Autumn Budget November 2017
Summary
Chancellor Philip Hammond has delivered his first Autumn Budget under the new system he announced this time last year. The aim of the new system is for the Finance Bill, which is normally published after the annual Budget, to reach Royal Assent stage in the spring of each year, before the start of the following tax year. This change in the annual timetable is designed to help Parliament to scrutinise tax changes before the tax year where most take effect. The Finance Bill should be published on 1 December 2017. By the end of March 2018, the Office for Budget Responsibility (OBR) will publish an updated economic and fiscal forecast, which the Chancellor will respond to in a Spring Statement. The Spring Statement will also be a chance to publish consultations, including early-stage calls for evidence and consultations on long-term tax policy issues.
In the first part of his Budget, the Chancellor focused on Brexit and said that EU negotiations have now reached a critical phase. He said that the UK must be prepared for every possible outcome and announced that an additional £3bn will be available over the next two years for Brexit preparations. The money will make sure the government is ready on the first day of exit, and it includes funding to prepare the border, the future immigration system and new trade relationships.
On the subject of housing, there will be £15.3bn of new financial support for house building over the next five years, including £1.2bn for the government to buy land to build more homes, and £2.7bn for infrastructure that will support housing. Changes to the planning system are designed to encourage better use of land in towns and cities, and changes to the stamp duty land tax (SDLT) regime for first-time buyers are designed to assist with the challenges faced by many people trying to get on the housing ladder.
Over two million people are expected to benefit from an increase in the National Living Wage from April 2018, when the rate for those aged 25 and over will rise from £7.50 per hour to £7.83 per hour. For a full-time worker, this increase represents a pay increase of over £600 a year.
There are plans to introduce a railcard for those aged between 26 and 30 and this should be available from Spring 2018, enabling eligible passengers to receive a one third discount on ticket prices.
Households applying for Universal Credit can expect to see improvement in upfront support services. The Chancellor confirmed several changes in this area including:
- access a month’s worth of support within five days, via an interest-free advance, from January 2018. This can be repaid over 12 months;
- eligibility to apply from the date a claim is made, rather than after seven days as is currently the case;
- Housing Benefit will continue to be paid for two weeks after a Universal Credit claim is made; and
- low-income households in areas where private rents have been rising fastest will receive an extra £280 on average in Housing Benefit or Universal Credit.
There were several announcements concerning environmental and ‘green’ issues, including:
- new rules enabling self-driving cars to be tested without a safety operator and an extra £100m towards helping people buy battery electric cars. The government will also make sure all new homes are built with the right cables for electric car charge points.
- a £220m Clean Air Fund for local areas with the highest air pollution. Local authorities will be able to use this money to help people adapt as steps are taken to reduce air pollution. Possible ways the money could be spent include reducing the cost of public transport for those on low incomes or modernising buses with more energy efficient technology. The money will come from a temporary rise in company car tax and Vehicle Excise Duty on new diesel cars.
- the government is to seek views on reducing single-use plastic waste through the tax system and charges. This includes items such as disposable coffee cups, toothpaste tubes and polystyrene takeaway boxes. This follows the introduction of the 5p carrier bag charge, which has reportedly reduced the use of plastic bags by 80% in the last two years.
Although the Chancellor shied away from confirming action on a number of employment-related tax issues in his Budget speech, in 2018 the Treasury will be consulting on how to tackle non-compliance with the IR35 intermediaries legislation in the private sector. It is likely that we will see future changes in this area.
This newsletter provides a summary of the key tax points from the 2017 Autumn Budget based on the documents released on 22 November 2017. We will keep you informed of any significant developments.
Individuals
Personal allowance and income tax threshold
The personal allowance for 2018/19 is set at £11,850 (£11,500 in 2017/18), and the basic rate limit will be increased to £34,500 (£33,500 in 2017-18). The additional rate threshold will remain at £150,000 in 2018/19.
The marriage allowance will rise from £1,150 in 2017/18 to £1,185 in 2018/19.
Blind person’s allowance will rise from £2,320 in 2017/18 to £2,390 in 2018/19.
Starting rate for savings
The 0% band for the starting rate for savings income will be retained at its current level of £5,000 for 2018/19 and will not be uprated in line with inflation.
Individual Savings Account (ISA) and Child Trust Funds annual subscription limits
The ISA subscription limit for 2018/19 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs and Child Trust Funds for 2018/19 will be uprated in line with the Consumer Prices Index to £4,260.
Marriage Allowance claims on behalf of deceased partners
From 29 November 2017, it will be possible to make a Marriage Allowance (MA) claim on behalf of a deceased spouse or civil partner and backdate such a claim by up to four years, where applicable.
MA allows individuals to transfer 10% of their personal allowance to their spouse or civil partner where the recipient is not a higher rate or additional rate taxpayer. Individuals are able to backdate claims for up to four years. Currently, the legislation does not allow transfers of personal allowance on behalf of deceased spouses and civil partners, or from a surviving partner to a deceased partner.
Mileage rates for unincorporated property businesses
In line with other trading businesses, landlords are to be given the option to use fixed rates per business mile to calculate their allowable deductions for motoring expenses, instead of deducting actual running costs and claiming capital allowances. This option will not, however, be available to landlords who are companies or in mixed partnerships (a partnership with both individual and non-individual members).
This measure will apply retrospectively from 6 April 2017. It will include transitional arrangements to allow landlords who previously claimed mileage rates under an existing Extra Statutory Concession to start using mileage rates again, from 6 April 2017, without having to wait to acquire a new vehicle.
Rent-a-room relief to be reviewed
Although there is no change at present, the government is to publish a call for evidence around the usage of rent-a-room relief with a view to establishing whether it is consistent with the original policy rationale to support longer-term lettings.
Offshore trusts: anti-avoidance
With effect from 6 April 2018, a new measure will ensure that payments from an offshore trust intended for a UK resident individual do not escape tax when they are made via an overseas beneficiary or a remittance basis user.
Where capital payments or benefits are received by an individual who does not pay UK tax on the distribution (because they are either non-resident or are non-domiciled remittance basis users who do not remit the payment) and that individual then makes an onward gift to a UK resident, that UK resident will be treated as if they had received a capital payment or benefit from the trust equal to the amount of the gift.
Taxation of trusts
The government has confirmed that it will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent.
Venture Capital Trusts - limiting the effect of anti-abuse provisions on commercial mergers
An existing anti-abuse rule for VCTs is to be amended so that it works as originally intended. Currently, income tax relief is restricted where a VCT buys back shares from an investor and the investor subscribes for new shares in the same VCT within a six-month period, a form of ‘bed and breakfasting’. Relief is also restricted for investors who sell shares in a VCT and subscribe for new shares in another VCT within a six-month period, where those VCTs merge. The change now being made will ensure that income tax relief may no longer be withdrawn where the relevant VCTs merge more than two years after the latest subscription for shares, or do so where it is not one of the main purposes of the merger to obtain a tax advantage. It will take effect for VCT subscriptions made on or after 6 April 2014.
Venture capital schemes - risk to capital condition
A new condition is to be introduced to the EIS, SEIS and VCT rules to exclude tax-motivated investments, where the tax relief provides most of the return for an investor with limited risk to the original investment (that is, preserving an investor’s capital). The condition depends on taking a ‘reasonable’ view as to whether an investment has been structured to provide a low risk return for investors.
The condition has two parts:
- whether the company has objectives to grow and develop over the long-term (which broadly mirrors an existing test with the schemes); and
- whether there is a significant risk that there could be a loss of capital to the investor of an amount greater than the net return. The condition requires all relevant factors about the investment to be considered in the round.
The new condition will apply to all investments made on or after 6 April 2018.
Encouraging more high-growth investment through Venture Capital Trusts
Certain changes are being made to the rules on investments made by VCTs, including:
- inclusion of a final date of 6 April 2018 in relation to the applicability of certain ‘grandfathering’ provisions;
- doubling the time VCTs have to reinvest gains from investments from six to twelve months;
- requirement that 30% of funds raised in an accounting period must be invested in qualifying holdings within twelve months after the end of the accounting period;
- requirement that qualifying loans are to be unsecured and ensure that returns on loan capital above 10% represent no more than a commercial return on the principal; and
- an increase in the proportion of VCT funds that must be held in qualifying holdings from 70% to 80%.
The change concerning unsecured loans will apply from the date of Royal Assent to Finance Bill 2017-18. The ‘grandfathering’ provisions and 30% investment in qualifying holdings provisions will apply from 6 April 2018. The increased period for reinvestment and qualifying holdings threshold provisions will take effect from 6 April 2019.
The Enterprise Investment Scheme and Venture Capital Trusts - encouraging investments in knowledge-intensive companies
The annual limit for individuals investing in knowledge-intensive companies under the EIS is to be increased to £2 million, in relation to shares issued on or after 6 April 2018, provided that anything above £1 million is invested in knowledge-intensive companies.
The annual EIS and VCT limit on the amount of tax-advantaged investments a knowledge-intensive company may receive will be increased to £10 million in relation to new qualifying investments made on or after 6 April 2018.
Greater flexibility is to be provided with respect to the rules for determining whether a knowledge-intensive company meets the permitted maximum age requirement.
Venture Capital Schemes: relevant investments
The definition of a ‘relevant investment’ is to be amended to ensure all investments, including all risk finance investments made before 2012, are counted towards the lifetime funding limit for companies receiving investment under tax advantaged venture capital schemes. The limit is £12 million for most companies and £20 million for knowledge-intensive companies.
The definition of a relevant investment will apply for all purposes in the EIS and VCT rules and will also extend to the new lifetime limit for the Social Investment Tax Relief scheme.
The changes will apply to qualifying investments made on or after 1 December 2017.
Armed forces accommodation allowance exemption
Payments made to members of the armed forces to help meet the cost of accommodation are to be exempt. The exemption will take effect after the date of Royal Assent to Finance Bill 2017-18. The conditions on the types of allowance that will qualify for exemption will be set out in secondary legislation.
Extending Seafarers' Earnings Deduction to the Royal Fleet Auxiliary
With effect on and after the date of Royal Assent to Finance Bill 2017-18, employees of the Royal Fleet Auxiliary will be able to claim the Seafarers’ Earnings Deduction.
Termination payments: removal of Foreign Service Relief (FSR)
Employees who are UK-resident in the tax year in which their employment is terminated will no longer be eligible for Foreign Service Relief (FSR) on their termination payment. FSR currently allows qualifying individuals to be either completely exempted from income tax on their termination payment or have the taxable amount reduced. The Statutory Residence Test will determine residence status for these purposes. Seafarers are protected from this change and will remain eligible for FSR even if UK-resident in the year of termination. For non-seafarers, the measure will apply where the employment contract is terminated on or after 6 April 2018, subject to anti-forestalling.
Tackling disguised remuneration
Following recent consultation on draft legislation, Finance Bill 2017-18 will include measures to:
- introduce the close companies’ gateway, to tackle disguised remuneration avoidance schemes used by close companies to remunerate their employees, and directors, who have a material interest. This change will have effect on and after 6 April 2017.
- require all employees, and self-employed individuals, who have received a disguised remuneration loan to provide information to HMRC by 1 October 2019.
This information will help HMRC ensure the loan charge is complied with. This change will have effect on and after Royal Assent of Finance Bill 2017-18.
The government will also legislate in Finance Bill 2017-18 to:
- put beyond doubt, with effect from 22 November 2017, that provisions for taxing employment income provided through third parties (ITEPA 2003, Part 7A) apply regardless of whether contributions to disguised remuneration avoidance schemes should previously have been taxed as employment income. This change will have effect on and after 22 November 2017.
- ensure the liabilities arising from the loan charge are collected from the appropriate person where the employer is located offshore. This change will have effect on and after Royal Assent of Finance Bill 2017-18
Cars appropriate percentage - increasing the diesel supplement
The appropriate percentage used for calculating the cash equivalent of a taxable benefit when a diesel car is made available for private use to an employee will rise with effect from 6 April 2018. From that date, the diesel supplement will rise from 3% to 4% for all diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard. The supplement will apply to those cars propelled solely by diesel (not diesel hybrids) and registered on or after 1 January 1998, which do not have a registered Nitrogen Oxide (NOx) emissions value. It will also apply to models registered on or after 1 January 1998, which have a registered NOx emissions value which exceeds the RDE2 standard.
The diesel supplement will be removed altogether for diesel cars which are certified to the RDE2 standard.
Van benefit charge and the car and van fuel benefit charges
The following changes to company car and van benefits will take affect from 6 April 2018:
- the car fuel benefit charge multiplier will rise to £23,400;
- the van benefit charge will be £3,350; and
- the van fuel benefit charge rises to £633.
Lifetime allowance: ongoing Consumer Prices Index increase
The lifetime allowance for pension savings will increase in line with the Consumer Prices Index (CPI), rising to £1,030,000 for 2018-19.
Scope of qualifying care relief for self-funded Shared Lives payments
The scope of qualifying care relief is to be expanded for 2017-18 onwards, to cover payments made from individuals that self-fund care they receive through a Shared Lives scheme.
Qualifying care relief is an optional tax simplification scheme available to those providing care under Shared Lives schemes which provides a standard relief instead of deductions for their actual expenses, allowing them to keep simpler records. Shared Lives care can be paid for in many ways and one method is self-funded payments. This is where the person receiving Shared Lives care uses their own finances to meet their support costs.
This change is designed to ensure that carers who are currently excluded from qualifying care relief because the person they look after happens to self-fund their care, are able to use the simplification scheme, in the same way as carers who look after people whose care is funded by, for example a local authority.
Save-As-You-Earn Pause
The government will allow employees on maternity and parental leave to take a pause of up to twelve months from saving into their Save-As-You-Earn (SAYE) employee share scheme. Employees can currently pause saving for six months. This increase is to allow employees on maternity and parental leave to continue saving into the scheme. The change will have effect on and after 6 April 2018.
Employer-provided electricity for an electric car
The government will legislate in Finance Bill 2018-19 to exempt employer-provided electricity from being taxed as a benefit in kind from April 2018. This will apply to electricity provided in workplace charging points for electric or hybrid cars owned by employees.
Overseas scale rates for accommodation and subsistence
To provide clarity and certainty, the existing concessionary travel and subsistence overseas scale rates are to be placed on a statutory basis from 6 April 2019. Employers will only be asked to ensure that employees are undertaking qualifying travel.
Abolition of receipt checking for subsistence benchmark scale rates
The government will legislate in Finance Bill 2018-19 so employers will no longer be required to check receipts when making payments to employees for subsistence using benchmark scale rates. This administrative easement applies to standard meal allowances paid in respect of qualifying travel and the newly legislated overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel.
The change will have effect from April 2019. Abolition of receipt checking does not apply to amounts agreed under bespoke scale rates or industry wide rates.
Capital gains tax: annual exempt amount
For 2018/19, the capital gains tax annual exempt amount will rise from £11,300 for individuals and personal representatives and £5,650 for most trustees of a settlement, to £11,700 and £5,850 respectively.
Capital gains tax: carried interest
Finance Bill 2017-18 will include provisions aimed at individuals involved in investment management for private equity or other investment funds who receive amounts of carried interest after 22 November 2017. The legislation will confirm that the carried interest provisions (in TCGA 1992, ss 103KA-103KH) will apply to all carried interest arising after 22 November 2017. It will remove the transitional provision which excluded sums of carried interest arising after 8 July 2015 and in connection with the disposal of a partnership asset before that date. The definitions of 'arise' in ITA 2007 and the provisions in TCGA 1992, s 103KG(2)-(15) will apply uniformly to amounts of carried interest arising after 22 November 2017.
Double taxation relief: Changes to targeted anti-avoidance rule
Two changes are being made to the double tax relief (DTR) targeted anti-avoidance rule (TAAR). The first change removes the requirement for HMRC to issue a counteraction notice before the TAAR applies (taxpayers will instead be required to consider whether the DTR TAAR applies as part of their self-assessment). This will have effect for returns with a filing date on or after 1 April 2018. The second change widens the scope of schemes or arrangements to which the DTR TAAR can apply (to include the tax payable by any connected persons for one of the categories of prescribed schemes or arrangements). This will have effect for payments of foreign tax made on or after 22 November 2017.
NICs Bill
The government has confirmed that it will introduce the NICs Bill in 2018. The measures it will implement are expected to take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.
Business
Annual update to the Energy Technology List for first year capital allowances
Finance Bill 2018-19 will contain provisions to extend First Year Tax Credits (FYTC) for five years and reduce the percentage rate of the claim to two-thirds of the corporation tax rate. The government will also update the energy-saving technology list (ETL) which specifies what qualifies for First Year Allowances (FYAs).
FYAs enables profit-making businesses to deduct the full cost of investments in energy and water technology from their taxable profits. Loss-making businesses do not make profits, so they cannot claim these tax breaks. Instead, loss-making businesses can claim FYTC when they invest in efficient products that feature on the energy and water technology lists.
The ETL will be updated to:
- add three new technologies to the list: evaporative air coolers, saturated steam to electricity conversion and white LED lighting modules for backlit illuminated signs;
- modify nine existing technologies to reflect technological advances and changes in standards and clarify the qualifying criteria;
- remove Localised Rapid Steam Generators and Biomass fired Warm Air Heaters
These changes update the qualifying criteria to reflect technological advances and changes in standards. The government will legislate by statutory instrument to update the ETL in December 2017. The changes to FYTC will have effect on and after 1 April 2018.
Extension of first year allowances for zero-emission goods vehicles and gas refuelling equipment
The 100% First Year Allowances (FYA) for businesses purchasing zero-emission goods vehicles and/or gas refuelling equipment are being extended for a further three years. The scheme will end on 31 March 2021 for corporation tax and 5 April 2021 for income tax.
Corporate interest restriction
An amendment is to be made to the corporate interest restriction (CIR) rules, which took effect from 1 April 2017, to ensure the regime works as intended. The changes are as follows:
- derivatives hedging a financial trade that is not a banking business will not be inappropriately excluded from the rules;
- the calculation of group-earnings before interest, tax, depreciation and amortisation (EBITDA) will be aligned with the treatment of research and development expenditure credits;
- technical changes will be made to the infrastructure rules to ensure that insignificant amounts of non-taxable income do not affect their operation;
- the definition of a group will be aligned with accounting standards and also to ensure that otherwise unrelated businesses are not inadvertently grouped; and
- minor amendments to the administrative rules.
Corporation Tax: double taxation relief and permanent establishment losses
A new measure will restrict the amount of credit allowed or deduction given in the UK for foreign tax suffered by a company with an overseas permanent establishment (PE) where losses of the PE have been set off against profits other than of the PE in the foreign jurisdiction. The changes will have effect for accounting periods ended on or after 22 November 2017 with a transitional rule applying where the accounting period straddles 22 November 2017.
Intangible fixed assets - related party step-up schemes
The tax treatment of a disposal of a company’s intangible fixed assets involving non-cash consideration is to be clarified.
In addition, the rules are to be amended in relation to licences in respect of intangible fixed assets granted by or to a company where the other party to the licence is a related party.
Both measures take effect on 22 November 2017.
Income tax: debt traded on a multilateral trading facility
The current requirement to apply an interest withholding tax for ‘quoted Eurobonds’ is to be extended to cover debt traded on a Multilateral Trading Facility (MTF) that is operated by a recognised stock exchange, regulated by a European Economic Area territory. This will have effect for interest payments made on or after 1 April 2018.
The definition of Alternative Finance Investment Bonds, (AFIBs), which are Shari’a-compliant financial instruments, is to be widened to include securities admitted to trading on an MTF. This will have effect for accounting periods beginning on or after 1 April 2018 for corporation tax purposes, and for 2018/19 for income tax purposes.
This measure is designed to ensure that UK debt markets can compete internationally on an equal footing by ending the anomaly which leads UK companies to issue debt on overseas venues in order to benefit from an existing UK exemption from withholding tax on interest.
Increasing the rate of research and development expenditure credit
The research and development (R&D) expenditure credit is brought into account as a receipt in calculating profits of large companies (and some smaller companies) that carry out qualifying research and development. The current rate is set at 11% of qualifying research and development expenditure but it will be increased to 12% for all expenditure incurred on or after 1 January 2018.
Capital gains depreciatory transactions within a group
This measure will remove the time limit of six years for which a company must look back and adjust the capital loss claimed on sale of shares in a subsidiary company to account for earlier depreciatory transactions that have materially reduced the value of those shares.
A depreciatory transaction is one that takes value out of shares, which might be by transferring the assets of a company to another company within a group for no or little cost. This reduces the value of the shares but without any economic loss to the group. When the shares are disposed of (by liquidating the company or making a negligible value claim), the legislation requires that previous depreciatory transactions are adjusted for in computing any loss on disposal. Currently there is a time limit of six years, so that depreciatory transactions before that are not taken into account. Removal of the six-year rule means that companies will need to consider the history of the shares and will be required to adjust for any prior depreciatory transactions when calculating a loss.
This measure will ensure companies cannot prevent the depreciatory transaction rules applying by simply holding onto a company that no longer has any value for six years before claiming an inflated amount of loss relief.
This change will have effect for disposals of shares in, or securities of a company made on and after 22 November 2017. For assets that are of negligible value, the commencement rule will apply to the date that the claim is made and not any earlier date that might be specified.
Removal of capital gains indexation allowance from 1 January 2018
Indexation allowance for individuals and other non-corporate entities was abolished from 31 March 2008. Indexation allowance is now being abolished for companies with effect from 1 January 2018. However, indexation up to 31 December 2017 will still be allowable, and will be frozen at that date.
Capital gains assets transferred to non-resident company: reorganisation of share capital
An unintended tax charge that can arise in certain circumstances is to be removed. Where the trade and assets of a UK company’s foreign branch are transferred to an overseas company in exchange for shares in that company, existing legislation allows tax on any capital gains on this disposal of assets to be postponed. The postponement is temporary, until the overseas company sells the assets, or the UK company disposes of the shares in the overseas company, other than in exchange for further shares during a corporate reconstruction. Under the current rules, an unintended consequence is that if the shares exchanged during the reconstruction fall within conditions for the Substantial Shareholding Exemption (SSE) to apply, the postponed tax charge may become payable, even though the group still owns the shares of the overseas company.
This measure seeks to correct that anomaly. It will have effect for disposals of shares in, or securities of a company made on or after 22 November 2017.
Partnership taxation: proposals to clarify tax treatment
In September 2017, HMRC published a policy paper setting out several measures designed to provide additional clarity over the following aspects of the taxation of partnerships:
- how the current rules and reporting operate in particular circumstances where a partnership has partners who are bare trustees for another person or that are partnerships; and
- the allocation and calculation of partnership profit for tax purposes.
The legislation is to be amended to clarify that partnership profits for tax purposes must be allocated between partners in the same ratio as the commercial profits. In addition, it will be made clear that the allocation of partnership profits shown on the partnership return is the allocation that applies for tax purposes for the partners. This rule will have effect for accounting periods commencing after the date of Royal Assent.
A new process will also be introduced to allow disputes over the correctness of the allocation of profit (or loss) for tax purposes to be referred to the tribunal to be resolved. Disputes over the quantum of partnership profits are not within the scope of the new process. This will apply for 2018/19 partnership returns.
Partners in nominee or bare trust arrangements -This change clarifies that where a beneficiary of a bare trust is entitled absolutely to any income of that bare trust consisting of profits of a firm, but is not themselves a partner in the firm then they are subject to the same rules for calculating profits etc and reporting as actual partners.
Partnerships with partnerships as partners-A partnership that has partners that are themselves partnerships (participating partnerships) will be required to include, for each of the participating partnerships, the share of the partnership’s income or loss calculated on all four possible bases of calculation unless details for all the partners and indirect partners are included on the partnership statement.
Investment partnerships -Partnerships that don’t carry on a trade or profession or a UK property business won’t be required to return the tax reference for a partner if that partner is not chargeable to income tax or corporation tax in the UK and the partnership reports details of the partner to HMRC under the CRS.
Partnerships that are partners in another partnership - If a partnership (the reporting partnership) is a partner in one or more partnerships that carry on a trade, profession or business then the legislation will make clear that the profits or losses from each partnership must be shown separately, and separately from any other income or losses, on the reporting partnership’s return.
Corporation Tax: capital gains depreciatory transactions within a group
A change to the legislation will remove the time limit of six years for which a company must look back and adjust the capital loss claimed on sale of shares in a subsidiary company to account for earlier depreciatory transactions that have materially reduced the value of those shares.
A depreciatory transaction is one that takes value out of shares, which might be by transferring the assets of a company to another company within a group for no or little cost. This reduces the value of the shares but without any economic loss to the group. When the shares are disposed of (by liquidating the company or making a negligible value claim), the legislation requires that previous depreciatory transactions are adjusted for in computing any loss on disposal. Currently there is a time limit of six years, so that depreciatory transactions before that are not taken into account. Removal of the six year rule means that companies will need to consider the history of the shares and will be required to adjust for any prior depreciatory transactions when calculating a loss.
This measure will ensure companies cannot prevent the depreciatory transaction rules applying by simply holding onto a company that no longer has any value for six years before claiming an inflated amount of loss relief.
The measure will have effect for disposals of shares in, or securities of a company made on and after 22 November 2017. For assets that are of negligible value, the commencement rule will apply to the date that the claim is made and not any earlier date that might be specified.
Pensions tax registration
HMRC powers to refuse to register, and to de-register pension schemes are to be extended to those which are Master Trusts and don’t have authorisation from the Pensions Regulator under their new authorisation and supervision regime, and to those pension schemes with a dormant company as a sponsoring employer. The objective behind this change is to restrict tax registration and beneficial tax treatment only to those pension schemes that provide legitimate pension benefits. This measure will have effect from 6 April 2018.
VAT
VAT: no change in registration and deregistration thresholds
The VAT registration and deregistration thresholds will not be uprated for a period of two years. There will be no revisions to existing legislation and no new legal provisions will be introduced.
Therefore legislation will continue as follows:
- the taxable turnover threshold that determines whether a person must be registered for VAT will remain at £85,000;
- the taxable turnover threshold that determines whether a person may apply for deregistration will remain at £83,000;
- the registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000.
The two year period ends on 31 March 2020.
The government has confirmed that it will consult on the design of the VAT threshold.
VAT: extending joint and several liability for online marketplaces and displaying VAT numbers online
The existing joint and several liability legislation is to be extended. The following changes will apply from Royal Assent to Finance Bill 2017-18:
- HMRC will be able to hold online marketplaces jointly and severally liable for any future unpaid VAT of a UK business arising from sales of goods in the UK via that online marketplace;
- HMRC will be able to hold online marketplaces jointly and severally liable for any unpaid VAT of a non-UK business arising from sales of goods in the UK via that online marketplace where that marketplace knew or should have known that the non-UK business should be registered for VAT in the UK;
- online marketplaces will be required to display a valid VAT number for all their sellers using their platform, when they are provided with one. They will also be required to ensure that VAT numbers displayed on their website are valid. This ensures that fictitious and hijacked VAT numbers are not displayed. These requirements will be supported by a penalty.
The legislation will only apply to those businesses who are not compliant with their VAT obligations and HMRC will only issue notices to online marketplaces where they are satisfied that a business is non-compliant.
Indirect Taxes
Stamp Duty Land Tax: relief for first time buyers
From 22 November 2017 first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax (SDLT).
First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000, a reduction of £5,000 compared to the amount of SDLT they would have previously paid.
A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.
First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.
The relief must be claimed in an SDLT return.
Stamp Duty Land Tax: higher rates - minor amendments
In relation to transactions on or after 22 November 2017, relief from tax due under the higher rates of Stamp Duty Land Tax (SDLT) may be granted in certain cases, including where a divorce related court order prevents someone from disposing of their interest in a main residence, and where a spouse or civil partner buys property from another spouse or civil partner, and where a deputy buys property for a child subject to the Court of Protection, and where a purchaser adds to their interest in their current main residence.
Annual Tax on Enveloped Dwellings
The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2018/19 chargeable period.
Annual chargeable amounts for the 2018/19 chargeable period will be as follows (2017/18 rates shown in brackets):
- Property value £500,001 to £1 million - £3,600 (£3,500)
- Property value £1,000,001 to £2 million - £7,250 (£7,050)
- Property value £2,000,001 to £5 million - £24,250 (£23,550)
- Property value £5,000,001 to £10 million - £56,550 (£54,950)
- Property value £10,000,001 to £20 million - £113,400 (£110,100)
- Property value £20,000,0001 and over - £226,950 (£220,350)
Landfill Tax: disposals not made at landfill Sites
The scope of Landfill Tax is to be extended to cover disposals made at sites that do not have an environmental disposals permit. The person disposing of the waste, and anyone who knowingly facilitates the disposal, may be liable for the tax. All parties involved could also be liable to penalties for non-compliance or face criminal prosecution. Safeguards will be put in place to ensure that landowners, and people in the waste supply chain who, in spite of carrying out all reasonable due diligence, were unknowingly involved in the illegal dumping won’t be assessed for any tax or penalties. At sites with a permit, all material disposed of will be taxable unless expressly exempt – new exemptions will be introduced to cover material currently outside the scope of landfill tax. These measures will take effect from 1 April 2018.
VED: introduction of the diesel supplement
A new supplement will apply to new diesel vehicles from 1 April 2018 to the effect that these cars will go up by one Vehicle Excise Duty (VED) band in their First-Year Rate. This will apply to any diesel car that is not certified to the Real Driving Emissions 2 (RDE2) standard.
Fuel rates frozen
The fuel duty rise, which was scheduled for April 2018, has been cancelled and rates have been frozen at 57.95 pence a litre for the eighth year running.
Air passenger duty rates
As announced at Autumn Budget 2017, the Air Passenger Duty long-haul standard rate will be increased to £172, and the long-haul higher rate increased to £515 on and after 1 April 2019. Short haul rates, and the long haul reduced rate for economy passengers will be frozen at 2018/19 levels.