introduced by this measure will remove the SDLT charge on the transfers of property to and from the bond issuer and ensures that no charge arises on the bond-holders.
8. The effective date of a transaction is normally the date of completion, not the date of exchange of contracts. However, the effective date may be earlier than the date of completion if the contract is substantially performed before then - for example, if the purchaser takes possession or pays the purchase price in advance of completion. Most residential contracts will not be substantially performed in advance of completion.
9. Another barrier to the issue of land asset based securities is that the transfer of the land asset to the bond issuer; the grant of a lease by the bond issuer to the person obtaining the finance; and the eventual return of the land asset, could all give rise to capital gains on which a liability to tax could arise. The new provisions provide relief from such charges, by “ignoring” the various transactions. The effect is that, when the arrangements have run their course and the land asset has been returned to the original owner, that person is treated for the purposes of tax on capital gains as though they had owned the asset throughout the period of the bond.
10. Under current legislation the person obtaining the finance may lose their entitlement to capital allowances whilst the land asset is held by the bond issuer for the purposes of the bond.
11. The new provisions provide that the person obtaining the finance will continue to be entitled to the allowances whilst the land asset is held by the bond issuer for the purposes of the bond.
Further advice
12. If you have any questions about: • the SDLT relief please contact the Stamp Taxes Helpline on 0845 603 0135; • the capital gains reliefs please contact Colin Weston on 020 7147 0127 (email: [email protected]); or • the capital allowances consequences, please contact Brian Stokes on 020 7147 2546 (email: [email protected]) Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 102 of 222
BN44
STAMP DUTY LAND TAX: TREATMENT OF SHARED OWNERSHIP
Who is likely to be affected?
1. Individuals who are: • seeking affordable housing, and are purchasing housing under a rent to shared ownership scheme; • seeking affordable housing under a shared ownership scheme operated by a profit-making Registered Provider of Social Housing, where the scheme is assisted by public subsidy; and • Registered Providers of Social Housing who receive assistance from public subsidy.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to: • extend favourable stamp duty land tax (SDLT) treatment to purchasers under shared ownership schemes operated by profit-making Registered Providers of Social Housing, where the scheme is assisted by public subsidy; • extend the SDLT relief for purchases by Registered Social Landlords (RSLs) to profit-making Registered Providers of Social Housing where the purchase is assisted by public subsidy; and • simplify the SDLT treatment of purchasers under rent to shared ownership (“Rent to HomeBuy”) schemes.
Operative date
3. The provisions for rent to shared ownership schemes will have effect where the effective date of the grant of the shared ownership lease, or the declaration of the shared ownership trust, under the scheme is on or after 22 April 2009. The remaining provisions will have effect for land transactions where the effective date for SDLT purposes is on or after the date that Finance Bill 2009 receives Royal Assent.
Current law and proposed revisions
4. Relief from SDLT is currently available for some land transactions where the purchaser is a RSL. However, provisions in the Housing and Regeneration Act 2008 (which have not yet entered into force) replace RSLs in England with a new system of Registered Providers of Social Housing. The new regime will be open to profit-making companies.
2009 Budget Notes Page 103 of 222
5. Finance Bill 2009 widens the relief to include profit-making Registered Providers where the purchase is funded with the assistance of public subsidy.
6. Finance Bill 2009 will also provide relief for purchasers under shared ownership schemes operated by profit-making Registered Providers of Social Housing, where the scheme is assisted by public subsidy.
7. A new type of shared ownership scheme, “Rent to HomeBuy”, helps individuals to purchase homes using shared ownership schemes by allowing them initially to occupy the property under an Assured Shorthold Tenancy, to allow them to save for a deposit. Under current rules, the SDLT treatment of these schemes can be complex, Finance Bill 2009 will therefore simplify the SDLT rules for these schemes.
Further advice
8. If you have any questions about this change, please contact the Stamp Taxes Helpline on 0845 603 0135. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 104 of 222
BN45
STAMP DUTY LAND TAX: TEMPORARY INCREASE IN THRESHOLDS
Who is likely to be affected?
1. Individuals who are purchasing residential property between 22 April 2009 and 31 December 2009 inclusive, where the chargeable consideration for the property is no more than £175,000.
General description of the measure
2. The Chancellor announced a “holiday” from stamp duty land tax (SDLT) in September 2008, using regulation-making powers, which exempted from SDLT any acquisitions of residential property of not more than £175,000. The measure applied to acquisitions between 3 September 2008 and 2 September 2009 inclusive.
3. These regulations will be revoked and replaced with primary legislation in Finance Bill 2009. This legislation will raise the starting threshold for SDLT on residential property from £125,000 to £175,000 and will be time- limited, applying to transactions made between 22 April 2009 and 31 December 2009 inclusive. After that date the SDLT threshold for residential property will revert to £125,000.
Operative date
4. Land transactions where the effective date for SDLT purposes is on or after 22 April 2009 but before 1 January 2010.
Current law and proposed revisions
5. In September 2008 the Chancellor announced that residential property worth not more than £175,000 would be exempt from SDLT for acquisitions made between 3 September 2008 and 2 September 2009 inclusive. This measure means that the increased threshold of £175,000 for residential property will continue to apply beyond 3 September 2009 and will now end on 31 December 2009.
6. The effective date is normally the date of completion, not the date of exchange of contracts. However, the effective date may be earlier than the date of completion if the contract is substantially performed, for example, if the purchaser takes possession or pays the purchase price in advance of completion.
2009 Budget Notes Page 105 of 222
Further advice
7. If you have any questions about this change, please contact the Stamp Taxes Helpline on 0845 603 0135. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 106 of 222
BN46
STAMP DUTY LAND TAX: LEASEHOLD ENFRANCHISEMENT
Who is likely to be affected?
1. Leaseholders of flats wishing to acquire the freehold of their block.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to change the rules for the stamp duty land tax (SDLT) relief for leasehold enfranchisement by removing the requirement that the relief can only be claimed by a statutory “Right to Enfranchise” (RTE) Company. This change will ensure that the relief can now be claimed by all who are exercising statutory rights of leasehold enfranchisement.
Operative date
3. The measure will have effect for land transactions where the effective date for SDLT purposes is on or after 22 April 2009.
Current law and proposed revisions
4. The SDLT relief which applies to the acquisition of the freehold of a block of flats on behalf of the leaseholders under statutory rights of leasehold enfranchisement only applies to purchases by RTE companies.
5. Statutory provision for RTE companies has never been brought into force so the relief could not be claimed.
6. By amending the existing SDLT provision to remove the reference to an RTE company and allow relief to be claimed by any nominee or appointee who acquires the freehold of a block of flats on behalf of leaseholders under a statutory right of leasehold enfranchisement, the relief will operate as originally intended.
Further advice
7. If you have any questions about this change, please contact the Stamp Taxes Helpline on 0845 603 0135. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 107 of 222 2009 Budget Notes Page 108 of 222
BN47
PENSIONS: LIMITING TAX RELIEF FOR HIGH INCOME INDIVIDUALS (ANTI-FORESTALLING)
Who is likely to be affected?
1. Individuals with incomes of £150,000 or more who, on or after 22 April 2009, change: • their normal pattern of regular pension contributions; or • the normal way in which their pension benefits are accrued; and • their total pension contributions/benefits accrued (‘pension savings’) exceed £20,000 a year.
2. Scheme administrators of registered pension schemes and advisors with individuals who have changes to pension savings that are affected by this measure.
General description of the measure
3. The Government has announced its intention to restrict, to the basic rate of income tax, tax relief on pensions savings with effect from 6 April 2011 for people with taxable income of £150,000 or more. Legislation will be introduced in Finance Bill 2009 to prevent those potentially affected from seeking to forestall this change by increasing their pension savings in excess of their normal regular pattern, prior to that restriction taking effect.
Operative date
4. These anti-forestalling provisions will have effect for affected contributions paid under money purchase schemes on or after 22 April 2009.
5. These anti-forestalling provisions will also have effect in respect of affected increases in the rights of individual members under defined benefits pension schemes arrangements (often referred to as final salary schemes) on or after 22 April 2009.
Current law and proposed revisions
6. An individual receives relief at their marginal income tax rate on their pension savings. Although there are no limits to how much can be saved in registered pension schemes, the maximum tax relief available in any one year for pension savings is limited to 100 per cent of a person’s earnings and by what is called the annual allowance. The annual allowance for the 2009-10 tax year is £245,000 and for the 2010-11 tax
2009 Budget Notes Page 109 of 222 year will be £255,000. Tax relief is recovered in respect of any pension savings over that allowance.
7. Finance Bill 2009 will introduce a new and additional special annual allowance and associated tax charge.
8. This new allowance and tax charge will not apply to the vast majority of individuals: • anyone with income of less than £150,000 for the tax year, and for both of the preceding two tax years (‘the relevant tax years’) will not be affected; and • for people with income of £150,000 or more in any of the relevant tax years, those who continue as normal with their existing pattern of regular pension savings and who do not make any additional pension savings will not be affected.
9. Those individuals who do increase their pension savings on or after 22 April 2009 over and above their normal pattern of regular pension savings will be affected only if their total pension savings in that year are over £20,000.
10. The tax charge will not apply to any normal, regular ongoing pension savings that were in place before 22 April 2009, whatever their value. It applies only to additional savings over and above this.
11. Normal, regular ongoing pension savings are defined as follows. For people contributing to a money purchase arrangement, normal, regular ongoing savings are the continuation of those contributions paid under agreements made prior to 22 April 2009 that are paid quarterly or more frequently and at a rate that does not increase.
12. For people in defined benefit schemes, normal, regular ongoing savings include any increases in pension benefits which arise under the existing pension scheme rules as at 22 April 2009. These include any increased benefits due as a result of normal pay rises and progression.
13. Any additional contributions to money purchase arrangements made between 6 April 2009 and 21 April 2009 which are over and above the normal pattern of regular contributions, will not be subject to the special annual allowance tax charge. The total value of additional contributions in this period will reduce the amount of special annual allowance available for 2009-10.
14. For defined benefit schemes the value of any changes over and above the normal increase in pension benefits as a result of changes to scheme rules, between 6 April 2009 and 21 April 2009, are not subject to the special annual allowance tax charge. The value of the change in this period will reduce the amount of special annual allowance available for 2009-10.
2009 Budget Notes Page 110 of 222 15. Where regular pension savings exceed £20,000, the new tax charge applies to any pension savings made on or after 22 April 2009 in excess of regular savings. Where regular pension savings are below £20,000, the tax charge applies to any excess over £20,000. The charge has the effect of restricting tax relief on the additional pension savings to basic rate.
16. The special annual allowance and associated tax charge apply to total contributions, regardless of whether these are made by the individual, their employer or by a third party and to any benefits accruing in a defined benefits scheme. The tax charge will be collected through the self assessment tax return.
17. The new special annual allowance and associated tax charge run alongside the existing annual allowance and its associated tax charge. It is possible for an individual to be liable to tax under both tax charges. Where this occurs the amount chargeable to the special annual allowance charge will be reduced by the excess over the existing annual allowance.
18. High income individuals affected by these changes may be able to claim a refund of contributions paid after 6 April 2009, depending on the nature of the pension arrangements. The refund will cancel the relevant amount of special annual allowance tax charge. The refund will be chargeable to tax on the scheme administrator at 40 per cent through the existing Accounting for Tax online process to reverse the tax reliefs that have been given on the contribution.
19. The Disclosure of Tax Avoidance Schemes (DOTAS) regime will be amended. The Descriptions Regulations (SI 2006/1543) will be amended to include a new description: arrangements where one of the main benefits of an individual entering the arrangement might be expected to be that the individual will not be subject to the special annual adjustment charge, which charge they would have been subject to had they not entered into those arrangements. The Information Regulations (SI 2004/1864) will be amended so that information will be required for any such schemes where the ‘relevant date’ that triggers a disclosure (normally the date the scheme is made available for implementation) falls after the 22 April 2009.
Further advice
20. Detailed information about this measure is provided in four supplementary documents, that have been published today on the HM Revenue & Customs website.
21. If you have any questions about this change, please contact Martyn Rounding on 020 7147 2821 (email: [email protected]). If you have any questions about how the pensions tax rules operate in practice, please contact the Pension Schemes Service Helpline on 0845 600 2622.
2009 Budget Notes Page 111 of 222 22. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 112 of 222
BN48
TAXATION OF PAYMENTS FROM THE FINANCIAL ASSISTANCE SCHEME
Who is likely to be affected?
1. Members of defined benefit occupational pension schemes (often referred to as final salary schemes), where the pension scheme is no longer able to meet all its pension obligations and qualifies for assistance from the Financial Assistance Scheme (FAS).
General description of the measure
2. The FAS is a Government-funded scheme. It provides financial help to members of defined benefit occupational pension schemes who have lost significant amounts of their accrued rights because their scheme was wound up when it had insufficient assets. It only applies to schemes wound up between 1 January 1997 and 5 April 2005; since then the Pension Protection Fund has been performing a similar function.
3. The FAS is not a pension scheme. It makes payments to the members of qualifying pension schemes to top up any pension payments made by the scheme, bringing the total paid up to 90 per cent of the pension entitlement, subject to an overall cap.
4. The FAS is being extended so that it will, in the future, be responsible for making all of the payments due to qualifying members, including lump sums. This means that it will in future make payments similar to those made by a registered pension scheme.
5. Legislation will be introduced in Finance Bill 2009 to allow payments made by the FAS to be given broadly the same tax treatment as if they had been made by a registered pension scheme. This means that the individual will not be disadvantaged by incurring charges to income tax that would otherwise arise because the payment is received from a body that is not a registered pension scheme.
Operative date
6. The measure will have effect for all payments made by the FAS, whenever made.
2009 Budget Notes Page 113 of 222
Current law and proposed revisions
7. Registered pension schemes benefit from certain tax privileges, in return for providing scheme members with an income in retirement. Lump sum benefits are payable free of income tax if they satisfy certain rules.
8. As the FAS is not a registered pension scheme, lump sums paid by it would not benefit from the same tax reliefs as those paid by a registered pension scheme.
9. This measure introduces a regulation-making power regarding the application of taxes in relation to the FAS. Changes needed to achieve similar tax treatment for the FAS as for pension schemes can then be put in place by such regulations.
Further advice
10. If you have any questions about this change, please contact Windy Kwok on 020 7147 2835 (email: [email protected]) or David Dodd on 020 7147 2829 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 114 of 222
BN49
AVOIDING UNINTENDED TAX CONSEQUENCES IN RELATION TO PENSION SAVINGS
Who is likely to be affected?
1. Individuals who have tax-relieved pension savings with an insurance company in the possible circumstance where the insurer qualifies for assistance from the Financial Services Compensation Scheme (FSCS).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to provide powers to make regulations to ensure that in the circumstance where the FSCS assists an insurance company, there will be broadly the same tax treatment for the resulting payments or transfers as if the FSCS had not intervened.
3. The FSCS assistance can include transferring an individual’s rights to another insurer or paying compensation to the individual. Tax rules would apply differently because the FSCS is not a registered pension scheme. This measure will ensure that the individual will not be disadvantaged because of FSCS involvement.
4. The proposed legislation will also extend other regulation-making powers in relation to registered pension schemes by allowing regulations to apply retrospectively where they do not increase the individual’s liability.
Operative date
5. The measure will have effect on and after the date that Finance Bill 2009 receives Royal Assent. Any regulations made using the powers in this measure can be backdated to have effect before Royal Assent, provided they do not disadvantage the individual.
Current law and proposed revisions
6. Insurance companies can make pension provision which benefits from tax privileges and that provision can be registered as a pension scheme for tax purposes. They can also transfer tax-relieved pension savings to other registered pension schemes and provide an annuity from those savings.
7. Unintended tax consequences may arise when the FSCS provides assistance to an insurer as the FSCS is not a registered pension scheme for tax purposes.
2009 Budget Notes Page 115 of 222
8. Finance Bill 2009 will introduce a regulation-making power to allow changes to be made to the tax consequences of FSCS assistance for insurers who make pension provision. The regulations will be able to provide for individual members to have their payments after FSCS intervention to be treated for tax purposes in broadly the same way as if FSCS had not intervened.
9. The regulations made under this power may take retrospective effect but only where they do not increase the individual’s tax liability.
Further advice
10. If you have any questions about this change, please contact Beverley Davies on 020 7147 2869 (email: [email protected]) Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 116 of 222
BN50
INHERITANCE TAX: EXTENSION OF AGRICULTURAL PROPERTY AND WOODLANDS RELIEFS TO LAND IN THE EUROPEAN ECONOMIC AREA
Who is likely to be affected?
1. Executors and personal representatives of people who have died, individuals and trustees.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to extend inheritance tax (IHT) agricultural property relief (APR) and woodlands relief (WR) to property in the European Economic Area (EEA). Property qualifying for this extended IHT relief will also qualify for capital gains tax (CGT) hold over relief.
Operative date
3. The extension of APR and WR against IHT and CGT hold over relief will have effect on and after 22 April 2009 as well as for earlier events as described in paragraphs 5, 8 and 10 below.
Current law and proposed revisions
4. APR reduces the value of agricultural property chargeable to IHT. Before 22 April 2009 APR was restricted to property in the United Kingdom, the Channel Islands or the Isle of Man. Finance Bill 2009 will extend relief to agricultural property in EEA states.
5. IHT due or paid on or after 23 April 2003 in relation to agricultural property located in an EEA state at the time of the chargeable event will become eligible for relief. Finance Bill 2009 will provide that the earliest deadline for reclaiming overpayments on such property will be 21 April 2010.
6. The ‘Review of Powers, Deterrents and Safeguards’ work to align time limits will mean that the statutory time limit for making a claim for repayment of overpaid IHT will reduce from six years to four. This will affect repayment claims for overpayments where IHT has been paid and APR is now available. However, the new time limits will not apply to claims made before 1 April 2011.
2009 Budget Notes Page 117 of 222 7. Where conditions are met, WR allows IHT to be deferred on the value of timber or underwood until it is sold. Before 22 April 2009, WR could only apply in respect of land located in the United Kingdom. Finance Bill 2009 will extend WR to property in other qualifying EEA states.
8. For deaths before 22 April 2009, property located within an EEA state will become eligible for WR. The time limit for obtaining WR is usually within two years of the date of death. Finance Bill 2009 will provide that the earliest deadline for reclaiming overpayments on such property will be 21 April 2010.
9. Hold over relief allows deferral of a CGT charge (on a gift or sale at undervalue of a business asset) until the asset is disposed of by the recipient. Finance Bill 2009 will extend hold over relief to agricultural property in EEA states which has been farmed by a person other than the owner.
10. Hold over relief will also become available in respect of disposals of agricultural property located in a qualifying EEA state in the past. The time limit for claiming hold over relief is five years from 31 January following the tax year to which the claim relates. Claims to relief in respect of the tax year 2003-04 can therefore be made until 31 January 2010.
11. Legislation in Finance Act 2008 will reduce time limits for hold over relief claims to four years from 1 April 2010. Claims in respect of 2004-05 and 2005-06 will need to be made by this date.
Further advice
12. If you have any questions about these changes, please contact the Inheritance Tax & Probate Helpline on 0845 3020 900. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 118 of 222
BN51
INDIVIDUAL SAVINGS ACCOUNTS (ISAs): INCREASING ISA LIMITS FOR PEOPLE AGED 50 AND OVER AND INCREASING ISA LIMITS FOR ALL
Who is likely to be affected?
1. People aged 50 and over and all individuals who invest in Individual Savings Accounts (ISAs).
General Description of the measure
2. The ISA limit will be raised to £10,200, up to £5,100 of which can be saved in cash. The new limits will apply to people aged 50 and over in 2009-10 and for all ISA investors from 2010-11 onwards.
Operative date
3. Raising the ISA limits for people aged 50 and over for 2009-10 will have effect on and after 6 October 2009, and raising the ISA limit to the same level for all ISA investors will have effect on and after 6 April 2010.
Current law and proposed revisions
4. Under the powers in section 694 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), The Individual Savings Account Regulations 1998 (Statutory Instrument 1998/No 1870 as amended) provide the rules and regulations for the ISA scheme.
5. The existing ISA regulations stipulate that the overall annual subscription limit for an ISA is £7,200 of which up to £3,600 can be saved in a cash ISA with one provider. The remainder can be invested in stocks and shares with either the same or another provider.
6. There are two different commencement dates for this measure. From 6 October 2009, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for people aged 50 or over. From 6 October, those aged 50 and over will therefore be able to deposit £10,200 into their 2009-10 ISA, up to £5,100 of which can be in cash.
7. From 6 April 2010, the ISA limit will increase to £10,200, up to £5,100 of which can be saved in cash for all ISA investors. From 6 April 2010, all savers will therefore be able to deposit £10,200 into their 2010-11 ISA, up to £5,100 of which can be saved in cash.
2009 Budget Notes Page 119 of 222
8. The ISA regulations will be amended by Statutory Instrument to reflect these changes. From 6 October 2009 the ISA limits for people aged 50 and over will be raised to £10,200, up to £5,100 of which can be saved in cash in the tax year ending on 5 April 2010. The ISA limits will be raised for all ISA investors to the same level from 6 April 2010.
Further advice
9. If you have any questions about this change, please contact Stephen Lig on 020 7147 2827 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 120 of 222
BN52
CHILD TRUST FUND: PAYMENTS FOR DISABLED CHILDREN
Who is likely to be affected?
1. Disabled children in receipt of Disability Living Allowance who are born on or after 1 September 2002.
2. Child Trust Fund providers will receive an increased number of government payments.
General description of the measure
3. The Government will contribute £100 every year to the Child Trust Fund accounts of all disabled children, with severely disabled children receiving £200 per year.
Operative date
4. The payments will start in April 2010 for children in receipt of Disability Living Allowance at any point in 2009-10.
Current law and proposed revisions
5. Every eligible child born on or after 1 September 2002 has a Child Trust Fund account. Family and friends can contribute up to £1,200 into the account each year.
6. The Government will make payments of £100 per year into the Child Trust Fund accounts of all disabled children. Severely disabled children (those who receive the High Care element of Disability Living Allowance) will receive £200 per year. These payments will not count towards the £1,200 yearly contribution limit.
Further advice
7. More information about the Child Trust Fund scheme can be found at www.childtrustfund.gov.uk
8. If you have any questions about this change, please contact Jonathan Bochenski on 020 7147 2957 (email [email protected]) Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 121 of 222 2009 Budget Notes Page 122 of 222
BN53
CHARITIES: SUBSTANTIAL DONORS REGULATIONS
Who is likely to be affected?
1. Charities which receive donations between £100,000 and £150,000 from a particular donor in a six year period.
2. The individuals and companies who make those donations.
General description of the measure
3. The substantial donors rules potentially apply to all charities carrying out transactions with their largest donors (where tax relief is available in respect of their donation(s)). The rules tackle those who influence or set up charities with a view to avoiding tax rather than with any charitable intent.
4. The measure increases the threshold of relievable gifts that a person can make before becoming a substantial donor to a charity.
Operative date
5. The measure will have effect on and after 23 April 2009.
Current law and proposed revisions
6. Sections 506A to 506C of the Income and Corporation Taxes Act 1988 and sections 549 to 557 of the Income Tax Act 2007 detail the rules for dealing with charities which carry out certain transactions with their substantial donors. They define a substantial donor as a person that makes tax relievable donations of £25,000 or more to a charity in 12 months or £100,000 or more in a period of six years. Such a person is treated as a substantial donor of the charity for all chargeable periods falling wholly or partly within that 12 month / six year period, and for a further five chargeable periods. A chargeable period for a charitable trust is a tax year and for a charitable company is its accounting period.
7. If a charity enters into a specified transaction with a substantial donor or someone connected to the substantial donor the transaction will be treated as non-charitable expenditure which is subject to a tax charge.
2009 Budget Notes Page 123 of 222 8. The measure will, by regulation, increase the threshold of relievable gifts which a person may make before becoming a substantial donor. The relievable gifts threshold of £100,000 in a period of six years will be increased to £150,000 in a period of six years. The annual threshold of £25,000 will remain the same.
Further advice
9. If you have any questions about this change, please contact Roger Blake on 020 7147 2782 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 124 of 222
BN54
UK PERSONAL ALLOWANCES AND RELIEFS FOR NON-RESIDENT INDIVIDUALS
Who is likely to be affected?
1. Individuals who are not resident in the UK, but who claim UK personal allowances and reliefs as Commonwealth citizens.
General description of the measure
2. Individuals who are not resident in the UK normally have no entitlement to claim UK personal allowances and reliefs for income tax. There is a limited range of circumstances under which non-resident individuals may benefit from UK personal allowances and reliefs. This includes being a Commonwealth citizen. HM Revenue & Customs have been advised that this is not compliant with the Human Rights Act.
3. Legislation will therefore be introduced in Finance Bill 2009 to withdraw the entitlement for non-resident individuals who currently qualify for UK personal allowances and reliefs from income tax solely by virtue of being a Commonwealth citizen. The vast majority of individuals affected will still benefit through other means, for example Double Taxation Treaties.
Operative date
3. The legislation will have effect on and after 6 April 2010.
Current law and proposed revisions
4. Current legislation sets out a range of circumstances where individuals have a right to claim UK personal allowances and reliefs from income tax, despite being not resident in the UK. The individual may qualify as: • an EEA national; • a resident of the Channel Islands or the Isle of Man; • a person who has previously resided in the UK and is resident abroad for the sake of their own health or that of a member of their family who is resident with the individual; • a Crown servant; • a person employed in the service of any territory under Her Majesty’s protection; • a person employed in the service of a missionary society; • a person whose late spouse or late civil partner was employed in the service of the Crown; or
2009 Budget Notes Page 125 of 222 • a Commonwealth citizen.
5. In addition, a number of the UK’s Double Taxation Agreements (DTAs) with other countries also allow individuals not resident in the UK to claim UK personal allowances and reliefs.
6. Non-resident individuals will no longer qualify for reliefs and allowances including the basic and age-related personal allowances, married couples’ allowance, blind person’s allowance and relief for life assurance solely by virtue of being a Commonwealth citizen, although they may continue to qualify under the other conditions or through DTA provisions if applicable.
7. This change will mainly affect citizens of the following countries: Bahamas; Cameroon; Cook Islands; Dominica; Maldives; Mozambique; Nauru; Niue; St Lucia; St Vincent & the Grenadines; Samoa; Tanzania; Tonga; and Vanuatu.
Further advice
8. If you have any questions about these changes, please email [email protected] or telephone 020 7147 2762. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 126 of 222
BN55
THE REMITTANCE BASIS: MINOR AMENDMENTS
Who is likely to be affected?
1. Individuals who are resident but not domiciled, or not ordinarily resident, in the UK for tax purposes.
General description of the measure
2. Individuals who are resident but not domiciled or not ordinarily resident in the UK have the option of using the remittance basis of taxation. This allows them to pay UK tax on their foreign income only when it is brought into the UK, rather than on the arising basis of taxation which taxes their worldwide income as it arises.
3. Finance Act 2008 introduced significant changes to the remittance basis regime which became effective from 6 April 2008. Following detailed consultation with external stakeholders, Finance Bill 2009 will introduce further minor changes to these rules. These are designed to make the rules simpler to operate in practice and to ensure the legislation effectively delivers its policy objectives.
Operative date
4. The changes which apply to individuals with small amounts of overseas employment income, individuals with less than £2,000 of unremitted foreign income and gains for a tax year, individuals with no UK tax liability and no remittances in a tax year, exempt property and Gift Aid donations will have effect on and after 6 April 2008. The remaining changes will have effect on and after 22 April 2009.
Current law and proposed revisions
Individuals with small amounts of foreign employment income
5. Individuals employed in the UK are currently required to file a Self Assessment tax return if they have also received income from overseas employment in the same tax year. This is the case even where there is little or no tax to pay in the UK because the overseas employment income has already been subject to tax in the other country.
2009 Budget Notes Page 127 of 222 6. This obligation to file a return will be removed with effect from 6 April 2008 where such individuals have overseas employment income of less than £10,000 and overseas bank interest of less than £100 in any tax year, all of which is subject to a foreign tax.
Exempt Assets
7. There are currently a number of exemptions which allow an individual using the remittance basis to bring property into the UK which has been purchased from relevant foreign income (broadly speaking income from overseas investments and savings) without triggering a liability to UK tax.
8. The scope of these exemptions will be extended with effect from 6 April 2008 to include property purchased out of foreign employment income and foreign chargeable gains as well as relevant foreign income.
Application of the Remittance Basis Without a Formal Claim
9. In most cases, individuals who wish to use the remittance basis of taxation are required to make a formal claim to do so through the Self Assessment process. However, no such claim is required where an individual has unremitted foreign income and gains of less than £2,000 in any tax year. In such cases it is assumed that the individual has chosen to use the remittance basis.
10. Following representations that the current rules are not clear on this point, the legislation will be amended to put beyond doubt that a claim will not be required in these circumstances. The effect will be that the individual will be treated as having used the remittance basis unless they notify HM Revenue & Customs (HMRC) that they wish to be taxed under the arising basis. This will apply from 6 April 2008.
11. The situations where a claim will not be required will also be extended to cover cases where an individual has total UK income or gains of no more than £100 which has been taxed in the UK, provided they make no remittances to the UK in that tax year. This extension will also come into effect from 6 April 2008.
The Remittance Basis and the Settlements Legislation
12. The new remittance regime includes transitional provisions which prevent certain income which arises before 6 April 2008 from being taxed as a remittance if it is brought to the UK on or after that date. These provisions will be extended to ensure that they operate as intended in their application to individuals who are taxed under the settlements legislation in Chapter 5 of Part 5 of the Income Tax (Trading and Other Income) Act 2005.
2009 Budget Notes Page 128 of 222 13. Legislation will also be introduced to clarify the interaction between the remittance basis regime and the tax rules which apply to settlements which are settlor-interested.
14. The first of these changes will have effect from 6 April 2008 and the second will come into force on 22 April 2009.
Gift Aid donations
15. The Gift Aid provisions in Chapter 2 of Part 8 of the Income Tax Act 2007 (ITA) allow charities to claim tax relief on any gifts of money from individuals, provided the donor has paid sufficient UK income and capital gains tax in the tax year in which the donation was made. In situations where the donor pays tax on the remittance basis, and is required to pay the £30,000 Remittance Basis Charge under section 809H of ITA, it was always the intention to treat the £30,000 in the same way as other types of income tax or capital gains for the purposes of Gift Aid. Finance Bill 2009 will amend the remittance basis rules to ensure that tax relief under Gift Aid is available in such circumstances.
16. This change will have effect from 6 April 2008.
Anti-avoidance provisions
17. Section 809M of ITA defines ‘relevant person’ for the purposes of the remittance basis and includes participators in a close company as defined by reference to sections 414 and 415 of the Income and Corporation Taxes Act 1988.
18. However, the term ‘participator’ is not itself defined and it is not made explicit that references to a close company includes subsidiaries of companies. The legislation will be amended, with effect from 22 April 2009, to clarify the scope of the terms ‘participator’ and ‘close company’ and remove the potential for abuse.
19. Section 809Z5 of ITA applies in circumstances where property is purchased out of overseas income and gains and forms part of a larger set, such as a series of linked artworks or a stamp collection, and only individual items are brought into the UK. This statutory rule is intended to apply more widely when determining the value of such items for the remittance basis.
20. To remove any uncertainty, and to remove the potential for abuse the legislation will be amended to make clear that the rule currently in section 809Z5 applies in all cases where individual items from a larger set are purchased out of overseas income and gains and brought into the UK. This change will have effect from 22 April 2009.
2009 Budget Notes Page 129 of 222 21. Draft legislation and explanatory notes covering these anti-avoidance provisions have been published today on the HM Revenue & Customs website.
Not ordinarily resident employees and HMRC Statement of Practice 1/09
22. On 18 March 2009, HMRC issued a Statement of Practice 1/09 which sets out how they will treat transfers made from an offshore account which contains only the income relating to a single employment contract, and how earnings should be apportioned between UK and non-UK employment where an employee is taxed on the remittance basis. This replaced the earlier Statement of Practice 5/84 which was withdrawn with effect from 6 April 2009.
23. The Government will legislate Statement of Practice 1/09 in Finance Bill 2010, to allow for a period of consultation with external stakeholders on the most effective way of doing so.
Further advice
24. If you have any questions about these changes, please email [email protected] or telephone 020 7147 2762. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 130 of 222
BN56
LIVING ACCOMMODATION PROVIDED BY REASON OF EMPLOYMENT: PAYMENTS OF LEASE PREMIUMS
Who is likely to be affected?
1. Employees who occupy living accommodation provided by reason of their employment on short term leases where a lease premium is paid.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to stop attempts to avoid tax on the benefit of living accommodation. The measure will apply in cases where accommodation is provided to employees by reason of their employment through the payment of a lease premium.
Operative date
3. The legislation will apply to leases entered into or extended on or after 22 April 2009.
Current law and proposed revisions
4. Chapter 5 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 sets out the tax position when living accommodation is provided by reason of the employment.
5. Where an employee is provided with accommodation there is a tax charge on the benefit to the employee of that accommodation. Where rent is paid by the person at whose cost the accommodation is provided the charge is based on the actual rent paid (less any amount made good by the employee), where that is more than the annual value. However, some arrangements are being entered into that involve upfront payments, which are described as a lease premium, and payment of a very small rent in order to try to avoid paying tax.
6. The legislation will ensure that where a lease premium is paid for a lease of 10 years or less, the same tax treatment will follow as if the lease premium were actual rent paid. The taxable amount in any tax year will be treated as the amount of the lease premium spread over the duration of the lease plus the amount of any rent paid by the person at whose cost the accommodation is provided less any amount made good by the employee.
2009 Budget Notes Page 131 of 222 7. The new rules will not apply to leases entered into in relation to a property used mainly for a business purpose by the employer and partly for the domestic use of an employee.
Further advice
8. If you have any questions about this change, please contact Peter Robinson on 020 7147 2423 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 132 of 222
BN57
AVOIDANCE USING LIFE INSURANCE POLICIES
Who is likely to be affected?
1. Individuals who own offshore life insurance policies where a chargeable event calculation for the policy does not show a gain, the calculation is said to produce a loss, and a claim for income tax loss relief has been or is to be made.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to counter schemes that are designed to exploit income tax loss relief rules using offshore life insurance policies. The measure amends the rules on income tax loss relief to put beyond any doubt that such relief does not arise on these policies.
Operative date
3. This measure has effect on and after 6 April 2009. Transitional provisions may also apply to 2008-09 for certain transactions taking place on or after 1 April 2009.
Current law and proposed revisions
4. Part 4 of Chapter 9 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) provides the tax regime for life insurance policies and applies income tax to gains made on events such as the assignment or surrender of a policy. If there is no gain there is no income tax charge, but a negative result from a chargeable event calculation is not an income tax loss and therefore does not attract income tax relief.
5. Sections 152 and 153 of the Income Tax Act 2007 (ITA) apply to certain sources of miscellaneous income, including gains from offshore life insurance policies. Although some of these sources can give rise to allowable income tax losses, as well as profits, the chargeable event regime governing life insurance policies ensures that any taxable gains over the life of the policies are restricted to economic gains. It does not provide for losses.
2009 Budget Notes Page 133 of 222
6. The legislation will amend section 152 of ITA and put beyond any doubt that claims for income tax loss relief cannot be made. This will apply to claims for income tax loss relief from offshore life insurance policies where chargeable events occur on or after 6 April 2009.
7. Transitional provisions will have effect for 2008-09 so that there is similarly no scope to claim income tax loss relief for that year where: • a policy or contract is made on or after 1 April 2009; • the terms of an existing policy or contract are varied on or after 1 April 2009, or a right under it is exercised, so as to increase the benefits under it; • all or part of the rights under the policy or contract are assigned to the person claiming a deduction (whether or not the assignment is for money or money’s worth) on or after 1 April 2009; or • all or part of the rights under the policy become held on or after 1 April 2009 as security for a debt.
8. Transitional provisions affecting section 153 of ITA will also operate to prevent a deduction for income tax loss relief in 2009-10 and subsequent years regardless of when the chargeable event took place.
Further advice
9. The changes introduced by this measure were announced by the Financial Secretary to the Treasury in a Written Ministerial Statement on 1 April 2009
10. If you have questions about this change, please contact Jon Prothero on 020 7147 2785 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 134 of 222
BN58
AVOIDANCE USING EMPLOYMENT INCOME LEGISLATION
Who is likely to be affected?
1. Individuals who seek to abuse reliefs for deductions and/or losses connected to employment to avoid tax. This measure will have no impact on those using the reliefs who are not attempting to avoid tax.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to close down avoidance schemes that seek to abuse reliefs available for employment-related liabilities and losses incurred by employees and former employees during the course of employments established for the purposes of the schemes.
3. The schemes concerned rely on the creation of highly artificial liabilities and losses through a series of arrangements which have been established for the purposes of the schemes connecting individuals and companies or trusts, some of which may be offshore. A common feature is that liabilities and losses are created through intentional acts of default in the context of contrived employments.
Operative dates
4. The measure will have effect on the tax liabilities of affected persons on and after 12 January 2009.
5. Individuals who have made a claim under section 128 of the Income Tax Act 2007 (ITA) between 12 January 2009 and 1 April 2009 inclusive that is precluded by the proposed change to section 128 of ITA will not be liable to penalties under section 95 of the Taxes Management Act 1970 (TMA).
6. Individuals who have made a claim under section 128 of ITA between 12 January 2009 and 1 April 2009 inclusive that is precluded by the proposed changes to section 128 of ITA will not be liable to surcharges under section 59C of TMA provided they re-order their affairs and pay any additional tax due in accordance with the proposed change on or before 28 April 2009.
Current law and proposed revisions
7. Legislation will be introduced in Finance Bill 2009 to amend section 346 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), to insert a new section 556A into ITEPA and to amend section 128 of ITA.
2009 Budget Notes Page 135 of 222
Sections 346 and 555 of ITEPA
8. Sections 346 and 555 of ITEPA provide deductions respectively for employees and for former employees for: a. insurance to indemnify employees against employment related liabilities such as damages relating to their jobs or legal costs to defend against such damages; and b. payments for such liabilities in circumstances where they are uninsured.
9. The new subsection (2A) of section 346 and new section 556A will provide that no deduction will be allowed for arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax.
Section 128 of ITA
10. Section 128 of ITA enables a person to make a claim for employment loss relief to be set against their taxable general income for the loss-making year, the previous tax year or both years. This will be amended by inserting a new subsection (5A). This will provide that no claim is allowed under section 128 of ITA for arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax.
Further advice
11. The changes introduced by this measure were announced by the Financial Secretary to the Treasury in Written Ministerial Statements covering this measure on 13 January and 1 April 2009. Technical Notes explaining who would be affected and how were published on the HM Revenue & Customs website on 12 January and 1 April 2009.
12. If you have any questions about this change, please contact David McDowell on 020 7147 0175 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 136 of 222
BN59
DOUBLE TAXATION RELIEF AVOIDANCE: BANKS USING MANUFACTURED OVERSEAS DIVIDENDS
Who is likely to be affected?
1. Banks and financial institutions using avoidance schemes involving manufactured overseas dividends (MODs).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to deny relief for foreign withholding tax where the recipient of a MOD has not borne the economic cost of the tax.
Operative date
3. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
4. The current MOD rules and regulations aim to give the recipient of a MOD (or any payment deemed to be a MOD) the same relief for foreign tax as the recipient of the real dividend. Changes to section 736B of and Schedule 23A to the Income and Corporation Taxes Act 1988 will ensure that no relief is given by way of a credit or deduction where the recipient of a MOD has not borne the economic cost of the foreign tax.
5. The measure will counter a complex tax-driven scheme which, apart from the tax advantage, produces a pre-tax loss. The scheme involves the sale and repurchase (repo) of a foreign shareholding between two bank group companies. Part of the repo agreement involves what is in substance the obligation to pay an amount that represents an overseas dividend. The MOD rules apply to this deemed payment and although the recipient receives an amount representing the full amount of the overseas dividend without any deduction of foreign tax, it nonetheless obtains an entitlement to a deduction for the foreign tax.
6. The measure will deny a deduction for foreign tax where the economic cost of the tax has not been borne by the company.
2009 Budget Notes Page 137 of 222 Further advice
7. If you have any questions about this change, please contact Richard Rogers on 020 7147 2625 (email: [email protected]) or Amanda Robinson on 020 7147 3345 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 138 of 222
BN60
DOUBLE TAXATION RELIEF AVOIDANCE: CREDIT ABUSE
Who is likely to be affected?
1. UK banks participating in the avoidance schemes described below.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to clarify legislation introduced in Finance Act (FA) 2005 which limits the credit for foreign tax paid on trade receipts of a bank to no more than the corporation tax arising on the relevant part of the trade profits. The measure will put it beyond doubt that this restriction applies to any banking receipt where that income is artificially diverted to a non-banking company in the bank’s group.
3. The measure will also ensure that, in calculating the amount of double taxation relief (DTR) available, a proportion of a bank’s average funding costs over all its transactions must be deducted, and that this cannot be avoided by the bank allocating a specific source of funds to specific investments.
Operative date
4. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
5. The DTR rules are designed to ensure as far as possible that UK taxation does not impose a greater burden on UK residents doing business outside the UK than if the same business had been done in the UK. They do so by providing relief for foreign tax that is lawfully due and payable against tax on the UK profit in respect of the same foreign income.
6. Legislation introduced in FA 2005 closed down a number of DTR avoidance schemes used by banks. However, banks have since made use of artificial avoidance schemes. Some schemes involve the making of loans or other financial transactions through an investment subsidiary where the income is taxed differently from the parent company, which retains the costs of earning the income.
2009 Budget Notes Page 139 of 222 7. The current law provides that, where income that would have formed part of the trade receipts of a bank is instead received as investment income of a subsidiary which can claim DTR without the restrictions that would have applied to the parent, DTR is calculated as if it were trade income of the subsidiary.
8. The measure will put beyond doubt that the assumption should be that any income received by a member of a banking group is trade income, unless that assumption is not reasonable.
9. Although, in HM Revenue & Customs’ view, the 2005 legislation already has this effect, some banks are self assessing their tax liabilities as if the legislation did not apply to them. This measure will put it beyond doubt that they may not self assess on this basis.
10. Other bank schemes have attempted to avoid the requirement to deduct the costs of making the loan or carrying out the transaction in the calculation of the amount of relief available, by using specific funds which do not have an associated funding cost. The measure will ensure that a bank’s funding costs are always taken into account when calculating the relief due, even if the bank maintains records purporting to show that specific funds have been used to make the loan or carry out the transaction.
Further advice
11. If you have any questions about this change, please contact Amanda Robinson on 020 7147 3345 (email: [email protected]) or Andrew Page on 020 7147 2673 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 140 of 222
BN61
DOUBLE TAXATION RELIEF AVOIDANCE: REPAYMENT OF FOREIGN TAX
Who is likely to be affected?
1. Companies taking advantage of tax regimes which provide for the repayment of tax following the payment of a dividend but in respect of which full credit is claimed by another group company.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to put beyond doubt that, where foreign tax paid under the laws of any territory is repaid, double taxation relief (DTR), whether by way of credit or deduction, will be denied or withdrawn even if the tax has been repaid to a person other than the claimant.
Operative date
3. The measure will have effect on and after 22 April 2009.
Current law and proposed revisions
4. Current legislation requires that where there has been a change in the amount of tax payable under the laws of a foreign territory, a company which has claimed DTR in respect of that tax is obliged to notify HM Revenue & Customs (HMRC) and to amend its claim or its computations accordingly.
5. A UK company with a permanent establishment (PE) in a particular country will pay tax on its profits in that country and claim credit for that tax against its UK tax liability. But, if subsequently that company pays a dividend to its parent company, the foreign country will repay a substantial amount of the tax paid to that parent company.
6. Similarly, a subsidiary of a UK company operating in that country will pay tax on its profits. Again, if a dividend is paid to its parent a substantial element of the tax is repaid to the parent company.
7. The PE or subsidiary is usually set up specially and an income bearing asset or function is transferred into it.
8. In both instances full credit for the tax repaid is still claimed.
2009 Budget Notes Page 141 of 222
9. The measure will deny DTR by credit or deduction, or if already given, will withdraw it where there has been a repayment of tax regardless of who receives the repayment.
Further advice
10. If you have any questions about this change, please contact Amanda Robinson on 020 7147 3345 (email: [email protected]) or Martin Brooks on 020 7147 2651 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 142 of 222
BN62
CORPORATE TRANSPARENCY: PERSONAL TAX ACCOUNTABILITY OF SENIOR ACCOUNTING OFFICERS OF LARGE COMPANIES
Who is likely to be affected?
1. Large companies, large groups of companies (effectively companies other than those defined as ‘small’ and ‘medium sized’ in the Companies Act 2006), and their senior accounting officers.
General description of the measure
2. To ensure that the accounting systems in operation within large companies liable to UK taxes and duties are adequate for the purposes of accurate tax reporting, legislation will be introduced in Finance Bill 2009 to require: • senior accounting officers of such companies to take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting; • senior accounting officers of such companies to: o certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting; or o specify the nature of any inadequacies and confirm that those inadequacies have been notified to the company auditors; and • such companies to notify HM Revenue & Customs (HMRC) of the identity of the senior accounting officer.
3. These new obligations will be supported by penalties chargeable respectively on the senior accounting officer personally and on the company for a careless or deliberate failure to the obligations set out above, and for the giving of a carelessly or deliberately incorrect certificate or notification.
Operative date
4. These obligations will apply only to returns due to be made for accounting reference periods beginning on or after the date that Finance Bill 2009 receives Royal Assent. It may be necessary to consider appropriate transitional arrangements.
2009 Budget Notes Page 143 of 222 Current law and proposed revisions
5. Although there is a statutory requirement for companies to make accurate returns in relation to tax and other duties, there is currently no requirement to ensure that internal accounting systems are adequate to ensure that this can be done.
6. Responsible companies and their senior accounting officers will already have adequate accounting systems in place and these requirements will impose no significant additional burden on those companies or their officers.
Further advice
7. Legislation will be included in Finance Bill 2009 and we will consult with interested parties regarding operational issues of how these requirements should be implemented.
8. If you have any questions about this change, please contact John Connor on 020 7147 2434 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 144 of 222
BN63
PUBLISHING THE NAMES OF DELIBERATE TAX DEFAULTERS
Who is likely to be affected?
1. Taxpayers (individuals, businesses and companies) who are penalised for deliberately understating tax due, or overstating claims or losses, of more than £25,000.
2. Taxpayers who are penalised for deliberately failing to notify HM Revenue & Customs (HMRC) when required to do so, leading to a loss of tax of more than £25,000.
3. Taxpayers who are penalised for deliberately committing certain VAT and excise wrongdoings, leading to a loss of tax of more than £25,000.
4. Those who make an unprompted disclosure or a full prompted disclosure within the required time will not be affected.
5. This measure will not have effect for tax credits.
General description of the measure
6. Legislation will be introduced in Finance Bill 2009 enabling HMRC to publish the names and details of individuals and companies who are penalised for deliberate defaults leading to a loss of tax of more than £25,000. Names will not be published of those who make a full unprompted disclosure or a full prompted disclosure within the required time.
7. Details will be published quarterly within one year of the penalty becoming final and will be removed from publication one year later.
Operative date
8. The new provisions will be brought into effect by Treasury Orders with the date that they have effect specified in the Orders. No details of deliberate defaults committed prior to the legislation becoming effective will be published.
2009 Budget Notes Page 145 of 222 Current law and proposed revisions
9. Currently the names and details of those who are convicted for deliberate tax defaults are published but those who are subject to a civil penalty for such defaults remain confidential unless exceptionally their appeal against any penalty reaches the courts.
10. The proposed change ensures consistency of treatment for tax fraud, whether investigated through civil or criminal proceedings.
11. The criteria for publication will be tightly defined and are linked to the penalties for errors legislated in Schedule 24 to the Finance Act (FA) 2007 (and amended by Schedule 40 to FA 2008) and penalties for failure to notify and certain VAT and excise wrongdoings, legislated in Schedule 41 to FA 2008. Only those who are penalised for deliberate defaults or deliberate and concealed defaults will have their names and details published, not those who are penalised for having failed to take reasonable care. The tax lost as a result of the deliberate defaults must exceed £25,000.
12. There will be exemption from publication for those who: • make a full unprompted disclosure to HMRC of their defaults; and • make a full prompted disclosure to HMRC within the required time (to be specified by HMRC).
13. There is an appeal right to an independent tribunal against all elements of the penalty which would determine whether names would be published and taxpayers will be informed prior to publication and be able to make representations to HMRC.
14. Sufficient details will be published to ensure that the correct person is identified and the extent of the default. This will include: • name and address; • trade, profession or sector; • amount of tax, interest and penalties; and • the period covered.
15. Details will not be published until all appeal avenues against the additional tax and penalties are exhausted or expired. Details will then be published on quarterly lists on HMRC’s website, within 12 months of the penalty becoming final. Details will be removed from the website after 12 months.
16. If you have any questions about this change, please send an email to [email protected] or contact Maria Richards on 020 7147 3223. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 146 of 222
BN64
CHANGES TO COMPANY CAR TAX FROM 2011-12
Who is likely to be affected?
1. Employees who pay income tax on a car that has been provided for their private use by their employer. Employers who pay Class 1A National Insurance contributions on the taxable benefit of a company provided car.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to: • set the rates of company car tax for 2011-12 and subsequent years; and • abolish the £80,000 price cap used to determine the cash equivalent of the car benefit charge, from 2011-12. The discounts given to cars using various alternative fuels (see fourth bullet under paragraph 6 below) will be abolished from 2011-12 by revoking secondary legislation (the relevant regulations are the Income Tax (Car Benefits) (Reduction of Value of Appropriate Percentage) Regulations 2001 (SI 2001/1123)).
Operative date
3. The legislation will have effect on and after 6 April 2011.
Current law and proposed revisions
4. Where a car is made available for an employee’s private use, a taxable benefit arises under sections 114 and 120 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).
5. Company car tax is calculated by applying the appropriate percentage to the list price of the car. The appropriate percentage is related to the CO2 emissions of the car and ranges from 15 per cent to 35 per cent in 1 per cent increments for every 5g/km of CO2 emissions for a petrol car. Most diesel cars attract a 3 per cent supplement (though the maximum is also capped at 35 per cent). A lower rate of 10 per cent for cars with CO2 emissions of exactly 120 g/km or less (13 per cent for most diesels) was introduced from 6 April 2008 to promote environmentally friendly vehicles. These cars are known as “qualifying low emissions cars” (QUALECs). A lower rate of 9 per cent applies to electrically propelled cars. There are also discounts for electric/petrol hybrid cars and Euro IV standard diesel cars registered before 1 January 2006. Discounts are also given to cars propelled by bi-fuels, road fuel gas and bioethanol. Currently, when calculating the cash equivalent of the car benefit charge, the list price of the car is capped at £80,000.
2009 Budget Notes Page 147 of 222
6. From 2011-12: • the lower threshold CO2 emissions figure (130g/km for 2010-11) will be reduced by 5g/km to 125g/km; • the £80,000 price cap that currently applies when calculating the cash equivalent of the car benefit will be abolished; • the “appropriate percentage” applicable to electrically propelled cars first registered from 1998 onwards will be reduced from 15 per cent to 9 per cent. This is a simplification measure: the rate is currently 9 per cent but this is achieved through a reduction of 6 per cent given to such cars by virtue of regulation 4 of SI 2001/1123. Accordingly, regulation 4 will be revoked from April 2011. Also, the provisions relating to electrically powered cars first registered before 1998 will be removed as there are no cars to which they can apply; and • the reductions currently given by SI 2001/1123 for electric/petrol hybrid cars and cars propelled by bi-fuels, road fuel gas and bioethanol will be abolished. The discount given for Euro IV standard diesel cars registered before 1 January 2006 will also be abolished. This will change the focus of the legislation from the means by which the car achieves its CO2 emissions figure to the CO2 emissions figure itself. The relevant regulations will be revoked from April 2011.
Further advice
7. If you have any questions about this change, please contact Basil Rajamanie on 020 7147 2384 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 148 of 222
BN65
MODERNISING TAX RELIEF FOR BUSINESS EXPENDITURE ON CARS
Who is likely to be affected?
1. All businesses that buy or lease cars.
General description of the measure
2. Budget 2008 announced the abolition of the “expensive cars” capital allowances rules and the associated restrictions on deductions for car hire expenses, to be replaced by rules with an environmental focus (the tax treatment depending on the car’s CO2 emissions).
3. The detail of the proposed changes was published, with draft legislation, in a technical note in December 2008. On 1 April 2009 the Government confirmed the changes and published revised draft legislation which had been amended in the light of comments made in response to the technical note. This included new anti-avoidance rules.
Operative date
4. The new rules will generally have effect for expenditure incurred (or leases entered into) on or after 1 April 2009 for businesses in the charge to corporation tax, and on or after 6 April 2009 for businesses in the charge to income tax.
Current law and proposed revisions
5. Capital allowances allow businesses to write off the costs of capital assets, such as plant and machinery, against their taxable income. They take the place of commercial depreciation, which is not allowed for tax. Assets are allocated to an appropriate capital allowances pool and a writing down allowance (WDA) is calculated, at either 20 per cent or 10 per cent per annum depending on the pool, on a reducing balance basis.
6. There are special capital allowances rules for cars. While expenditure on cars costing less than £12,000 is allocated to the main capital allowances pool, expenditure on cars costing over £12,000 is required to be accounted for separately from other assets with each car placed in a single asset pool. WDAs are calculated in the normal way (at 20 per cent) for cars in a single asset pool but they are then restricted to an annual amount of £3,000.
2009 Budget Notes Page 149 of 222 7. The special rules that restrict the amount of capital allowances for cars costing more than £12,000 will be replaced by new rules. Qualifying expenditure incurred on cars on or after 1 or 6 April 2009 will be allocated to one of the two general plant and machinery pools depending on the car’s CO2 emissions. Expenditure on cars with CO2 emissions exceeding 160g/km will be dealt with in the special rate pool and attract WDA at 10 per cent. Expenditure on cars with CO2 emissions of 160g/km or less will be added to the main rate pool and attract WDA at 20 per cent per annum. Expenditure incurred before April 2009 will continue to be subject to the old “expensive” car rules for a transitional period of around five years.
8. Cars that have an element of non-business use will continue to be dealt with in single asset pools to enable the private use adjustment to be made, but the rate of WDA will still be determined by the car’s CO2 emissions.
9. From April 2009, the special rules that restrict the amount of car lease rental payments that can be deducted for tax purposes will be reformed. The restriction will be changed to a flat rate disallowance of 15 per cent of
relevant payments and will apply only in respect of cars with CO2 emissions exceeding 160g/km.
10. At present the restriction applies to all links in a chain of leases. From April 2009, it will only apply to one lease in any chain. Broadly, businesses will not be subject to a restriction of their allowable lease rental payments (LRR) where the car is made available to them for a period of no more than 45 consecutive days. Also a business will not be subject to LRR in respect of expenses it incurs in hiring a car where it makes the car available to a customer for a sub-hire period of more than 45 consecutive days (this exclusion does not apply, however, where a business makes cars available to its employees or the employees of a connected person). Where a business hires a car for more than 45 days, and does not sub-hire it, it will be subject to LRR. In certain circumstances, hire periods or sub-hire periods may be aggregated to determine whether a hire (or sub-hire) period exceeds 45 days.
11. Expenditure under leases that commenced prior to 1 or 6 April 2009 (that is where the car is made available before April 2009) will continue to be subject to the “old” rules until the end of the lease.
12. Motor cycles will be excluded from the definition of cars and will not, therefore, be subject to these rules. Expenditure incurred on motor cycles on or after 1 or 6 April 2009 will qualify, where appropriate, for Annual Investment Allowance, first year allowances and to be treated as short life asset expenditure.
2009 Budget Notes Page 150 of 222 13. The revised legislation contains specific anti-avoidance rules to prevent the generation of balancing allowances by selling cars in single asset pools at less than market value. There are also rules restricting balancing allowances available to companies that cease a qualifying activity of providing cars, including cars with emissions over 160 g/km, where another company in the same group of companies carries on a similar qualifying activity.
Further advice
14. A Revenue and Customs Brief was published on 1 April 2009, explaining the changes made since the publication of the technical note in December 2008, and including revised draft legislation which also included anti-avoidance rules.
15. If you have any questions about these changes, please contact Annie Carney on 020 7147 2603 (email: [email protected]) or Sue Pennicott on 020 7147 2610 (email: [email protected]) on 020 7147 2610. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 151 of 222 2009 Budget Notes Page 152 of 222
BN66
HYDROCARBON OILS: DUTY RATES
Who is likely to be affected?
1. Businesses producing and importing hydrocarbon oils and alternative fuel products.
General description of the measure
2. Legislation will be introduced in Finance Bills 2009 to 2013 to amend fuel duty rates.
Operative date
3. The 2009 changes have effect on and after 1 April 2009 or 1 May 2009 and 1 September 2009. Changes in future years will have effect on and after 1 April in that year.
Current law and proposed revisions
4. On 1 April 2009, the duty rates for the main road fuels (that is unleaded petrol and heavy oil (diesel)) were increased by 1.84 pence per litre (ppl). These rates will be increased further on 1 September by 2 ppl and on 1 April from 2010 to 2013 by 1 ppl above indexation in each year.
Duty rate per litre (£) On and after On and after 1 April 2009 1 Sept 2009 Unleaded petrol 0.5419 0.5619 Heavy Oil 0.5419 0.5619
5. On and after 1 May 2009, the duty rate for light oil other than unleaded petrol or aviation gasoline will be increased by 1.84 ppl. This rate will be increased further on 1 September by 2 ppl.
Duty rate per litre (£) Current On and On and after after 1 May 1 Sept 2009 2009 Light oil (other than unleaded 0.6207 0.6391 0.6591 petrol or aviation gasoline)
2009 Budget Notes Page 153 of 222 6. On and after 1 May 2009, the duty rate for aviation gasoline (Avgas) will be increased by 2.31 ppl. This rate will be increased further by the same percentage as the rates for main road fuels on 1 September 2009.
Duty rate per litre (£) Current On and On and after after 1 May 1 Sept 2009 2009 Aviation gasoline (Avgas) 0.3103 0.3334 0.3457
7. On 1 April 2009, effective rates of duty (that is, the relevant duty minus the relevant rebate) for non-road fuels were increased by the same percentage as main road fuels. These rates will be increased similarly on 1 September 2009, and on 1 April from 2010 to 2013.
Duty rate per litre (£) On and after On and after 1 April 2009 1 Sept 2009 Light oil delivered to an approved 0.1000 0.1037 person for use as furnace fuel Marked gas oil 0.1042 0.1080 Fuel oil 0.1000 0.1037 Heavy oil other than fuel oil, gas oil 0.1000 0.1037 or kerosene used as fuel Kerosene to be used as motor fuel 0.1042 0.1080 off-road or in an excepted vehicle Biodiesel for non-road use 0.1042 0.1080 Biodiesel blended with gas oil 0.1042 0.1080
8. On 1 April 2009, the duty rates for biodiesel and bioethanol were increased by 1.84 ppl. These rates will be increased further to maintain the current 20 ppl differential on 1 September 2009. The current duty differential for biofuels for road use will cease from 2010 and duty will thereafter be charged at the same rate as main road fuels.
Duty rate per litre (£) On and after On and after 1 April 2009 1 Sept 2009 Biodiesel 0.3419 0.3619 Bioethanol 0.3419 0.3619
9. On 1 April 2009, the duty rate for natural gas was increased to maintain the differential with main road fuels in pence per litre equivalents, and the duty rate for liquefied petroleum gas (LPG) was increased to reduce the differential with main road fuels by the equivalent of 1 penny on a litre of petrol. These rates will be increased further on 1 September 2009 to maintain their differential with main road fuels. From 2010 to 2013, the duty differential for natural gas will be maintained and the duty differential for LPG will be reduced by the equivalent of 1 penny on a litre of petrol each year.
2009 Budget Notes Page 154 of 222
Duty rate per kg (£) On and after On and after 1 April 2009 1 Sept 2009 Road fuel natural gas (NG), 0.1926 0.2216 including biogas Road fuel gas other than NG – e.g. 0.2482 0.2767 liquefied petroleum gas (LPG)
Further advice
10. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 155 of 222 2009 Budget Notes Page 156 of 222
BN67
VAT: SIMPLIFYING THE PROCEDURE FOR OPTING TO TAX LAND AND BUILDINGS
Who is likely to be affected?
1. Any business that wishes to opt to tax (i.e. to apply VAT to supplies in relation to) land and buildings on which they have made previous exempt supplies.
General description of the measure
2. The measure simplifies the procedure for opting to tax supplies of land and buildings, in respect of which taxpayers have made previous exempt supplies. It will be achieved through the replacement of an existing automatic permission condition (APC) for taxpayers that would otherwise need to seek permission from HM Revenue & Customs (HMRC) before opting to tax land or buildings. In order to further reduce the need for taxpayers to contact HMRC when opting to tax such supplies, HMRC will withdraw two related informal Extra-statutory Concessions, and partially regularise one of them.
Operative date
3. The new APC will have effect on and after 1 May 2009. The informal concessions will continue to apply for a further 12 months until 30 April 2010, after which, one will continue, in part, while that area of law is reviewed and the remainder will be withdrawn.
Current law and proposed revisions
4. Taxpayers that have previously made exempt supplies of land and buildings and now wish to opt to tax them require HMRC’s formal permission to do so, unless they meet any one of four automatic permission conditions. This measure introduces a new APC from 1 May 2009, which should apply to more taxpayers than the APC which it replaces. This will allow more taxpayers to opt to tax without seeking HMRC’s prior permission.
5. The current APCs are set out in tertiary legislation and published in Notice 742A – Opting to Tax Land and Buildings at section 5.2 in Box D. Condition 3 is to be replaced by the new APC.
6. The new APC legislation and associated guidance (also covering the informal concessions) will be published shortly in an Information Sheet.
2009 Budget Notes Page 157 of 222 7. HMRC currently operates two informal concessions in relation to the option to tax. One applies when a taxpayer registers for VAT as a result of opting to tax and the other applies for taxpayers who are already VAT registered who opt to tax a property on which previous exempt supplies have been made. These two informal concessions allow taxpayers on opting to tax to recover more VAT than would be possible if a strict interpretation of the VAT recovery rules were applied.
8. These concessions require taxpayers to contact HMRC in order to agree the VAT that may be recovered; their operation complicates the procedure for opting to tax. One of these concessions, and some parts of the other concession, have no vires in EU or UK law, and will therefore be withdrawn on 1 May 2010.
Further advice
9. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 158 of 222
BN68
VAT: REDUCED RATE FOR CHILDREN’S CAR SEAT BASES
Who is likely to be affected?
1. Suppliers and consumers of children’s car seat bases.
General description of the measure
2. The 5 per cent reduced rate of VAT for children’s car seats will be extended to include bases for such seats.
Operative date
3. The reduced rate will have effect on and after 1 July 2009.
Current law and proposed revisions
4. The reduced rate of VAT applies to supplies of children’s car seats. The relief includes the combination of a safety seat and a related wheeled framework, booster seats and booster cushions.
5. The reduced rate of VAT for children’s car seats was introduced on 12 May 2001 under what is now item 1 of Group 5 of Schedule 7A to the VAT Act 1994. A Treasury Order will extend the relief to cover children’s car seat bases.
Further advice
6. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 159 of 222 2009 Budget Notes Page 160 of 222
BN69
VAT: CHANGES IN FUEL SCALE CHARGES
Who is likely to be affected?
1. Any businesses which recover input tax on fuel used for private motoring.
General description of the measure
2. This measure amends the VAT fuel scale charges for taxing private use of road fuel, to reflect changes in fuel prices.
Operative date
3. Businesses must use the new scale charges from the start of their next prescribed accounting period beginning on or after 1 May 2009.
Current law and proposed revisions
4. The fuel scale charges are set out in Table A in section 57(3) of the VAT Act 1994. A Statutory Instrument has been laid today to replace the current table with a new table to reflect changes to fuel prices.
5. The tables below show the revised VAT inclusive scale charges applicable in each accounting period, depending on whether it is a 12 month, three month or one month accounting period.
6. VAT is payable on these scale charges at the rate applicable at the time the charge is due. To calculate standard rate VAT from the VAT inclusive amount, multiply the VAT inclusive scale charge by the appropriate VAT fraction. At the time of publication standard rate VAT is 15 per cent for which the VAT fraction is 3/23, (at 17.5 per cent the VAT fraction would be 7/47). Further detailed guidance regarding calculating standard rate VAT in a VAT inclusive amount can be found on the HM Revenue & Customs (HMRC) website. This includes guidance for changes in the rate of VAT.
VAT fuel scale charges for 12 month return periods:
VAT fuel scale charge, CO2 band, g/km 12 month period, £ 120 or less 505.00 125 755.00 130 755.00 135 755.00 140 805.00 145 855.00 150 905.00 155 960.00
2009 Budget Notes Page 161 of 222 160 1,010.00 165 1,060.00 170 1,110.00 175 1,160.00 180 1,210.00 185 1,260.00 190 1,310.00 195 1,360.00 200 1,410.00 205 1,465.00 210 1,515.00 215 1,565.00 220 1,615.00 225 1,665.00 230 1,715.00 235 or more 1,765.00
VAT fuel scale charges for 3 month return periods:
VAT fuel scale charge, CO2 band, g/km 3 month period, £ 120 or less 126.00 125 189.00 130 189.00 135 189.00 140 201.00 145 214.00 150 226.00 155 239.00 160 251.00 165 264.00 170 276.00 175 289.00 180 302.00 185 314.00 190 327.00 195 339.00 200 352.00 205 365.00 210 378.00 215 390.00 220 403.00 225 416.00 230 428.00 235 or more 441.00
VAT fuel scale charges for 1 month return periods:
VAT fuel scale charge, CO2 band, g/km 1 month period, £ 120 or less 42.00 125 63.00 130 63.00 135 63.00 140 67.00 145 71.00 150 75.00 155 79.00 160 83.00
2009 Budget Notes Page 162 of 222 165 88.00 170 92.00 175 96.00 180 100.00 185 104.00 190 109.00 195 113.00 200 117.00 205 121.00 210 126.00 215 130.00 220 134.00 225 138.00 230 142.00 235 or more 147.00
7. The scale charge for a particular vehicle is determined by its CO2 emissions figure. Where the CO2 emissions figure of a vehicle is not a multiple of five, the figure is rounded down to the next multiple of five to determine the level of charge. For a bi-fuel vehicle which has two CO2 emissions figures, the lower of the two figures should be used. For cars which are too old to have a CO2 emissions figure HMRC have prescribed a level of emissions by reference to the vehicle’s engine capacity (cc).
Further advice
8. An update to Notice 700/64 VAT: Motoring Expenses, including the revised figures for all categories of vehicle, will be available from the National Advice Service in due course.
9. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 163 of 222 2009 Budget Notes Page 164 of 222
BN70
VAT: INCREASED TURNOVER THRESHOLDS FOR REGISTRATION AND DEREGISTRATION
Who is likely to be affected?
1. Businesses whose taxable turnover is close to the current VAT thresholds for registration and deregistration.
General description of the measure
2. The measure increases the taxable turnover threshold, which determines whether a person must be registered for VAT, from £67,000 to £68,000.
3. The taxable turnover threshold which determines whether a person may apply for deregistration will be increased from £65,000 to £66,000. The existing conditions for determining entitlement or liability to deregistration remain unchanged.
4. The registration and deregistration threshold for relevant acquisitions from other European Union Member States will also be increased from £67,000 to £68,000.
Operative date
5. The new registration and deregistration thresholds will have effect on and after 1 May 2009.
Current law and proposed revisions
6. The increase in the taxable turnover threshold means that a person will have to apply for registration if: • at the end of any month, the value of the taxable supplies made in the past 12 months or less has exceeded £68,000; or • at any time there are reasonable grounds for believing that the value of taxable supplies to be made in the next 30 days alone will exceed £68,000.
7. If, at the end of any month, a person’s taxable turnover in the past 12 months or less exceeds £68,000 but HM Revenue & Customs is satisfied that it will not exceed £66,000 in the next 12 months, that person will not have to be registered.
8. Schedules 1 and 3 to the VAT Act 1994 will be amended by statutory instrument to give effect to these changes.
2009 Budget Notes Page 165 of 222 Further advice
9. If you have any questions about this change, please contact the National Advice service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 166 of 222
BN71
VAT: CHANGE OF STANDARD RATE
Who is likely to be affected?
1. All businesses registered for VAT.
General description of the measure
2. This measure will return the standard rate of VAT to 17.5 per cent from 1 January 2010.
3. The 2008 Pre-Budget Report announced a temporary reduction in the standard rate of VAT to 15 per cent for a 13 month period from 1 December 2008 to 31 December 2009. The reduction was implemented by secondary legislation effective for 12 months. Legislation will be introduced in Finance Bill 2009 for the 15 per cent rate to apply during December 2009 and for the rate to revert to 17.5 per cent on 1 January 2010.
4. The measure also provides for minor amendments to the powers contained in the VAT Act 1994 (VATA) to implement a temporary change to the standard rate and for related changes to the Agricultural Holdings Act 1986.
5. Zero rated supplies, such as basic foodstuffs, children’s clothing and books; exempt supplies, such as education and health; and supplies subject to VAT at 5 per cent, such as domestic fuel and power, are not affected by this change.
Operative date
6. The 17.5 per cent rate will have effect on and after 1 January 2010. The other changes to VATA will have effect on and after the date that Finance Bill 2009 receives Royal Assent.
Current law and proposed revisions
7. Section 2 of VATA specifies the standard rate of VAT to be charged on the supply of goods or services, the acquisition of goods from another EU Member State or the importation of goods from outside the EU Member States. The standard rate was reduced to 15 per cent by the VAT (Change of Rate Order) 2008 with effect from 1 December 2008 to 30 November 2009. The Order will now cease to be in force on 1 January 2010 when the rate will return to 17.5 per cent.
2009 Budget Notes Page 167 of 222 8. Section 2 also provides powers for the standard rate to be varied by secondary legislation for a period of 12 months. The measure amends section 2 to make clear that an order adjusting the standard rate of VAT can be made for a period of less than 12 months and that any order introduced under the section may be revoked.
9. Section 97 of VATA prescribes the Parliamentary procedures that govern the order making powers contained in the Act. A new subsection, (4A) will be introduced, making it explicit that an order implementing a temporary reduction in the standard rate may be revoked using the negative resolution procedure.
Further advice
10. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 168 of 222
BN72
VAT: CHANGE OF STANDARD RATE: ANTI-FORESTALLING LEGISLATION
Who is likely to be affected?
1. Organisations unable to fully recover the VAT they incur that enter into schemes or arrangements to avoid the effect of the standard rate of VAT reverting to 17.5 per cent.
General description of the measure
2. Targeted legislation will be introduced in Finance Bill 2009 to counter schemes that purport to apply the 15 per cent VAT rate to goods or services to be supplied on or after the date that the rate returns to 17.5 per cent.
3. The measure provides that in certain circumstances a supplementary charge to VAT of 2.5 per cent will be due on supplies of goods or services on which VAT of 15 per cent has been declared.
4. The supplementary charge will have to be accounted for on the date that the VAT rate reverts to 17.5 per cent.
Operative date
5. The scope of the legislation was announced by the Financial Secretary to the Treasury in two Written Ministerial Statements of 25 November 2008 and 31 March 2009. The legislation will have effect from the dates detailed below.
Current law and proposed revisions
6. Forestalling works by the supplier issuing an invoice or receiving payment before the rate rises. This fixes the VAT due at 15 per cent even though the goods are not due to be delivered or services to be performed until on or after the date that the rate reverts to 17.5 per cent.
7. The legislation prevents forestalling by introducing a supplementary charge to VAT on the supply of goods or services (or the grant of the right to receive goods or services) where the customer cannot recover all the VAT on the supply and one of the following conditions is met: • the supplier and customer are connected parties; or • the supplier funds the purchase of the goods or services (or grant of right); or • a VAT invoice is issued by the supplier where payment is not due for at
2009 Budget Notes Page 169 of 222 least six months.
8. These provisions have effect on and after 25 November 2008.
9. A supplementary charge will also apply where a pre-payment of in excess of £100,000 is made before the rate rise in respect of goods or services (or in relation to the grant of the right to receive goods or services) to be provided on or after the date of the rate rise. However, it will not apply if the prepayment is in accordance with normal commercial practice in relation to such supplies when no VAT rate increase is expected.
10. This provision has effect on and after 31 March 2009.
Further advice
11. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 170 of 222
BN73
VAT AND EXCISE: VAT EXEMPTION FOR GAMING PARTICIPATION FEES AND OTHER MISCELLANEOUS AMENDMENTS
Who is likely to be affected?
1. Anyone making a gaming machine available for play, casinos, and any business, club or institution offering non-remote or remote bingo or other games of chance.
General description of the measure
2. These measures: • remove VAT on participation fees for playing bingo and other games of chance (participation fees are charges that a gaming operator makes to customers for participating in gaming); • increase the money prize limit for bingo duty exemption that may be offered on small scale amusements provided commercially at, for example, family entertainment centres and adult gaming centres from £50 to £70; • increase the rate of bingo duty to 22 per cent; • remove the need to list individual games for the purposes of gaming duty and extend the scope of gaming duty to include charges for commercially provided equal chance gaming; • raise the gross gaming yield (GGY) bandings for each gaming duty band in line with inflation; • extend the scope of remote gaming duty to include remote bingo and remove remote bingo from the scope of bingo duty; and • clarify the existing excise definitions of ‘gaming’ and ‘gaming machine’.
Operative date
3. VAT will be removed from participation fees on and after 27 April 2009.
4. The increase in the money prize limit for small scale amusements will have effect for bingo played on and after 1 June 2009.
5. The bingo duty increase will have effect for any accounting period beginning on or after 27 April 2009.
6. Gaming duty will have effect for charges made in connection with equal chance gaming in casinos on and after 27 April 2009.
7. With effect on and after 27 April 2009 dutiable gaming for the purposes of gaming duty will no longer depend on games individually specified in law.
2009 Budget Notes Page 171 of 222
8. The changes to the GGY bandings have effect for accounting periods starting on or after 1 April 2009.
9. The changes to remote bingo will have effect for remote bingo games starting on or after 1 July 2009.
10. The amendments to the legal definitions of ‘gaming’ and ‘gaming machine’ have effect on and after the date that Finance Bill 2009 receives Royal Assent.
Current Law and proposed revisions
11. Note 1(b) of Group 4 of Schedule 9 to the Value Added Tax (VAT) Act 1994 taxes the granting of a right to take part in a game of chance for a prize, subject to certain specific exceptions. The measure will remove Note 1(b), meaning that all participation fees for bingo and other games of chance will be exempt from VAT.
12. The money prize figure in paragraph 5(2)(c) of Schedule 3 to the Betting and Gaming Duties Act 1981 (BGDA) will be increased from £50 to £70.
13. The rate of bingo duty in section 17(1)(b) of BGDA will be increased from 15 per cent to 22 per cent.
14. Section 10(2) of the Finance Act (FA) 1997 specifies the casino games that are liable to gaming duty. When amended this section will apply to casino games generally and be extended to include charges for equal chance gaming, subject to specific exemptions.
15. The table of GGY bandings in section 11(2) of FA 1997 will be replaced by the table below and the table for payments on account in regulation 5 of the Gaming Duty Regulations 1997 will be amended to reflect these changes.
The first £1,929,000 of GGY 15 per cent
The next £1,329,500 of GGY 20 per cent
The next £2,329,000 of GGY 30 per cent
The next £4,915,500 of GGY 40 per cent
The remainder 50 per cent
2009 Budget Notes Page 172 of 222 16. Section 17(1)(a) of BGDA provides that bingo duty shall be charged on the playing of bingo in the United Kingdom. This section will be amended to exclude the playing of remote bingo from bingo duty, subject to specific exemptions. Section 26H of BGDA, which specifies exemptions from remote gaming duty, will be amended so that remote bingo is not exempted from remote gaming duty.
17. Sections 33(1) and 25(1A) of BGDA have been amended to include their own statutory definition of ‘gaming’ and ‘gaming machine’ without the need for any cross reference to the VAT Act 1994.
Further advice
18. A future consultation on the reform of Amusement Machine Licence Duty so that duty due on making a gaming machine available for play is calculated by reference to the gross profit from the machine rather than a licence has been announced today.
19. The VAT changes for participation fees may affect the partial exemption positions of businesses. For further details see Notice 706 (Partial Exemption).
20. VAT Notices 701/26 (Betting and Gaming) and 701/27 (Bingo), Excise Notices 453 (Gaming Duty), 457 (Bingo Duty) and Information Note 3/07 Remote Gaming Duty will be amended in due course.
21. If you have any questions about these changes, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 173 of 222
2009 Budget Notes Page 174 of 222
BN74
CROSS-BORDER VAT CHANGES 2010: PLACE OF SUPPLY OF SERVICES RULES
Who is likely to be affected?
1. Businesses involved in cross border supplies of services, either as a supplier or recipient.
General description of the measure
2. This measure will introduce changes to the place of supply of service rules. The place of supply rules determine the country where a supply of services is made and where any VAT is payable. They also determine whether, if VAT is due on a supply, it should be accounted for by the supplier of a service or their business customer.
3. The new rules aim to ensure that, as far as possible, VAT is due in the country in which the service is consumed (e.g. where the customer is established) rather than where the supplier is established. The result for UK business customers is that they will be liable to account for UK VAT on most services provided by their overseas supplier under the reverse charge provisions, rather than the supplier charging VAT.
4. The measure forms part of a package of changes to simplify and modernise the VAT system for cross-border trading and to counter fraud, that will come into effect from 1 January 2010 across the EU. The package includes: • new time of supply rules for services (BN75); • European Sales List (ESL) reporting for supplies of cross-border services and changes to ESLs for goods (BN76); and • a new electronic refund procedure for VAT incurred in other EU Member States (BN77).
Operative date
5. These changes will be phased in to have effect on 1 January 2010, 1 January 2011 and 1 January 2013, as set out below.
Current law and proposed revisions
6. The current place of supply rules can be found in sections 7, 8 and 9 of, and Schedule 5 to, the VAT Act 1994 (VATA) and the VAT (Place of Supply of Services) Order 1992 (SI 1992/3121). Legislation in Finance Bill
2009 Budget Notes Page 175 of 222 2009 will introduce a new section 7A and Schedule 4A to cover the VAT place of supply of services rules from 1 January 2010. Schedule 5 and the VAT (Place of Supply of Services) Order will be repealed. Sections 7, 8 and 9 of the VATA will be amended.
7. The current basic rule is that VAT is due where the supplier has established their business. That is the case for supplies to both business and non-business customers. From 1 January 2010, the new basic (or general) place of supply rule for business to business supplies will be where the customer is established. The basic rule for supplies to non-business customers will remain unchanged, i.e. it will be where the supplier is established.
8. As now, there will continue to be exceptions to the new general rule.
9. Supplies to both business and non-business customers of cultural, artistic, sporting, scientific, educational, entertainment and similar services, as well as valuation and work on goods, are currently taxed where the service is performed. There will be no change to the taxation of these supplies when made to non-business customers. For supplies to business customers: • from 1 January 2010, valuation and work on goods will be taxed where the customer is established under the new general place of supply rule; and • from 1 January 2011, most supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services will be taxed where the customer is established, under the new general place of supply rule. However, supplies of admission to cultural, artistic, sporting, scientific, educational and entertainment events will remain taxable where the event takes place.
10. Land related services are currently deemed to be supplied where the land is situated. This will remain unchanged.
11. Currently there is a single treatment for the place of supply of hire of means of transport for supplies to business and non-business customers. This is where the supplier is established (basic rule). From 1 January 2010, there will be a distinction between short-time hire (no more than 30 days or 90 days for vessels) and long-term hire. For short-term hire, the place of supply will be where the vehicle is put at the disposal of the customer. For long-term hire, the place of supply will fall under the new general rule. However, from 1 January 2013, the place of supply of long-term hire to non-business customers will be where the customer is established (except for long term hire of pleasure boats to non-business customers which will be treated as supplied where the boat is actually put at the customer’s disposal if the supplier has an establishment there).
12. There is no current exception for restaurant and catering services. From 1 January 2010 these services will be treated as supplied where they are physically performed. For restaurant and catering services carried out on board ships, aircraft or trains as part of transport in the EC, the place of supply will be the place of departure. This mirrors existing rules for goods sold for consumption on board.
2009 Budget Notes Page 176 of 222
13. Under the current rules the place of supply of intermediary services is in the same place as the service being arranged. This is subject to a simplification measure for supplies to business customers registered for VAT in another EU Member State. From 1 January 2010, the services provided by intermediaries to business customers will fall under the general rule. Supplies to non-business customers will be unchanged.
14. The place of supply of the transport of goods is where the transport takes place, except for intra-Community transport which is supplied in the place of departure. This rule will remain the same for supplies to non-business customers. Supplies to business customers will fall under the new general rule from 1 January 2010.
15. The place of supply of certain intangible services, e.g. legal advice, will continue to be treated as supplied where the customer belongs when provided to non-business customers outside the EC.
16. Ancillary transport services (such as loading, unloading or handling services) are deemed to be supplied where they are physically carried out. From 1 January 2010, these services will fall under the general rule when supplied to business customers. Supplies of these services to non-business customers will continue to be taxed where performed.
17. The place of supply of passenger transport services, the use and enjoyment provisions and electronically supplied services (for non-business customers) will remain unchanged.
18. For cross-border supplies, in most cases, the business customer will account for the VAT using the reverse charge procedure (and recover the tax subject to the normal rules) as happens now for a wide range of non basic rule services.
Further advice
19. These changes were subject to the consultation VAT Place of supply of services: Changes to implement EC law that ran from 22 December 2008 until 13 February 2009. A response to the consultation document has been published today on the HM Revenue & Customs website.
20. Further information about all aspects of the Cross-Border VAT Changes 2010 will be available through a Revenue & Customs Brief from 1 May 2009.
21. 1If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 177 of 222 2009 Budget Notes Page 178 of 222
BN75
CROSS-BORDER VAT CHANGES 2010: TIME OF SUPPLY RULES
Who is likely to be affected?
1. Businesses receiving cross-border supplies of services in the UK, who are required to account for the VAT on those supplies as a reverse charge.
General description of the measure
2. This measure makes changes to the time of supply rules for cross-border supplies of services. The changes will affect supplies treated as made in the UK by the person who receives them. The time of supply determines when VAT is to be brought to account.
3. The changes are linked to the introduction of EC Sales Lists (ESLs) for services (BN76). They are intended to harmonise the reporting of cross border supplies by the supplier (on an ESL) with the inclusion of the supply (by the customer) on the VAT return. There are other related changes to the place of supply of services (BN74) and the VAT refund scheme (BN77).
Operative date
4. The changes will have effect on and after 1 January 2010.
Current law and proposed revisions
5. The current time of supply rules are set out in regulation 82 of the VAT Regulations 1995. The changes will be implemented by amending the Regulations.
6. At present the time of supply (or tax point) for this category of cross border supply is normally when the supply is paid for. But if the consideration is non-monetary, the tax point will occur at the end of the VAT accounting period during which the service is performed.
7. From 1 January 2010, the rules will be governed primarily by when a service is performed and a distinction will be made between single and continuous supplies.
8. For single supplies, the tax point will occur when the service is completed or when it is paid for if this is earlier.
2009 Budget Notes Page 179 of 222 9. In the case of continuous supplies, the tax point will be the end of each billing or payment period. For example, if leasing charges are billed monthly or the customer is required to pay a monthly amount, the tax point will be the end of the month to which the bill or payment relates. Again, if a payment is made before the end of the period to which it relates or before the end of the billing period then that payment date, rather than the end of the period, will be treated as the tax point.
10. For continuous supplies that are not subject to billing or payment periods, the tax point will be 31 December each year unless a payment has been made beforehand. In that case the payment will create a tax point.
Further advice
11. Although time of supply was not specifically covered, the underlying changes were subject to the consultation VAT Place of supply of services: Changes to implement EC law which ran from 22 December 2008 until 13 February 2009. A response to the consultation document has been published today on the HM Revenue & Customs website.
12. Further information about all aspects of the Cross-Border VAT Changes 2010 will be available through a Revenue & Customs Brief from 1 May 2009.
13. If you have any questions please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 180 of 222
BN76
CROSS-BORDER VAT CHANGES 2010: EC SALES LISTS
Who is likely to be affected?
1. Businesses that supply goods and/or services to business customers in other EU countries where the place of supply of those services is the customer’s country and the customer is therefore required to account for VAT under the reverse charge procedure.
General description of the measure
2. This measure introduces a requirement for UK businesses that supply services where the place of supply is the customer’s country to complete EC Sales Lists (ESLs) for each calendar quarter. It will relate only to services on which the customer is required to account for a reverse charge in their country. The ESL should include the following information: • the VAT registration number of the businesses to which the services were supplied; and • the total value (excluding VAT) of those supplies to each of these businesses.
3. Further secondary legislation will be introduced later in 2009 to enable HM Revenue & Customs (HMRC) to meet a new obligation to exchange information with other EU Member States more quickly to counter fraud. This will: • reduce the time available to business to submit ESLs from the current six weeks to 14 days for paper and 21 days for electronic submission; • reduce the length of time available for HMRC to collect, process and exchange ESL data with the tax administrations in other Member States to one month in total; and • require monthly ESLs for goods where the value exceeds £70,000 in a quarter.
4. The measure forms part of a package of changes to simplify and modernise the VAT system for cross-border trading and to counter fraud that will come into effect from 1 January 2010 across the EU. This package includes: • new place of supply rules for services (BN74); • new time of supply for cross-border services (BN75); and • a new electronic refund procedure for VAT incurred in other EU Member States (BN77).
2009 Budget Notes Page 181 of 222 Operative date
5. The changes will have effect on and after 1 January 2010.
Current law and proposed revisions
6. There is currently no legal provision for the requirement for UK businesses to submit ESLs for the supply of taxable services in another EU Member State.
7. Paragraph 2(3) of Schedule 11 to the VAT Act 1994 will be amended to enable the Commissioners for HM Revenue & Customs to make regulations in respect of services supplied to businesses in other EU countries that are required to account for VAT on those services under the reverse charge mechanism.
8. This will enable the introduction of secondary legislation which will require quarterly submission of ESLs for the taxable supply of services to which the reverse charge applies to have effect on and after 1 January 2010.
9. The main purpose of the extension of ESLs to services is to provide a system of control for intra-EC supplies of services, where the customer is required to account for a reverse charge in their country, similar to that which already exists for goods.
10. The current legislative provisions for the submission of ESLs for goods are in Regulation 22 of the VAT Regulations 1995. Secondary legislation will be introduced later in 2009 amending this.
Further advice
11. An HMRC consultation document VAT Place of Supply of Services: Changes required to implement EC Law was published on 22 December 2008. A response to this consultation has been published today on the HMRC website.
12. Information and guidance on Cross-Border VAT Changes 2010 will be available through a Revenue & Customs Brief from 1 May 2009.
13. If you have any questions about this change, please contact National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 182 of 222
BN77
CROSS-BORDER VAT CHANGES 2010: VAT REFUND PROCEDURE
Who is likely to be affected?
1. UK businesses that incur VAT in other EU countries. Businesses established in other EU countries that incur VAT in the UK.
General description of the measure
2. A new electronic VAT Refund procedure is being introduced across the EU from 1 January 2010 to replace the current paper-based system. From 1 January 2010 businesses established in the UK will submit claims for overseas VAT electronically on a standardised form to HM Revenue & Customs (HMRC) rather than direct to the Member State of Refund.
3. The main changes from the paper-based system are: • businesses will be able to submit claims up to nine months from the end of the calendar year in which the VAT was incurred, rather than six months as at present; • tax authorities will have four months, rather than six months, to make repayments, unless further information is requested in which case the deadline extends up to a maximum of eight months; • the Member State of Refund will pay interest in cases where the business meets all its obligations but deadlines are not met by the tax authorities; and • all EU Member States will be required to afford a right of appeal against non-payment in accordance with the procedures of the Member State of Refund.
4. Similarly, overseas businesses will make their claims for UK VAT through the electronic interface in the EU Member State where their business is established.
5. This forms part of a package of changes to simplify and modernise the VAT system for cross-border trading and to counter fraud that will come into effect from 1 January 2010 across the EU. The package includes: • new place of supply rules for services (BN74); • new time of supply for cross-border services (BN75); and • European Sales List (ESL) reporting for supplies of cross-border services and changes to ESL reporting for goods (BN76).
2009 Budget Notes Page 183 of 222 Operative date
6. The measure will have effect for claims made on or after 1 January 2010.
Current law and proposed revisions
7. Section 39 of the VAT Act 1994 (VATA) provides the authority for the Commissioners for HM Revenue & Customs to set out the detail of the current refund procedure. The secondary legislation is currently set out at Regulations 173 to 184 of the VAT Regulations 1995. Section 39 of VATA will be amended to provide the authority for the new procedure and the existing secondary legislation will also be revised.
8. Section 83 of VATA will be amended to give overseas businesses the right of appeal against non-payment of a claim.
Further advice
9. A discussion note, Impact Assessment and draft legislation will be issued on 1 May 2009. Further information and guidance on Cross-Border VAT Changes 2010 will be available through a Revenue & Customs Brief from 1 May 2009. All documents will be published on the HM Revenue & Customs website.
10. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 184 of 222
BN78
LANDFILL TAX: STANDARD RATE
Who is likely to be affected?
1. Businesses registered for landfill tax.
General description of the measure
2. Legislation will be included in Finance Bill 2009 to increase the standard rate of landfill tax by £8 per tonne to £48 per tonne.
Operative date
3. The new £48 per tonne rate will have effect for any standard rated disposal of waste made, or treated as made, on or after 1 April 2010.
Current law and proposed revisions
4. Section 42 of the Finance Act (FA) 1996 specifies the rates of landfill tax, and will be amended to reflect the new standard rate.
5. The standard rate is currently £40 per tonne. This rate came into effect on 1 April 2009 as a result of a change made by FA 2008.
Further advice
6. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 185 of 222 2009 Budget Notes Page 186 of 222
BN79
LANDFILL TAX: TAXABLE DISPOSALS OF WASTE AT A LANDFILL SITE
Who is likely to be affected?
1. Businesses registered for landfill tax.
General description of the measure
2. Legislation in Finance Bill 2009 and associated secondary legislation will: • make certain uses of material on a landfill site subject to tax, in order to address the situation, arising from a recent Court case, that uses of waste are not taxable; • remove provisions which stand to cause confusion in the light of the Court case; • protect HM Revenue & Customs’ (HMRC’s) access to the information necessary to determine whether a taxable disposal has taken place; and • provide that the tax return form can be prescribed in a public notice.
Operative date
3. The arrangements provided for by the legislation will come into effect on 1 September 2009.
Current law and proposed revisions
4. The Finance Act (FA) 1996: • provides that landfill tax is charged on a disposal of material as waste, by way of landfill, at a landfill site, on or after 1 October 1996 (section 40); • provides that site restoration is not a taxable disposal of waste (section 43C); • provides that HMRC may make regulations that a disposal is not to be treated as a taxable disposal (section 62). These powers have been used to provide for so-called “tax-free areas”; • defines “disposal of material as waste” (section 64) and “landfill site” (section 65); and • provides for the landfill tax return form to be prescribed in regulations (section 49). The relevant regulations are the Landfill Tax Regulations 1996 (SI 1996/1527). This approach differs to that taken for other environmental taxes where the return form is prescribed in a public notice.
2009 Budget Notes Page 187 of 222 5. This measure covers changes following the judgment of the Court of Appeal in Commissioners for Her Majesty’s Revenue and Customs (HMRC) – v- Waste Recycling Group Limited [2008] EWCA Civ 849 (“the WRG case”). The judgment means that use of waste on a landfill site is not a taxable disposal of waste, waste used in site restoration is not subject to tax and tax-free area provisions for tax are no longer strictly necessary. However, the information previously supplied by taxpayers to HMRC (both in order that the taxpayers may benefit from the site restoration exemption and to justify use of the tax-free area provisions) remain important to HMRC being able to establish whether a taxable disposal has taken place.
6. Legislation in Finance Bill 2009 will: • provide that secondary legislation may prescribe activities that are to be treated as taxable disposals; • remove sections 43C and 62 of FA 1996; • provide that secondary legislation may be made to require the supply to HMRC of information about material at a landfill site and site restoration; • provide that the tax return form can be prescribed in a public notice; and • update certain references in landfill tax legislation.
7. The draft secondary legislation provided for by the Finance Bill will be published alongside the Bill.
Further advice
8. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 188 of 222
BN80
CLIMATE CHANGE LEVY: RESTRICTED ENTITLEMENT TO LEVY RELIEF FOR PLASTICS SECTOR
Who is likely to be affected?
1. Manufacturers of certain plastic products.
General description of the measure
2. Climate change agreements (CCAs) provide facilities in energy intensive sectors with entitlement to claim relief from climate change levy in return for making reductions in their emissions and / or energy use. CCAs are agreed between the relevant sector association and the Department of Energy and Climate Change (DECC).
3. A restricted entitlement to claim this relief, applying to supplies of electricity and liquefied petroleum gas only, is being introduced for facilities manufacturing certain plastic products. This restricted entitlement will ensure compliance with State aid rules introduced in 2008 and enable DECC to extend eligibility to enter the CCA scheme to certain manufacturers in this sector.
Operative date
4. The new provision will have effect on and after the date that Finance Bill 2009 receives Royal Assent. However, the plastics sector will be unable to enter into a CCA with DECC until regulations, laid by DECC, are in force.
Current law and proposed revisions
5. Legislation will be introduced in Finance Bill 2009 to make appropriate amendments to Schedule 6 to the Finance Act 2000.
6. DECC will lay regulations after Royal Assent to amend statutory instrument 2006 / 60.
Further advice
7. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 189 of 222 2009 Budget Notes Page 190 of 222
BN81
CLIMATE CHANGE LEVY: RECOVERY OF RELIEF
Who is likely to be affected?
1. Facilities that enter into a climate change agreement (CCA).
General description of the measure
2. CCAs provide facilities in energy intensive sectors with an entitlement to claim up to 80 per cent relief from climate change levy in return for making reductions in their emissions or energy use. CCAs are agreed between the relevant sector association and the Department of Energy and Climate Change (DECC).
3. The measure introduces a mechanism to enable HM Revenue & Customs to recover levy where a facility that claims relief from levy fails to meet its target(s) under the scheme, and is in a sector that fails to meet its sector level target(s) for the same period. Recovery, when applied, would be proportionate to the extent to which the facility had failed to meet its target(s).
Operative date
4. The recovery mechanism will apply to CCA certification periods starting on or after 1 April 2009.
Current law and proposed revisions
5. Legislation will be introduced in Finance Bill 2009, and will make appropriate amendments to Schedule 6 to the Finance Act 2000.
Further advice
6. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 191 of 222 2009 Budget Notes Page 192 of 222
BN82
CLIMATE CHANGE LEVY: LOW VALUE SOLID FUEL
Who is likely to be affected?
1. Suppliers and consumers of low value solid fuel.
General description of the measure
2. Supplies of low value solid fuel valued at no more than £15 per tonne will become subject to climate change levy.
Operative date
3. The measure will have effect for relevant supplies made on or after 1 January 2010.
Current law and proposed revisions
4. Draft regulations will be laid before Parliament in the Autumn to revoke the Climate Change Levy (Solid Fuel) Regulations 2001 (SI 2001/1137).
Further advice
5. If you have questions about this change, please contact the National Advice service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 193 of 222 2009 Budget Notes Page 194 of 222
BN83
AMUSEMENT MACHINE LICENCE DUTY: CHANGES TO RATES AND MACHINE CATEGORIES
Who is likely to be affected?
1. Anyone who provides a gaming machine for play in the UK.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to increase the amount of amusement machine licence duty (AMLD) for all categories of gaming machines.
3. The legislation will also make additional classes of gaming machines exempt from AMLD, increase the stake and prize levels for Category C machines and make changes to ‘special licences’ and ‘seasonal licences’.
Operative date
4. The new duty amount for gaming machines will have effect for any licence applications received at HM Revenue & Customs (HMRC) Greenock accounting centre after 4pm on 22 April 2009.
5. The other changes will have effect on 1 June 2009.
Current law and proposed revisions
6. The table in section 23 of the Betting and Gaming Duties Act 1981 (BGDA), setting out the amounts of licence duty, will be replaced by the table below.
Months for which licence Category Category Category Category Category Category granted A B1 B2 B3 B4 C 1 500 255 200 200 180 80 2 985 490 385 385 350 145 3 1475 735 585 585 530 220 4 1965 985 775 775 705 290 5 2465 1230 970 970 875 365 6 2955 1475 1160 1160 1050 435 7 3445 1720 1355 1355 1225 505 8 3935 1965 1550 1550 1405 580 9 4430 2215 1745 1745 1580 655 10 4920 2465 1935 1935 1755 725 11 5410 2710 2130 2130 1930 795 12 5625 2815 2215 2215 2010 830
2009 Budget Notes Page 195 of 222
7. Under section 23(3) of BGDA a gaming machine with a maximum stake of 50p and maximum prize of £35 is defined as a Category C machine. From 1June 2009 these stake and prize levels will be increased to £1 and £70.
8. Under section 21 of BGDA no licence is needed for an “excepted machine”. An excepted machine is a 2-penny machine, or a machine with a maximum stake of 10p and a maximum cash prize of £5, or a machine with a maximum stake of 30p and maximum prize of £8, where the cash element of the prize does not exceed £5.
9. From 1 June 2009 the definition of an excepted machine will change. The exemption for 2-penny machines and those with a 30p stake and £8 (with a maximum cash element of £5) prize remains. In addition gaming machines in the following two groups will be exempt: maximum stake of 10p and maximum prize of £15 (with a maximum cash element of £8); and those with a maximum stake of £1 and a non-cash prize with a maximum value of £50.
10. Section 22 of BGDA describes a “small-prize machine” as one with a maximum prize of £8. These machines are entitled to ‘special licences’ or ‘seasonal licences’ under section 21(4) or paragraph 4 of Schedule 4 to BGDA. The prize level for “small-prize machines” will increase to £10.
Further advice
11. Notice 454: Amusement Machine Licence Duty will be updated in due course.
12. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 196 of 222
BN84
WITHDRAWAL OF THE WAREHOUSING FOR EXPORT DRAWBACK SCHEME FOR ALCOHOLIC LIQUORS
Who is likely to be affected?
1. Persons claiming repayment of duty on ‘duty paid’ consignments of alcoholic liquors that are warehoused for export.
General description of the measure
2. The measure withdraws the warehousing for export (WFE) drawback scheme for alcoholic liquors. Other drawback schemes remain unchanged.
3. This measure is part of the Government’s renewed Tackling Alcohol Fraud strategy, also announced today. Further information on this can be found on the HM Revenue & Customs (HMRC) website.
4. Alongside this change is a technical amendment to the drawback provisions allowing HMRC to recover drawback by assessment where the claim is found to be ineligible. Previously such monies were recovered by HMRC on demand. This change now makes such recovery of drawback an appealable matter bringing drawback recovery in line with other areas of excise law.
Operative dates
5. Alcoholic liquors warehoused for export on or after 1 June 2009 will not be eligible for repayment of excise duty.
6. The technical amendment will have legal effect from the same day.
Current law and proposed revisions
Withdrawal of the warehousing for export drawback scheme
7. Amendments to the Excise Goods (Drawback) Regulations 1995 (S.I.1995/1046) (“the principal Regulations”) are introduced today.
2009 Budget Notes Page 197 of 222 8. Regulation 5 of the principal Regulations provides that, for the purposes of making a claim for drawback of excise duty, goods are eligible goods if the excise duty charged on them has been paid (and has not been remitted, repaid or drawn back) and they have been exported, warehoused for export or destroyed. Regulation 3 of these Regulations amends regulation 5 of the principal Regulations to provide that alcoholic liquors that are warehoused for export on or after 1 June 2009 are not eligible goods.
9. Regulation 4 amends regulation 13 of the principal Regulations to prescribe, for the purposes of section 2(3A) of the Finance (No.2) Act 1992, the person who may be assessed under that section for an amount equal to sums paid or credited in respect of drawback of excise duty in cases where entitlement to such drawback is cancelled on or after 1 June 2009.
Further advice
10. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 198 of 222
BN85
TOBACCO PRODUCTS DUTY: RATES
Who is likely to be affected?
1. Tobacco manufacturers and importers of tobacco products (i.e. cigarettes, cigars, hand-rolling tobacco, other smoking tobacco and chewing tobacco).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to increase the rates of duty on tobacco products imported into, or manufactured in, the United Kingdom. The changes will represent an increase of 2 per cent on the current duty levels.
Operative date
3. The rate increase will have effect on and after 6pm on 22 April 2009.
Current law and proposed revisions
4. The rates of duty are: • cigarettes: an amount equal to 24 per cent of the retail price plus £114.31 per thousand cigarettes; • cigars: £173.13 per kilogram; • hand-rolling tobacco: £124.45 per kilogram; and • other smoking tobacco and chewing tobacco: £76.12 per kilogram.
5. An amendment will be made to the table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979, as last substituted by section 6 of the Finance Act 2008.
Further advice
6. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 199 of 222 2009 Budget Notes Page 200 of 222
BN86
ALCOHOL DUTY: RATES
Who is likely to be affected?
1. Manufacturers, importers, distributors, retailers and consumers of alcohol products (spirits, beer, cider, wine and made-wine).
General description of the measure
2. All duty rates for alcohol will rise by 2 per cent from their current levels. Legislation will be introduced in Finance Bill 2009 to provide for these duty rate changes. The impact of the changes on retail prices for typical alcoholic drinks is equivalent to: • 13 pence on a 70cl bottle of spirits; • 1 pence on a pint of beer; • 1 pence on a litre of still cider; • 4 pence on a 75cl bottle of sparkling cider; • 4 pence on a 75cl bottle of wine/made wine; and • 5 pence on a 75cl bottle of sparkling wine.
Operative date
3. These legislative changes will have effect on and after 23 April 2009.
Current law and proposed revisions
4. The Alcoholic Liquor Duties Act 1979 and the HM Revenue & Customs Tariff will be amended to effect the changes. The effective rates of duty on alcoholic drinks will be as shown in the table below.
Further advice
5. If you have any questions about this change, please contact the National Advice Service on 0845 010 9000. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 201 of 222 The alcohol duty rates will be as follows:
Type Rate
Rate £ per litre of pure alcohol
Spirits 22.64
Spirits-based Ready To Drinks 22.64
Wine and made-wine: Exceeding 22.64 22% abv
Rate £ per hectolitre per cent of alcohol in the beer
Beer 16.47
Rate £ per hectolitre of product
Still cider and perry: Exceeding 1.2% 31.83 - not exceeding 7.5% abv.
Still cider and perry: Exceeding 7.5% 47.77 - less than 8.5% abv.
Sparkling cider and perry: 31.83 Exceeding 1.2% - not exceeding 5.5% abv.
Sparkling cider and perry: 207.20 Exceeding 5.5% - less than 8.5% abv.
Wine and made-wine: Exceeding 65.94 1.2% - not exceeding 4% abv
Wine and made-wine: Exceeding 4% 90.68 - not exceeding 5.5% abv.
Still wine and made-wine: Exceeding 214.02 5.5% - not exceeding 15% abv.
Wine and made-wine: Exceeding 285.33 15% - not exceeding 22% abv.
Sparkling wine and made-wine: 207.20 Exceeding 5.5% - less than 8.5% abv.
Sparkling wine and made-wine: 274.13 8.5% and above -not exceeding 15% abv.
2009 Budget Notes Page 202 of 222
BN87
RECLAIMING INCOME TAX, CAPITAL GAINS TAX AND CORPORATION TAX OVERPAYMENTS
Who is likely to be affected?
1. Income tax, capital gains tax (CGT) and corporation tax (CT) payers.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to provide a means of reclaiming overpayments of income tax, CGT and CT where there is no other statutory route. It will replace any non-statutory claims.
3. The legislation also amends the error or mistake relief rules to provide additional taxpayer safeguards.
Operative date
4. The measure will have effect for claims made on or after 1 April 2010.
Current law and proposed revisions
5. Sections 33 and 33A of the Taxes Management Act 1970 and paragraph 51 of Schedule 18 to the Finance Act 1998 enable taxpayers to reclaim tax where an assessment is excessive due to a mistake in the claimant’s tax return.
6. When they receive a claim, HM Revenue & Customs (HMRC) must determine what amount, if any, is just and reasonable to repay, taking into account all the relevant circumstances.
7. The time limits for claiming repayments are currently from five years and ten months to six years from the end of the period for which the return was made. From 1 April 2010 they must be claimed within four years.
8. No repayment is given where the return followed the general practice at the time it was made, or where the mistake is governed by another statutory claim.
9. The measure will remove the requirement that the overpayment must be the result of a mistake in a return and that it must be made under an assessment.
2009 Budget Notes Page 203 of 222
10. The measure will also make explicit that HMRC are not liable to repay an amount except as provided by the measure or another provision of the Taxes Acts.
11. It will enable claimants to determine the amount to be repaid, subject to HMRC’s right to enquire into a claim within the enquiry window for claims, normally 12 to 15 months, and to recover any related underpayments.
12. As claimants will determine the amount to be repaid, the rules regarding when and on what grounds a claim can be made will be set out in the new legislation.
13. The current restrictions on the right of appeal will be removed, allowing an appeal to the courts on the same grounds as appeals against other matters.
Further advice
14. If you have any questions about this change, please contact Nick Mosley on 0151 703 8986 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 204 of 222
BN88
REVIEW OF HMRC POWERS, DETERRENTS AND SAFEGUARDS: PAYMENTS, REPAYMENTS AND DEBT
Who is likely to be affected?
1. Individuals and companies who wish to spread their tax payments over time.
2. Those who have not met their obligations to pay what they owe on time.
3. Companies and businesses required by HM Revenue & Customs (HMRC) to provide up to date addresses for debtors.
General description of the measure
4. Three separate changes to the current law will be introduced in Finance Bill 2009 to: • introduce voluntary managed payment plans (MPPs). These would allow taxpayers to spread their income tax or corporation tax payments equally over a period straddling the normal due dates; • allow HMRC to collect small debts it is owed through the Pay As You Earn (PAYE) system; and • provide a third party information power requiring companies and businesses to supply HMRC with contact details for people who are in debt to HMRC with whom the Department has lost contact.
5. These changes have been subject to recent consultation as part of the ongoing work of the Review of HMRC's Powers, Deterrents and Safeguards and Tax Administration to provide a modern framework of law and practice for HMRC.
Operative date
6. The legislation for MPPs will have effect on and after the date that Finance Bill 2009 receives Royal Assent. Making MPPs available require necessary changes to HMRC’s computer and accounting systems. They will not be introduced before April 2011. HMRC will ensure that businesses are given sufficient notice ahead of introduction.
7. The collection of small debts through PAYE will require changes to HMRC’s systems, and is likely to begin from April 2012. HMRC will ensure that businesses are given sufficient notice ahead of introduction.
8. The third party information power to trace missing debtors will have effect on and after the date that Finance Bill 2009 receives Royal Assent.
2009 Budget Notes Page 205 of 222
Current law and proposed revisions
9. The first change, the introduction of MPPs, would help payers of income tax and corporation tax with their cash flow, by allowing them to spread their payments over a number of instalments before and after the normal due date. The plans will be voluntary and taxpayers will be protected from the normal interest and penalties consequences of paying late.
10. The second change would give HMRC the power to collect tax debts through the PAYE system, allowing debtors with a source of income within PAYE to spread their payments and reducing HMRC’s costs. The existing safeguards, limiting the amount that can be collected in this way through the PAYE system and protecting the level of the taxpayer’s income, would be preserved.
11. The third change would require companies or other third parties carrying on a business to disclose the address and contact details of tax debtors to HMRC.
Further advice
12. These measures were the subject of initial consultation in June 2007. Responses to that consultation together with a further consultation were published in November 2008 – Payments, Repayments and Debt: The Next Stage and draft legislation in December 2008. A summary of responses and a Final Impact Assessment including an explanation of any resulting changes has been published today on the HM Revenue & Customs website.
13. If you have any questions about this change, please send an email to [email protected] or contact Maria Richards on 020 7147 3223. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 206 of 222
BN89
REVIEW OF HMRC POWERS, DETERRENTS AND SAFEGUARDS: COMPLIANCE CHECKS
Who is likely to be affected?
1. Individuals and businesses who are involved with the environmental taxes (aggregates levy, climate change levy and landfill tax), insurance premium tax (IPT), stamp duty land tax (SDLT) and stamp duty reserve tax (SDRT), inheritance tax (IHT) and petroleum revenue tax (PRT).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to apply the compliance checking framework introduced by Schedules 36, 37 and 39 to the Finance Act (FA) 2008 to a number of other taxes which HM Revenue & Customs (HMRC) administers. A number of specialist powers which are no longer needed, as a result of the 2008 legislation, will be repealed and a penalty introduced where a person carelessly or deliberately provides inaccurate information or a document that contains an inaccuracy. Such a penalty was previously provided for under section 98(2) of the Taxes Management Act 1970.
3. These changes have been subject to recent consultation as part of the ongoing work of the Review of HMRC’s Powers, Deterrents and Safeguards and Tax Administration to provide a modern framework of law and practice for HMRC.
4. There will be the following elements: • aligned and modernised record-keeping requirements; • new inspection and information powers including a modernised HMRC valuation power; • better aligned time limits for making tax assessments and claims; and • repeals.
Operative date
5. The repeal of specialist information powers will be introduced by secondary legislation. The intention is that the relevant order will be laid once Finance Bill 2009 receives Royal Assent.
6. The record keeping requirement, information and inspection powers will be brought into effect by Treasury Orders with the date they have effect specified in the Orders. This is expected to be 1 April 2010.
2009 Budget Notes Page 207 of 222 7. Time limits for making assessments and claims need a transitional period and are not expected to become fully operative until 1 April 2011. A Treasury Order will bring the changes into effect and specify the operative date.
Current law and proposed revisions
Record-keeping requirement
8. Primary legislation currently requires records to be kept which a taxpayer needs to make an accurate return. Further detail is then set out in secondary and tertiary legislation. The current rules differ between taxes and the new requirement aligns high-level rules, creating a common framework. Detailed requirements remain unchanged. In light of consultation responses, no new requirement for IHT, PRT or SDRT is being introduced.
Information and inspection powers
9. The way in which information can be obtained and inspected differs for the different taxes. Authorisation levels, penalties and appeal rights also differ across the different regimes. The new powers will align and modernise the way in which HMRC checks records and information to ensure that the right tax is being paid or returned. Applying the compliance check framework to other taxes means one set of rules across the taxes and a substantial overall increase in safeguards.
10. The new framework consists of: • a power to inspect statutory records required under the record-keeping legislation; • a power to require supplementary information which is relevant to establishing the correct tax position; • a power to require third parties to provide information which is relevant to establishing a taxpayer’s correct tax position; • continued provision for certain involved third parties. These are parties other than the taxpayer from whom HMRC asks for information, since they hold key information to check the right amount of tax has been paid; • a power to visit business premises and to inspect records, assets and premises; • a modernised valuation power which increases safeguards and restricts current powers to undertake valuation inspections at private homes; • appeal rights against any penalty, and against information notices which have not been pre-authorised by an appeal tribunal; and • penalties for failure to allow an inspection and failing to comply with an information notice, including a tax-geared penalty which can be imposed by the new Upper Tribunal.
Claim and assessment time limits
11. Time limits for changing the amount of tax due by assessment vary across the taxes. Current and proposed aligned time limits are set out below:
2009 Budget Notes Page 208 of 222
Current Time Limits
Tax Claims Mistake Careless Deliberate
environmental taxes: 3 years 3 years 3 years 20 years (aggregates levy; climate change levy and landfill tax) insurance premium 3 years 3 years 3 years 20 years tax stamp duty land 6 years 6 years 21 years 21 years tax stamp duty reserve 6 years 6 years 6 years from date fraud or tax negligence comes to HMRC’s knowledge petroleum revenue 5 years 10 5 years 10 20 years 10 20 years tax months months months 10 months inheritance tax Varied 6 years from the date when the (last) payment of tax was made, or the date when fraud, default or neglect comes to HMRC’s knowledge.
Proposed aligned time limits
Tax Claims Mistake Careless Deliberate
environmental taxes: 4 years 4 years 4years 20 years (aggregates levy; climate change levy and landfill tax) insurance premium 4 years 4 years 4 years 20 years tax stamp duty land 4 years 4 years 6 years 20 years tax stamp duty reserve 4 years 4 years 6 years 20 years tax petroleum revenue 4 years 4 years 6 years 20 years tax inheritance tax 4 years 4 years 6 years 20 years
12. Time limits for taxpayers’ claims will also be aligned at 4 years.
Repeals
13. Approximately 40 specialist income tax, corporation tax and capital gains tax information and inspection powers will be repealed. The powers in Schedule 36 to FA 2008, which incorporate improved safeguards for the taxpayer, will be used instead.
2009 Budget Notes Page 209 of 222 Further advice
14. This measure was the subject of consultation in November 2008 - Compliance Checks: The Next Stage with draft legislation on information and inspection powers. Draft legislation on record-keeping and time limits for assessments and claims was published in February 2009. A summary of responses and a Final Impact Assessment including an explanation of any resulting changes has been published today on the HM Revenue & Customs website.
15. If you have any questions about this change, please send an email to [email protected] or contact Maria Richards on 020 7147 3223. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 210 of 222
BN90
REVIEW OF HMRC POWERS, DETERRENTS AND SAFEGUARDS: PENALTIES FOR LATE FILING OF RETURNS AND LATE PAYMENT OF TAX
Who is likely to be affected?
1. Taxpayers who do not file their tax returns or pay their tax liabilities on time for: • income tax, corporation tax (CT), Pay as you Earn (PAYE), National Insurance Contributions (NICs) and the Construction Industry Scheme (CIS); • stamp duty land tax (SDLT) and stamp duty reserve tax (SDRT); and • inheritance tax (IHT), pension schemes and petroleum revenue tax.
2. This measure will not have effect for tax credits.
General description of the measure
3. Legislation will be introduced in Finance Bill 2009 to reform penalty regimes for late filing of tax returns and late payment of tax
4. These changes have been subject to recent consultation as part of the ongoing work of the Review of HM Revenue & Customs’ (HMRC) Powers, Deterrents and Safeguards and Tax Administration to provide a modern framework of law and practice for HMRC.
5. The new regimes will replace the current variety of penalties and will treat late payment and late filed returns separately. Whilst broadly aligned across the taxes listed above, they are modified for PAYE and CIS.
6. The measure includes applying penalties for the first time to all employers who are late in making monthly PAYE and NICs payments and companies paying CT late. It provides for removing late payment penalties where taxpayers have agreed a time to pay arrangement with HMRC whilst creating a more robust response to prolonged and repeated delay.
7. Further explicit provision is included for the right of appeal against all penalty decisions using a common formulation for reasonable excuse.
2009 Budget Notes Page 211 of 222 Operative date
8. Implementation of new penalties for late filing and late payment requires changes to HMRC’s computer systems and is to be staged over a number of years, starting with penalties for late payment of in year PAYE, using a risk based approach, from April 2010. The new provisions will be brought into effect by Treasury Orders which will specify the dates from which they have effect.
Current law and proposed revisions
9. The measure will repeal a large number of different penalty and surcharge provisions which are specific to each of the taxes covered, and replace these with more aligned penalty regimes for late filing of returns and late payment of tax and NICs.
10. The filing and payment obligations covered by this measure include those where the obligation to file or pay is annual or occasional and in addition, taxes and deductions collected through the PAYE system and CIS. The measure includes penalty models for each category with many common features, but with necessary modifications.
11. The key elements of the new penalty models are:
Penalties for late filing where the obligation to file the return is annual or occasional.(e.g. income tax Self Assessment, CT, IHT) include:
• £100 penalty immediately after the due date for filing (whether or not the tax has been paid); • daily penalties of £10 per day (annual obligations only) for returns that are more than three months late, running for a maximum of 90 days; • penalties of 5 per cent of tax due for the return period for prolonged failures (over 6 months and again at 12 months); and • higher penalties of 70 per cent of the tax due where a person fails to submit a return for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax due (100 per cent penalty if deliberate with concealment).
12. Penalties for late payment where the obligation to make payment is annual or occasional (e.g. income tax Self Assessment, CT, IHT) include:
• penalties of 5 per cent of the amount of tax unpaid, generally one month after the payment due date (or at the filing date of the relevant return for CT and IHT); • further penalties of 5 per cent of any amounts of tax still unpaid at 6 and 12 months; and • suspension of late payment penalties where the taxpayer agrees a time to pay arrangement (where a tax debt is paid over time) with HMRC.
2009 Budget Notes Page 212 of 222 Penalties for late filing of CIS returns include:
• a fixed penalty of £100 for failure to submit any return by the filing date, • an additional fixed penalty of £200 if any return is outstanding more than 3 months after the filing date; • penalties of 5 per cent of deductions due for the return period for prolonged failures (over 6 months and again at 12 months); and • higher penalties of 70 per cent of the deductions due where a person fails to submit a return for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax due (100 per cent penalty if deliberate with concealment).
Penalties for late payment of taxes and deductions collected through the PAYE system:
• the amount of the penalty will depend on the number of defaults in any 12 month period. The first time the taxpayer defaults, they will not receive a penalty; • a second late payment and any subsequent failures in the default period will attract a penalty of 2 per cent of the tax unpaid rising to 5 per cent of tax unpaid; • further penalties of 5 per cent of any amounts of tax still unpaid at 6 and 12 months; and • late payment penalties will not be charged during an agreed time to pay arrangement with HMRC unless the taxpayer defaults or misuses the arrangement.
13. The measure includes a right of appeal against all penalties using a common formulation of reasonable excuse. Taxpayers will not have to pay penalties before they can appeal.
14. It provides a statutory basis for removing late payment penalties where taxpayers have agreed a time to pay arrangement with HMRC. The removal of penalties whilst in a time to pay arrangement was first announced in the 2008 Pre-Budget Report. The use of this provision was brought forward to provide more help for taxpayers struggling to meet their payment obligations and has been applied on a case-by-case basis to penalties under existing legislation with effect from 24 November 2008. The measure will enable HMRC to re-impose penalties in some circumstances where the taxpayer has defaulted on the time to pay agreement.
Further advice
15. The measure was the subject of a consultation document published in November 2008 – Meeting the obligations to file returns and pay tax on time and draft legislation in December 2008, which built on a consultation published with the same title in June 2008. A summary of responses and a Final Impact Assessment including an explanation of any resulting changes has been published today on the HMRC website.
2009 Budget Notes Page 213 of 222 16. These provisions are part of a wider package of measures to modernise HMRC’s administration of the tax systems to improve customer service, effectiveness and efficiency. Please see Budget Note 91 on Interest Harmonisation.
17. The Government intends to introduce legislation in Finance Bill 2010 to align penalties for the remaining taxes and duties administered by HMRC (VAT, climate change levy, aggregates levy, landfill tax, air passenger duty, excise duties and insurance premium tax).
18. If you have any questions about this change, please send an email to [email protected] or contact Maria Richards on 020 7147 3223. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 214 of 222
BN91
INTEREST HARMONISATION
Who is likely to be affected?
1. Taxpayers who do not pay their tax liabilities on time, those who overpay their tax and those who receive a refund from HM Revenue & Customs (HMRC) for: • income tax, corporation tax (CT), VAT, sums due under Pay as you Earn (PAYE), Class 4 National Insurance Contributions (NICs) and the Construction Industry Scheme (CIS); • environmental taxes (aggregates levy, climate change levy and landfill tax); • excise duties (alcohol, fuel, tobacco, oils) gambling and air passenger duty); • stamp duties (stamp duty land tax and stamp duty reserve tax); and • inheritance tax, insurance premium tax, pension schemes and petroleum revenue tax (PRT).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to create a harmonised interest regime for the first time for all taxes and duties administered by HMRC (listed above) with the exception of CT and PRT. The legislation makes provision for the automatic setting and implementation of interest rate changes. This will replace the current range of interest regimes. It is expected that the legislation to apply the harmonised interest regime to CT and PRT will be introduced in Finance Bill 2010.
3. These changes have been subject to recent consultation as part of the ongoing work of the Review of HMRC’s Powers, Deterrents and Safeguards to provide a modern framework of law and price for HMRC.
Operative date
4. For those taxes where HMRC currently charge and pay interest, rates will be aligned by Treasury Order and will have effect shortly after the date that Finance Bill 2009 receives Royal Assent.
5. Implementation of interest harmonisation requires changes to HMRC’s computer systems and is to be staged over a number of years. Interest on late payments of in year PAYE is expected to be introduced, using a risk based approach, from April 2010. The new provisions will be brought into effect by Treasury Orders which will specify the dates from which they have effect.
2009 Budget Notes Page 215 of 222 Current law and proposed revisions
6. HMRC inherited the legal frameworks governing the interest charged on late payments and paid out on overpayments from the former Inland Revenue and HM Customs and Excise. However, there are a number of differences across the range of taxes administered by HMRC. Many taxpayers, particularly businesses, interact with HMRC across a range of taxes, and these differences add complexity and burdens for taxpayers, their advisers and HMRC.
7. The new provisions replace the current range of differing regimes with a single legislative framework for interest chargeable on late payments, and payable on repayments of overpaid tax.
8. The measure will provide for interest to be charged from the date the tax was due to be paid to HMRC until the date it is paid. HMRC will also pay interest on repayments from the date the tax was due to be paid or, if later, the date the payment was actually received, to the date the repayment is made.
9. The measure will provide for differential interest charged and paid by HMRC to be based around the Bank of England base rate. Regulations will establish the basis for calculating and applying the rate of interest charged and paid. These will provide: • a single rate of simple interest paid by HMRC on overpayments across all taxes, duties and penalties listed in paragraph 1, other than Quarterly Instalment Payments (QIPs) for companies; • a single rate of simple interest charged by HMRC across all taxes, duties, and penalties listed in paragraph 1 that are paid late to HMRC, other than QIPs; • that different interest rates will continue to apply to payments made by companies under QIPs arrangements; • a set of aligned rules for how the interest rates will be determined, including for QIPs, and • a set of aligned rules, including for QIPs, with rates that are: o calculated by reference to the Bank of England base rate; and o updated automatically 13 working days after any changes in that rate.
10. The rates of interest will also be set in regulations. The rates themselves are considered in the Final Impact Assessment accompanying this work which has been published today.
Further advice
11. This measure was the subject of initial consultation in June 2008. Responses to that consultation together with a further consultation were published in November 2008 – Interest-Working Towards a Harmonised Regime: Summary of Responses and Proposals and draft legislation in December 2008. A summary of responses and a Final Impact
2009 Budget Notes Page 216 of 222 Assessment, including an explanation of any resulting changes, has been published today on the HMRC website.
12. These provisions are part of a wider package of measures to modernise HMRC’s administration of the tax systems to improve customer service, effectiveness and efficiency. Please see Budget Note 90 on Review of HMRC Powers, Deterrents and Safeguards: Penalties for Late Filing of Returns and Late Payment of Tax.
13. If you have any questions about this change, please contact Robert Horwill on 020 7147 2447 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 217 of 222 2009 Budget Notes Page 218 of 222
BN92
HMRC CHARTER
Who is likely to be affected?
1. Everyone who has dealings with HM Revenue & Customs (HMRC).
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 requiring HMRC to prepare and maintain a Charter. The Charter will set out standards of behaviour and values to which HMRC will aspire in dealing with taxpayers and others.
3. In addition, the legislation will require the Commissioners for Her Majesty’s Revenue & Customs to report annually on how well HMRC is doing in meeting the standards in the Charter.
Operative date
4. The Charter must be in place by 31 December 2009. HMRC plans to launch the Charter by Autumn 2009.
Current law and proposed revisions
5. This provision is new. Although the former departments that merged to make up HMRC have had charters in the past, none of these has had a statutory basis. The legislation inserts a provision in the Commissioners for Revenue and Customs Act 2005.
6. In a consultation response document issued on 24 November 2008, it was confirmed that legislation giving the Charter legislative backing would be included in Finance Bill 2009.
Further advice
7. A second consultation document – HM Revenue & Customs Charter – looking at the content of the Charter, was issued on 3 February 2009. This consultation closes on 12 May 2009.
8. If you have any questions on the legislation, please send an email to [email protected] or contact Maria Richards on 020 7147 3223. If you have any questions on the Charter itself, please send an email to [email protected] or contact the Charter Team on 020 7147 2365. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 219 of 222
2009 Budget Notes Page 220 of 222
BN93
CHANGES TO CUSTOMS POWERS
Who is likely to be affected?
1. International travellers using major airports.
General description of the measure
2. Legislation will be introduced in Finance Bill 2009 to clarify when HM Revenue & Customs (HMRC) officers and, following Royal Assent of the Borders Citizenship and Immigration Bill, officers of the UK Border Agency (UKBA) can use their powers to check EU travellers and to verify whether travellers are arriving from the EU.
Operative date
3. The changes will have effect on and after the date that Finance Bill 2009 receives Royal Assent.
Current law and proposed revisions
4. Section 4 of the Finance (No.2) Act 1992 limits the use of certain customs powers in relation to movements between Member States to circumstances where an officer has reasonable grounds to believe that: • the movement in question is not in fact between Member States; or • situations when it is necessary to exercise the power for purposes connected with the collection of Community customs duties or the enforcement of any import prohibition or restriction.
5. The measure will amend section 4 to allow Customs Officers to exercise their powers in order to check whether a movement is in fact between the Member States, without having to have reasonable grounds for believing that the movement is not in fact between Member States.
6. The measure will also clarify that officers can make selective and proportionate checks to collect Community customs duties or enforce import prohibitions and restrictions, without having to demonstrate reasonable belief that such checks are necessary in each case.
7. These clarifications of Customs powers are necessary to enable HMRC and UKBA to deliver a single primary border checkpoint for EU and non- EU travellers.
2009 Budget Notes Page 221 of 222
Further advice
8. If you have any questions about this change, please contact Anne Treadaway on 01702 361934 (email: [email protected]). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk
2009 Budget Notes Page 222 of 222