Spring 2017 Budget: key business tax announcements

On 8 March 2017, the Chancellor, Philip Hammond, delivered the final Spring Budget. This legal update summarises the key business tax announcements. (Free access.)

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The Chancellor, Philip Hammond, made what will be his only Spring Budget speech on 8 March 2017 ...show full speedread

The Chancellor, Philip Hammond, made what will be his only Spring Budget speech on 8 March 2017. In keeping with the government’s plan to move to a single fiscal event taking place in the autumn, this was a relatively low-key Budget. Highlights are:

  • The new restriction on corporation tax deductibility of interest will go ahead from April 2017, with relaxation of the public infrastructure exemption and a number of other changes.

  • The government is to review tax reliefs aimed at encouraging investment and entrepreneurship, such as EIS and entrepreneurs’ relief, with a view to ensuring that high growth businesses have access to long-term capital.

  • Non-resident companies may become subject to corporation tax on gains that are currently subject to the non-resident CGT charge. However, it is unclear whether gains on other assets will be excluded from the government's proposals to bring non-resident companies within the scope of corporation tax.

  • The tax-free allowance for dividends will reduce from £5,000 to £2,000 with effect from April 2018.

  • The rate of self-employed (Class 4) NICs will increase from 9% to 10% in 2018-19, and to 11% in 2019-20.

  • The proposed reduction of the SDLT payment and filing window from 30 days to 14 days has been postponed to 2018-19.

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Contents

This legal update summarises the key business tax announcements in the Spring 2017 Budget. Many of the changes announced or confirmed today will be in the Finance Bill 2017, which will be published on 20 March 2017, alongside a number of consultations. There will be a Budget in autumn 2017, which will be followed by the introduction of a Finance Bill (“the Finance Bill 2017-18”). The government confirmed that, from spring 2018, the Spring Statement will typically respond to the OBR’s forecast and launch a number of consultations about future tax reforms. Going forward, unless there is a risk of forestalling, tax changes will be announced well ahead of the next financial year.

Abbreviations:

 

Avoidance and evasion

Strengthening tax avoidance sanctions and deterrents

As previously announced, the government has confirmed that measures will be introduced to:

  • Impose penalties on persons who have enabled the use of a tax avoidance arrangement that is later defeated by HMRC.

  • Restrict the defence of "reasonable care" when considering penalties in defeated tax avoidance cases.

Draft Finance Bill 2017 legislation to implement these measures was published for consultation on 5 December 2016 (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Strengthening tax avoidance sanctions and deterrents ( www.practicallaw.com/w-004-8173) ).

The government has confirmed that the draft Finance Bill 2017 enablers legislation has been amended to, among other things:

  • Provide further detail of when and how the GAAR Advisory Panel will consider enabler cases.

  • Impose penalties on persons who have enabled the use of NICs avoidance arrangements.

  • Provide further detail of when an enabler will be named.

We will provide more details when the Finance Bill 2017 is published on 20 March 2017.

As previously announced, the enablers legislation will take effect from the date the Finance Bill 2017 receives Royal Assent and will apply to steps taken by enablers after Royal Assent.

No changes were announced to the Finance Bill 2017 legislation implementing the reasonable care defence restriction, which, as previously announced, will apply to inaccuracies in documents relating to tax periods beginning on or after 6 April 2017.

 (See: HM Treasury: Spring Budget 2017, paragraph 3.44; Overview, paragraph 1.41 and HM Treasury: Spring Budget 2017: policy costings, page 20.)

Promoters of tax avoidance schemes: extending control definition to include significant influence

The government has announced that amendments to the Promoters of Tax Avoidance Scheme (POTAS) rules will be introduced in the Finance Bill 2017 to prevent promoters circumventing the rules. The amendments take effect from 8 March 2017.

The Finance Act 2015 amended the POTAS rules to treat a corporate promoter or a promoter carrying on business in partnership (P) as meeting a threshold condition if the condition was met by another person (A) and a control relationship existed between A and P or between a third person and A and P at the specified time. The Finance Bill 2017 will extend the definition of control to include occasions when two or more persons together have control and where a person has, or two or more persons together have, significant influence. This is intended to prevent promoters from circumventing the POTAS rules by sharing control of a promoting business or by inserting intermediaries between the promoter and the promoting business.

For more information about the POTAS rules, see Practice note, Tax avoidance schemes: high risk promoters: conduct and monitoring notices ( www.practicallaw.com/7-571-3415) .

(See HMRC:TIIN: Promoters of Tax Avoidance Schemes: associated and successor entities rules; Draft clause; Draft explanatory notes; HM Treasury: Spring Budget 2017, paragraph 3.43; Overview, paragraph 1.40.)

Penalties for failure to correct previous offshore non-compliance

The government has confirmed that the Finance Bill 2017 will include legislation to introduce a requirement to correct (RTC) on taxpayers who have undeclared past UK tax liabilities in respect of offshore financial interests, with tougher sanctions for those who fail to do so before 1 October 2018.

The government states that the RTC is expected to come into force when the Finance Bill 2017 receives Royal Assent, and will apply to all taxpayers with offshore interests who have not complied with their UK tax obligations as at 5 April 2017.

The government also specifically states that the draft legislation will be revised to ensure that the reasonable excuse defence will not apply where advice is received from an adviser who is not independent. This was not apparent from the draft Finance Bill 2017 clauses published in December 2016, although the government did publicise its intention in this respect in its consultation response document, also published in December 2016. 

For more information, see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Tackling offshore tax evasion: requirement to correct ( www.practicallaw.com/w-004-8173) and Tax legislation tracker, compliance, disputes and investigations: Strengthening civil sanctions for offshore evasion ( www.practicallaw.com/6-503-0904)  

(See Overview, paragraph 1.42. )

VAT disclosure regime reform

As previously announced, legislation will be introduced in the Finance Bill 2017 to extend the VAT disclosure regime to all indirect taxes with effect from 1 September 2017. Other than confirming that the extended regime will apply to the Soft Drinks Levy (see Soft drinks industry levy: rates and criminal offence of evasion), no further changes were announced.

For background and to track the progress of the measures, see Tax legislation tracker: VAT: Updating and extending VAT DOTAS rules ( www.practicallaw.com/1-503-1048) .

(See Overview, paragraph 1.38.)

Penalties for participating in VAT fraud

Following the consultation on the draft Finance Bill 2017 legislation to introduce a penalty for participating in VAT fraud (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: VAT penalties for participating in VAT fraud ( www.practicallaw.com/w-004-8173) ), the government has confirmed that changes will be made to the legislation to:

  • Improve clarity.

  • Permit naming of officers where the amount of VAT due exceeds £25,000 (the draft legislation provides for naming where the potential lost VAT exceeds £50,000).

As previously announced, the penalty will take effect from the date the Finance Bill 2017 receives Royal Assent.

To track this measure to implementation, see Legislation Tracker, Tax legislation tracker: VAT: Penalties for participating in VAT fraud ( www.practicallaw.com/1-503-1048) .

(See Overview, paragraph 1.39.)

Tackling the hidden economy

The government announced three measures to tackle the hidden economy. It will:

  • Develop proposals to make access to business services or licences dependent on tax registration and explore options to trial such conditionality through pilot activity.

  • Consider the design of a failure to notify hidden economy penalty.

  • Strengthen monitoring of taxpayers found to be operating in the hidden economy.

The timing of the introduction of these measures has not yet been announced and the lack of concrete measures together with the failure to publish the promised response documents to the summer 2016 hidden economy consultations (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Tackling the hidden economy ( www.practicallaw.com/w-004-8173) ) suggests that progress on this issue is difficult or, perhaps, that the issue is not a high priority.

For background and to track the progress of these measures, see Tax legislation tracker: compliance, disputes and investigations: Tackling the hidden economy ( www.practicallaw.com/6-503-0904)

(See Overview, paragraph 2.32.)

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Business

Extending corporation tax to non-resident companies

The government has announced that it will consult on bringing non-UK resident companies "who are currently chargeable to income tax on their UK taxable income, and to non-resident capital gains tax (CGT) on certain gains" within the scope of corporation tax. The consultation paper will be issued on 20 March 2017.

In the 2016 Autumn Statement, the government announced that it would consult on extending corporation tax to non-UK resident companies that receive taxable income from the UK (see Legal update, 2016 Autumn Statement: key business tax announcements: Extending corporation tax to non-resident companies ( www.practicallaw.com/w-004-5458) ). This was confirmed in an announcement made at the time the draft Finance Bill 2017 clauses were published (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Extending corporation tax to non-resident companies ( www.practicallaw.com/w-004-8173) ). Each of these announcements referred only to extending the scope of corporation tax to amounts on which a non-resident company is currently subject to UK income tax (for example, interest, royalties and rental income). However, there were concerns that it might also encompass gains realised on a disposal of the income-producing assets.

The Spring 2017 Budget announcement widens the scope of the proposed consultation to non-UK resident companies that are currently chargeable to non-resident CGT on certain gains. It is unclear whether the consultation will extend to other gains realised by non-UK resident companies (for example, gains realised on a disposal of commercial property). This is because it is unclear whether the text in italics (see above) is meant to describe the non-UK resident companies that are to be brought within the scope of corporation tax (in which case the charge on non-UK resident companies would not be extended to gains on commercial property) or whether those words simply describe the extent of the current charge to tax on non-UK resident companies (in which case the scope of the charge could be extended to commercial property). Given that the expressed policy driver for the announcement is to apply corporation tax rules, such as the restrictions on interest expense and the loss relief rules, to non-UK resident companies, it would be remarkable for such a radical extension of the scope of the tax charge not to be mentioned.

Non-resident CGT arises on the disposal of UK residential property by certain non-residents, including companies that are closely held. Non-resident companies in the same corporate group can elect to aggregate (or pool) their non-resident CGT gains and losses across the group. Depending on the outcome of the consultation, such companies may instead become subject to corporation tax on gains realised on a disposal of UK residential property. In such circumstances, it is possible that sections 171 and 171A of the Taxation of Chargeable Gains Act 1992 will apply instead of the aggregate (or pooling) of gains and losses (although those sections will require amendment). (For more information on the non-resident CGT regime, see Practice note, Capital gains tax: disposals of UK residential property by non-residents ( www.practicallaw.com/9-592-8165) .)

The current rate of non-resident CGT for companies is 20%. Therefore, with a drop in the corporation tax rate to 19% from 1 April 2017 and 17% from 1 April 2020, non-resident companies (for example, landlords) should see a lower tax liability on a disposal of UK residential property. However, this is likely to come at a cost of complexity in applying corporation tax rules (including the new rules on corporation tax losses and restrictions on the deductibility of interest) to income and complying with corporation tax deadlines. Taxpayers will not welcome any consultation to extend the scope of corporation tax to gains realised on assets that are not currently within the scope of UK tax.

To track progress of this measure, see Tax legislation tracker: corporate: Extension of corporation tax to non-resident companies ( www.practicallaw.com/2-503-0656) .

(See Overview, paragraph 2.19.)

Reform of corporation tax losses

The government confirmed that, as expected, the reform of corporation tax losses will take effect from 1 April 2017. The revised draft legislation published on 26 January 2017 will be further amended to include provisions for oil and gas companies, which are subject to their own taxation regime and are to be excluded from the new rules, and oil contractors.

For more information, see Tax legislation tracker: corporate: Reform of corporation tax losses ( www.practicallaw.com/2-503-0656) .

(See Overview, paragraph 1.17.)

Reform of substantial shareholdings exemption

The government has confirmed that changes to the substantial shareholdings exemption (SSE) will be introduced in the Finance Bill 2017 and will take effect from 1 April 2017.

This measure, which will broaden the scope and availability of the SSE, was announced in the 2016 Autumn Statement and draft legislation was released in December 2016 (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Reform of substantial shareholdings exemption (SSE) ( www.practicallaw.com/w-004-8173) ). As part of the Spring 2017 Budget, the government has announced that amendments (as yet, unspecified) have been made “to provide clarity and certainty”.

For more information on the SSE, see Practice note, Substantial shareholding exemption ( www.practicallaw.com/2-376-0440) and to follow the progress of the changes in the legislation, see Tax legislation tracker: corporate: Review of substantial shareholdings exemption ( www.practicallaw.com/2-503-0656) .

(See Overview, paragraph 1.16.)

Elections for transfers of capital assets appropriated to trading stock removed for loss-making capital assets

The Finance Bill 2017 will include legislation preventing businesses from converting capital losses into trading losses by appropriating loss-making capital assets to trading stock. The legislation has immediate effect from 8 March 2017 and has been published in draft.

Currently, section 161(1) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) provides that if a taxpayer appropriates a capital asset to trading stock it is treated as making a disposal at market value. The taxpayer may make an election under section 161(3) of TCGA 1992 with the effect that section 161(1) of TCGA 1992 does not apply and no chargeable gain or allowable loss arises. The Finance Bill 2017 will amend the legislation to provide that such an election may only be made if an appropriation of the asset to trading stock would give rise to a chargeable gain. Consequently, any allowable capital losses will be realised at the time of appropriation and cannot be converted into trading losses. 

The Finance Bill 2017 will also amend section 161(3ZB) of TCGA 1992, which provides for similar elections to be made on the disposal of assets that are subject to annual tax on enveloped dwellings (ATED). Currently, an election may be made if disposal of the asset gives rise to both ATED related gains or losses and non-ATED related gains or losses. The Finance Bill 2017 will provide that an election may only be made if a non-ATED related gain would arise.

(See HMRC: Corporation Tax and Income Tax: tax treatment of appropriations to trading stock: TIIN; HM Treasury: Spring Budget 2017, paragraph 3.45; Overview, paragraph 1.24 and HM Treasury: Spring Budget 2017: policy costings, page 22.)

Corporation tax deduction for contributions to grassroots sport

The government has confirmed that it will expand the circumstances in which companies can get deductions for contributions to grassroots sport.

The proposal for permitting corporation tax deductions for contributions to grassroots sport was first announced at the 2015 Autumn Statement and, following consultation, draft legislation was published for inclusion in the Finance Bill 2017 (see Legal update: Draft Finance Bill 2017 legislation: key business tax measures: Corporation tax deductions for contributions to grassroots sport ( www.practicallaw.com/w-004-8173) ).

Following consultation, the government has now confirmed that the deduction will be extended to 100% subsidiaries of sport governing bodies.

The measure will have effect from 1 April 2017.

(See Overview, paragraph 1.21.)

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Compliance

Making Tax Digital

Legislation to implement the government's Making Tax Digital (MTD) project will, as expected, be included in the Finance Bill 2017, with the expected commencement dates of April 2018 (for income tax and NICs), April 2019 (for VAT) and April 2020 (for corporation tax). Unincorporated businesses with turnover under £10,000 will be exempt and, as announced in the Spring 2017 Budget, unincorporated businesses with turnover under the VAT threshold will benefit from a one year deferral until April 2019.

MTD, which was first announced in the 2015 Budget, aims to transform tax compliance through the use of digital technology, abolishing annual tax returns. Six consultations on various aspects of the proposals were published on 15 August 2016, with responses to the consultations and draft legislation to implement a framework for the regime published on 31 January 2017. For background on the proposals, see Legal update, Making tax digital: consultation responses and draft legislation published ( www.practicallaw.com/w-005-6783) .

The government has confirmed that, following consultation, it will introduce a low-income deferral threshold, delaying the implementation of MTD for unincorporated businesses with turnover beneath the VAT registration threshold (currently £83,000) until April 2019. A revised version of the Tax Information and Impact Note, first published on 31 January 2017, that now includes details of the deferral threshold has been published.

The draft legislation published on 31 January 2017 has been revised and expanded, although the revised version does not yet appear to be available. Changes include:

  • Express provision for exemptions from MTD to be made by regulation.

  • Provisions replicating existing tax compliance powers and amending the Taxes Management Act 1970 to apply to MTD.

  • A new clause enabling equivalent exemptions and regulations to those proposed for income tax purposes to be made for the purposes of VAT.

The promised further consultation on late submission penalties, penalty interest on late payments and the alignment of penalties across taxes will be published on 20 March 2017.

For more information, see  Tax legislation tracker: Making Tax Digital ( www.practicallaw.com/w-005-9023) .

(See HMRC: Making Tax Digital for business: TIIN; HM Treasury: Spring Budget 2017, paragraph 3.39; Overview, paragraphs 1.47 and 2.34; HM Treasury: Spring Budget 2017: policy costings, page 15; and Chancellor Philip Hammond's Spring Budget 2017 speech.)

Large business risk review

The government has announced that it will conduct a 12-week consultation during the summer of 2017 on its risk-profiling process for large businesses, with a view to encouraging greater compliance.

 (See HM Treasury: Spring Budget 2017, paragraph 3.41 and Overview, paragraph 2.35.)

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Devolution

Income tax: separation of rates for devolution

Following legislation introduced by section 6 of the Finance Act 2016, in the Finance Bill 2017, the income tax rates that apply to savings for all UK taxpayers will be separate from the main rates that apply to income that is neither savings income nor dividend income for taxpayers in England, Wales and Northern Ireland. There will also be default rates for a limited category of taxpayers (preliminary trustees and non-residents) who are not subject to the other rates.

The restructuring of income tax rates is to allow for devolution of powers to Scotland and Wales and apply "English votes for English laws". From April 2017 the income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers will be set by the Scottish Parliament.

For more information, see Tax legislation tracker: miscellaneous: English savings and other rates of income tax ( www.practicallaw.com/4-503-1056) , Scottish devolution: tax toolkit ( www.practicallaw.com/1-616-5918) and Welsh devolution: tax toolkit ( www.practicallaw.com/4-618-1851) .

(See Overview, paragraph 1.1.)

Northern Ireland corporation tax regime

As announced at Autumn Statement 2016, the government will introduce legislation in the Finance Bill 2017 changing the Northern Ireland corporation tax regime to allow small and medium sized enterprises (SMEs) trading in Northern Ireland to elect to be subject to the Northern Ireland rate of corporation tax (NI rate). The legislation has been revised with minor drafting improvements to ensure it works as intended.

The new regime is further supposed to minimise the risk of abuse and ensure it is ready for commencement when the Northern Ireland Executive demonstrates a viable financial position.

Unchanged from the Autumn Statement 2016 timetable, the changes will come into force on Royal Assent of the Finance Bill 2017 and will have effect for accounting periods beginning on or after the first day of the financial year appointed by HM Treasury in commencement regulations for the Northern Ireland corporation tax regime. The Northern Ireland Executive has indicated its intention for the regime to begin in April 2018 and will set the NI rate at 12.5%.

For more information, see Legal update: Draft Finance Bill 2017 legislation: key business tax measures: Northern Ireland corporation tax ( www.practicallaw.com/w-004-8173) and Practice note, Finance Bill 2017: business tax provisions analysis: Corporation tax (clauses 20 to 26 and Schedules 6 to 9) ( www.practicallaw.com/w-005-4013) .

(See HMRC: Northern Ireland rate of Corporation Tax: changes to small and medium-sized enterprise regime; Overview, paragraph 1.18.)

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Employee incentives

Disguised remuneration: new close companies gateway postponed until 2018

The government announced at the Spring 2017 Budget that the introduction of the proposed new close companies gateway for Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (Part 7A) will be postponed until Finance Bill 2017-18 because of concerns that the gateway will catch genuine commercial transactions involving close companies. It will now come into force on 6 April 2018 (rather than 6 April 2017, as had been proposed). For more information on the proposals, see Legal update, Finance Bill 2017 draft legislation: disguised remuneration (close companies, loans and other draft changes to Part 7A): Close companies' gateway.

The draft legislation will be subject to further consultation during 2017.

(Overviewparagraph 1.10.)

Disguised remuneration: 2019 outstanding loan charge

In the 2016 Autumn Statement, the government announced a new Part 7A charge on certain loans made on or after 6 April 1999 that remain outstanding on 5 April 2019, subject to limited exclusions. The Spring 2017 Budget confirms that the new loan charge will go ahead as planned, but that the legislation has been revised to ensure the loan charge, and related exclusions, operate as intended. For more information on the original proposals, see Legal update, Finance Bill 2017 draft legislation: disguised remuneration (close companies, loans and other draft changes to Part 7A): 2019 outstanding loan charge.

(Overviewparagraph 1.10.)

Disguised remuneration: restriction of relief for contributions to DR schemes

As announced in the 2016 Autumn Statement, restriction of tax relief for contributions to disguised remuneration arrangements will be introduced as planned on 1 April 2017 (for corporation tax) and 6 April 2017 (for income tax). For more information on the proposals, see Legal update, Draft Finance Bill 2017 legislation: share schemes and incentives measures: Restriction of relief for employer contributions.

(Overviewparagraph 1.10.)

New disguised remuneration rules for self-employed individuals

As announced in the 2016 Autumn Statement, legislation to introduce tax charges for disguised remuneration arrangements involving self-employed individuals will take effect as planned from 6 April 2017. For more information on the proposals, see Legal update, Finance Bill 2017 draft legislation: disguised remuneration: application of provisions to self-employed.

(Overviewparagraph 1.10.)

Transfer of PAYE and NICs liabilities

In the 2016 Autumn Statement, it was announced that there would be a consultation on transferring liabilities for PAYE and NICs arising in relation to Part 7A to employees in "early 2017". The Spring 2017 Budget indicates that a consultation on the collection of income tax and NICs will now be issued later in 2017.

(Overviewparagraph 1.10.)

Enterprise management incentives (EMI) options: state aid

The Spring 2017 Budget includes confirmation that the government will seek to continue EU state aid approval for enterprise management incentives (EMI) options. The current state aid approval expires in April 2018 (see Legal update, EMI options: relaxation of requirement for mainly UK activities; Commission confirms no state aid breach).

(Overviewparagraph 2.15.)

Abolition of employee shareholder status tax reliefs

The Spring 2017 Budget confirms that the abolition of the tax reliefs for employee shareholder status will proceed as proposed in the Autumn Statement 2016. For more information, see Legal update, 2016 Autumn Statement: key share schemes and incentives announcements: Employee shareholder status tax reliefs abolished.

(OverviewMeasures unchanged following consultation.)

For all of the key share schemes and incentives announcements, see Legal update, Spring 2017 Budget: key share schemes and incentives announcements ( www.practicallaw.com/w-006-8302) .

 

Employment

Salary sacrifice: restricted to certain benefits

The government has confirmed its previous announcement that the Finance Bill 2017 will introduce legislation to remove tax and NICs advantages when certain benefits are provided as part of salary sacrifice arrangements. As the measure is not listed in the table of unchanged measures, it is assumed that some changes to the draft Finance Bill 2017 legislation (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Salary sacrifice: restricted to certain benefits ( www.practicallaw.com/w-004-8173) ) have been made even though no changes are specifically mentioned.

We will report any significant changes to the legislation when the Finance Bill 2017 is published on 20 March 2017.

For background and to track the measure, see Tax legislation tracker: employment: Restriction of salary sacrifice ( www.practicallaw.com/7-503-0946) .

For information about salary sacrifice arrangements, see Practice note, Salary sacrifice arrangements ( www.practicallaw.com/6-287-9952) .

(See Overview, paragraph 1.7.)

Termination payments

Following consultation on the draft Finance Bill 2017 legislation to implement changes to the tax treatment of termination payments (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Termination payments ( www.practicallaw.com/w-004-8173) ), the government has confirmed that legislation to abolish foreign service relief (and, presumably, the territorial provisions intended to replace it) will be in the Finance Bill 2017-18 rather than in the Finance Bill 2017. No other changes are mentioned and the reforms will take effect, as expected, from 6 April 2018.

For background and to track the reforms to implementation see Tax legislation tracker: employment: Termination payment rules: simplification ( www.practicallaw.com/7-503-0946) .

For information about the tax treatment of termination payments, see Practice note, Taxation of termination payments ( www.practicallaw.com/0-200-2422) .

(See Overview, paragraph 1.8.)

Aligning dates for making good on benefits in kind

The government has confirmed its previous announcement that the Finance Bill 2017 will amend the benefits in kind rules to specify the time limit by which employees must make good in order to reduce the taxable value of benefits in kind that are not taxed through the payroll. While the confirmation reflects previous announcements, as the measure is not listed in the table of unchanged measures, it is assumed that some changes to the draft Finance Bill 2017 legislation (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Aligning dates for making good on benefits in kind ( www.practicallaw.com/w-004-8173) ) have been made. We will report any significant changes when the Finance Bill 2017 is published on 20 March 2017.

For background and to track this measure to implementation, see  Tax legislation tracker: employment: Dates for making good benefits in kind ( www.practicallaw.com/7-503-0946) .

(See Overview, paragraph 1.6.)

Avoidance and NICs employment allowance

The government has announced that HMRC is "actively monitoring" compliance with the NICs employment allowance (as to which, see Practice note, Taxation of employees: Employment allowance ( www.practicallaw.com/6-200-2122) ) following reports of some businesses using avoidance schemes. The government will consider taking "further action" (the form of which is, as yet, unspecified) if this avoidance continues.

(See HM Treasury: Spring Budget 2017, paragraph 3.51 and Overview, paragraph 2.33.)

Employee expenses, benefits in kind and employer-provided accommodation

As announced at the 2016 Autumn Statement, the government has confirmed that, on 20 March 2017, it will publish:

(See HM Treasury: Spring Budget 2017, paragraph 3.7; Overview, paragraphs 2.4, 2.5 and 2.8.)

Abandonment of denial of NICs employment allowance for employers of illegal workers

Following consultation, the government has decided not to proceed at present with its proposal, announced as part of the 2016 Budget, to deny for a year the NICs employment allowance of employers that are penalised for employing illegal workers. The government states that it has taken this decision due to concerns about complexity; taxpayers will be glad to learn that the government has listened to these concerns.

(For details of the employment allowance, see Practice note, Taxation of employees: Employment allowance ( www.practicallaw.com/6-200-2122) ; to trace the development of this measure, see Tax legislation tracker: employment: Denial of NICs employment allowance for employers of illegal workers ( www.practicallaw.com/7-503-0946) .)

(See Overview, paragraph 2.36.)

Removing NICs from the effects of the Limitation Act 1980

The government has confirmed that, while it intends to implement proposals to remove NICs from the effects of the Limitation Act 1980 and align the time limits and recovery process for enforcing NIC debts with those of other taxes, it will defer implementation to allow more time for consultation. The consultation paper was due to be published in early 2017 and the measure was to take effect from April 2018 (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Removing NICs from the effects of the Limitation Act ( www.practicallaw.com/w-004-8173) ). The government has not said when it will publish the consultation paper or when the measure will now take effect.

(See Overview, paragraph 2.7.)

Measures unchanged following consultation on the draft legislation

The following measures will be implemented ( www.practicallaw.com/7-503-0946) in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Environment

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

For all of the environment developments, see Legal update, Spring 2017 Budget: key environmental announcements ( www.practicallaw.com/w-006-8329)

 

Finance

Restriction on interest deductibility

The government has confirmed that the Finance Bill 2017 will include the new restriction on interest deductibility from 1 April 2017. For details of the draft legislation effecting this measure, published on 26 January 2017, see Practice note, Restriction on tax deductibility of corporate interest ( www.practicallaw.com/w-005-2322) .

As part of the Spring 2017 Budget, the government announced that the Finance Bill 2017 would include changes to the draft legislation to ensure that the rules do not "give rise to unintended consequences or impose unnecessary compliance burdens". Particular amendments announced are as follows:

Taxpayers may still have held (dwindling) hope that the introduction of the interest deductibility restriction rules would be deferred but that hope will have dissipated with this latest announcement. However, relaxation of the public benefit infrastructure exemption (seen as a key feature of the new regime), and the promised inclusion of transitional rules in it, will be welcomed, although questions arise at present as to how the transitional rules will operate in practice to allow affected groups to account for tax correctly in the meantime; the revised draft legislation is, therefore, eagerly awaited. Seeking to counteract undesirable side-effects of the current modified debt cap is a laudable aim but, with little time left before the rules take effect, taxpayers will be left with scant time to determine the exact extent to which they will be affected by the new regime.

(To track the progress of this measure, see Tax legislation tracker: finance: Restrictions on interest deductibility ( www.practicallaw.com/1-503-0063) .)

(See Overview, paragraph 1.23.)

Hybrid mismatches

The government has confirmed its intention to amend the hybrid mismatch rules (as to which, see Practice note, Hybrid tax mismatches ( www.practicallaw.com/1-621-5471) ). As detailed on 5 December 2016 (see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Amendments to hybrid mismatch rules ( www.practicallaw.com/w-004-8173) ), the changes concern:

These changes are to have effect from 1 January 2017. While the changes are relatively minor (and the permitted period claims proposal will be greatly welcomed), it is hardly satisfactory for the rules to be amended with retrospective effect as, pending the draft legislation (let alone enactment), taxpayers cannot have certainty as to the exact nature of the rules that they should be applying.

(We are tracking the progress of this measure in Tax legislation tracker: finance: Hybrid mismatches ( www.practicallaw.com/1-503-0063) .)

(See HMRC: Corporation Tax: hybrid and other mismatches - permitted taxable periods of payees and deductions for amortisation and Overview, paragraph 1.19.)

Plant and machinery consultation response

The government has responded (briefly) to the August 2016 consultation (see Legal update, Taxation of plant and machinery leasing consultation ( www.practicallaw.com/6-632-3425) ), which set out alternatives for taxing leases of plant and machinery in light of the impending changes to lease accounting in IFRS 16.

The consultation paper set out four alternatives for amending the tax rules for plant and machinery leasing to address the elimination of the distinction between finance and operating leases. Three of those options revolved around taxation based on the accounts. However, the government has selected the other option, which is to maintain the current system of lease taxation and will, therefore, legislate to ensure that the effect of the existing legislation is maintained when IFRS 16 applies. This is the status quo option referred to in the consultation.

The government will consult on the necessary legislative changes in summer 2017.

For more information on plant and machinery leasing, see Practice note, Equipment leasing: tax ( www.practicallaw.com/7-107-3737) .]

(See Overview, paragraph 2.12.)

Review and extension of double tax treaty passport scheme

The government has confirmed that it will extend the double tax treaty passport scheme to non-corporate lenders and non-corporate UK borrowers. (In relation to the scheme, which currently applies only to corporate lenders and corporate UK borrowers, see Practice note, Withholding tax: Double tax treaty passport scheme ( www.practicallaw.com/5-201-9175) .)

This follows a consultation in 2016 (see Legal update, Consultation on review of double tax treaty passport scheme ( www.practicallaw.com/1-629-0677) ), although it is not clear whether that exercise is leading to any administrative simplifications (there is a reference to a "renewal" of the scheme but nothing further in this regard). Instead, the Spring 2017 Budget announcement merely states that this extension, which should provide welcome decreases in administration for a wider variety of cross-border lending transactions, will take effect from 6 April 2017 and that guidance, and the revised terms and conditions of the scheme, will be published on the government's website on the same date (meaning that it may be difficult to ensure that an arrangement falls within the exemption by that time).

(To track the progress of this measure, see Tax legislation tracker: finance: Review of double tax treaty passport scheme ( www.practicallaw.com/1-503-0063) .)

(See HM Treasury: Spring Budget 2017, paragraph 3.14 and Overview, paragraph 2.37.)

Withholding exemption for debt traded on multilateral trading facilities

The government will introduce an exemption from withholding tax for interest on debt traded on multilateral trading facilities ( www.practicallaw.com/0-209-4964) .

This is clearly a move designed to stimulate UK debt markets. However, details are not yet known (in particular, whether this will be an extension of the existing "quoted Eurobond" exemption and, therefore, will be subject to its requirements, including that there be a security issued by a company: see Practice note, Withholding tax: Quoted Eurobonds ( www.practicallaw.com/5-201-9175) );. The government will launch a consultation on implementation on 20 March 2017.

(For a general discussion of the current UK withholding tax rules, see Practice note, Withholding tax ( www.practicallaw.com/5-201-9175) .)

(See HM Treasury: Spring Budget 2017, paragraph 3.14 and Overview, paragraph 2.14.)

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Financial services

Measures unchanged following consultation on the draft legislation

The following measure will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

IP, media and R&D

Research and development (R&D) tax review

The government has announced that it will:

  • Make administrative changes to the research and development (R&D) tax relief to increase certainty and simplicity of claims.

  • Take action to improve awareness of R&D tax credits among SMEs.

  • Keep the competitiveness of the UK environment for R&D under review.

The government does not indicate when or whether a consultation document might be published.

Note that the government announced as part of the 2016 Autumn Statement that it would review the R&D tax environment, specifically stating that it intended to build on the "above the line" credit (currently available for large companies incurring qualifying expenditure) (see Legal update, 2016 Autumn Statement: key business tax announcements: R&D: review of tax regime ( www.practicallaw.com/w-004-5458) and Tax legislation tracker: intellectual property: Review of research and development taxation ( www.practicallaw.com/4-503-0778) ). However, this potential development is not specifically included in the 2017 Spring Budget announcement.

For information on current R&D tax reliefs, including the "above the line" credit, see Practice note, R&D tax reliefs: practical aspects ( www.practicallaw.com/9-385-2182) .

(See HM Treasury: Spring Budget 2017, paragraph 3.12; Overview, paragraph 2.13.)

Patent box: cost sharing arrangements

As announced in the 2016 Autumn Statement, the Finance Bill 2017 will introduce provisions concerning cost-sharing arrangements into the patent box rules.

The government has announced that, following consultation, the draft legislation published on 5 December 2016 will be amended to narrow the definition of cost-sharing arrangement and to better align the treatment of payments into a cost-sharing arrangement and payments received from a cost-sharing arrangement. The changes will take effect from 1 April 2017.

For information on the draft legislation (as published on 5 December 2016), see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Patent box: new rules on cost-sharing arrangements ( www.practicallaw.com/w-004-8173) .

To track progress of this measure, see Tax legislation tracker: intellectual property: Patent box: cost sharing ( www.practicallaw.com/4-503-0778) .

(See Overview, paragraph 1.22.)

Corporation tax relief for museums and galleries

The government has confirmed that the Finance Bill 2017 will include legislation to introduce a new tax relief for museums and galleries that develop new exhibitions, including those that are toured.

The government has further confirmed that:

  • Companies meeting the conditions will be entitled to claim an additional corporation tax relief at 25% (for touring exhibitions) and 20% (for non-touring exhibitions).

  • Alternatively, a payable credit of up to £100,000 (for touring exhibitions) or £80,000 (for non-touring exhibitions) may be claimed.

  • Reliefs and credits may be claimed on qualifying expenditure with a ceiling of £500,000.

  • The measure will have effect from 1 April 2017.

The government has also announced that the draft legislation published in December 2016 will be revised to permit exhibitions that have a live performance as part of the exhibition, provided that a live performance is not the main focus of the exhibition.

The measure was first announced as part of the 2015 Autumn Statement; draft legislation was published in December 2016. For more information, see Tax legislation tracker: intellectual property: Museum and gallery relief ( www.practicallaw.com/4-503-0778) and Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Museums and galleries tax relief ( www.practicallaw.com/w-004-8173) .

(See Overview, paragraph 1.20.)

Extension of high-end TV, animation and video games tax reliefs

The government has announced that it will seek State Aid approval for the continued provision of tax reliefs for the production of high-end television, animation and video games.

The reliefs form part of the government’s package of reliefs for the creative sector that aim to incentivise investment in UK creative industries. Broadly, the relevant provisions provide relief from UK corporation tax by providing for an additional deduction or a payable tax credit in relation to qualifying expenditure, provided that certain conditions are satisfied.

For more information, see Practice note, Video games tax relief ( www.practicallaw.com/7-618-9799) .

(See Overview, paragraph 2.16.)

 

Oil and gas

Extension of investment and cluster area allowances

Regulations were made on 8 March 2017 extending the oil and gas cluster area and basin-wide investment allowances to include additional expenditure. (For details of the allowances, see Practice note, Oil and gas taxation: Cluster area allowance and Basin-wide investment allowance.)

The final regulations differ from the draft published on 16 December 2015 (see Legal update, Draft regulations extending oil and gas cluster area and basin-wide investment allowances ( www.practicallaw.com/4-621-1607) ) in that, in particular:

  • The condition for leasing (and, therefore, investment) expenditure status that the expenditure, when added to previous expenditure by any company in relation to the lease, does not exceed the asset's value on the date when such expenditure was first incurred, has been removed.

  • Expenditure not incurred in relation to a lease of an asset now includes a profit or premium paid to an associated company.

  • Expenditure is only investment expenditure to the extent exceeding the total amount received by the company and its associated companies in respect of any qualifying leases (those that have, or would, absent this rule, have generated investment or cluster area allowances) other than:

    • amounts received from the (sub)lessee if the parties to a qualifying lease are associated companies; or

    • amounts previously set against expenditure that would have been relievable investment expenditure but for this rule.

  • In the case of subleases, expenditure is not leasing expenditure to the extent that it exceeds the total amount of leasing expenditure incurred in relation to the head lease during the term of the sublease.

  • The anti-avoidance provisions applying in a greater array of specified circumstances (optimising timing of recognition, or generating or increasing allowances) but do not include a catch-all.

The regulations come into force on 29 March 2017 and have effect for expenditure incurred on or after 8 October 2015. (To track the progress of this measure, see Tax legislation tracker: property, energy and environment: Extension of cluster area and basin-wide investment allowances ( www.practicallaw.com/6-503-0975) .)

(See Investment Allowance and Cluster Area Allowance (Investment Expenditure) Regulations 2017 (SI 2017/292) and Overview, paragraph 2.17.)

Late-life assets

To maximise economic recovery, the government has announced that it will ensure support for the transfer of late-life assets. To determine the best approach, the government intends to publish a formal discussion paper on 20 March 2017, alongside the Finance Bill 2017, on the case for allowing transfers of tax history between buyers and sellers. The government will also establish a new advisory panel of industry experts to ensure appropriate scrutiny of the options. The review will report at Autumn Budget 2017.

(See HM Treasury: Spring Budget 2017, paragraph 3.29 and Overview, paragraph 2.18.)

Simplification of petroleum revenue tax regime

As announced in the 2016 Autumn Statement, the Finance Bill 2017 will contain legislation simplifying:

  • The process for opting fields out of the petroleum revenue tax (PRT) regime.

  • The reporting requirements for those who remain in the regime.

The government has announced that, following consultation, the draft legislation published at the time of the 2016 Autumn Statement will be amended to make two consequential amendments to the PRT legislation. These amendments will have retrospective effect from 23 November 2016. The revised draft legislation, which will contain details of these changes, is due to be published on 20 March 2017.

For more information on the changes that will be made by the Finance Bill 2017, see Legal update, 2016 Autumn Statement: key business tax announcements: Simplification of petroleum revenue tax administration ( www.practicallaw.com/w-004-5458) . For information on the PRT regime, see Practice note, Oil and gas taxation: Petroleum revenue tax ( www.practicallaw.com/2-200-9267) . To track progress of this measure, see Tax legislation tracker: property, energy and environment: Petroleum revenue tax: reduction and abolition ( www.practicallaw.com/6-503-0975) .

(See Overview, paragraph 1.25.)

 

Owner-managed businesses

NICs: increase in Class 4 and abolition of Class 2

The government has announced that when class 2 NICs are abolished in April 2018, the rate of class 4 NICs will rise to 10% (currently 9%) for 2018-19 and to 11% for 2019-20.

This announcement comes after a number of consultations on the best means of simplifying NICs for the self- employed and bringing them closer to the rates applicable to employees.  The justification put forward for the change is that the self-employed are now entitled to contributory benefits at the same level as employees.  As Class 2 is a regressive tax (fixed-rate) while Class 4 is progressive, only individuals with profits of more that £16,250 will pay more in total than they do at present.

No date has yet been set for the introduction of a bill making changes to the National Insurance Contributions Act 1992.

For more information on the announcements and consultations to date, see Legislation Tracker, Tax legislation tracker: owner-managed business: Abolition of Class 2 NICs and reform of Class 4 NICs ( www.practicallaw.com/9-503-1068) .

(See HM Treasury: Spring Budget 2017, paragraph 3.5; Overview, paragraph 2.7; HM Treasury: Spring Budget 2017: policy costings, page 13; Chancellor Philip Hammond's Spring Budget 2017 speech)

Off-payroll working in the public sector

Materials released alongside the Spring 2017 Budget, while adding little to the plethora of HMRC statements and guidance already released since the announcement of the new rules in the 2016 Budget, confirm that the government is resisting all calls to defer the implementation of the new scheme.

With effect from 6 April 2017, responsibility for determining whether engagements undertaken by workers through personal service companies (PSCs) will lie with the public authorities and agencies that contract with the PSCs, rather than with the PSCs themselves under the IR35 rules. It is the end clients or their recruitment agencies that must operate payroll deductions and bear the cost of employer's NIC on all payments to PSCs made on or after 6 April 2017.

One small development that has resulted from the technical consultation on the draft legislation released in December 2016 is that it will be optional for the agency or public sector body to take account of the worker’s expenses when calculating the tax due.  The TIIN states that "this change would put these workers in the same position as other employees, whose employers can choose whether or not to reimburse the expenses they incur".  This will not affect the individual’s right to claim tax relief on legitimate employment expenses from HMRC.

Although a link to HMRC's long awaited employment status service online tool was published on 2 March 2017, it is only a Beta version and the tool itself still appears unresponsive (see Legal update: IR35: HMRC publishes employment status checker ( www.practicallaw.com/w-006-7423) . The TIIN refers to the availability of the service in the future tense.

Legislation inserting a new chapter 10 in the Income Tax (Employment and Pensions) Act 2003 will be included in the Finance Bill 2017.

For more information, see  Tax legislation tracker: employment: Off-payroll working in public sector ( www.practicallaw.com/7-503-0946) .

(See HMRC: Off-payroll working in the public sector changes to the intermediaries legislation : TIIN and Overview, paragraph 1.9)

Cash basis accounting: changes and extension to unincorporated landlords

The government confirmed that changes to the cash basis of accounting for unincorporated businesses, previously announced as part of its Making Tax Digital (MTD) project, will take effect from 6 April 2017. Also, as previously announced, the cash basis of accounting will be extended to unincorporated landlords from that date. For more details of the changes, see Legal updates, Simplifying tax for unincorporated businesses: Consultation responses and draft legislation published ( www.practicallaw.com/w-005-8562) and Cash accounting basis for unincorporated property businesses: Consultation responses and draft legislation published ( www.practicallaw.com/w-005-8583) .

A statutory instrument relating to the increases to the entry and exit thresholds for the cash basis, made on 7 March 2017 and talking effect on 6 April 2017 and a Tax Information and Impact Note have been published. Both documents are substantively the same as drafts published on 31 January 2017.

To track the draft legislation, see Tax legislation tracker: owner-managed business: Simplifying tax for unincorporated businesses ( www.practicallaw.com/9-503-1068) and Cash accounting basis for unincorporated property businesses ( www.practicallaw.com/9-503-1068) .

(See HMRC: Increase to the cash basis threshold for unincorporated businesses: TIIN; The Income Tax (Relevant Maximum for Calculating Trade Profits on the Cash Basis) Order 2017 (SI 2017/293), HM Treasury: Spring Budget 2017, paragraph 3.40; Overview, paragraphs 1.44 to 1.46; and HM Treasury: Spring Budget 2017: policy costings, page 15.)

Trading and property income allowances

The government has confirmed that the Finance Bill 2017 will contain legislation to create two new income tax allowances that will exempt the first £1,000 of an individual's trading and property incomes. 

The government has also announced that revisions will be made to the draft legislation published in December 2016 to:

The government has made no further statement in relation to the entry into force of the allowances. It is therefore assumed that the new allowances will take effect for the 2017-18 tax year, as previously indicated.

The allowances were first announced in the 2016 Budget and confirmed in the 2016 Autumn Statement; draft legislation was published in December 2016.

For more information, see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Allowances for trading and property income ( www.practicallaw.com/w-004-8173) and Tax legislation tracker: owner-managed business: Trading and property income allowances ( www.practicallaw.com/9-503-1068) .

(See Overview, paragraph 1.3.)

 

Partnerships

Improving partnership taxation

The government has announced that, following a consultation launched on 9 August 2016 and an announcement in the 2016 Autumn Statement, it will publish a response to the consultation and draft legislation clarifying and improving certain aspects of partnership taxation. The draft legislation will be included in the second Finance Bill 2017 (to be published in the autumn).

The draft legislation, which is expected to clarify and amend the rules concerning the allocation of partnership profits, was expected to be published in January 2017.

For more information, see Legal update, Draft Finance Bill 2017 legislation: key business tax measures: Partnership profit allocation rules to be clarified and amended ( www.practicallaw.com/w-004-8173) . To track progress of this measure, see Tax legislation tracker: miscellaneous: Review of partnership taxation ( www.practicallaw.com/4-503-1056) .

(See Overview, paragraph 2.3.)

 

Pensions

The Budget contained few surprises, with the majority of the pensions-related announcements referring to matters already raised in the 2016 Autumn Statement. The key issues that were confirmed include:

  • The introduction of a 25% tax charge on transfers requested on or after 9 March 2017 to a QROPS unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area or the QROPS is provided by the individual’s employer.

  • From 6 April 2017 a similar tax charge will apply to payments made from funds transferred from the UK, to a QROPS, in the five years following the transfer.

  • Confirmation that the reduction in the money purchase annual allowance from £10,000 to £4,000 will go ahead from 6 April 2017.

  • Amendments to the tax registration process for master trust pension schemes from October 2018, to better align this system with the Pensions Regulator’s new authorisation and supervision regime.

For all of the key pensions announcements see Legal update: archive, Spring 2017 Budget: key pensions announcements ( www.practicallaw.com/w-006-8411) .

 

Personal tax and investment

Reduction in dividend allowance

The Chancellor announced in the Spring 2017 Budget that the dividend allowance is to be reduced from £5,000 to £2,000. The reduction is to redress a perceived unfairness in the scope it offers to director shareholders of private companies to extract, without attracting a tax liability, funds which, if received as remuneration, would incur a charge to tax and NICs.

The dividend allowance was introduced by the Finance Act 2016, with effect from 6 April 2016.  Although for other tax purposes the allowance is treated as using part of the tax rate band into which the dividend falls (dividends being the highest tranche of income), the applicable rate of tax is 0%.  The dividend allowance was clearly seen by the current Chancellor as too generous, especially when considered in conjunction with the increase in the annual amount that may be invested in an ISA (up from £15,240 in 2016-17 to £20,000 in 2017-18) and increases in the personal allowance and higher rate threshold. 

Legislation to effect this reduction will be included in Finance Bill 2017 and will be effective for dividends received in 2018-19 and subsequent years.

For more information on how dividends are taxed, see Practice note, Dividends: tax rules for individuals, exempt funds and non-residents from 6 April 2016 ( www.practicallaw.com/1-623-1485) .

(See Income Tax: dividend allowance reduction TIIN; HM Treasury: Spring Budget 2017, paragraph 3.6; Overview, paragraph 1.2; HM Treasury: Spring Budget 2017: policy costings, page 14; and Chancellor Philip Hammond's Spring Budget 2017 speech.)

CGT annual exempt amount for 2017-18

Tables of tax rates and allowances published with the Budget indicate that the capital gains tax annual exempt amount (AEA) will rise from £11,100 in 2016-17 to £11,300 in 2017-18. The trustee allowance is half this amount, subject to rules for splitting the allowance between certain trusts created by the same settlor.

There is no separate announcement of this figure in the Budget. The AEA increases in line with the Consumer Prices Index ( www.practicallaw.com/3-378-7892) (CPI) unless Parliament overrides this. HM Treasury must make an order confirming any increase resulting from indexation before the start of the tax year concerned. (Section 3(3) and (4), Taxation of Chargeable Gains Act 1992.)

For more information, see Practice note, Tax data: capital gains tax: Annual exempt amount ( www.practicallaw.com/9-385-5454) .

(See Overview, Annex A: rates and allowances.)

Permanent non-domiciled tax status abolished

The government has confirmed that the measures abolishing permanent non-domiciled status that were initially announced at the July 2015 Budget will go ahead as planned.

As previously announced at the 2016 Budget, remittance basis users with mixed funds held outside the UK will be able (during a two-year window) to separate those funds to provide certainty about how they will be taxed if they are subsequently remitted to the UK. The government has announced that, following consultation on the draft legislation, this opportunity will be extended to income, gains and capital held in mixed funds from tax years before 2007- 08.

The government has also confirmed that individuals who become deemed domiciled in April 2017 (but not those born in the UK with a UK domicile of origin) will be able to rebase their foreign assets to their market value on 5 April 2017 for CGT purposes. The draft Finance Bill legislation published on 5 December 2016 includes these rebasing provisions.

All of the above measures will be implemented by the Finance Bill 2017 to have effect from 6 April 2017.

For more information, and to follow future developments, see Private client tax legislation tracker 2016-17: Permanent non-domiciled tax status abolished.

(See Overview, paragraph 1.26.)

Life insurance: part surrenders and assignments

As announced in the 2016 Autumn Statement, the government has confirmed that measures will be included in the Finance Bill 2017 to change the current tax rules for part surrenders and part assignments of life insurance policies. The changes will allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis.

The government has announced that the draft legislation has been revised (although the revisions have not yet been published), following consultation, to clarify certain points including who can apply and how to make the recalculation. These changes will have effect from Royal Assent to the Finance Bill 2017.

For more information and to follow future developments, see Private client tax legislation tracker 2016-17: Life insurance: part surrenders and assignments.

(See Overview, paragraph 1.11.)

Social investment tax relief (SITR)

The government has confirmed that the Finance Bill 2017 will include a measure to make changes to the social investment tax relief (SITR) scheme. The measure will increase the amount of money a qualifying social enterprise can raise from individuals under SITR and make changes to ensure that the scheme is properly targeted and meets EU rules. It will take effect for investments made on or after 6 April 2017.

This measure was announced in the 2016 Autumn Statement. Draft legislation and a TIIN were published on 26 January 2017, see Legal update, Social investment tax relief (SITR): draft legislation to enlarge scheme ( www.practicallaw.com/w-005-6834) .

For more information, see Private client tax legislation tracker 2016-17: Social investment tax relief ( www.practicallaw.com/w-004-3532) . For detailed guidance on SITR, see Practice note, Social investment tax relief (SITR) ( www.practicallaw.com/6-572-4693) .

(See Overview, paragraph 1.4.)

Measures unchanged following consultation on the draft legislation

The following measures will be implemented by the government in the Finance Bill 2017, either unchanged following consultation on the draft legislation published on 5 December 2016 or with no significant changes.

 

Private equity and venture capital

Venture Capital Schemes

The government has confirmed that it will amend the requirements of the Enterprise Investment Scheme ( www.practicallaw.com/9-107-6532) , Seed Enterprise Investment Scheme (SEIS) ( www.practicallaw.com/3-519-0951) and Venture Capital Trusts ( www.practicallaw.com/0-107-7480) as set out in the draft Finance Bill 2017 legislation published on 5 December 2016 (see Legal update: Draft Finance Bill 2017 legislation: key business tax measures: Venture capital schemes ( www.practicallaw.com/w-004-8173) ), and makes no mention of any changes to that draft legislation.

In outline, the amendments, which were announced in the 2016 Autumn Statement:

  • Clarify that rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares for the purposes of the "no pre-arranged exit" requirements of the EIS and SEIS legislation, for shares issued on or after 5 December 2016.

  • Align the VCT rules with the EIS rules by providing additional flexibility for follow-on investments made by VCTs in companies with certain group structures for investments made on or after 6 April 2017.

  • Provide for regulations to be made to permit certain share for share exchanges to take place in the context of a share reorganisation or company reconstruction without loss of approved status. The government states that these regulations will take effect from Royal Assent of the Finance Bill 2017, but has yet to publish draft regulations for consultation, as it indicated it would.

The government has also confirmed that a summary of responses to the consultation on options to streamline and prioritise the advance assurance service will be published.

For more information, see Tax legislation tracker: owner-managed business: Venture capital schemes: amendment of requirements ( www.practicallaw.com/9-503-1068) .

(See Overview, paragraph 1.5.)

Patient Capital review: investment and entrepreneurship reliefs

The government has announced that it will consider existing tax reliefs aimed at encouraging investment and entrepreneurship, to ensure that they are effective, well targeted and provide value for money.

This exercise will take place as part of the broader Patient Capital review that was announced by the government on 23 January 2017, and is aimed at ensuring that high growth businesses can access the long-term capital that they need and identifying barriers to institutional investment and long-term finance (for background, see Legal update: Industrial strategy: BEIS Green Paper ( www.practicallaw.com/w-005-5082) ).  

It is currently anticipated that the government will publish a substantive consultation document relating to the Patient Capital review during Spring 2017.

Practitioners will be interested to see the scope of the tax review when any consultation documents are published, and the ultimate suggestions that come out of the consultation process, given the review is likely to involve the ever popular Entrepreneurs' Relief and Venture Capital Schemes legislation. While any changes aimed at simplifying or streamlining the notoriously complicated Venture Capital Schemes legislation, for example, would always be welcome, it is likely that any suggestions of narrowing the scope of any of these reliefs would be met with considerable concern.

(See HM Treasury: Spring Budget 2017, paragraph 3.13; Overview, paragraph 2.9.)

 

Property

Postponement of reduction to SDLT filing and payment window

Following consultation last summer, the government has announced that it will now postpone implementing the reduction of the SDLT filing and payment window to 2018-19. The exact date has yet to be announced.

The measure was originally announced in the 2015 Autumn Statement. In the August 2016 consultation, it was suggested that the reduction of the window from 30 to 14 days was likely to be introduced between 1 January and 1 March 2018, so this will no longer be the case.

The delay follows concerns expressed by respondents to the consultation that a 14 day window would be too challenging, which may suggest that the reduction in the window could be revised upwards. The consultation response document, which was due to be published in 2016, has yet to be released.

For more information, see Legislation Tracker, Tax legislation tracker: property, energy and environment: SDLT filing and payment window ( www.practicallaw.com/6-503-0975) .

(See HM Treasury: Spring Budget 2017, paragraph 3.20; Overview, paragraph 2.31; HM Treasury: Spring Budget 2017: policy costings, pages 16 and 47.)

Taxing non-residents' profits from trading in and developing UK land

The government has announced that the Finance Act 2016 rules extending the scope of corporation tax to non-residents trading in or developing UK land, irrespective of whether the trade is carried on through a UK permanent establishment, will be amended so as to ensure that profits arising from contracts entered into before 5 July 2016 are not excluded from charge if they are recognised in accounts as relating to a period falling on or after 8 March 2017. For information on the rules extending the territorial scope of corporation tax for non-UK resident UK property traders, see Practice note, Transactions in land: corporation tax: Territorial scope of corporation tax for UK land traders ( www.practicallaw.com/9-630-7947) .

Under the commencement provisions in section 81 of the Finance Act 2016, profits arising from contracts entered into before 5 July 2016 (the date these measures were introduced into the Finance Bill) were excluded. Apparently, the intention was to exclude from charge profits arising from contracts completed within a relatively short timeframe and it was not intended that profits arising from longer term contracts should be excluded.

Accordingly, the commencement provisions will be amended so that all profits recognised in the accounts and referable to dates falling on or after 8 March 2017 will be within the charge. For periods of account beginning before 8 March 2017 and ending on or after that date, a notional period will be regarded as commencing on 8 March 2017 and profits in respect of that notional period will be charged.

Equivalent measures will also apply for income tax purposes. For more information on the extension of the territorial scope of income tax for non-UK resident property traders, see Practice note, Transactions in land: income tax: Territorial scope of income tax for UK land traders ( www.practicallaw.com/1-631-2392) . These measures will be included in the Finance Bill 2017.Draft legislation has been published.

(See HMRC: Income Tax and Corporation Tax: disposals of land in the UK: TIIN; HM Treasury: Spring Budget 2017, paragraph 3.21 and Overview, paragraph 1.15.)

VAT fraud in construction industry

The government will consult on a range of policy options aimed at combating VAT fraud relating to supplies of labour within the construction industry. Among the options under consideration is the imposition of a VAT reverse charge under which the recipient of relevant supplies would be required to account for VAT.

From the short announcement, it seems that the government may be considering borrowing concepts from the construction industry scheme (CIS) (see Practice note: overview, Construction Industry Scheme (CIS) ( www.practicallaw.com/8-383-4754) ), including the qualifying criteria for gross payment status within the CIS, which it is presumed, may be used as criteria for the imposition of the reverse charge.

The consultation, which is to be published on 20 March 2017, will generate considerable interest within the construction industry.

(See Overview, paragraph 2.30 and HM Treasury: Spring Budget 2017, paragraph 3.48.)

Rent a room relief

The government will consult on proposals to redesign rent a room relief. The consultation will be launched in summer 2017; no timeframe for any proposed legislative changes is given.

The government believes that the relief, which is available to individuals who rent out furnished accommodation in their only or main residence and is intended to improve the supply of affordable, long-term lodgings, should be better targeted at long-term lettings.

(See HM Treasury: Spring Budget 2017, paragraph 3.22 and Overview, paragraph 2.2.)

For all of the property announcements, see Legal update, Spring 2017 Budget: key property announcements ( www.practicallaw.com/w-006-8380) .

 

VAT

VAT thresholds increased

With effect from 1 April 2017, the VAT registration threshold will increase to £85,000 (from £83,000) and the deregistration threshold will increase to £83,000 (from £81,000). In addition, the registration and deregistration threshold for relevant acquisitions from other EU member states will increase to £85,000 (from £83,000).

These changes will be effected by secondary legislation.

(See HM Treasury: Spring Budget 2017, paragraph 3.36; Overview, paragraph 2.27; and The Value Added Tax (Increase of Registration Limits) Order 2017.)

VAT to apply to mobile phone services provided to individuals regardless of location of use

The government has announced that it will remove the "use and enjoyment" rule that currently applies to supplies of mobile phone services from businesses to individual consumers with effect from 1 August 2017. Consequently, from that date, UK VAT will apply to mobile phone services supplied to UK resident individual consumers regardless of where the consumer uses their mobile phone.

The current "use and enjoyment" rule applies so that UK VAT is chargeable on such services where the consumer uses their phone in the EU. However, no UK VAT applies where the consumer uses their phone in a non-EU country. (See Practice note, Cross-border transactions and VAT: supply of services: Telecommunication and broadcasting services ( www.practicallaw.com/4-383-2361) .)

This measure will be introduced by secondary legislation, which will be published, along with a TIIN, before summer recess. It is aimed at preventing VAT avoidance and should align the UK's VAT rules with OECD principles and the internationally agreed approach.

(See HM Treasury: Spring Budget 2017, paragraph 3.47; Overview, paragraph 2.29 and HM Treasury: Spring Budget 2017: policy costings, pages 23 and 42.)

VAT collection mechanism for online sales

The government will publish a call for evidence on 20 March 2017 to support the case for a new VAT collection mechanism for online sales. This proposal is in addition to the measures introduced in the Finance Act 2016 concerning VAT representatives and VAT joint and several liability of operators of online marketplaces (see Legal update, 2016 Budget: key business tax announcements: Tackling VAT evasion on online sales by overseas businesses ( www.practicallaw.com/2-624-7443) ), aimed at combating fraud by overseas businesses selling goods to UK customers via online marketplaces.

The government wishes to explore how technology can be harnessed to allow VAT to be collected directly at the point of purchase, sometimes referred to as the “split payment” model. This is billed as the next step in tackling fraud by overseas traders selling goods online.

(See HM Treasury: Spring Budget 2017, paragraph 3.49 and Overview, paragraph 2.28.)

Fulfilment house due diligence scheme

The government has confirmed that it will include in the Finance Bill 2017 measures to provide for a fulfilment house due diligence scheme. Draft primary legislation was published for consultation on 5 December 2016 (see Legal update, Draft Finance Bill 2017: fulfilment house due diligence scheme ( www.practicallaw.com/w-005-1740) ).

A person carrying on a third country goods fulfilment business (essentially, storing imported goods in free circulation that are owned by a non-EU established person at a time when no UK supply of the goods has been made and the goods are being offered for sale) will be required to register with HMRC from 1 April 2018 and comply with record-keeping and due diligence standards.

In light of the consultation, the government is to revise the draft legislation to provide for a disclosure gateway that will permit HMRC to disclose taxpayers’ information to fulfilment houses for the purpose of meeting their obligations under the scheme.

To track the progress of these measures, see Tax legislation tracker: VAT: Evasion on online sales by overseas businesses ( www.practicallaw.com/1-503-1048) .

(See Overview, paragraph 1.29.)

 

Miscellaneous

IPT rate to increase to 12% and new anti-forestalling legislation to be introduced

As announced in the 2016 Autumn Statement, the government will increase the rate of insurance premium tax (IPT) to 12% from 1 June 2017. Draft legislation increasing the rate was published, along with new draft anti-forestalling legislation. Both are to be included in the Finance Bill 2017.

The government announced that it would review the existing anti-forestalling legislation in sections 67 to 67C of the Finance Act 1994 on the date that the draft Finance Bill 2017 clauses were published (5 December 2016).

The draft legislation increasing the rate of IPT provides that the new rate does not apply to premiums received in respect of risks for which the period of cover begins before 1 June 2017, unless the new anti-forestalling legislation applies.

The new anti-forestalling legislation, which takes effect from 8 March 2017, will repeal sections 67 to 67C of the Finance Act 1994 (in respect of premiums received between 23 November 2016 and 7 March 2017) and insert new sections 66A to 66C into the Finance Act 1994. The new sections will provide that on a change in the rate of IPT:

  • The new rate will apply to premiums received between the date of announcement and the date of change if the cover under the insurance contract starts on or after the date of the change. This does not apply if it is normal practice for the insurer to receive the premium before the date that cover begins.

  • The new rate will apply to a proportion of a premium received between the date of announcement and the date of change if the cover under the insurance contract starts before the date of change and ends on or after the first anniversary of the date of change. The proportion so chargeable is that which relates to the period of cover running from the first anniversary of the date of change. This does not apply if it is normal practice for the insurer to insure the risk for more than 12 months.

  • Special rules concerning insurance contracts that cover multiple risks apply if an insurance premium is received on or after the date of change and the legislation changing the rate excepts premiums received for cover that began before the date of change from the increased rate. 

To track progress of this measure, see Tax legislation tracker: miscellaneous: Increase in IPT rate ( www.practicallaw.com/4-503-1056) .

(See HMRC: Insurance Premium Tax: anti-forestalling: TIIN; HM Treasury: Spring Budget 2017, paragraph 3.38; and Overview, paragraph 1.27.)

Soft drinks industry levy: rates and criminal offence of evasion

The government has set the levy rate for added sugar drinks at £0.18 per litre for soft drinks with a total sugar content of 5g or more per 100ml, and at £0.24 per litre for those with a higher sugar content of 8g or more per 100ml. The draft legislation has also been revised to include a criminal offence for evasion of the soft drinks levy and to make minor amendments to improve clarity.

In the 2016 Budget announcement, the government had excluded small producers and importers, as measured by volume, from the levy. This position has changed with the Spring 2017 Budget. Imports of major brands will no longer attract relief, regardless of volumes imported. The only imports eligible for relief will be those made by small producers based abroad.

The soft drinks levy was first announced at the 2016 Budget and confirmed at the 2016 Autumn Statement. The measure will be legislated in the draft Finance Bill 2017 and is expected to take effect from April 2018.

For more information on the circumstances in which the levy will arise, see Legal update: Draft Finance Bill 2017 legislation: key business tax measures: Soft drinks industry levy ( www.practicallaw.com/w-004-8173) . To track the progress of the legislation, see Tax legislation tracker: corporate: Soft drinks industry levy ( www.practicallaw.com/2-503-0656) .

(See HM Treasury: Spring Budget 2017, paragraph 3.37, Overview, paragraph 1.33, HM Treasury: Spring Budget 2017: policy costings, page 36, and Chancellor Philip Hammond's Spring Budget 2017 speech.)

 

Tax rates, allowances and thresholds for 2017-18

The government has published tables of the main tax rates and allowances. We will update Practice note, Tax rates and limits shortly to reflect these tables.

(See Annex A: rates and allowances.)

 

Sources

For all HMRC and HM Treasury Budget materials, including the Chancellor's speech, see Spring Budget 2017 and for tax-related materials, see HMRC: Spring Budget 2017: tax-related documents. The Budget debate will conclude on 14 March, when Parliament is expected to pass resolutions which give temporary legal effect to some measures announced in the Budget.

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