Spring Budget 2017
Commentary
March 2017
Contents
1. Introduction 4
2. Personal and trust taxes 5 2.1 Increases to the rates of Class 4 NIC to be introduced 5 2.2 Income tax rates and above inflation rise in the personal allowance 5 2.3 Reduction in the dividend allowance 5 2.4 New £1,000 tax allowances for property and trading income 6 2.5 Further update on changes to the taxation of 'non-doms' 6 2.6 Consultation on rent-a-room relief to better support longer-term lettings 7 2.7 Simplifications to the cash basis and increase to the entry threshold 7 2.8 Simplified cash basis for unincorporated property businesses 8
3. Pensions, investments and capital taxes 9 3.1 Part surrenders and part assignments of life assurance policies 9 3.2 Money purchase annual allowance reduced to £4,000 from £10,000 9 3.3 Aligning the tax treatment of UK and foreign pensions 9 3.4 Qualifying recognised overseas pensions schemes (QROPS) transfers 9 3.5 Master trust pension schemes tax registration process amended 10
4. Employment taxes and payroll 11 4.1 Other employment taxes measures 11 4.2 Off-payroll working in the public sector 11 4.3 Disguised remuneration 11 4.4 Call for evidence on employee expenses 12 4.5 Employer-provided accommodation 12 4.6 Taxation of benefits in kind 12 4.7 Guidelines on making payments for employees' image rights 13
5. Business taxes 14 5.1 Corporation tax rate to fall 14 5.2 Amendments to the social investment tax relief (SITR) scheme. 14 5.3 Tax advantaged venture capital scheme amendments 14 5.4 All profits realised by offshore property developers are subject to tax 15 5.5 Simplification of substantial shareholding exemption (SSE) rules 15 5.6 Reform of brought forward corporate losses 15 5.7 Hybrid mismatches regime changes 16 5.8 Museum and galleries tax relief 16 5.9 Patent box: cost sharing arrangements 17 5.10 Corporate interest expense restrictions on deductibility 17 5.11 Appropriation to trading stock rule changes 17 5.12 Plant and machinery leasing rules following accounting changes 18 5.13 Administration simplification for claiming R&D tax credits 18
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5.14 Creative industry tax reliefs extension 18 5.15 Non-resident companies' UK income and the corporation tax regime 19 5.16 Risk profiling of large business consultation 19 5.17 Partnership taxation consultation response reaction due 19
6. Indirect taxes 20 6.1 VAT registration limits 20 6.2 Mobile phone services ‘use and enjoyment’ provisions 20 6.3 Other measures to combat VAT avoidance 20 6.4 Stamp duty land tax (SDLT) reduction of filing and payment time limits 20 6.5 Insurance premium tax (IPT) rate increase anti-forestalling rules 21 6.6 Landfill tax disposals clarification 21
7. Making tax digital and general tax matters 22 7.1 Making tax digital: one year deferral 22 7.2 Making tax digital: tax administration including interest and penalties. 22 7.3 Removing the effects of the Limitation Act for National Insurance 23 7.4 Promoters of tax avoidance schemes (POTAS) strengthened 23 7.5 Strengthening tax avoidance sanctions and deterrents 23 7.6 Crackdown on the hidden economy 23
8. Appendix: Rates and allowances 25
9. Glossary of terms 37
Spring Budget 2017
1. Introduction
The right Budget at the right time? For the first time in years it appears the Chancellor has listened. Spreadsheet Phil has lived up to his name; no swingeing changes to taxes, little tinkering at the edges of policy but solid, if uninspiring, steps forward. Individuals and businesses crave certainty within the tax system. Philip Hammond chose to keep Britain living within its means by not pushing forward with excessive spending following the additional money highlighted recently by the OBR. So is this a case of ‘Right Budget, right time, right Chancellor,’ as echoed by Philip Hammond in his Budget speech? Unlike Norman Lamont, who first coined the phrase, we don’t expect Mr Hammond to be fired within the next week. History will tell whether he’s the right Chancellor at the right time, however, his handling of the country’s tax affairs as we are about to enter a new global future has been generally positive. However, there were immediate calls from some of the self-employed to rein in the 2% hike in Class 4 national insurance, which are due to be phased in from 2018/19, and even to sack the Chancellor. And some owner managed small businesses have understandably grumbled about the reduction in the dividend allowance. However, the bigger picture supports these changes, which do help to level the playing field. While none of us yearn tax increases the self-employed do generally pay a far lower percentage of their income in tax, including national insurance, than happens for employees. This will continue even after the changes, but slightly reduce the incentive for employees to become self-employed; for example, even assuming the rate bands do not rise further, in 2019/20 a small business offered the chance to do additional work and have say £45,000 to allocate to a new worker could pay an employee a net amount of £44,027, but using a self– employed worker would leave the worker with £48,748 after tax and NIC – still a significant difference. There were further changes in other areas that could have been made; the ongoing issues surrounding pensions have been left for another day. Making Tax Digital will now benefit from a welcome delay for the smallest businesses, though we feel the delay should have gone further to enable all businesses to have a complete cycle under the proposed pilot, before it becomes mandatory. But ultimately, we asked for a steady ship and Philip Hammond has provided that.
Tina Riches National tax partner Smith & Williamson
March 2017
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2. Personal and trust taxes
2.1 Increases to the rates of Class 4 NIC to be introduced The main rate of class 4 NIC will increase from 9% to 10% in April 2018 and to 11% in April 2019. This will have an impact on the self-employed, including partners. Class 4 NIC is payable by the self-employed, including partners in partnerships and members of LLPs. Two rates apply with a main rate of 9% and a higher rate of 2%. From April 2018, this main rate will increase to 10%. A further 1% increase will apply from April 2019 taking the main rate to 11%. The Chancellor’s reasoning for this increase was to ensure the significant disparity in NIC rates for the self-employed and employees was reduced. This disparity was due to increase with the abolition of class 2 NIC (payable by the self-employed) from 6 April 2018. Further to this, many state pension benefits have been aligned for the self-employed and the employed from April 2016. It is perhaps worth noting that class 4 NICs were not included in the legislation covering the 'triple lock'; the Government’s legislative promise not to increase certain taxes during the life of this Parliament. Given the background, it is not surprising that we are seeing an increase on these rates.
2.2 Income tax rates and above inflation rise in the personal allowance The Government has confirmed that the personal allowance will rise by £500 to £11,500 for 2017/2018. It was also re-confirmed that the basic rate band would increase to £33,500, leading to the higher rate threshold increasing to £45,000 in 2017/18, compared to the current level of £43,000 for 2016/17. The personal allowance will rise by £500 to £11,500 for 2017/2018. The basic rate band will increase to £33,500, leading to the higher rate threshold increasing to £45,000 in 2017/18, with tax rates staying the same. The basic rate band will apply when considering:
• main rates – which apply to non-savings and non-dividend income in England, Wales and Northern Ireland; and • savings rate – which applies to the savings income of all UK taxpayers. The planned increase in the personal allowance is welcome and represents an above inflation increase for the seventh consecutive year. It supports the Government’s pledge to increase the personal allowance to £12,500 and higher rate threshold to £50,000 by the end of this parliament. Not all taxpayers benefit from the increases to the personal allowance. Those with income above £100,000 will generally continue to see the personal allowance restricted by £1 for every £2 earned above this threshold, leading to an effective 60% tax rate, subsequently dropping back to 40%. In addition, those on low incomes under the current personal allowance will not benefit from the rise. Note that from April 2017 some income tax rates and thresholds for Scotland are being set by the Scottish parliament for the first time, although these do not apply in all cases, so, for example, for savings income and the interest allowance the UK rates and thresholds apply.
2.3 Reduction in the dividend allowance The level of dividend income received tax-free will be reduced from £5,000 to £2,000 from 6 April 2018. The tax rates applying outside this band remain unchanged. The Government has announced that the annual amount of dividends can be received tax-free will be reduced from £5,000 to £2,000 from 6 April 2018. The tax rates applying to dividend income exceeding this allowance remain unchanged. The dividend allowance was only introduced from 6 April 2016, so it was a surprise to see it cut by 60% after less than a year in operation. The Chancellor’s rationale was that the cut would help to
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address the disparity between tax rates for the self-employed and employees, in particular director- shareholders. The change will apply to any shareholder with dividends of over £2,000 in any tax year, but the Chancellor noted that in practice only those with relatively large holdings will be affected. While those affected will be disappointed, the change will go only so far in addressing the Government’s aims. It does not address the underlying fact that corporation tax rates are significantly lower than personal tax rates and that the greatest benefit in operating a personal company occurs when income is ‘rolled-up’ within the corporate environment. The Government is still consulting in this area and therefore we may see further measures introduced in the future to address the perceived disparity.
2.4 New £1,000 tax allowances for property and trading income Two new income tax allowances of £1,000 each, for trading and property income, will be introduced from 6 April 2017 as previously announced at Budget 2016. These two new allowances, previously trailed at the Budget 2016 and Autumn Statement 2016, are primarily targeted at ‘micro-entrepreneurs’ such as those occasionally letting property through digital platforms or selling goods via online auction sites. The allowance will also be available to those individuals with property and/or trading income in excess of £1,000 having the choice to deduct either the allowance or the actual expenditure incurred. The allowance will also apply to certain miscellaneous income. Further to comments on the draft legislation, revisions will be made to improve the clarity of the changes and to include an anti-avoidance measure to prevent the allowances applying to the income of a participator in a connected close company or a partner in their partnership. As noted when this measure was announced, this pragmatic change will simplify the tax affairs of those making modest trading and rental profits (potentially removing them from self assessment altogether), but is unlikely to be of much relevance for those with significant letting or trading income. Such individuals are more likely to benefit from a greater tax reduction by opting to deduct the actual expenditure incurred.
2.5 Further update on changes to the taxation of 'non-doms' The Government has again reiterated that major reforms to the taxation of non-UK domiciled individuals ('non-doms'), offshore trusts and indirectly-held UK residential property will come into force from 6 April 2017. The details of the new rules, to be included within Finance Bill 2017, are yet to be finalised and the latest announcement contains some further clarifications. In Summer Budget 2015, the following major reforms were announced, to take effect from 6 April 2017:
• non-UK domiciled individuals (‘non-doms’) who have been resident in the UK in 15 of the past 20 years will be deemed to be UK domiciled for all tax purposes; • those born in the UK with a UK domicile of origin, but who have subsequently acquired a non-UK domicile of choice will be deemed to be UK domiciled for all tax purposes; • settlors of non-UK trusts will not be taxed on non-UK income or gains as they arise where these are retained within the trust; and • all UK residential property held directly or indirectly will be within the charge to UK IHT. Since the initial announcement, there have been a number of further statements and publications, including draft legislation. Some important transitional provisions have also previously been announced, including the following, which do not apply to those born in the UK with a UK domicile of origin:
• those becoming deemed domiciled at 6 April 2017, who have previously paid the remittance basis charge, will be able to ‘rebase’ non-UK assets to their 5 April 2017 value, although acquiring a UK domicile of choice may upset this; and • those who have previously been taxed on the remittance basis at some point since 2008 will have a two- year window during which they can segregate (or ‘unmix’) offshore mixed cash funds.
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No substantial further announcements on this were made as part of Budget 2017, although the Government has announced the following minor changes:
• the limit below which minor interests in UK residential property will be disregarded for the purposes of the IHT changes will be increased from 1% to 5%; and • the segregation transitional rules will apply to income, gains and capital originating from both before and after the 6 April 2008 (the date from which previous major changes took effect). The proposed reforms have been introduced in a very piecemeal way and, although the initial announcements were made in July 2015, final details have still not yet been published. Draft legislation covering the changes has been published gradually, however, partly due to the breadth and complexity of the changes, a large number of technical issues have arisen at various stages. The delays have led to significant difficulties both for those affected by the reforms and their advisers. Extensive consultation has taken place on the legislation, both formally and informally, and the two changes announced above are designed to allay fears raised during this process. The extension of the rules regarding segregation of mixed funds – accounts containing a mixture of income, gains and capital from multiple sources – will be particularly welcome, as due to the wording of the original draft legislation, it had been thought that the transitional rules would only apply to income and gains originating from 6 April 2008. Confirmation of the extension of these rules could provide significant additional scope for non-doms to bring cash into the UK in a more tax-efficient way. The final rules are expected to be published as part of Finance Bill 2017 in late March 2017 and clarification on a number of matters is still awaited.
2.6 Consultation on rent-a-room relief to better support longer-term lettings The Government has announced a consultation into the workings of rent-a-room relief with the aim of ensuring it is retargeted towards supporting longer-term lettings. There is currently little detail on what this consultation will focus on and the proposals that might arise from the redesign of rent-a-room relief. At this stage it is unclear what the Government has in mind and what aspects of the relief might change, but any changes could be targeted at reducing the availability of the relief to set against short-term letting via through digital platforms - a growing sector. This may however bring more people into self assessment to deal with small amounts of tax arising on occasional rental income.
2.7 Simplifications to the cash basis and increase to the entry threshold As announced in January 2017, the Government will legislate to increase the maximum turnover threshold, for the self-employed or partnerships, under which they can use the cash basis from £83,000 to £150,000. The Government will also bring in a ‘simple’ list of disallowed expenditure to simplify the rules for allowable deductions under the cash basis. Self-employed and partnerships of individuals that meet certain requirements can elect to be taxed on the ‘cash basis’, rather than a traditional accruals accounting basis, under which profits are calculated based on income and expenses accrued during the accounting period. Under the cash basis, businesses are only taxed on income when it has been received and can claim a deduction when they actually pay for an expense. It was announced in January 2017 that the following changes to the cash basis will be made, with effect from 6 April 2017:
• an increase to the turnover threshold beneath which the self-employed or partnerships can use the cash basis from £83,000 to £150,000; and • provision of a ‘simple’ list of disallowed expenditure to simplify the rules for allowable deductions under the cash basis. As part of the first change above, the exit threshold, above which those on the cash basis must switch to traditional accounting, will be increased from £166,000 to £300,000.
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Both changes follow consultation and the Government is to amend the original draft list of disallowed expenditure. Whether the cash basis of accounting is beneficial will depend very much on the nature of a particular business and the availability of reliefs. For example, relief for losses against other income is not available to those using the cash basis. Those with ‘lumpy’ receipts may be more likely to breach income tax thresholds, such as entering the higher rate, in one year and not the next under the cash basis. Nevertheless, for certain traders the cash basis can prove a simple method of accounting. Any moves to simplify and broaden the availability of the cash basis are therefore to be welcomed.
2.8 Simplified cash basis for unincorporated property businesses This legislation will take effect from 6 April 2017, and will allow unincorporated property businesses with rental receipts of £150,000 or less to calculate their taxable profits using a cash basis of accounting as opposed to using the Generally Accepted Accounting Principles (GAAP) otherwise known as the accruals basis. Certain unincorporated property businesses will be excluded, including limited liability partnerships, trusts and partnerships with corporate partners. Unlike the cash basis for trading businesses, which have to opt in to the cash basis, landlords will have the option to opt out of the cash basis and continue to use the accruals basis. Landlords will be able to elect this for each property business (UK and overseas property businesses are treated separately for tax purposes). Landlords who jointly own a rental property will also be able to decide individually which method to use, provided they are not spouses or civil partners. In an effort to align the treatment between the cash basis and people who elect to use the accruals basis, the initial cost of items used in a dwelling house will not be an allowable expense under the cash basis. The replacement of domestic items relief will continue to be allowed when the expenditure is paid. Following a consultation announced in August 2016, the Government will look to legislate to allow most unincorporated property businesses to calculate their taxable profits using a cash basis of accounting. Although another change to property taxation may seem unwelcome, the apparent effort to simplify the accounting for straight-forward taxpayers should be welcomed. The cash basis of accounting will require fewer adjustments to be made to rental accounts by taxpayers and thereby simplify the record keeping process. However, there are a number of factors to note. The different opt in/opt out approaches for this basis and the main cash basis may cause confusion. In addition, for landlords facing the new rules on restriction of interest relief from April 2017, where the flow of rent receipts is uneven they could face higher rate tax and lose full interest relief one year, while having unused basic rate band in another, giving rise to an additional tax cost, not just a timing difference. This measure is part of the drive towards Making Tax Digital when landlords will need to file on a quarterly basis, making any simplification both appreciated and necessary.
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3. Pensions, investments and capital taxes
3.1 Part surrenders and part assignments of life assurance policies Changes in legislation to the calculation of gains on life insurance policies to allow for flexibility for the taxable gain to better reflect the economic position. The Government will legislate in Finance Bill 2017 to allow policyholders who have generated for tax purposes a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis. The issue of a disproportionate tax charge arising on a part surrender or assignment of a life policy by an individual was highlighted in the recent case Lobler v HMRC [2015] UKUT 0152 in which a tax payer had suffered a 700% tax liability. As such, this is a welcome change and we hope that the rules on calculating gains on life policies will be simplified further over time.
3.2 Money purchase annual allowance reduced to £4,000 from £10,000 This will further restrict the amount of pension contribution that can be made by those who have flexibly accessed their pension funds. The money purchase annual allowance (MPAA) was introduced in April 2015 and is aimed at those over the age of 55 who are drawing down flexibly from their pension funds, while continuing to save into them. It was intended to prevent savers from drawing from their pension funds and then effectively reinvesting in the pension fund and benefitting from a second round of tax relief. As announced at the 2016 Autumn Statement, the level of the MPAA will be reduced from £10,000 to £4,000 from April 2017. The Treasury is clearly concerned about leakage within the pension system and so the reduction in the MPAA is perhaps not surprising. However, there seems to be no allowance for those who need to access their pension funds but later see a change in circumstances, allowing them to rebuild their pension savings. These individuals will find the reduced tax relief available limits their ability to continue to save.
3.3 Aligning the tax treatment of UK and foreign pensions The legislation being incorporated in Finance Bill 2017 is to revised to set out the position for defined benefit specialist pension schemes for those employed abroad (section 615 schemes) to clarify that all lump sums paid out of funds built up before 6 April 2017 will be subject to existing tax treatment. It is unsurprising that there is further alignment of the taxation of foreign pension funds with UK domestic pension funds although we do not anticipate that these measures will be particularly far reaching.
3.4 Qualifying recognised overseas pensions schemes (QROPS) transfers For transfers requested on or after 9 March, a 25% tax charge will apply to transfers to a QROPS unless certain conditions are met. Exceptions will apply to the charge allowing transfers to be made tax-free where individuals have a genuine need to transfer their pension, including when the individual and the pension arrangement are both located within the European Economic Area. QROPS are overseas pension schemes that meet certain conditions set out by HMRC. Transfers can be made from UK pension schemes to QROPS and they are often used by individuals leaving the UK to enable them to hold their pension fund in say the jurisdiction in which they reside and reduce their future UK tax exposure. This charge will be made before the transfer is made. If an individual's circumstances change within 5 years of the transfer, the tax treatment will need to be reconsidered.
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Exceptions will apply to the charge allowing transfers to be made tax-free where individuals have a genuine need to transfer their pension, including when the individual and the pension arrangement are both located within the European Economic Area. Legislation will also be introduced in Finance Bill 2017 to apply UK tax rules to payments made on or after 6 April 2017 from funds that have received UK tax relief that have been transferred to a QROPS. The UK tax rules will apply to all payments made within the first 5 tax years following the transfer, regardless of the residence status of the individual. This represents a significant charge, which aims to deter individuals looking to avoid tax by moving their pension savings to a different country and retiring abroad.
3.5 Master trust pension schemes tax registration process amended In order to boost consumer protection and improve compliance, amendments are to be made to the tax registration process for master trust pension schemes to align with the Pensions Regulator's new authorisation and supervision regime. The forthcoming Pensions Bill sets out legislation whereby the Pensions Regulator will be given greater powers to authorise and supervise master trusts, and to take action 'when necessary'. The aim is to protect those employees saving through these vehicles, many of which are used for auto-enrolment, as master trust’s fall outside the protection of the Pension Protection Fund. Master trusts providing defined contribution savings will have to demonstrate that they meet strict new criteria before entering the market, a quality assurance mark will have to be met. This measure will apply to all master trust pension schemes from October 2018. The alignment of the master trust tax registration process with the Pensions Regulator’s new authorisation and supervision regime is a welcome change. It should help to boost consumer protection and improve compliance.
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4. Employment taxes and payroll
4.1 Other employment taxes measures The Government confirmed that various measures announced in Autumn Statement 2016 will be included in Finance Bill 2017 The changes announced in Autumn Statement 2016 included:
• the timing for employees to make good on benefits in kind will apply from 6 April 2017; • the taxation and national insurance treatment of certain termination payments will apply from 6 April 2018; and • treatment applying to salary sacrifice and other optional remuneration arrangements will apply from 6 April 2017. A single consistent rule for making good on benefits in kind is a welcome change that will save time and administration costs for employers. Changes to national insurance treatment of termination payments will increase employees’ and employers’ NIC costs. The changes may also create some complexity in determining what element of a non-contractual payment in lieu of notice will be regarded as basic pay for an employee who receives bonus/commission payments and non-cash benefits and therefore subject to tax and national insurance. We hope that the final legislation will clarify how the proposed changes to salary sacrifice and optional remuneration arrangements for benefits not excluded from the changes will operate in practice.
4.2 Off-payroll working in the public sector Originally announced at Budget 2016 and confirmed at Autumn Statement 2016, the Government will legislate in Finance Bill 2017 to reform the off-payroll rules A public sector body, agency or a third party paying a PSC working in the public sector will be responsible for determining if the new rules will apply. Where the rules do apply, the fee payer will need to deduct tax and NIC (both employee and employer) from any payments made to the PSC and report to HMRC through RTI. HMRC has only recently provided useful guidance on how these rules will apply in practice including ‘The Employment Status Service Tool’, which was released early March 2017. With only a few weeks left before the change comes into force, it is imperative that those affected by the changes prepare now and ensure adequate systems are in place to deal with this increased compliance burden and additional cost, especially as the payments will be included in computing the payer’s Apprenticeship Levy. The changes will have an impact on the PSC’s corporate tax computation as the off-payroll payments will be returned as employment income in the workers Self Assessment Tax Return and not included as PSC income.
4.3 Disguised remuneration As announced at Autumn Statement 2016, the Government will legislate in Finance Bill 2017 to introduce a charge on certain loans, and widen the scope of disguised remuneration rules to self-employed workers. The legislation in Finance Bill 2017 will subject any ‘disguised remuneration loans’, which were put in place on or after 6 April 1999 and are still outstanding at 5 April 2019, to a PAYE and NIC charge on the value of the loan outstanding at April 2019. Disguised remuneration loans are any loans that would have been regarded as employment income at the time they were advanced, had the disguised remuneration rules applied back then. The disguised remuneration rules have previously only applied where there has been an employee and employer relationship. The new legislation can now also apply to self-employed users of certain disguised remuneration schemes.
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The introduction of the loan charge extends the disguised remuneration legislation even further than its current wide-reaching scope. The charge is a ‘dry’ tax charge as there are no payments, or indeed actions of any kind, required to be taken for the charge to arise. As such, all taxpayers with these arrangements should review their position. In many cases taxpayers will need to make plans to source funds to either repay any outstanding loans, or the April 2019 tax charge if the loan is left outstanding. The extension of the disguised remuneration legislation to apply to self-employed workers could also create uncertainty for taxpayers. Various commercial arrangements were subjected to unexpected tax charges when the initial disguised remuneration legislation for employees and employers was introduced, and there is a risk that similar problems will arise now for self-employed workers.
4.4 Call for evidence on employee expenses As announced at Autumn Statement 2016, the Government will publish a call for evidence to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer. The Government will publish a call for evidence on 20 March 2017 relating to both reimbursed and non- reimbursed employee expenses. This appears to be part of a wider review by the Government to make taxation of benefits in kind and expenses fairer between workers carrying out the same work under different contractual arrangements. It is not clear if HMRC has concerns about claims employees are making or if the intention is to try and simplify matters. Employees who incur tax deductible expenses that are not reimbursed by their employer may claim relief via their self assessment tax return or, where there is no requirement to complete a return, by way of a separate claim. Under the current system, many employees do not make a claim for relief due to the administrative burden involved or simply not understanding that they are entitled to make such a claim. Where claims are made, there may be limited evidence to support such claims, although HMRC may wish to review such evidence.
4.5 Employer-provided accommodation As announced at Autumn Statement 2016, the Government will publish a consultation on employer- provided living accommodation. A consultation paper, to be published on 20 March 2017, will detail proposals to update the tax treatment of employer-provided living accommodation and board and lodgings. This will include a review of when accommodation should be exempt from tax and proposals to support taxpayers during any transition. The OTS recommended a review of employer-provided living accommodation following a call for evidence in December 2015. The Government has agreed that this is a complicated benefit in kind, the taxable value of which could vary greatly depending on whether or not the employer owned the accommodation or rented it. The taxable value of employer owned accommodation is by reference to the property’s ‘rateable value’, which bears no reference to the property’s current value. It is most likely that the outcome of the consultation will increase the taxable benefit relating to these properties. The review will also cover which employees should not be taxed on a property provided for the proper performance of their duties. The full extent of the review, including whether it will also consider property provided to employees working away from their normal place of work, is not yet known.
4.6 Taxation of benefits in kind As announced at Autumn Budget 2016, the Government will publish a call for evidence on exemptions and the valuation methodology for the income tax and employer NICs treatment of benefits in kind. The call for evidence, which will be published on 20 March 2017, seeks to enable the Government to better understand whether the use of exemptions and valuation methodologies within the tax system can be made fairer and more consistent.
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The Government appears to be moving towards a complete review of the taxation system of expenses and benefits for employees, with announcements for two calls for evidence (taxation of benefits in kind and employee expenses).
4.7 Guidelines on making payments for employees' image rights In an attempt to 'improve the clarity of the existing scheme', HMRC will publish guidance for employers within the next three months on the treatment of image rights payments made to employees by employers. Although the announcement was not accompanied with further detail, given recent HMRC submissions to MPs regarding the perceived abuse surrounding footballers’ use of image rights arrangements, the guidance is likely to represent a tightening of HMRC’s position and could bring such payments under the ‘disguised remuneration’ rules. Nonetheless, we would expect HMRC to recognise the numerous examples of image rights arrangements that represent commercially driven business propositions.
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5. Business taxes
5.1 Corporation tax rate to fall Corporation tax rates are to fall to 19% from April 2017 and then to 17% from April 2020. As previously announced, the Government has confirmed that the rate of corporation tax will be cut. This reduction to corporation tax rates follows the Government’s goal of making the UK an attractive home for corporates. The current corporation tax rate of 20% is the lowest in the G20 and these reductions will be a key factor in maintaining the UK as a highly competitive business tax regime.
5.2 Amendments to the social investment tax relief (SITR) scheme. Amendments previously announced in the Autumn Statement 2016 to take effect for investments made on or after 6 April 2017 include an increase to the lifetime limit, a decrease in the employee limit, to clarify that individual investors need to be independent, and to exclude certain activities and arrangements from qualifying. Various amendments are to be included in Finance Bill 2017 regarding the SITR scheme, including:
• An increase in the lifetime investment to £1.5m that a social investment can receive, provided the initial risk finance investment is made within 7 years of their first commercial sale. Otherwise, the current limit of €344,827 will continue to apply. • A reduction in the limit of full time working employees to below 250 (previously 500). • To exclude certain activities from qualification, including asset leasing and on lending, investment in nursing homes and residential care homes (at least initially, though there is an intention to introduce a system to allow such investments going forward). • To exclude from SITR situations where money is used to pay off existing loans. • To clarify that individuals can only be eligible to claim SITR if they are independent from the social enterprise. • To exclude investments involving arrangements with the main purpose of delivering a benefit to an individual or party connected with the social enterprise. As previously mentioned, as an overall package these are welcome clarifications. The increase in the lifetime limit should increase the availability and interest of the SITR scheme to social enterprises.
5.3 Tax advantaged venture capital scheme amendments The amendments, previously announced in the Autumn Statement 2016, include clarification of the rules for share conversion rights, providing additional flexibility for follow on investments made by venture capital trusts (VCTs), and introduce powers to provide greater certainties to VCTs for share for share exchanges. Various amendments are to be included in Finance Bill 2017 regarding the tax-advantaged venture capital schemes.
• Clarification of the EIS and SEIS rules for share conversion rights. This will apply to shares issued on or after 5 December 2016. • In an effort to provide greater certainty to VCTs, a power will be introduced to enable VCT regulations to be made in respect of certain share for share exchanges. This will take effect from the date Finance Bill 2017 receives Royal Assent. • Additional flexibility will be introduced for follow-on investments made by VCTs in companies within certain group structures to align with the EIS provisions. This will be applicable for investments made on or after 6 April 2017. The Government also confirmed that a summary of responses to a consultation regarding options to streamline and prioritise the advance assurance service will be published after the Budget.
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Although these amendments were previously announced, the proposed clarification/new rules regarding the various aspects of SEIS, EIS and VCT investment is welcome news. That said, the impact and specific implications will be dependent on the precise detail of the legislation, which will have to be assessed when released. It will be interesting to see the summary of responses to the consultation in relation to the advance assurance service, and more importantly how the service may be reformed.
5.4 All profits realised by offshore property developers are subject to tax The Government is to amend legislation to ensure that all profits realised by offshore property developers developing land in the UK, including those on pre-existing contracts, are subject to tax, with effect from 8 March 2017. This measure amends the profits from trading in and developing land in the UK legislation introduced in Finance Act 2016 to bring all profits recognised in the accounts on or after 8 March 2017 into the charge to UK Corporation Tax or Income Tax, regardless of the date the contract was entered into. The existing profits from trading in and developing land policy, included in the UK legislation, intended to ensure that all profits from dealing in or developing land in the UK were brought into charge to UK tax, irrespective of the residence of the person making the disposal. The current commencement rule excludes profits from disposals made on or after 5 July 2016, where the contract was entered into prior to 5 July 2016. The intention was to exclude the standard property disposal arrangement where the parties are committed to make the contract, but the transfer takes place a short time later. However, some contracts are entered into at an early stage in the development with transfers being made over an extended period of months or years. The result is that some profits from these long term contracts have not been within the charge. This was not the intention when the legislation was enacted. HMRC has therefore amended the measure with the effect that all profits from dealing in or developing land in the UK that are recognised in the accounts on or after 8 March 2017 will be taxed. This will be the case even if the contract for the disposal was entered into prior to 5 July 2016.
5.5 Simplification of substantial shareholding exemption (SSE) rules The SSE exempts gains arising on disposals of qualifying shareholdings by corporate entities. Following the announcement made in the Autumn Statement 2016, and a subsequent consultation process, amendments to simplify these rules will take effect from 1 April 2017. The SSE rules may apply to companies when they dispose of shares held in another company, provided certain conditions are met. The Government’s reform will apply from 1 April 2017 and will simplify the SSE rules by removing the requirement that the investing company, which is disposing of the shareholding, is a trading company (or a holding company of a trading group). It will also extend the period during which the substantial shareholding requirement is met from 12 months in the 2 years prior to disposal to 12 months in the 6 years prior to disposal. The company being sold will no longer need to be a trading company immediately after disposal unless sold to a connected party. The Government will also enact a more comprehensive exemption for companies owned by qualifying institutional investors; this will be legislated in Finance Bill 2017. The SSE rules prior to these changes are viewed by many as overly complex. Simplification of the rules and a reduction in the compliance burden in determining whether the investing company meets the trading test are welcome developments. These changes should result in a more competitive regime in the UK by comparison to other jurisdictions.
5.6 Reform of brought forward corporate losses Losses arising on or after 1 April 2017, when carried forward, will be usable against profits from different types of income and profits of other group companies. A restriction will be introduced on companies where company or group profits exceed £5m so that they may not reduce their profits by more than 50%.
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As previously announced, the Government will legislate in Finance Bill 2017 to reform the rules governing corporate losses brought forward from earlier periods, allowing additional flexibility in how the losses are utilised. Losses arising on or after 1 April 2017, which are then carried forward into future accounting periods, will be available to shelter profits from other income streams. Where taxable profits exceed £5 million (for standalone companies or groups), carried forward losses arising at any time will be subject to a restriction such that they may not reduce the company’s profit by more than 50%. This reform to increase the flexibility of relief for losses will be welcome, especially for those companies that fall under the £5 million threshold. For such companies these amendments should reduce the risk of losses becoming ‘trapped’. The 50% restriction on the use of the brought forward losses is likely to have an adverse impact on larger companies and groups, although they may still benefit from the increased flexibility of use of future losses. We do not expect that this restriction will apply to many companies or groups.
5.7 Hybrid mismatches regime changes Following discussions with stakeholders, the Government will legislate minor changes to the hybrid and other mismatches regime. The change will be effective from 1 January 2017. Hybrid and other mismatch outcomes can arise from hybrid financial instruments, hybrid entities, dual resident companies and arrangements involving permanent establishments. The Finance Act 2016 provisions apply from 1 January 2017 and seek to neutralise any tax mismatch otherwise resulting in a deduction for various payments where there is no corresponding inclusion in ordinary income, or in double deductions from ordinary income. The rules are complex and the Government has announced two minor changes will be introduced in Finance Bill 2017 with effect from 1 January 2017, to ensure the legislation operates as intended. The first change removes the need to make a formal claim to extend the permitted time period during which income and deductions are compared to assess whether there is a mismatch involving either financial instruments, or hybrid transfer arrangements that transfer certain financial instruments. This is intended to reduce the compliance burden for taxpayers, given the high volume of transactions in financial instruments. The second change is in relation to the treatment of amortisation deductions, to remove them from the scope of the hybrid mismatch rules. The changes are welcome simplifications to what is a complex area. An important consideration for businesses with cross border transactions is how the UK rules will interact with the tax rules in the relevant overseas jurisdiction.
5.8 Museum and galleries tax relief Following the announcements made in the 2016 Budget and Autumn Statement, the Government is extending corporation tax relief currently offered to other creative sectors (eg film, TV production) to include museums and galleries. This measure is designed to encourage more, and higher quality, exhibitions, as well as to support the touring of these exhibitions across the country and overseas. The relief takes the form of an additional deduction for corporation tax, capped at the lesser of:
• 80% of core expenditure incurred in any country; or • the total core expenditure incurred in the EEA. Where this additional deduction for corporation tax would result in a trading loss, it may be surrendered for a payable tax credit. The overall relief that may be claimed is capped at a maximum of £100,000 for a touring exhibition and £80,000 for a non-touring exhibition. The relief will automatically expire in April 2022 unless it is renewed. Eligible entities will welcome the opportunity to claim this relief for temporary and touring exhibitions from 1 April 2017. It is hoped that this additional support for the cultural sector will encourage further investment in creative industries in the UK.
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5.9 Patent box: cost sharing arrangements Specific provisions are to be added to the patent box rules where R&D is undertaken under a cost sharing arrangement by two or more companies. Changes to the Patent Box regime, announced in the Autumn Statement 2016, modify the application of the cost sharing arrangement provisions for undertaking R&D activity. The modifications widen the circumstances in which R&D activity undertaken through cost sharing arrangements can be taken into account in calculating the R&D fraction in respect of intellectual property from which the company benefits under the arrangement. There are a number of other changes to computational provisions to take account of the way cost sharing arrangements work for the patent box regime. These changes are helpful for those companies that use cost sharing arrangements. It is encouraging to see that points raised in earlier consultations are now being addressed.
5.10 Corporate interest expense restrictions on deductibility As previously announced and following consultation, the Government will introduce legislation with effect from 1 April 2017 to limit the tax deductions that companies can claim for their interest expenses. Subject to a £2m de minimis allowance, the new measure restricts tax relief where UK interest exceeds either a fixed ratio of 30% of UK earnings before interest, tax, depreciation and amortisation (EBITDA), or, with an election, the group ratio of group interest to EBITDA. The group ratio rule, based on the net interest expense to EBITDA ratio for the worldwide group, is designed to prevent those groups with high external gearing for genuine commercial purposes from being adversely affected. The rules will be subject to a de minimis group threshold of £2m of net UK interest expense. A cap on deductions, based on the interest expense incurred, is intended to ensure net interest deductions cannot exceed those for the worldwide group. This latter cap is a modification of the existing debt cap rules which will be repealed. Refinements to the way these rules work will remove unintended limitations on the deductibility of carried forward interest expenses. The exclusion of related party interest expense from the calculation of the group ratio rule will be limited by narrowing the definition of related party interest. The way the exemption from interest restriction rules for public infrastructure activities works will also be simplified. Further modifications will be introduced to take account of the impact of accounting rules on interest for insurance companies. The UK’s generous regime on interest deductibility has long been an attractive feature for UK inbound investment. This new limitation on interest deductions will bring the UK regime more in line with various other jurisdictions and OECD recommendations. The Government has stated that a level of 30% is sufficient to cover the commercial interest costs arising from UK economic activity for most businesses, but this percentage may seem arbitrary to many multinationals. The restrictions may have an impact on groups with only UK activities too. The amendments announced on 8 March are, however, helpful improvements to the draft legislation. Although groups below the £2m threshold should not need to apply the rules, caution needs to be exercised, particularly by groups that are growing, acquisitive or thinking about changing their financing structure, or if interest rate rises are anticipated in the future. An allowance is calculated each year for interest deductions for the UK group, and the unused element of the allowance can be carried forward for up to five years. However in order to do this, under the rules as currently published, a full interest restriction return must be filed for the year the allowance arises and all of the intervening years up until the year that the allowance is used or expires. Consideration will need to be given as to whether the full calculation should be undertaken and an interest restriction return filed on an annual basis to protect this allowance. Many companies that are potentially affected have been reviewing their financing arrangements over recent months, and those that haven’t may wish to do so urgently.
5.11 Appropriation to trading stock rule changes The Government will amend the appropriations to trading stock rules to ensure that businesses are not able to convert capital losses into trading losses. This change is effective from 8 March 2017.
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Currently, when an asset is appropriated from fixed asset to trading stock with a deemed disposal at market value, a business may elect that any chargeable gain or loss is rolled into the cost of the stock so that when the asset is sold, any profit or loss is treated as an income profit or loss. From 8 March 2017, companies will no longer be able to make the election in circumstances where the asset being transferred to stock is standing at a loss compared to its market value at the date of transfer. This measure is not surprising and is part of HMRC’s on-going review of limiting opportunities for reducing revenue income through reclassification of capital as income or vice versa.
5.12 Plant and machinery leasing rules following accounting changes The Government is to consult on amendments required to the tax rules for plant and machinery leasing following changes to the lease accounting rules. Following the announcement of the International Accounting Board’s new leasing standard IFRS16, which comes into effect on 1 January 2019, the Government will consult in the Summer of 2017 on legislative changes required to update the tax rules concerning plant and machinery leasing. New accounting standards can create uncertainty and anomalies if the corresponding tax rules are not adjusted and aligned accordingly or if details are not announced well in advance of the changes. The Government has announced its intention to update the rules to ensure that the current tax rules for leases are maintained. Given the complexity of this area, this consultation is welcome.
5.13 Administration simplification for claiming R&D tax credits Following a review of the tax environment for R&D, the Government announced that it intends to simplify the claims process and improve awareness of the relief available among SMEs. As part of the Government’s stated ambition to support investment in research and development in the UK, administrative changes are to be made to the R&D expenditure credit. The initial review carried out concluded that the existing regime is both effective and internationally competitive, but also that changes were needed to improve simplicity and certainty around claims. In addition, it was noted that action should be taken to improve awareness of the relief among SMEs. The precise nature of the changes have yet to be announced, however we anticipate that further details will be released later this year. The R&D tax credits regime is already one of the more generous and effective reliefs available to companies worldwide and we welcome moves to increase awareness of this among potential claimants. Equally, simplifying some of the more onerous administrative burdens will hopefully encourage a greater uptake, while reducing the time and costs involved in making a claim. We await further details on these proposals but are quietly encouraged by the underlying intentions. In an increasingly competitive global market, particularly post-Brexit, it is important for the UK to avoid complacency and to continue to offer encouragement for long-term investment by innovative businesses.
5.14 Creative industry tax reliefs extension The Government is seeking EU State Aid approval for the continued provision of the high-end TV, animation and video games tax reliefs beyond 2018. The Government has announced that it will seek State Aid approval to continue providing the high-end TV, animation and video games tax reliefs beyond 31 March 2018. These reliefs work by increasing the amount of the allowable expenditure a company can claim. Where a company is loss-making, some or all of the relief can be converted into a payable tax credit. Companies in the creative sector will welcome this announcement.
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5.15 Non-resident companies' UK income and the corporation tax regime The Government is to consult on bringing non-UK resident companies, who are currently chargeable to income tax on UK taxable income and non-resident capital gains tax on certain gains, within the scope of corporation tax. As announced at Autumn Statement 2016, the Government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. The Government has now confirmed that it will consult on the case and options for implementing the change. Currently non-resident companies are chargeable to income tax on UK taxable income and certain gains are taxable under non-resident capital gains tax. Under such proposals, these companies would then be subject to general corporation tax rules, including the limitation to corporate interest expense deductibility and loss relief rules. The Government has indicated that this is an attempt to deliver equal tax treatment for all companies. If implemented, this change could have a significant impact on non-resident companies with activities in the UK. Affected non-resident companies will need to take tax advice to determine the potential impact of these proposals. This change will have an impact on when such companies will need to report under making tax digital.
5.16 Risk profiling of large business consultation HMRC will launch a consultation into its process for risk profiling large businesses. The consultation will review how HMRC can promote stronger compliance. The consultation will run over the summer recess. HMRC in recent years has increased the requirements for large businesses to comply with internal reporting and controls so that HMRC may monitor tax payer behaviour, such as the introduction of the requirement to publish large business tax strategies. This previous measure includes publicising the business approach to risk management and governance regarding UK tax, attitude towards tax planning, level of UK tax risk that it is prepared to accept and its approach towards its dealings with HMRC. This consultation intends to build on the requirements already in place.
5.17 Partnership taxation consultation response reaction due As outlined at the Autumn Statement, the Government will issue a response to consultation on changes to improve partnership taxation, together with draft legislation, with a view to enacting changes in Finance Bill 2018. No further detail has been made available at this stage and we await the draft legislation to see the finer detail. Although clarification of the taxation of partnerships is to be applauded, some of the consultation proposals could radically change the viability of partnerships as a UK business vehicle and it is hoped that some of the more radical proposals will be reconsidered in a more commercial light.
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6. Indirect taxes
6.1 VAT registration limits The VAT registration and deregistration thresholds will be increased in line with inflation From 1 April 2017 the turnover limit, beyond which compulsory registration is required, will be increased from £83,000 to £85,000. The turnover limit below which a business may apply for deregistration will increase from £81,000 to £83,000. The registration and deregistration threshold for businesses acquiring goods from other EU members states will also be increased from £83,000 to £85,000. These increases are in line with the usual, annual inflationary increases.
6.2 Mobile phone services ‘use and enjoyment’ provisions The ‘use and enjoyment’ provisions for mobile phone services used by individuals are being withdrawn. This will ensure that UK VAT will also be applied to mobile phone use by UK residents when outside the EU, as well as when used in the EU as under the current provisions. This change brings the UK into line with the internationally agreed approach.
6.3 Other measures to combat VAT avoidance • A consultation will be carried out to consider options to counter missing trader fraud where suppliers fail to account for VAT on the provision of labour in the construction sector. Potential measures may include the recipient being liable to account for the VAT under the reverse charge mechanism. • As announced in the previous Budget, from 1 September 2017, advisers who promote VAT avoidance schemes will become primarily responsible for disclosing the schemes to HMRC, rather than the user. These provisions will also be extended to include all indirect taxes. • Also as previously announced, a penalty for participating in VAT fraud is being introduced, with effect from the Royal Assent of the Finance Bill 2017, with the company officer being named where the tax due exceeds £25,000. • Following consultation, HMRC is to revise the draft legislation requiring all UK fulfilment houses to register for, and comply with, the Fulfilment House Due Diligence Scheme. This will include the disclosure of taxpayers’ information by HMRC to fulfilment houses in order for them to meet their obligations under the scheme. • The Government is also considering extending the proposed VAT collection mechanism for online sales by overseas sellers via online marketplaces, which will allow VAT to be collected directly from transactions at the point of purchase. It is clear that new technology will increasingly feature in combating fraud and allows the collection of VAT to move away from the traditional method and being collected directly at the point of sale.
6.4 Stamp duty land tax (SDLT) reduction of filing and payment time limits The reduction of SDLT filing and payment time limit from 30 to 14 days will be delayed until after April 2018. The measure is aimed at streamlining administration and payment processes for SDLT. The August 2016 consultation indicated over 31,000 paper returns being filed each year and about 30% of SDLT payments still being made by cheque. Increased on-line filing and electronic payment may be stimulated by the shorter timescales when introduced. Representations from industry and professional bodies to HMRC on the August 2016 consultation indicated there may be problems meeting the new deadline for large and complex acquisitions where HMRC currently require a large amount of additional data. It is to be hoped that refinements to the
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information required to accompany an SDLT return can be made so that, when the measure is introduced, it is practical to comply with for all taxpayers.
6.5 Insurance premium tax (IPT) rate increase anti-forestalling rules New anti-forestalling measures are to be introduced to ensure the 2% increase in IPT standard rate from June 2017 reflects the policy intention. It has effect from 8 March 2017 As announced at Autumn Statement 2016, the standard rate of IPT will rise from 10% to 12% from 1 June 2017. There is existing anti-forestalling legislation to ensure that any increase in IPT applies from the date the changed rate is to have effect. This continues to have effect so far as it relates to premiums received on or after 23 November 2016 and before 8 March 2017. From 8 March 2017 new anti-forestalling legislation will replace the existing provisions. The new provisions are aimed at preventing businesses taking steps to avoid the rate change, that the rate increase is applied fairly, and excludes situations where any apparent forestalling is simply a consequence of the insurer’s normal commercial practice. This measure updating and amending existing anti-forestalling legislation is an expected measure to ensure the budgeted rate increase operates as intended. It is notable that the IPT rate was 6% prior to November 2015 and so by June 2017 the rate will have doubled in less than two years, increasing the cost of many types of insurance cover purchased in the UK, such as for motor cars, houses and contents and private medical insurance. There is no change to the higher IPT rate of 20%, which applies to travel insurance and some mechanical/electrical warranties.
6.6 Landfill tax disposals clarification New legislation will clarify the tax treatment of material disposed at landfill sites in England, Wales and Northern Ireland. The new legislation will take effect from the date of Royal Assent of Finance Bill 2017. There has been some dispute in recent years as to what constitutes a taxable disposal for landfill tax purposes. In addition, it appeared that some hazardous waste was classified in such a way that lower rates of landfill tax applied instead of higher rates. Amending legislation, taking effect from the date of Royal Assent of Finance Bill 2017, will clarify that landfill tax will apply to material deposited on the surface of land or on a structure set into the surface, whether or not it is covered after being deposited, or is deposited in a cavity. The changes will also remove the requirement for landfill site operators to notify HMRC of various landfill site related activities. Exemptions from the tax will be set out in secondary legislation so landfill tax will not apply to material currently outside its scope. These changes will apply to landfill in England, Wales and Northern Ireland, and should remove much of the uncertainty evident from disputes that have reached the Courts in recent years. Landfill tax has been devolved to Scotland and will be one of the taxes to be devolved to Wales. It is to be hoped there will be consistency in the way the similar taxes apply across the whole of the UK.
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7. Making tax digital and general tax matters
7.1 Making tax digital: one year deferral The draft legislation published in January 2017 is to be amended for various points including a one year deferral to the quarterly reporting mandatory start date for unincorporated businesses and landlords with turnover below the VAT threshold. In Budget 2015, the Government announced its intention to digitise the tax system by 2020. A substantial period of consultation followed with some draft legislation published on 31 January 2017. This draft legislation confirmed that unincorporated businesses and landlords would need to start using the new digital system from April 2018. Today’s announcement delays the start date by one year where the turnover of a business is below the VAT threshold (due to increase in April to £85,000). The revised start dates are as below.
• April 2018 - profits chargeable to income tax (turnover in excess of the VAT threshold), apart from partnerships with turnover >£10m • April 2019 - profits chargeable to income tax (turnover over £10,000 but below the VAT threshold) • April 2019 – businesses registered for, and paying, VAT • April 2020 – businesses chargeable to corporation tax (CT) and partnerships with turnover >£10m Further minor changes have also been made to the draft legislation. Deep concerns regarding the ambitious timescale have been raised since day one and so a delay in the introduction for smaller unincorporated businesses is a good start. These smaller businesses are the very ones that require more time to acquire and set up new systems, either themselves or by using a tax agent. However, concerns remain around the additional compliance burden faced by businesses and landlords under this system given the requirement, not only to retain records digitally, but also to submit information to HMRC quarterly, a more frequent basis than is currently required. In addition there are concerns around the expected delay before HMRC launch the tax agent access, so that many agents and their clients can join the pilot. It remains clear that the Government and HMRC are committed to the introduction of making tax digital so taxpayers, and their agents, need to give thought to putting systems and processes in place in the near future.
7.2 Making tax digital: tax administration including interest and penalties. As part of the digitisation of the tax system, a consultation will take place shortly looking at the tax administration system including the related interest and penalties A consultation document will be published on 20 March 2017 to consider design aspects of the tax administration system, including interest and penalties. This forms part of the wider project around Making Tax Digital (MTD). The stated aims of the consultation are to ensure a consistent approach is adopted across taxes and that the system is simplified for taxpayers. Clearly, the current UK tax system contains inconsistencies and complexity. As such, any attempt to improve this is welcome. In addition, it will be important to ensure that any legislation in this area does not add further layers of burdens on businesses that will be required to comply with MTD.
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7.3 Removing the effects of the Limitation Act for National Insurance NICs will be removed from the effects of the Limitation Act as announced at the 2016 Autumn Statement. The time limits for recovery of NIC debts will also be aligned with those for tax. Unlike other taxes, such as income tax, NIC is currently subject to the Limitation Act 1980, which means any claim by HMRC for unpaid contributions can be made no later than six years after the statutory due date. It was announced at the 2016 Autumn Statement that legislation would be enacted to bring NIC in line with other taxes to increase the period of time in which HMRC can collect unpaid tax. The legislation was to be introduced from April 2018, but this will now be pushed back to allow a full consultation on the alignment. As noted when this was announced at the 2016 Autumn Statement, this measure represents an increase in HMRC collection powers. As such, a detailed consultation is required to ensure the necessary safeguards are in place for taxpayers and it is reassuring to see that sufficient time is being allocated for the process to be completed.
7.4 Promoters of tax avoidance schemes (POTAS) strengthened Measures are introduced from 8 March 2017 to prevent promoters avoiding the POTAS regime by using reorganisations or intermediaries. Where a threshold condition is met, for example non-compliance with DOTAS (disclosure of tax avoidance schemes), that is deemed to be significant, then HMRC can issue a promoter with a conduct notice under the POTAS regime. The conduct notice may, amongst other things, require the promoter to provide more detailed information to its clients, or to refrain from promoting certain contrived or abnormal tax arrangements. With effect from 8 March 2017 the rules determining whether a body corporate or partnership being used as a promoter is controlled by a person or persons to whom the threshold conditions apply have been tightened. As a result of these changes it will be more difficult for promoters to avoid the consequences of the POTAS regime by putting a person or persons between themselves and the promoting business.
7.5 Strengthening tax avoidance sanctions and deterrents A new penalty will be introduced for those who 'enable' the use of tax avoidance arrangements that are subsequently defeated. Revisions have been made to the proposals to extend the enablers regime to those who seek to avoid NICs and clarify when enablers will be named. As part of the Government’s commitment to deter taxpayers from engaging in tax avoidance arrangements, a new penalty will be introduced for any person who enables another person or business to use an abusive tax avoidance arrangement that is later defeated by HMRC. It will apply to enabling activity taking place on or after the date of Royal Assent of Finance Bill 2017. Revisions to previously issued draft legislation give further detail on how the GAAR advisory panel will consider ‘enabler cases’, extend the regime to those seeking to avoid NICs and clarify when enablers will be named. It is perfectly understandable that the Government is determined to continue to tighten the screws on those who market abusive tax avoidance schemes that do not work. The widening of the scope of the regime to cover NIC is to be expected in a climate where the importance of NIC for the exchequer is critical. A key element will be how the legislation is used in practice and the extent of the protection given by taking 'reasonable care'.
7.6 Crackdown on the hidden economy Following the November 2016 announcement and consultation on sanctions and conditionality for the hidden economy the Government has refined its proposals. The proposals concern:
• making access to certain licenses or services conditional on tax registration; • strengthening the 'failure to notify' penalty; and • improving the monitoring of taxpayers found to be operating in the hidden economy.
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Following consultation, the Government will take further action including:
• developing further proposals on conditionality so that burdens on compliant businesses are minimised; • considering the design of a stronger ‘failure to notify’ hidden economy penalty, which may take account of past behaviour; and • strengthening the monitoring of taxpayers found to be operating in the hidden economy. These measures to tackle the hidden economy are welcomed as part of HMRC’s drive to reduce the ‘tax gap’, while considering the potential impact on the compliant sector of the economy. As with all such measures, the key is to ensure the implementation is properly targeted and efficiently operated.
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8. Appendix: Rates and allowances
Income tax, personal and age-related allowances (£ per year)
2016/17 Change 2017/18 Personal allowance (1) 11,000 (+500) 11,500 Income limit for full age-related allowances (2) 27,700 (+300) 28,000 Married couple’s allowance (3) 8,355 (+90) 8,445 Married couple’s allowance (3) – minimum 3,220 (+40) 3,260 amount Transferable tax allowance (4) 1,100 (+50) 1,150 Blind person’s allowance 2,290 (-) 2,290 (1) The basic personal allowance is reduced by £1 for every £2 of ‘adjusted net income’ above £100,000. This is irrespective of age. (2) Where ‘adjusted net income’ is above the income limit, the age-related allowance is reduced by £1 for every £2 of excess income, until it is reduced to the basic level. The reduction where ‘adjusted net income’ exceeds £100,000 applies as for the basic personal allowance. (3) Available to people born before 6 April 1935. Tax relief is given at the rate of 10%. (4) Amount of personal allowance spouses/civil partners born after 5 April 1935 can transfer to basic- rate tax paying spouse/civil partner.
Income tax rates (£)
2016/17 Change 2017/18 Starting savings rate 0% (1) 0 - 5,000 (-) 0 - 5,000 Basic rate 20% (2) 0 – 32,000 (+1,500) 0 – 33,500 Higher rate 40% (3) 32,001 - 150,000 (+1,500) 33,501 - 150,000 Additional higher rate 45% (4) 150,000+ (-) 150,000+ Rate of income tax for discretionary trusts and accumulation and maintenance trusts: 38.1% for dividend income and 45% for non-dividend income. (1) 0% starting rate for savings only where other income does not exceed the band. (2) 7.5% for dividend income. (3) 32.5% for dividend income. (4) 38.1% for dividend income. Different rate bands will apply in Scotland.
Remittance basis charge
2017/18 UK resident for less than 7 of the past 9 tax years £nil UK resident for at least 7 of the past 9 tax years £30,000 UK resident for at least 12 of the past 14 tax years £60,000 UK resident for at least 15 of the past 20 tax years (1) £nil (1) Those UK resident for at least 15 of the past 20 tax years are deemed domiciled for income tax, capital gains tax and inheritance tax and will no longer be entitled to claim remittance basis.
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CGT annual exempt amount (£ unless stated)
2016/17 Change 2017/18 Individuals 11,100 (+200) 11,300 Most trustees 5,550 (+100) 5,650 CGT rates – basic rate (1) 10% (-) 10% CGT rates – higher and additional rate and all trustees and 20% (-) 20% personal representatives (2) CGT entrepreneurs’ relief 10% (-) 10% Lifetime limit on gains (entrepreneurs) 10 million (-) 10million Lifetime limit on gains (external investors) 10 million (-) 10 million (1) 18% rate applies for disposals of residential property. (2) 28% rate applies for disposals of residential property.
National insurance contributions
Item 2017/18 Lower earnings limit, primary Class 1 £113 per week
Upper earnings limit, primary Class 1 £866 per week
Primary threshold £157 per week
Secondary threshold £157 per week
Employees’ primary Class 1 rate 12% of £157 to £866 per week 2% above £866 per week
Married women’s reduced rate* 5.85% of £157 to £866 per week 2% above £866 per week
Employers’ secondary Class 1 rate 13.8% above £157 per week
Employment allowance (per employer) £3,000 per annum
Class 2 rate £2.85 per week
Class 2 small earnings exception £6,025 per annum
Special Class 2 rate for share fishermen £3.50 per week
Special Class 2 rate for volunteer development workers £5.65 per week
Class 3 rate £14.25 per week
Class 4 lower profits limit £8,164 per annum
Class 4 upper profits limit £45,000 per annum
Class 4 rate 9% of £8,164 to £45,000 per annum 2% above £45,000 per annum
*For women married before 6 April 1977 who have elected to pay a reduced rate of Class 1 contributions.
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ISAs
2016/17 2017/18 £15,240 £20,000
Junior ISA and Child Trust Fund
2016/17 2017/18 £4,080 £4,128
IHT and pensions (£ unless stated)
2016/17 2017/18 Tax rates:
Estates 40% 40%
Reduced death rate (1) 36% 36%
Lifetime transfer rate 20% 20%
Nil rate bands:
Nil rate band limit (2) 325,000 325,000
Residential nil rate band limit 100,000 100,000
Exempt amounts:
Annual exemption 3,000 3,000
Small gifts exemption 250 250
Wedding gifts exemptions , where gift made by:
- parent 5,000 5,000
- more remote ancestor 2,500 2,500
- party to marriage 2,500 2,500
- other person 1,000 1,000 (1) For deaths occurring on or after 5 April 2012, a reduced rate of 36% applies where a deceased individual has left 10% or more on a ‘component part’ of their net estate to charity. (2) The unused proportion of the nil rate band can be transferred to surviving spouse or civil partner.
Pension scheme allowances (£)
2016/17 Change 2017/18 Pension scheme annual allowance (1) 40,000 - 40,000
Pension scheme lifetime allowance 1,000,000 - 1,000,000
(1) From 6 April 2016 the annual allowance is reduced by £1 for every £2 of income above £150,000 subject to a minimum allowance of £10,000.
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State pension and pension credit (£ per week) 2016/17 Change 2017/18 Old State pension
Category A or B basic state pension 119.30 (+3.00) 122.30
Category B basic state pension (lower) 71.50 (+1.80) 73.30
– spouse or civil partner’s insurance
Category C or D – non-contributory 71.50 (+1.80) 73.30
New State pension (individuals retiring 155.65 (+3.90) 159.55 after 5 April 2016)
Pension credit
Standard minimum guarantee – single 155.60 (+3.75) 159.35
Standard minimum guarantee – couple 237.55 (+5.70) 243.25
Savings credit threshold – single 133.82 (+3.53) 137.35
Savings credit threshold – couple 212.97 (+5.45) 218.42
Savings credit maximum – single 13.07 (+0.13) 13.20
Savings credit maximum – couple 14.75 (+0.15) 14.90
Working and child tax credits (£ per year unless stated)
2016/17 Change 2017/18
Working tax credit
Basic element 1,960 (-) 1,960
Couple and lone parent element 2,010 (-) 2,010
30-hour element 810 (-) 810
Disabled worker element 2,970 (+30) 3,000
Severe disability element 1,275 (+15) 1,290
Childcare element of the working tax credit
Maximum eligible cost for one child (per 175 (-) 175 week)
Maximum eligible cost for two or more 300 (-) 300 children (per week)
Eligible costs covered 70% (-) 70%
Child tax credit
Family element 545 (-) 545
Child element 2,780 (-) 2,780
Spring Budget 2017 28
2016/17 Change 2017/18 Disabled child element 3,140 (+35) 3,175
Severely disabled child element 1,275 (+15) 1,290
Income thresholds and withdrawal rates
First income threshold 6,420 (-) 6,420
First withdrawal rate 41% (-) 41%
First threshold for those entitled to child tax 16,105 (-) 16,105 credit only
Income disregard 2,500 (-) 2,500
Income fall disregard 2,500 (-) 2,500
Child benefit and guardian allowance rates (£ per week unless stated)
2016/17 Change 2017/18 Eldest/only child* 20.70 (-) 20.70
Other children* 13.70 (-) 13.70
Guardian’s allowance* 16.55 (+15) 16.70
*A charge applies where either a claimant or their spouse or civil partner earns over £50,000, amounting to 1% of the benefit received for each £100 the higher earner’s earnings exceed £50,000.
Corporation tax on profits (£ per year unless stated)
Financial year to 31 March 2016 Change 31 March 2017 Main rate 20% (-1) 19%
Company taxes payable on profits from UK oil and gas production (%)
Rates from 1 Jan 17
Ringfence corporation tax main rate 30
Supplementary charge 10
Petroleum revenue tax 0*
*Petroleum revenue tax is deductible in computing profits chargeable to ringfence corporation tax and supplementary charge.
Spring Budget 2017 29
Capital allowances
2016/17 2017/18 Plant and machinery – annual investment allowance* £200,000 £200,000
– annual allowance (main rate pool) 18% 18%
– long life assets (special rate pool) 8% 8%
– integral features 8% 8%
Cars – CO2 emissions up to 75g/km 100% 100%
Cars – CO2 emissions 76 - 130g/km 18% 18%
Cars – CO2 emissions over 130g/km 8% 8%
New and unused zero-emission goods vehicles 100% 100%
*100% annual investment allowance up to stated limit for qualifying expenditure incurred on certain plant and machinery for each unlinked unincorporated business or corporate group. Expenditure over limit dealt with through standard regime.
Research and development tax credits (%)
2016/17 2017/18 Rates for deduction
SME rate 230 230
Large company rate N/A N/A
Rates for surrender of losses
SME rate 14.5 14.5
Large company rate (taxable) 11 11
Patent box (%)
2015/16 2016/17 Effective corporation tax rate on profits generated from qualifying 10 10 intellectual property rights*
*The patent box is being phased in from April 2013, with companies able to claim 70% of the benefit in 2014/15, 80% in 2015/16, 90% in 2016/17 and 100% from 2017/18
VAT
% Standard rate 20
Bank surcharge
Rates from 1 Rates from 1 April 2016 January 2017 8% 8%
Spring Budget 2017 30
Business rates (per £ of a business property’s rateable value)
2016/17 2017/18 Standard multiplier 49.7p 47.9p
Small business multiplier 48.4p 46.6p
Bank levy (%)
Rates from 1 Rates from 1 April 2016 January 2017 Short-term chargeable liabilities 0.18 0.17
Long-term chargeable equity and liabilities 0.09 0.085
Stamp taxes and duties 2017/18
Stamp duty land tax (SDLT) Transfers of land and buildings (consideration paid) Rate Residential Rate Non-residential Band at Value of total consideration All at Value of total consideration
Zero £0-£125,000 Zero £0-£150,000 (2)
2% £125,001-£250,000 2% £150,001-£250,000
5% £250,001-£925,000 5% Over £250,000
10% (1) £925,001-£1,500,000 - -
12% (1) Over £1,500,000 - -
(1) A 15% rate of tax applies to purchases after 20 March 2014 of residential properties for consideration over £500,000 by certain ‘non-natural persons’. (2) Where annual rent is more than £1,000 a 1% rate applies. (3) An additional 3% surcharge applies on the purchase of an additional residential property on or after 1 April 2016.
New leases (lease duty) Duty on the premium is the same as for transfers of land (except that special rules apply for non-residential land and property premium where rent exceeds £1,000 annually). Duty on the rent is charged on the net present value (NPV). A % rate applies to the amount of NPV in excess of the threshold. Rate Residential Non-residential Band at NPV of rent Band at NPV of rent
Zero £0-£125,000 Zero £0-£150,000
1% Over £125,000* 1% £150,001- £5,000,000*
2% - 2% Over 5,000,000 *
*The tax rate applies to the value which exceeds the nil rate band.
Spring Budget 2017 31
Scotland land and buildings transaction tax (LBTT) From 1 April 2015, LBTT replaced SDLT in Scotland. Rate Residential Rate Non-residential
Band at Value of total consideration Band at Value of total consideration
Zero £0-£145,000 Zero £0-£150,000
2% £145,001 - £250,000 3% £150,001-£350,000
5% £250,001 - £325,000 4.5% Over £350,000
10% £325,001 - £750,000 - -
12% Over £750,000 - -
Stamp duty reserve tax The rate of stamp duty/stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% standard rate and 1.5% higher rate for 2017/18. From 28 April 2014 shares quoted on ‘growth markets’ such as AIM are not subject to stamp duty.
Annual tax on enveloped dwellings
The tax is payable by 30 April of each tax year. Property value 2016/17 2017/18 More than £500,000 but not more than £1,000,000 £3,500 £3,500
More than £1,000,000 but not more than £2,000,000 £7,000 £7,050
More than £2,000,000 but not more than £5,000,000 £23,350 £23,550
More than £5,000,000 but not more than £10,000,000 £54,450 £54,950
More than £10,000,000 but not more than £20,000,000 £109,050 £110,100
Over £20,000,000 £218,200 £220,350
Air passenger duty rates (£)
Band and distance of capital In the lowest class of In other than the lowest Higher rate city of destination country in travel (reduced class of travel (standard miles from London rate) rate) On and after 1 April 2016
A (0-2,000) 13 26 78
B (over 2,000) 73 146 438
On and after 1 April 2017
A (0-2,000) 13 26 78
B (over 2,000) 75 150 450
*Higher rate applies to flights on aircraft of 20 tonnes and above, with fewer than nineteen seats.
Spring Budget 2017 32
Environmental taxes
Rates from 1 April 2016 Rates from 1 April 2017 Landfill tax
Standard rate £84.40 per tonne £86.10 per tonne
Lower rate £2.65 per tonne £2.70 per tonne
Aggregates levy
Aggregates levy rate £2.00 per tonne £2.00 per tonne
Climate change levy
Electricity 0.559p per kWh 0.568p per kWh
Natural gas 0.195p per kWh 0.198p per kWh
Liquefied petroleum gas 1.251p per kg 1.272p per kg
Solid fuel 1.5126p per kg 1.551p per kg
Tobacco duty rates
Product from 6pm 18 March from 6pm 18 March from Minimum 2016 2017 midnight 20 excise duty May 2017 Cigarettes price plus £196.42 per price plus £207.99 per An amount equal to the higher thousand cigarettes thousand cigarettes of the following alternatives: either £207.99 per 1000 cigarettes plus 16.5% of retail price Or £268.63 per 1000 cigarettes
Cigars £245.01 per kg £259.44 per kg £259.44 per kg
Hand-rolling tobacco £198.10 per kg £209.77 per kg £209.77 per kg
Other smoking tobacco and chewing tobacco £107.71 per kg £114.06 per kg £114.06 per kg
Alcohol duty rates (£)
Product and basis of duty from 21 March 2016 from 13 March 2017
Rate per litre of pure alcohol
Spirits 27.66 28.74
Spirits-based, ready to drink 27.66 28.74
Wine and made wine: 28.74 exceeding 22% alcohol by volume (abv) 27.66
Rate per hectolitre % of alcohol in the beer
General beer duty 18.37 19.08
Spring Budget 2017 33
Product and basis of duty from 21 March 2016 from 13 March 2017
Additional high strength duty 5.69 exceeding 7.5% abv 5.48
Lower strength beer duty – beer exceeding 8.42 1.2% but not exceeding 2.8% abv 8.10
Rate per hectolitre of product
Still cider and perry: exceeding 1.2% – not exceeding 7.5% abv 38.87 40.38 exceeding 7.5% – not exceeding 8.5% abv 58.75 61.04
Sparkling cider and perry: exceeding 1.2% – not exceeding 5.5% abv 38.87 40.38 exceeding 5.5% – not exceeding 8.5% abv 268.99 279.46
Wine and made wine: exceeding 1.2% – not exceeding 4% abv 85.60 88.93 exceeding 4% – not exceeding 5.5% abv 117.72 122.30
Still wine and made wine: exceeding 5.5% – not exceeding 15% abv 277.84 288.65
Wine and made wine: exceeding 15% – not exceeding 22% abv 370.41 384.82
Sparkling wine and made wine: exceeding 5.5% – not exceeding 8.5% abv 268.99 279.46 exceeding 8.5% – not exceeding 15% abv 355.87 369.72
Gambling tax rates (%)
2016/17 2017/18
General betting duty 15 15
General betting duty – sports spread bets 10 10
General betting duty – financial spread bets 3 3
Bingo duty 10 10
Remote gaming duty 15 15
Pool betting duty 15 15
Lottery duty (% of ticket value) 12 12
Machine games duty - maximum cost per play not more than 20p and maximum cash prize not more than £10
Spring Budget 2017 34
2016/17 2017/18 (type 1 machines) 5 5
– all others (cost per play not more than £5) 20 20
– all others (cost per play can exceed £5) 25 25
Fuel duty rates 2017/18 (pence per litre unless stated)
Fuel type From 23 March 2011 Ultra-low sulphur petrol/diesel 57.95
Sulphur-free petrol/diesel 57.95
Biodiesel 57.95
Bioethanol 57.95
Liquefied petroleum gas used as road fuel 31.61p per kg Natural gas used as road fuel 24.70p per kg Rebated gas oil (red diesel) 11.14 Fuel oil 10.70 *Fuel duty rates have remained frozen since 6pm on 23 March 2011.
Vehicle excise duty for cars registered on or after 1 April 2017 (£) - alternative fuel discount: £10 all cars
CO2 emissions (g/km) Standard rate First-year rate 0 0 0
(1-50) 140 10
(51-75) 140 25
(76-90) 140 100
(91-100) 140 120
(101-110) 140 140
(111-130) 140 160
(131-150) 140 200
(151-170) 140 500
(171-190) 140 800
(191-225) 140 1,200
(226-255) 140 1,700
(Over 255) 140 2,000
Spring Budget 2017 35
Vehicle excise duty for cars registered on or after 1 March 2001 but before 1 April 2017 (£)
VED band/CO2 emissions (g/km) Standard rate (1) First-year rate 2017/18 (2) 2017/18 (4) A (Up to 100) 0 N/A
B (101-110) 20 N/A
C (111-120) 30 N/A
D (121-130) 115 N/A
E (131-140) 135 N/A
F (141-150) 150 N/A
G (151-165) 190 N/A
H (166-175) 220 N/A
I (176-185) 240 N/A
J (186-200) 280 N/A
K (2) (201-225) 305 N/A
L (226-255) 520 N/A
M (Over 255) 535 N/A
(1) Alternative fuel discount: £10 all cars. (2) Includes cars emitting over 225g/km registered before 23 March 2006. (3) From 2017 to 2018 there is no first year rate under the current graduated VED system because the new VED system is coming into effect.
Vehicle excise duty for cars and vans registered before 1 March 2001 (£)
VED band 2016/17 rate 2017/18 rate Up to 1549cc 145 150
Over 1549cc 235 245
Vehicle excise duty for cars and vans registered after 1 March 2001 (£)
VED band 2016/17 rate 2017/18 rate Early Euro 5 and Euro 5 compliant vans 140 140
All other vans 230 240
Spring Budget 2017 36
9. Glossary of terms
BEPS – base erosion profit share EIS – Enterprise Investment Scheme CGT – capital gains tax CPI – consumer price index EEA – European Economic Area HMRC – HM Revenue and Customs IHT – inheritance tax ISA – individual savings account NIC – national insurance contribution OECD – Organisation for Economic Cooperation and Development OBR - Office for Budget Responsibility OTS – Office of Tax Simplification PAYE – pay as you earn SEIS – Seed Enterprise Investment Scheme VCT – Venture Capital Trust
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