A to Z guide to the key announcements.
Key announcements that were new for Spring Budget 2017 include:
Government responses to the recently closed consultations on VAT grouping and the requirement to notify HMRC of offshore structures were not published, but might be expected alongside the introduction of the Finance Bill 2017 into parliament, which will be on 20 March 2017.
The chancellor of the exchequer, Philip Hammond, delivered his first and last Spring Budget on Wednesday 8 March 2017 to an almost rampant Tory side of the House. In the main, the opposition front bench sat stony faced and immobile through the chancellor’s address with little interference from their backbenchers. It was in parts an unashamed self-congratulatory performance delighting the Tory back benchers and, fittingly, on International Women’s Day, punctuated by a beaming and, at some junctures, a laugh out loud prime minister.
The chancellor’s performance was self-assured with far more barbs at the opposition hitting the mark than at the Autumn Statement. He commented that this would be the ‘last’ Spring Budget, referring to the last time this phrase was used, by Norman Lamont, and mentioning that Mr Lamont was sacked some weeks after his statement and plainly indicating that he did not expect to suffer the same fate.
Right at the start, the chancellor made it clear that this was a Budget for young people and public services. This was indeed the main thrust of what followed but there was no disguising the glee at the UK economy doing so well, so he could perhaps be forgiven for using the old phrase – the UK ‘was open for business’.
The chancellor supported this with some impressive figures from the Office of Budgetary Responsibility (OBR), basically indicating that future growth and borrowing had been revised from the Autumn Statement and that the first was being increased and the latter decreased.
The chancellor continued his focus on measures to increase productivity and building an economy that ‘works for everyone’, announcing or confirming measures relating to living standards such as tax-free child-care and increased free childcare hours; increased funding to be provided to local councils for social care and to the NHS to support its A&E services; and the trailed commitment to technical education for young people.
Some of the new measures announced related to business concerns at the substantial increase in business rates as a result of recent revaluations. This was met with promises of increases in rates reliefs and a war chest for local authorities to dispense as discretionary relief to those hard hit by the revaluations. Most importantly pubs with a ratable value of less than £100,000 will be given a discount on their payable rates of £1,000.
In line with the proposals for changing the Budget timetable announced at the Autumn Statement, the chancellor used the Spring Budget 2017 to announce a number of consultations on future reforms. However there were some significant policy announcements, all of which could be classified within the heading of ‘ensuring that the tax system is both fair and sustainable’. The particular targets of that challenge were the differences in taxation that can arise from the choice of business structures. In that context the government has announced increases to NICs for the self-employed and a decrease in the amount of the dividend allowance (thereby increasing the income tax suffered by individuals who operate through companies and pay themselves dividends, among others).
The two successive increases to class 4 NICs mean that, from April 2019, they will be paid at 11% (compared with a 12% rate for class 1 NICs for employed earners). There has been a government and media focus on the treatment of workers in the gig economy, who are usually treated as self-employed and this announcement may have been fuelled by the growth in that sector. The measure (after offsetting the loss from the abolition of class 2 NICs) is expected to raise nearly £500m over the next four tax years, although the forecasts suggest a peak of class 4 NICs in 2019/20, followed by drops in the next two years, perhaps predicting that the self-employed will change their working practices in response to this change. Although when most people consider a self-employed person, they will think of individuals working on their own, these changes of course extend to those who work in partnerships, many of whom employ a large number of staff themselves, and are therefore responsible for paying the employer NICs. This rate rise is unlikely to be much softened by the government’s commitment to consult on the disparities between parental benefits for employed and self-employed individuals.
The Conservative manifesto in 2015 committed: ‘no increases in VAT, national insurance contributions or income tax’. The class 4 NICs changes could be considered to have breached that manifesto pledge. However, when enacted into the National Insurance Contributions (Rate Ceilings) Act 2015, the lock was applied only to class 1 NICs, so the change proposed does not at least require a change to that enacted lock.
Despite these increases in tax, it has been hailed as a ‘business friendly Budget’, mainly due to the lack of significant change in the corporate tax sphere and confirmation of the business tax roadmap measures such as the cuts to corporation tax to 19% from April this year and again to 17% in 2020 and further support for businesses who are facing increases in business rates.
Measures with immediate effect
New measures that are coming into effect on 8 March 2017:
Accommodation benefits
As announced at AS 2016, the government will publish a consultation on 20 March 2017 on proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax, as well as supporting taxpayers during any transition.
See: Spring Budget 2017 (para 3.7) and Overview of tax legislation and rates (OOTLAR) (para 2.6).
Aggregates levy
The current rate of £2 per tonne will remain in effect. This continues the freeze that has been in place since 2009.
See: Spring Budget 2017 (para 3.30).
Alcohol and tobacco
The following was announced:
Alcohol duty rates and bands: The duty rates on beer, cider, wine and spirits will increase by the RPI with effect from 13 March 2017.
The government announced that it intends to have a consultation on: introducing a new duty band for still cider that has a just below 7.5% abv in order to target white ciders; and the impact of introducing a new duty band for still wine and made-wine between 5.5-8.5% abv.
Tobacco duty rates: The government has previously announced in Budget 2014 that tobacco duty rates will increase by 2% above RPI inflation and this change will come into effect from 6pm on 8 March 2017.
Minimum excise tax: The government announced that it will be introducing a minimum excise tax for cigarettes that is intended to target the cheapest tobacco and promote fiscal sustainability. The rate will be set at £268.63 per 1,000 cigarettes. The new tax will come into effect from 20 May 2017.
Tobacco , illicit manufacture: Following the announcement made in Autumn Statement 2015 and following technical consultation on the draft legislation produced in December 2016, legislation will be introduced in Finance Bill 2017 that will be intended to control the use and ownership of tobacco manufacturing machinery in the UK. The changes are intended to prevent the illicit manufacture of tobacco products in the UK by introducing powers to establish a licensing regime for this type of machinery. Powers will also be introduced to provide for forfeiture of unlicensed tobacco manufacturing machinery and penalties for failure to comply with the conditions of a licence. The legislation will take effect from the date of Royal Assent.
Heated tobacco products: As announced in Budget 2016 the government will be consulting on the duty treatment of heated tobacco products. The consultation will be launched on 20 March 2017 and the consultation document should be available on this date.
See: Spring Budget 2017 (paras 3.33–3.35) and OOTLAR (paras 2.24–2.25).
Benefits in kind: call for evidence
As announced at AS 2016, the government will publish a call for evidence on 20 March 2017 on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.9).
Benefits in kind: making good
As announced at Budget 2016 and confirmed at AS 2016, and following a consultation over the summer, FB 2017 will align the dates for an employee to make good on non-payrolled benefits in kind. The date by which the making good must take place if the taxable value of the benefit in kind is to be reduced or re-moved was determined following the consultation and will be 6 July following the end of the tax year. The change will affect making good on a tax liability arising in the tax year 2017/18 and subsequent years.
See: OOTLAR (para 1.6).
Business rates
The government will provide £435m of support for businesses facing significant increases in business rates following the revaluation that takes effect from April 2017. Three measures were announced:
• a £1,000 business rate discount for public houses with a rateable value of up to £100,000;
• a cap on the increase in business rates for small businesses losing small business rate relief; and
• a £300m discretionary relief fund to allow local authorities to provide support to individual cases in their local area.
The government will also consult before the next revaluation in 2022 on its preferred approach for modernising the business rate system.
See: Spring Budget 2017 (paras 3.15–3.19).
Cash basis for unincorporated businesses
As previously announced and as part of tax simplification, the government is simplifying the cash basis for calculating taxable income. The cash basis allows small businesses to be taxed on the basis of receipts less payments of allowable expenses. The measures include:
• increasing the general entry threshold to £150,000 and the exit threshold to £300,000 with effect from the tax year 2017/18;
• simplifying the rules on capital and revenue expenditure from April 2017 (although 2017/18 profits can be calculated using the old or new rules); and
• extending the cash basis to unincorporated landlords with receipts of £150,000 or less from 6 April 2017.
See: Spring Budget 2017 (para 3.40) and OOTLAR (paras 1.44–1.46).
Company cars
There were no changes announced to the company car tax rates that will apply from 2017/18 to 2020/21 as already either enacted or announced in AS 2016.
Conditionality
HMRC consulted in autumn 2016, as part of its proposals to ‘tackle the hidden economy’, on new rules to make access to certain licences or business services conditional on being registered for tax. At Spring Budget 2017, the government stated that it will develop further proposals in this area. It believes there is a good case for conditionality but recognises that it must minimise any new administrative burdens. No timescale is given for the next step.
See: OOTLAR (para 2.32).
Corporate interest expense deductibility restrictions
As announced at Budget 2016, and following several stages of consultation, new rules restricting the ability to obtain corporation tax deductions for interest and other finance amounts will come into effect from 1 April 2017.
The new rules will limit a group’s deductions for net interest expense to 30% of tax-EBITDA in the UK (the fixed ratio rule), with an option for multinational groups to apply an alternative restriction based on the net interest expense to EBITDA ratio for the worldwide group (the group ratio rule). In both cases, deductions will also be capped to ensure that the net UK interest deduction does not exceed the total net interest expense of the worldwide group (the modified debt cap) and the existing debt cap legislation will be repealed. Only groups with net interest expense in the UK of more than £2m annually will have to apply the rules.
Draft legislation for the new rules was published in stages, on 5 December 2016 and 26 January 2017. In response to comments received, the government has now announced that several changes to the provisions will be reflected in FB 2017 in order to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens. The government has announced that these changes will, in particular:
• remove certain unintended restrictions that arise from the modified debt cap which could otherwise prevent deductions for carried forward interest expense;
• make the optional alternative rules for public infrastructure easier to apply – specifically, the changes will remove the requirement to compare the level of indebtedness of group companies qualifying for alternative treatment under those rules with that of group companies not so qualifying (e.g. those outside the UK), and in addition transitional rules will apply so that businesses will have time to restructure in order to qualify for these alternative rules;
• limit the scope of the provisions which treat interest on debt guaranteed by a related party as related party interest – these provisions will not apply in the case of certain performance guarantees or to any guarantees granted before 31 March 2017, nor will they apply to intra-group guarantees in the context of the group ratio rule;
• amend the definition of interest to include income and expenses from dealing in financial instruments as part of a banking trade; and
• introduce new provisions for insurers regarding the calculation of interest on an amortised cost basis to provide a practical alternative to fair value accounting.
See: OOTLAR (para 1.23).
Corporation tax: loss relief
As announced at Budget 2016, legislation will be included in the FB 2017 that will provide more flexibility on the types of profit that can be relieved by losses incurred after 1 April 2017 and also restrict the amount of losses than can be carried forward to 50% (of profits above £5m) from 1 April 2017. The draft legislation published on 26 January 2017 will be revised to include provisions for oil and gas companies and contractors.
See: OOTLAR (para 1.17).
Creative sector tax reliefs
It was confirmed that the government will seek state aid approval for the continued provision of high-end television, animation and video games tax reliefs beyond 2018.
See: OOTLAR ( para 2.16).
Disclosure of indirect tax avoidance schemes
As announced at AS 2016 and included in draft FB 2017, FB 2017 will revamp the VAT avoidance disclosure regime. The requirement to make disclosures to HMRC will move from scheme users to scheme promoters, and the rules will be extended to include all indirect taxes. The new regime takes effect from 1 September 2017.
See: OOTLAR (para 1.38).
Disguised remuneration
As announced at AS 2016, legislation in FB 2017 will tackle the use of disguised remuneration avoidance schemes. There will be a new charge on disguised remuneration loans made after 5 April 1999 that are still outstanding on 5 April 2019. The close companies’ gateway will be introduced to commence from 6 April 2018, following further consultation to ensure that it is appropriately targeted at disguised remuneration schemes. Proposals on the collection of tax and NICs from the changes will be set out in a technical consultation later in 2017. FB 2017 will also include legislation to tackle use of similar schemes by the self-employed with effect from 6 April 2017. Legislation will also be introduced with effect from April 2017 to prevent employers claiming a deduction when computing their taxable profits for contributions to a disguised remuneration scheme unless income tax and NICs are paid within a specified period.
See: OOTLAR (para 1.10).
Dividend allowance reduction
The government announced that it will reduce the dividend allowance from £5,000 to £2,000. This measure, which will apply from April 2018, is part of the chancellor’s drive to reduce the difference between those working through a company and those who are employed or self-employed. Taken together with increases to the ISA and personal allowances, the government believes that 80% of general investors will continue to pay no dividend tax. The legislation will be included in FB 2017.
See: Spring Budget 2017 (para 3.6), OOTLAR (para 1.2) and TIIN: Income Tax: dividend allowance reduction.
Employees’ expenses
As announced at AS 2016, the government will publish a call for evidence on 20 March 2017 to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.
See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.4).
Employment allowance: illegal workers restriction
The government consulted from November 2016 to January 2017 on excluding certain employers from claiming the employment allowance for one year where that employer received a civil penalty from the Home Office for employing illegal workers. The government has decided not to proceed with the proposal as a result of consultation responses which raised concerns around complexity.
See: OOTLAR (para 2.36).
Employment allowance: national Insurance
Following reports of schemes being used to avoid paying the correct amount of NICs, HMRC is actively monitoring compliance with the national insurance employment allowance. The government will consider taking further action in the event this avoidance continues.
See: OOTLAR (para 2.33).
Enablers of tax avoidance
The government has confirmed that FB 2017 will introduce the controversial new ‘enablers’ rules: penalties for persons who enable other persons or businesses to use tax avoidance arrangements that are later defeated by HMRC. This measure was consulted on from August to October 2016 and was included in draft FB 2017 as published on 5 December 2016.
There has been widespread concern in the tax profession that these measures would potentially be relevant in many commercial transactions, although the draft legislation published in December 2016 was less broad in scope than was suggested in the original consultation. At Spring Budget 2017 the government announced further revisions, following ‘extensive consultation and input from stakeholders’. The revisions:
• provide further details on when and how the general anti-abuse rule (GAAR) advisory panel will consider enabler cases;
• apply the enablers regime to arrangements that seek to avoid NICs;
• make consequential changes to the promoters of tax avoidance schemes (POTAS) legislation; and
• make further minor amendments to ‘improve clarity and targeting’.
The revisions will be in FB 2017 when it is published on 20 March 2017, and the rules will come into effect from royal assent (expected in July 2017).
See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41).
Energy and transport taxes
The following announcements were made in Spring Budget 2017:
Vehicle excise duty (VED): VED for cars, motorcycles and vans registered before 1 April 2017 will be increased by the retail price index (RPI) with effect from 1 April 2017.
HGV VED and road user levy: these rates will be frozen with effect from 1 April 2017. The government has requested evidence be provided in respect of updating the existing HGV road user levy and they will formally issue this request in Spring 2017. The government also stated that it intends to work with the industry in order to update the levy so that it will reward hauliers that plan their routes efficiently and incentivise hauliers to make efficient use of the roads and improve air quality.
Red diesel: The government announced that it intends to request evidence on the use of red diesel in order to improve its understanding of eligible industries and their use of red diesel. The government would specifically like to receive evidence from urban red diesel users. The call for evidence will be published on 20 March 2017.
Air passenger duty (APD): The rate of APD for the year 2018/19 will increase in line with the RPI. The rates for 2019/20 will be provided in Autumn Budget 2017 in order to give airlines sufficient notice of the increase.
Carbon pricing: The government announced that it remains committed to carbon pricing in order to assist with decarbonising the power sector. UK prices are currently determined by the EU Emissions Trading System and Carbon Price Support. With effect from 2021/22, the government intends to tar-get a total carbon price and will set the specific tax rate at a later date in order to give businesses greater clarity on the total price that they will be required to pay. Further details on carbon prices for the 2020s will be set out at Autumn Budget 2017.
Levy control framework: The government is aware that it will need to limit the cost for businesses and households as the UK decarbonises its energy supplies. The levy control framework has already been assisting with controlling the costs of low carbon subsidies in recent years and it will be replaced by a re-vised set of controls. Details of these new controls will be provided later in 2017.
See: Spring Budget 2017 (para 3.23–3.32) and OOTLAR (para 2.26).
(See also ‘Oil and gas’, ‘Aggregates levy’ and ‘Landfill tax’.)
Enterprise management incentives
The government is to seek state aid approval to extend the tax reliefs associated with the enterprise management incentive (EMI) scheme beyond 2018. The last time state aid approval was granted to this scheme was in August 2009.
See: OOTLAR (para 2.15).
Failure to notify: penalties
HMRC will consider strengthening the existing penalties for failure to notify a tax liability, as part of the longer term HMRC penalties review.
See: OOTLAR (para 2.32).
Gaming duty
The following was announced:
Gross gaming yield (GGY): The government previously announced in Budget 2016 that they will include legislation in FB 2017 that will raise the GGY bandings for gaming duty in line with inflation based on the RPI. The revised GGY will be used to calculate the amount of gaming duty due for accounting periods starting on or after 1 April 2017. See Annex A: rates and allowances for details of the GGY bandings.
Remote gaming duty freeplays: The government will include legislation in FB 2017 to amend the definition of gaming payment and prizes and change the tax treatment of freeplays for remote gaming duty. The government consulted on the changes and the draft legislation has been amended to ensure that the change is proportionate. The legislation is intended to ensure that freeplays used to participate in remote gaming will have a value as stakes when calculating the dutiable profit of the operator and freeplays given as prizes will not be deductible.
See: OOTLAR (paras 1.31, 1.32) and TIIN Gaming duty: increase in casino gross gaming yield bands for more information.
Grassroots sport
As announced at AS 2015 and included in draft FB 2017 (clause 23), a new tax relief will be introduced with effect from 1 April 2017, minor amendments will be made to extend the meaning of ‘sport governing body’ to include its 100% subsidiaries.
See: OOTLAR (para 1.21).
Hybrid mismatches
As announced at AS 2016 and outlined in a technical note published on 5 December 2016, the government reconfirmed at Spring Budget 2017 that it will include legislation in FB 2017 to make two minor changes to the hybrid rules, both with effect from 1 January 2017:
• removing the requirement to make a formal claim for a future period to be admitted as a payee’s permitted taxable period for the purposes of chapters 3 and 4 of the hybrid rules; and
• removing amortisation deductions from the meaning of relevant deductions for the purposes of chapters 5–8 of the hybrid rules, thereby providing an exemption from those chapters for certain mismatches relating to such payments.
See: OOTLAR (para 1.19) and TIIN: Corporation tax: Hybrid and other mismatches – permitted taxable periods of payees and deductions for amortisation.
Image rights
HMRC will publish guidelines for employers who make image rights payments in respect of employees. These guidelines will be published in spring 2017 and will improve the clarity of the existing rules.
See: Spring Budget 2017 (para 3.50) and OOTLAR (para 2.10).
Income tax allowances for trading and property income
As announced at Budget 2016, FB 2017 will include two new income tax allowances of £1,000 each for property and trading income for individuals. The draft legislation will be amended to prevent the allowances from applying to income of a participator in a close company or to any income of a partner from a partnership.
See: OOTLAR (para 1.3).
Insurance premium tax (IPT)
At Spring Budget 2017, draft legislation to be included in FB 2017 was published to increase the standard rate of IPT to 12% with effect from 1 June 2017 (as was previously announced at AS 2016) and to replace the current anti-forestalling provisions found in FA 1994 ss 67–67C with new ones to be inserted at FA 1994 ss 66A, 66B and 66C that take effect from 8 March 2017.
See: Spring Budget 2017 (para 3.38), OOTLAR (para 1.27) and TIIN, draft legislation and explanatory notes: IPT: standard rate and anti-forestalling.
ISAs
The ISA limit will be £20,000 in 2017/18 (up from £15,420 in 2016/17), as previously trailed in Budget 2016. The chancellor used this above inflation increase to partly justify his reduction to the dividend nil rate band; individuals can purchase shares via an ISA to benefit from the tax-free wrapper.
See: Spring Budget 2017 (para 3.6).
Landfill tax
The value of the landfill communities fund (LCF) for 2017/18 will remain unchanged at £39.3m and the cap on contributions made by landfill operators will increase to 5.3%. The current cap will be maintained, subject to consideration of landfill tax receipts, continuing progress in reducing the level of unspent funds that are held by environmental bodies and the proportion of the LCF that are spent on administration costs.
The government announced that it intends to consult on extending the scope of landfill tax to cover illegal waste disposals that are made without the required permit or licence.
The government previously announced at Budget 2016 that legislation will be introduced in Finance Bill 2017, and in secondary legislation, to amend the definition of a taxable disposal for landfill tax. The government has consulted in the draft legislation and changes have been introduced in order to clarify the tax treatment of material disposed of at landfill sites and give greater certainty to landfill site operators. The draft legislation has been restructured to simplify and improve ease of comprehension. The measure will come into effect after royal assent of FB 2017 and the changes will apply to disposals to landfill in England, Wales and Northern Ireland.
See: Spring Budget 2017 (para 3.31) and OOTLAR (para 1.28).
Large business risk review
The government will consult over the summer on its process for HMRC’s risk profiling of large businesses and for promoting stronger compliance.
See: Spring Budget 2017 (para 3.41) and OOTLAR (para 2.35).
Life insurance: part surrenders and part assignments
As announced at AS 2016, the government will legislate in FB 2017 to change the current tax rules for part surrenders and part assignments of life insurance policies, to allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis. Currently, a policy holder who surrenders in part or assigns in part a life insurance policy can be subject to disproportionate tax charges.
Following consultation, the legislation has been revised to clarify who can apply, when and how the recalculation is given effect. These changes will have effect from royal assent of FB 2017.
See: OOTLAR (para 1.11).
Making tax digital
Deferral for small businesses: As announced at AS 2016 and published in draft on 31 January 2017, FB 2017 will include measures forming part of the government’s ‘making tax digital’ initiative. These include digital record keeping, changes to when and how businesses record accounting and tax adjustments, and a requirement to provide HMRC with summary tax data on a quarterly basis.
At Spring Budget 2017, the government announced a one year deferral for the implementation of these measures for unincorporated businesses, and landlords, with turnovers below the VAT threshold (increased by this Budget to £85,000). This means that only:
• businesses, self-employed people and landlords;
• with turnovers in excess of the VAT threshold; and
• that pay income tax and class 4 NICs.
will be required to start using the new digital service from April 2018. This change will be made in regulations. There will also be a number of changes to the primary legislation in FB 2017, including new provisions to replicate existing income tax compliance powers so that they apply to the new digital requirements.
The measures generally take effect from royal assent (expected July 2017).
See: Spring Budget 2017 (para 3.39) and OOTLAR (para 1.47).
Late submission penalties: HMRC will publish a consultation on 20 March 2017 on proposals for late submission penalties (the digital equivalent of late filing penalties) and the charging of penalty interest on late payments of tax.
See: OOTLAR (para 2.34).
Museums and galleries
As announced at Budget 2016 and included in draft FB 2017 (clause 22 and Sch 8), a new tax relief will be introduced with effect from 1 April 2017. Minor amendments will be made to allow for exhibitions which have live performances as part (but not the main focus) of the exhibition. The rates of relief to be introduced (as announced at AS 2016) as from 1 April 2017 will be:
• 25% for touring exhibitions; and
• 20% for non-touring exhibitions.
This will enable museums and galleries to claim a credit of up to:
• £100,000 for touring exhibitions; and
• £80,000 for non-touring exhibitions,
up to a maximum allowable credit equivalent to qualifying expenditure of £500,000.
See: OOTLAR (para 1.20).
National living wage
The national living wage will be increased to £7.50 per hour from April 2017. The following table shows all minimum wage rates for all age groups:
|
Category |
Current rate |
New rate from 1 April 2017 |
|
Workers 25 and over |
£7.20 per hour |
£7.50 per hour |
|
21-24 year olds |
£6.95 per hour |
£7.05 per hour |
|
18-20 year olds |
£5.55 per hour |
£5.60 per hour |
|
16-17 year olds |
£4.00 per hour |
£4.05 per hour |
|
Apprentices |
£3.40 per hour |
£3.50 per hour |
|
Accommodation offset |
£6.00 per day |
£6.40 per day |
NICs: class 4 rate increase
The government will legislate to increase the main rate of class 4 NICs from April 2018. Currently, the self-employed pay class 4 NICs at 9% on profits between £8,060 and £43,000 (with a 2% rate applying to profits over £43,000). From 6 April 2018, the 9% main rate will increase to 10%, with a further increase to 11% from 6 April 2019.
This increase will address the exacerbated differential between the rates of NICs paid by employees and those paid by the self-employed when class 2 NICs are abolished from April 2018 (as announced at Budget 2016), and also reflects the post-April 2016 pension entitlement changes.
See: Spring Budget 2017 (para 3.5), OOTLAR (para 2.7) and National Insurance and the self-employed: factsheet.
NICs: collection of arrears
As announced at AS 2016, the government will remove NICs from the effects of the Limitation Act 1980 and will align the time limits for the recovery of NICs debts with those for tax. It was originally intended this would be effective from April 2018. However, the government will defer this measure, which will be introduced in a future NICs Bill, to allow more time for a full consultation on the draft legislation.
See: OOTLAR (para 2.8).
Non-domiciliaries
As first announced at Summer Budget 2015, there are to be fundamental changes to the tax regime for non-domiciled individuals. They involve deeming an individual to be UK domiciled for tax purposes even though he may be non-domiciled in the UK under general law. The rules will apply for income tax, CGT and IHT.
From 2017/18, it is expected that an individual will be deemed UK domiciled for income tax and CGT:
· if he has been UK resident for at least 15 out of the last 20 tax years; or
· if he was born in the UK with a UK domicile of origin, subsequently left the UK and acquired a non-UK domicile of choice and later becomes resident in the UK.
The 20-year ‘look-back’ period for 2017/18 is 1997/98 to 2016/17. The ‘clock’ does not restart from 2017/18.
Following the responses to the initial consultation, it was announced that non-domiciliaries:
· caught by the deemed domicile 15-year rule in 2017/18 will be able to rebase their foreign chargeable assets for CGT purposes as at 5 April 2017;
· will have a one-off opportunity to clean-up existing mixed funds within foreign bank accounts (transfers out should be made between 6 April 2017 and 5 April 2019).
Whilst both these measures are good news for the non-domiciliary, they have underlying traps for the unwary that were not obvious at the time of the original announcements. Great care will be needed in advising clients.
See: OOTLAR (para 1.26).
Non-resident companies
As announced at AS 2016, the government will consult on the options for bringing non-UK resident companies within the charge to corporation tax. The Spring Budget 2017 announcement suggests that the consultation will be limited to non-resident companies that are currently subject to income tax on their UK taxable income and to non-resident capital gains tax on disposals of UK residential property.
See: OOTLAR (para 2.19).
Northern Ireland: corporation tax
As announced at AS 2016 and included in draft FB 2017 (clause 25 and Sch 9), changes will be made to the Corporation Tax (Northern Ireland) Act 2015 to open it up to all SMEs trading in NI to benefit (and prevent abuse), and minor drafting improvements will be made.
See: OOTLAR (para 1.18).
Oil and gas: late-life assets
The government has announced that it will publish a discussion paper on 20 March 2017 on ‘late-life’ oil and gas assets. This will consider the case for allowing transfers of tax history (including decommissioning obligations) between buyers and sellers, to make it easier for oil and gas assets to be transferred.
In addition, as announced at Summer Budget 2015 and consulted on in 2016, the government is introducing regulations to extend the scope of investment allowances and cluster area allowances. The rules will have retrospective effect to 8 October 2015.
See: Spring Budget 2017 (para 3.29) and OOTLAR (paras 2.17, 2.18).
Offshore property developers
At Budget 2016, the government announced rules to tax profits from trading in and developing UK land. Legislation will be included in FB 2017 to amend the commencement provisions for these rules so that all profits recognised in the accounts of developers on or after 8 March 2017 will be taxed, regardless of the date of the sale contract. Previously profits arising from contracts entered into before 5 July 2016 were excluded from the rules.
See: Spring Budget 2017 (para 3.21), OOTLAR (para 1.15), and TIIN, draft clause and explanatory notes.
Partnerships
At AS 2016, the government announced that it would legislate in FB 2017 to clarify and improve certain aspects of partnership taxation (including legislation to ensure profit allocations to partners are fairly calculated for tax purposes). Draft legislation was expected in early 2017 for consultation. The government has now announced that it intends to legislate in FB 2017.
See: OOTLAR (para 2.3).
Patent box: cost sharing arrangements
As announced at AS 2016 and included in draft FB 2017 (clause 24), the government will legislate to ensure that a company entering into a cost-sharing arrangement is not disadvantaged, or advantaged, under the revised patent box rules introduced in FA 2016. Following consultation, the legislation will be revised to narrow the definition of cost sharing arrangement and to better align payments. The provisions have effect for accounting periods starting after 1 April 2017.
See: OOTLAR (para 1.22).
Patient capital review
The patient capital review was launched by HM Treasury and the Department for Business, Energy & Industrial Strategy (BEIS) in January 2017 and forms part of the government’s consultation on building a modern industrial strategy. The terms of reference for this review did not previously include consideration of the tax measures linked with patient or long term funding for growing businesses, but the chancellor today announced that the consultation to be launched in spring will extend to consider the tax reliefs aimed at encouraging investment and entrepreneurship. The announcement does not identify specific reliefs, but it is assumed that it would cover some or all of: EIS reliefs, SEIS reliefs, VCT reliefs, entrepreneurs’ relief and investors’ relief.
The final recommendations from the review will be presented to the chancellor ahead of Autumn Budget 2017.
See: Spring Budget 2017 (para 3.13) and OOTLAR (para 2.5).
Pensions
Foreign pension regimes: As announced at Autumn Statement 2016, the government will legislate in FB 2017 to more closely align the treatment of foreign pensions with the UK’s domestic pension regime. Following consultation, the legislation has been revised to set out the position for defined benefit specialist pension schemes for those employed abroad (‘section 615’ schemes) and clarify that all lump sums paid out of funds built up before 6 April 2017 will be subject to existing tax treatment. These changes will have effect from 6 April 2017.
A section 615 scheme is an occupational pension scheme established under ICTA 1988 s 615(6) which:
• is established under trust by an employer that operates wholly or partly outside the UK; and
• provides retirement benefits for employees that work wholly outside the UK.
Currently, a section 615 scheme is exempt from many, but not all, of the regulatory provisions that apply to UK pension schemes. In particular, it benefits from the same IHT exemptions as a UK pension scheme. For tax purposes, it is neither a registered pension scheme nor an employer-financed retirement benefits scheme (EFRBS).
See: OOTLAR (para 1.13), AS 2016 (para 4.21).
Money purchase annual allowance: At Spring Budget 2017, the chancellor announced that legislation will be included in FB 2017 to reduce the money purchase annual allowance from £10,000 to £4,000 with effect from 6 April 2017. This measure follows a consultation launched at AS 2016 as to the detail of the reduction in the allowance.
The reduction in the allowance is designed to limit the extent to which pension savings can be recycled to take advantage of an unintended double pension tax relief (eg on recycled pension savings), while also retaining the flexibility for individuals who need to access their pension savings to rebuild them if they subsequently have opportunity to do so. A response to the consultation is due to be published along with FB 2017 on 20 March 2017.
See: Spring Budget 2017 (Table 2.2), OOTLAR 2017 (para 1.12), TIIN: Reducing the money purchase annual allowance.
QROPS transfer charge: This is a measure that had not been pre-announced. The government will legislate in FB 2017 to apply a 25% charge to pension transfers made to qualifying recognised overseas pension schemes (QROPS). Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension, where:
• both the individual and the pension scheme are in countries within the European Economic Area (EEA); or
• if outside the EEA, both the individual and the pension scheme are in the same country; or
• the QROPS is an occupational pension scheme provided by the individual’s employer.
If the individual’s circumstances change within five tax years of the transfer, the tax treatment of the transfer will be reconsidered.
The changes will take effect for transfers requested on or after 9 March 2017.
The government will also legislate in FB 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a QROPS. UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.
See: Spring Budget 2017 (para 3.46), OOTLAR (para 1.14) and TIIN: Qualifying recognised overseas pension schemes: charge on transfers.
Personal allowance and higher rate threshold
By the end of this parliament in 2020, the personal allowance is set to increase to £12,500 and the higher rate threshold to £50,000. In order for personal allowance increases not to be eroded by inflation going forward, once the personal allowance reaches £12,500, it will then rise in line with the consumer price index (CPI).
However, following legislation introduced in FA 2016 s 6, the government will separate the ‘main rates’ of income tax into three distinct groups for the first time, to be set in FB 2017:
• ‘main rates’ will apply to non-savings, non-dividend income of taxpayers in England, Wales and Northern Ireland;
• ‘savings rates’ will apply to savings income of all UK taxpayers; and
• ‘default rates’ will apply to a very limited category of income taxpayers that do not fall within the two groups above, such as trustees and non-residents.
From April 2017, the income tax rates and thresholds for non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament and the basic rate limit for Scottish taxpayers will be different.
See: Spring Budget 2017 (para 3.4) and OOTLAR 2017 (para 1.1).
Petroleum revenue tax (PRT) simplification
Since 1 January 2016, PRT has been charged at a zero rate, but it has not been abolished, largely to enable companies to create losses that can be carried back to recover past PRT paid. As announced at AS 2016, FB 2017 will include provisions to simplify the process for opting out of PRT and remove various reporting requirements. Following consultation, the legislation has been revised to make some consequential amendments. The changes have retrospective effect to 23 November 2016 and the revised legislation will be published on 20 March 2017.
See: OOTLAR (para 1.25).
Plant and machinery leases
HMRC published a discussion document in autumn 2016 on options for reforming the tax treatment of plant and machinery leases in light of the new International Accounting Standards Board leasing standard, IFRS16. The government has now announced that it will take this proposal forward with a consultation in summer 2017, with the intention of making legislative changes that will maintain the effect of the current rules.
See: OOTLAR (para 2.12).
Promoters of tax avoidance schemes (POTAS)
The government is introducing legislation with immediate effect (from 8 March 2017) to prevent promoters from getting around the POTAS rules by restructuring how their business is owned. The POTAS rules are triggered where, within the previous three years, the promoter has met any one of a number of threshold conditions set out in the legislation. Threshold conditions include:
• being found guilty of certain types of misconduct by a professional body;
• imposing provisions on clients that restrict the disclosure of information to HMRC; and
• repeatedly promoting tax avoidance schemes that do not work (‘defeated’ avoidance schemes).
The POTAS rules were introduced by FA 2014 and were changed by FA 2015 to catch situations where a threshold condition has been met by someone with a defined type of connection, via a company or partnership, to the promoter. The new measures announced at Spring Budget 2017 extend these provisions by amending the definition of control, and introducing the term ‘significant influence’ to ensure promoters cannot get around the rules by inserting a person or persons between themselves and the promoting business.
See: Spring Budget 2017 (para 3.43),OOTLAR (para 1.40) and TIIN, draft clause and explanatory notes: Promoters of tax avoidance schemes: associated and successor entities rules.
Public sector off-payroll working
As announced at Budget 2016 and confirmed at Autumn Statement 2016, FB 2017 will reform the way IR35 applies to public sector bodies. As a result of feedback received during the technical consultation on FB 2017, it will be optional for the public sector body (or agency, if used) to take account of the worker’s expenses when calculating the tax due. This change puts the affected workers in the same position as employees, whose employers can choose whether or not to reimburse incurred expenses. This will not affect the individual’s right to claim tax relief on legitimate employment expenses from HMRC as part of their own tax returns. In addition, the application of the rules to parliament and statutory auditors will be clarified.
The reform to IR35 will come into effect from 6 April 2017.
See: OOTLAR (para 1.9) and Updated TIIN: Off-payroll working in the public sector: changes to the intermediaries legislation.
Reasonable care defence
As announced at AS 2016 and included in draft FB 2017 (clause 91), FB 2017 will prevent taxpayers who face inaccuracy penalties in respect of a marketed tax avoidance scheme from citing generic advice or marketing material to demonstrate that they have taken reasonable care. The changes come into effect at royal assent and apply to inaccuracies in documents relating to tax periods which begin on or after 6 April 2017.
See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41).
Research and development (R&D) tax review
Following a review of the R&D tax regime, the government will:
• make administrative changes to the R&D expenditure credit to increase certainty and simplify claims; and
• take action to improve awareness of R&D tax credits among SMEs.
See: Spring Budget 2017 (para 3.12) and OOTLAR (para 2.13).
Rent-a-room relief
In a surprise announcement, in summer 2017 the government will launch a consultation on rent-a-room relief, with a view to better supporting longer-term lodgings.
The reference to longer-term lodging may suggest that the conditions for rent-a-room relief could be altered to ensure it applies to long-term lets only. Currently anyone letting a room in their home on a short-term basis using sharing websites, such as Airbnb, can receive up to £7,500 per year in rents without paying income tax. When rent-a-room relief was introduced in 1992, this type of short-term letting could not be envisaged and the government may decide this does not meet the original policy objective.
See: OOTLAR (para 2.2 and Annex B).
Salary sacrifice
As announced at AS 2016, legislation in FB 2017 will remove income tax and NICs advantages with effect from 6 April 2017 where benefits in kind are provided through salary sacrifice or other optional remuneration arrangements. Transitional provisions will apply for contractual arrangements entered into before 6 April 2017, but these will normally only apply until 6 April 2018 or, if earlier, their variation or renewal. These transitional provisions will extend to 6 April 2021 for arrangements relating to cars with emissions above 75g CO2 per kilometre, accommodation and school fees. Employer provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries as well as cycle to work schemes and ultra-low emissions cars will be excluded from this measure.
See: OOTLAR (para 1.7).
Savings bonds
As expected, National Savings and Investments (NS&I) will launch a new three-year savings bond in April 2017. It was confirmed in the Spring Budget 2017 that the interest rate will be 2.2% per annum. The bond will be open to those over 16 years of age and the maximum investment will be £3,000.
This interest rate is significantly higher than the rates offered by banks and building societies for mainstream savings products and there is likely to be a high take-up amongst basic rate and higher rate taxpayers (who also benefit from the savings nil rate band).
See: Spring Budget 2017 (para 3.9).
SDLT: deferring acceleration of receipts
The government has announced that it will delay the reduction in the SDLT filing and payment window (from 30 to 14 days) until after April 2018. The government consulted on changes to the filing and payment process in 2016 and the changes were expected to be introduced in FB 2017.
See: Spring Budget 2017 (para 3.20) and OOTLAR (para 2.31).
Social investment tax relief (SITR)
As announced at AS 2016, the chancellor confirmed at Spring Budget 2017 that the government will amend the requirements for the SITR scheme with effect for investments made on or after 6 April 2017. The measure enlarges the existing scheme and includes amendments to:
• increase the amount of investment that a qualifying social investment enterprise may receive over its lifetime from the current three year rolling limit of €344,000 to £1.5m;
• reduce the limit on full-time equivalent employees from 500 to 250 employees (not including volunteers);
• exclude the use of money raised under the SITR to pay off existing loans;
• clarify that individuals will be eligible to claim relief under the SITR scheme only if they are independent from the social enterprise; and
• introduce provisions to exclude investments where the main purpose of arrangements is to deliver a benefit to an individual or party connected to the social enterprise.
See: Spring Budget 2017 (Table 2.2), OOTLAR 2017 (para 1.4) and TIIN: Income Tax – enlarging Social Investment Tax Relief.
Soft drinks industry levy
The government has announced the rates that will apply for the purposes of the soft drinks industry levy. The levy was announced at Budget 2016 and will need to be paid by producers and importers of soft drinks with added sugar. The levy will be charged on volumes according to total sugar content and will apply from 6 April 2018. The main rate charge for drinks above 5 grams of sugar per 100 millilitres will be 18 pence per litre and the higher rate for drinks with more than 8 grams of sugar per 100 millilitres will be 24 pence per litre. The levy is included in the draft FB 2017 (clauses 51–78 and Schs 15–17) but following consultation, the legislation has been revised to include a criminal offence for evasion of the levy (in addition to some other minor changes).
See: Spring Budget 2017 (para 3.37) and OOTLAR (para 1.33).
Substantial shareholding exemption (SSE) reform
As announced at AS 2016 and included in draft FB 2017, FB 2017 will remove the investing company requirement within the SSE, and provide a more comprehensive exemption for companies owned by qualifying institutional investors. Following consultation, amendments have been made to the legislation in draft FB 2017 ‘to provide clarity and certainty’. The changes take effect from 1 April 2017.
See: OOTLAR (para 1.16).
Termination payments
As announced at Budget 2016 and confirmed at AS 2016, FB 2017 will tighten and clarify the tax treatment of termination payments and the NICs Bill 2017 will align the tax and employer NICs treatment of termination payments. Following consultation on the draft legislation, the government will legislate to abolish the foreign service exemption in FB 2017/18. All of these changes will take effect from 6 April 2018.
See: OOTLAR (para 1.8).
Trading stock, appropriations to
In order to address a perceived unfairness in the tax code that can be exploited for avoidance, the government is removing an ability for businesses to convert capital losses into trading losses with immediate effect.
Where a capital asset is appropriated to trading stock, there is a deemed disposal for CGT purposes at market value. Currently, however, businesses can elect for an alternative tax treatment which can be particularly advantageous where a capital loss would otherwise have arisen on the deemed disposal. In such a case, the effect of the election is to reduce the allowable loss to zero and to increase (by the equivalent amount) the market value of the asset which can be brought into account as expenditure in computing trading profit. Effectively, such an election converts what would be a capital loss into a more useful trading deduction that can be offset against the total trading profits of the business.
Draft legislation released alongside Spring Budget 2017 (together with an explanatory note) removes the ability to make such an election where an appropriation to trading stock would give rise to a loss for chargeable gains purposes, meaning that an allowable loss is crystallised when the appropriation takes place and remains within the chargeable gains rules. This change has effect for appropriations to trading stock made on or after 8 March 2017 (i.e. the date of Spring Budget 2017). This measure will be included in FB 2017.
Similar changes are also being made to the equivalent rules relating to assets within the charge to the annual tax on enveloped dwellings (ATED), with the result that the current ability to make an election in respect of the non-ATED related part of any loss is removed. Again, the change has effect from 8 March 2017.
In both cases, the ability to make an election where an appropriation to trading stock would give rise to a chargeable gain is unaffected by these changes.
See: Spring Budget 2017 (para 3.45), OOTLAR (para 1.24) and TIIN: Corporation Tax and Income Tax - Tax treatment of appropriations to trading stock.
Trusts default rate of income tax
The OOTLAR (para 1.1) makes a somewhat cryptic reference to a ‘default rate’ of income tax which will apply to trustees. This is not a new rate of tax for trusts but requires some explanation.
With effect from 6 April 2017, the Scottish parliament will be able to set a Scottish rate of income tax to apply to non-savings, and non-dividend income in Scotland. This ‘main rate’ of tax will apply to individuals’ employment, trade, pensions and property income. It does not apply to trusts.
To correspond with the creation of a main rate for Scottish taxpayers, the same term will apply to the non-savings, non-dividend income of individuals in the rest of the UK. The inference is, of course, that the main rates for each part of the UK could diverge in due course.
The regional authority over tax rates does not extend to the standard rates applied to trusts or non-residents. Hence the introduction of a new term, ‘default rate’ which describes the standard rate applied to non-savings, non-dividend income of those entities. For trusts, this category is primarily property income.
Although no additional measures are proposed at present, the separation of the rates does pave the way for different rates for trusts in the future.
See: OOTLAR (para 1.1).
VAT: construction sector labour fraud
The government will publish a consultation on 20 March 2017 on various options to combat supply chain fraud in supplies of labour within the construction sector including:
• a reverse charge mechanism so that the recipient accounts for the VAT; and
• changing the criteria for gross payment status within the construction industry scheme.
See: Spring Budget 2017 (para 3.48) and OOTLAR (para 2.30).
VAT: mobile phone services
The government will remove the VAT use and enjoyment provision for mobile phone services provided to consumers. This will resolve the inconsistency where UK VAT is applied to mobile phone use by UK residents when in the EU, but not when outside the EU. It will also ensure mobile phone companies are unable to use the inconsistency to avoid UK VAT. This removal will bring UK VAT rules into line with the internationally agreed approach. Secondary legislation to effect the change, together with a TIIN, will be published before the parliamentary summer recess.
See: Spring Budget 2017 (para 3.47) and OOTLAR (para 2.29).
VAT: registration and deregistration thresholds
From 1 April 2017 the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000, in line with inflation. The registration and deregistration threshold for relevant acquisitions from other EU member states will also be increased from £83,000 to £85,000 from 1 April 2017, in line with the VAT registration threshold.
See: Spring Budget 2017 (para 3.36), OOTLAR (para 2.27) and TIIN: VAT registration threshold.
VAT: ‘split payment’ model
The government will publish a call for evidence on 20 March 2017 on proposals to introduce a new VAT collection mechanism for online sales. This would harness technology to allow VAT to be extracted directly from transactions at the point of purchase (often referred to as ‘split payment’). This measure is a further step in tackling the non-payment of VAT by some overseas traders who sell goods online to UK consumers and follows the announcement at Budget 2016 in respect of HMRC’s increased powers to combat the VAT fraud associated with online marketplaces.
See: Spring Budget 2017 (para 3.50) and OOTLAR (para 2.28).
VAT: penalty changes in fraud cases
As announced in AS 2016 the government will introduce a new and more effective penalty for participating in VAT fraud in FB 2017. Minor changes have been made to the draft legislation and a company officer will only be named where the amount of VAT due exceeds £25,000.
See: OOTLAR (para 1.39).
Venture capital schemes
As announced at AS 2016, the government confirmed at Spring Budget 2017 that it will amend the requirements of the enterprise investment scheme (EIS), the seed enterprise investment scheme (SEIS) and venture capital trusts (VCTs). The amendments, which follow wholesale changes made in November 2015 and small tweaks in FA 2016, will:
• clarify the EIS and SEIS share conversion rights on shares issued on or after 5 December 2016 (when the draft FB 2017 legislation was published);
• provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017;
• introduce the power for the government to make regulations in the context of share for share exchanges in the VCT regime, with effect from the date of Royal Assent of FB 2017 (expected to be in July 2017).
The government also announced that a summary of responses to a consultation on options to streamline and prioritise the advance assurance service will be published after Spring Budget 2017.
See: OOTLAR (para 1.5).
Withholding tax on interest
At Spring Budget 2017, the government responded to the double taxation treaty passport (DTTP) scheme review consultation by confirming that it will renew and extend the DTTP scheme, which simplifies access to reduced withholding tax rates on interest that are available in the UK’s network of double tax treaties. With effect from 6 April 2017, the DTTP scheme should apply to ‘all types of lenders and UK borrowers’ and not be restricted (as it is prior to 6 April 2017) to corporate lenders and corporate UK borrowers. The government has confirmed that revised terms and conditions and guidance on the DTTP scheme will be published on gov.uk on 6 April 2017.
The government also announced that it will introduce a withholding tax exemption for interest on debt traded on a multilateral trading facility and that it will consult on this exemption in spring 2017. The Spring Budget 2017 states that this exemption will remove a barrier to the development of UK debt markets.
The OOTLAR also seems to confirm that draft FB 2017, clause 12 and schedule 4 will remain unchanged following consultation. This means that with effect for payments made on or after 6 April 2017, there will no longer be a requirement to deduct UK income tax at source from interest on peer-to-peer (P2P) lending (which broadly puts the interim non-statutory withholding tax exemption from P2P interest that has applied since 8 January 2016 on a statutory footing) or from interest distributions (i.e. dividends that are treated as yearly interest) from open-ended investment companies, authorised unit trusts or investment trust companies.
See: Spring Budget 2017 (para 3.14) and OOTLAR (paras 2.14, 2.37 and see also under the heading: ‘Measures unchanged following consultation on the draft legislation’).
This commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide lawyers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service for tax practitioners that combines tax technical commentary with practical guidance.
A to Z guide to the key announcements.
Key announcements that were new for Spring Budget 2017 include:
Government responses to the recently closed consultations on VAT grouping and the requirement to notify HMRC of offshore structures were not published, but might be expected alongside the introduction of the Finance Bill 2017 into parliament, which will be on 20 March 2017.
The chancellor of the exchequer, Philip Hammond, delivered his first and last Spring Budget on Wednesday 8 March 2017 to an almost rampant Tory side of the House. In the main, the opposition front bench sat stony faced and immobile through the chancellor’s address with little interference from their backbenchers. It was in parts an unashamed self-congratulatory performance delighting the Tory back benchers and, fittingly, on International Women’s Day, punctuated by a beaming and, at some junctures, a laugh out loud prime minister.
The chancellor’s performance was self-assured with far more barbs at the opposition hitting the mark than at the Autumn Statement. He commented that this would be the ‘last’ Spring Budget, referring to the last time this phrase was used, by Norman Lamont, and mentioning that Mr Lamont was sacked some weeks after his statement and plainly indicating that he did not expect to suffer the same fate.
Right at the start, the chancellor made it clear that this was a Budget for young people and public services. This was indeed the main thrust of what followed but there was no disguising the glee at the UK economy doing so well, so he could perhaps be forgiven for using the old phrase – the UK ‘was open for business’.
The chancellor supported this with some impressive figures from the Office of Budgetary Responsibility (OBR), basically indicating that future growth and borrowing had been revised from the Autumn Statement and that the first was being increased and the latter decreased.
The chancellor continued his focus on measures to increase productivity and building an economy that ‘works for everyone’, announcing or confirming measures relating to living standards such as tax-free child-care and increased free childcare hours; increased funding to be provided to local councils for social care and to the NHS to support its A&E services; and the trailed commitment to technical education for young people.
Some of the new measures announced related to business concerns at the substantial increase in business rates as a result of recent revaluations. This was met with promises of increases in rates reliefs and a war chest for local authorities to dispense as discretionary relief to those hard hit by the revaluations. Most importantly pubs with a ratable value of less than £100,000 will be given a discount on their payable rates of £1,000.
In line with the proposals for changing the Budget timetable announced at the Autumn Statement, the chancellor used the Spring Budget 2017 to announce a number of consultations on future reforms. However there were some significant policy announcements, all of which could be classified within the heading of ‘ensuring that the tax system is both fair and sustainable’. The particular targets of that challenge were the differences in taxation that can arise from the choice of business structures. In that context the government has announced increases to NICs for the self-employed and a decrease in the amount of the dividend allowance (thereby increasing the income tax suffered by individuals who operate through companies and pay themselves dividends, among others).
The two successive increases to class 4 NICs mean that, from April 2019, they will be paid at 11% (compared with a 12% rate for class 1 NICs for employed earners). There has been a government and media focus on the treatment of workers in the gig economy, who are usually treated as self-employed and this announcement may have been fuelled by the growth in that sector. The measure (after offsetting the loss from the abolition of class 2 NICs) is expected to raise nearly £500m over the next four tax years, although the forecasts suggest a peak of class 4 NICs in 2019/20, followed by drops in the next two years, perhaps predicting that the self-employed will change their working practices in response to this change. Although when most people consider a self-employed person, they will think of individuals working on their own, these changes of course extend to those who work in partnerships, many of whom employ a large number of staff themselves, and are therefore responsible for paying the employer NICs. This rate rise is unlikely to be much softened by the government’s commitment to consult on the disparities between parental benefits for employed and self-employed individuals.
The Conservative manifesto in 2015 committed: ‘no increases in VAT, national insurance contributions or income tax’. The class 4 NICs changes could be considered to have breached that manifesto pledge. However, when enacted into the National Insurance Contributions (Rate Ceilings) Act 2015, the lock was applied only to class 1 NICs, so the change proposed does not at least require a change to that enacted lock.
Despite these increases in tax, it has been hailed as a ‘business friendly Budget’, mainly due to the lack of significant change in the corporate tax sphere and confirmation of the business tax roadmap measures such as the cuts to corporation tax to 19% from April this year and again to 17% in 2020 and further support for businesses who are facing increases in business rates.
Measures with immediate effect
New measures that are coming into effect on 8 March 2017:
Accommodation benefits
As announced at AS 2016, the government will publish a consultation on 20 March 2017 on proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax, as well as supporting taxpayers during any transition.
See: Spring Budget 2017 (para 3.7) and Overview of tax legislation and rates (OOTLAR) (para 2.6).
Aggregates levy
The current rate of £2 per tonne will remain in effect. This continues the freeze that has been in place since 2009.
See: Spring Budget 2017 (para 3.30).
Alcohol and tobacco
The following was announced:
Alcohol duty rates and bands: The duty rates on beer, cider, wine and spirits will increase by the RPI with effect from 13 March 2017.
The government announced that it intends to have a consultation on: introducing a new duty band for still cider that has a just below 7.5% abv in order to target white ciders; and the impact of introducing a new duty band for still wine and made-wine between 5.5-8.5% abv.
Tobacco duty rates: The government has previously announced in Budget 2014 that tobacco duty rates will increase by 2% above RPI inflation and this change will come into effect from 6pm on 8 March 2017.
Minimum excise tax: The government announced that it will be introducing a minimum excise tax for cigarettes that is intended to target the cheapest tobacco and promote fiscal sustainability. The rate will be set at £268.63 per 1,000 cigarettes. The new tax will come into effect from 20 May 2017.
Tobacco , illicit manufacture: Following the announcement made in Autumn Statement 2015 and following technical consultation on the draft legislation produced in December 2016, legislation will be introduced in Finance Bill 2017 that will be intended to control the use and ownership of tobacco manufacturing machinery in the UK. The changes are intended to prevent the illicit manufacture of tobacco products in the UK by introducing powers to establish a licensing regime for this type of machinery. Powers will also be introduced to provide for forfeiture of unlicensed tobacco manufacturing machinery and penalties for failure to comply with the conditions of a licence. The legislation will take effect from the date of Royal Assent.
Heated tobacco products: As announced in Budget 2016 the government will be consulting on the duty treatment of heated tobacco products. The consultation will be launched on 20 March 2017 and the consultation document should be available on this date.
See: Spring Budget 2017 (paras 3.33–3.35) and OOTLAR (paras 2.24–2.25).
Benefits in kind: call for evidence
As announced at AS 2016, the government will publish a call for evidence on 20 March 2017 on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.9).
Benefits in kind: making good
As announced at Budget 2016 and confirmed at AS 2016, and following a consultation over the summer, FB 2017 will align the dates for an employee to make good on non-payrolled benefits in kind. The date by which the making good must take place if the taxable value of the benefit in kind is to be reduced or re-moved was determined following the consultation and will be 6 July following the end of the tax year. The change will affect making good on a tax liability arising in the tax year 2017/18 and subsequent years.
See: OOTLAR (para 1.6).
Business rates
The government will provide £435m of support for businesses facing significant increases in business rates following the revaluation that takes effect from April 2017. Three measures were announced:
• a £1,000 business rate discount for public houses with a rateable value of up to £100,000;
• a cap on the increase in business rates for small businesses losing small business rate relief; and
• a £300m discretionary relief fund to allow local authorities to provide support to individual cases in their local area.
The government will also consult before the next revaluation in 2022 on its preferred approach for modernising the business rate system.
See: Spring Budget 2017 (paras 3.15–3.19).
Cash basis for unincorporated businesses
As previously announced and as part of tax simplification, the government is simplifying the cash basis for calculating taxable income. The cash basis allows small businesses to be taxed on the basis of receipts less payments of allowable expenses. The measures include:
• increasing the general entry threshold to £150,000 and the exit threshold to £300,000 with effect from the tax year 2017/18;
• simplifying the rules on capital and revenue expenditure from April 2017 (although 2017/18 profits can be calculated using the old or new rules); and
• extending the cash basis to unincorporated landlords with receipts of £150,000 or less from 6 April 2017.
See: Spring Budget 2017 (para 3.40) and OOTLAR (paras 1.44–1.46).
Company cars
There were no changes announced to the company car tax rates that will apply from 2017/18 to 2020/21 as already either enacted or announced in AS 2016.
Conditionality
HMRC consulted in autumn 2016, as part of its proposals to ‘tackle the hidden economy’, on new rules to make access to certain licences or business services conditional on being registered for tax. At Spring Budget 2017, the government stated that it will develop further proposals in this area. It believes there is a good case for conditionality but recognises that it must minimise any new administrative burdens. No timescale is given for the next step.
See: OOTLAR (para 2.32).
Corporate interest expense deductibility restrictions
As announced at Budget 2016, and following several stages of consultation, new rules restricting the ability to obtain corporation tax deductions for interest and other finance amounts will come into effect from 1 April 2017.
The new rules will limit a group’s deductions for net interest expense to 30% of tax-EBITDA in the UK (the fixed ratio rule), with an option for multinational groups to apply an alternative restriction based on the net interest expense to EBITDA ratio for the worldwide group (the group ratio rule). In both cases, deductions will also be capped to ensure that the net UK interest deduction does not exceed the total net interest expense of the worldwide group (the modified debt cap) and the existing debt cap legislation will be repealed. Only groups with net interest expense in the UK of more than £2m annually will have to apply the rules.
Draft legislation for the new rules was published in stages, on 5 December 2016 and 26 January 2017. In response to comments received, the government has now announced that several changes to the provisions will be reflected in FB 2017 in order to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens. The government has announced that these changes will, in particular:
• remove certain unintended restrictions that arise from the modified debt cap which could otherwise prevent deductions for carried forward interest expense;
• make the optional alternative rules for public infrastructure easier to apply – specifically, the changes will remove the requirement to compare the level of indebtedness of group companies qualifying for alternative treatment under those rules with that of group companies not so qualifying (e.g. those outside the UK), and in addition transitional rules will apply so that businesses will have time to restructure in order to qualify for these alternative rules;
• limit the scope of the provisions which treat interest on debt guaranteed by a related party as related party interest – these provisions will not apply in the case of certain performance guarantees or to any guarantees granted before 31 March 2017, nor will they apply to intra-group guarantees in the context of the group ratio rule;
• amend the definition of interest to include income and expenses from dealing in financial instruments as part of a banking trade; and
• introduce new provisions for insurers regarding the calculation of interest on an amortised cost basis to provide a practical alternative to fair value accounting.
See: OOTLAR (para 1.23).
Corporation tax: loss relief
As announced at Budget 2016, legislation will be included in the FB 2017 that will provide more flexibility on the types of profit that can be relieved by losses incurred after 1 April 2017 and also restrict the amount of losses than can be carried forward to 50% (of profits above £5m) from 1 April 2017. The draft legislation published on 26 January 2017 will be revised to include provisions for oil and gas companies and contractors.
See: OOTLAR (para 1.17).
Creative sector tax reliefs
It was confirmed that the government will seek state aid approval for the continued provision of high-end television, animation and video games tax reliefs beyond 2018.
See: OOTLAR ( para 2.16).
Disclosure of indirect tax avoidance schemes
As announced at AS 2016 and included in draft FB 2017, FB 2017 will revamp the VAT avoidance disclosure regime. The requirement to make disclosures to HMRC will move from scheme users to scheme promoters, and the rules will be extended to include all indirect taxes. The new regime takes effect from 1 September 2017.
See: OOTLAR (para 1.38).
Disguised remuneration
As announced at AS 2016, legislation in FB 2017 will tackle the use of disguised remuneration avoidance schemes. There will be a new charge on disguised remuneration loans made after 5 April 1999 that are still outstanding on 5 April 2019. The close companies’ gateway will be introduced to commence from 6 April 2018, following further consultation to ensure that it is appropriately targeted at disguised remuneration schemes. Proposals on the collection of tax and NICs from the changes will be set out in a technical consultation later in 2017. FB 2017 will also include legislation to tackle use of similar schemes by the self-employed with effect from 6 April 2017. Legislation will also be introduced with effect from April 2017 to prevent employers claiming a deduction when computing their taxable profits for contributions to a disguised remuneration scheme unless income tax and NICs are paid within a specified period.
See: OOTLAR (para 1.10).
Dividend allowance reduction
The government announced that it will reduce the dividend allowance from £5,000 to £2,000. This measure, which will apply from April 2018, is part of the chancellor’s drive to reduce the difference between those working through a company and those who are employed or self-employed. Taken together with increases to the ISA and personal allowances, the government believes that 80% of general investors will continue to pay no dividend tax. The legislation will be included in FB 2017.
See: Spring Budget 2017 (para 3.6), OOTLAR (para 1.2) and TIIN: Income Tax: dividend allowance reduction.
Employees’ expenses
As announced at AS 2016, the government will publish a call for evidence on 20 March 2017 to better understand the use of the income tax relief for employees’ expenses, including those that are not reimbursed by their employer.
See: Spring Budget 2017 (para 3.7) and OOTLAR (para 2.4).
Employment allowance: illegal workers restriction
The government consulted from November 2016 to January 2017 on excluding certain employers from claiming the employment allowance for one year where that employer received a civil penalty from the Home Office for employing illegal workers. The government has decided not to proceed with the proposal as a result of consultation responses which raised concerns around complexity.
See: OOTLAR (para 2.36).
Employment allowance: national Insurance
Following reports of schemes being used to avoid paying the correct amount of NICs, HMRC is actively monitoring compliance with the national insurance employment allowance. The government will consider taking further action in the event this avoidance continues.
See: OOTLAR (para 2.33).
Enablers of tax avoidance
The government has confirmed that FB 2017 will introduce the controversial new ‘enablers’ rules: penalties for persons who enable other persons or businesses to use tax avoidance arrangements that are later defeated by HMRC. This measure was consulted on from August to October 2016 and was included in draft FB 2017 as published on 5 December 2016.
There has been widespread concern in the tax profession that these measures would potentially be relevant in many commercial transactions, although the draft legislation published in December 2016 was less broad in scope than was suggested in the original consultation. At Spring Budget 2017 the government announced further revisions, following ‘extensive consultation and input from stakeholders’. The revisions:
• provide further details on when and how the general anti-abuse rule (GAAR) advisory panel will consider enabler cases;
• apply the enablers regime to arrangements that seek to avoid NICs;
• make consequential changes to the promoters of tax avoidance schemes (POTAS) legislation; and
• make further minor amendments to ‘improve clarity and targeting’.
The revisions will be in FB 2017 when it is published on 20 March 2017, and the rules will come into effect from royal assent (expected in July 2017).
See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41).
Energy and transport taxes
The following announcements were made in Spring Budget 2017:
Vehicle excise duty (VED): VED for cars, motorcycles and vans registered before 1 April 2017 will be increased by the retail price index (RPI) with effect from 1 April 2017.
HGV VED and road user levy: these rates will be frozen with effect from 1 April 2017. The government has requested evidence be provided in respect of updating the existing HGV road user levy and they will formally issue this request in Spring 2017. The government also stated that it intends to work with the industry in order to update the levy so that it will reward hauliers that plan their routes efficiently and incentivise hauliers to make efficient use of the roads and improve air quality.
Red diesel: The government announced that it intends to request evidence on the use of red diesel in order to improve its understanding of eligible industries and their use of red diesel. The government would specifically like to receive evidence from urban red diesel users. The call for evidence will be published on 20 March 2017.
Air passenger duty (APD): The rate of APD for the year 2018/19 will increase in line with the RPI. The rates for 2019/20 will be provided in Autumn Budget 2017 in order to give airlines sufficient notice of the increase.
Carbon pricing: The government announced that it remains committed to carbon pricing in order to assist with decarbonising the power sector. UK prices are currently determined by the EU Emissions Trading System and Carbon Price Support. With effect from 2021/22, the government intends to tar-get a total carbon price and will set the specific tax rate at a later date in order to give businesses greater clarity on the total price that they will be required to pay. Further details on carbon prices for the 2020s will be set out at Autumn Budget 2017.
Levy control framework: The government is aware that it will need to limit the cost for businesses and households as the UK decarbonises its energy supplies. The levy control framework has already been assisting with controlling the costs of low carbon subsidies in recent years and it will be replaced by a re-vised set of controls. Details of these new controls will be provided later in 2017.
See: Spring Budget 2017 (para 3.23–3.32) and OOTLAR (para 2.26).
(See also ‘Oil and gas’, ‘Aggregates levy’ and ‘Landfill tax’.)
Enterprise management incentives
The government is to seek state aid approval to extend the tax reliefs associated with the enterprise management incentive (EMI) scheme beyond 2018. The last time state aid approval was granted to this scheme was in August 2009.
See: OOTLAR (para 2.15).
Failure to notify: penalties
HMRC will consider strengthening the existing penalties for failure to notify a tax liability, as part of the longer term HMRC penalties review.
See: OOTLAR (para 2.32).
Gaming duty
The following was announced:
Gross gaming yield (GGY): The government previously announced in Budget 2016 that they will include legislation in FB 2017 that will raise the GGY bandings for gaming duty in line with inflation based on the RPI. The revised GGY will be used to calculate the amount of gaming duty due for accounting periods starting on or after 1 April 2017. See Annex A: rates and allowances for details of the GGY bandings.
Remote gaming duty freeplays: The government will include legislation in FB 2017 to amend the definition of gaming payment and prizes and change the tax treatment of freeplays for remote gaming duty. The government consulted on the changes and the draft legislation has been amended to ensure that the change is proportionate. The legislation is intended to ensure that freeplays used to participate in remote gaming will have a value as stakes when calculating the dutiable profit of the operator and freeplays given as prizes will not be deductible.
See: OOTLAR (paras 1.31, 1.32) and TIIN Gaming duty: increase in casino gross gaming yield bands for more information.
Grassroots sport
As announced at AS 2015 and included in draft FB 2017 (clause 23), a new tax relief will be introduced with effect from 1 April 2017, minor amendments will be made to extend the meaning of ‘sport governing body’ to include its 100% subsidiaries.
See: OOTLAR (para 1.21).
Hybrid mismatches
As announced at AS 2016 and outlined in a technical note published on 5 December 2016, the government reconfirmed at Spring Budget 2017 that it will include legislation in FB 2017 to make two minor changes to the hybrid rules, both with effect from 1 January 2017:
• removing the requirement to make a formal claim for a future period to be admitted as a payee’s permitted taxable period for the purposes of chapters 3 and 4 of the hybrid rules; and
• removing amortisation deductions from the meaning of relevant deductions for the purposes of chapters 5–8 of the hybrid rules, thereby providing an exemption from those chapters for certain mismatches relating to such payments.
See: OOTLAR (para 1.19) and TIIN: Corporation tax: Hybrid and other mismatches – permitted taxable periods of payees and deductions for amortisation.
Image rights
HMRC will publish guidelines for employers who make image rights payments in respect of employees. These guidelines will be published in spring 2017 and will improve the clarity of the existing rules.
See: Spring Budget 2017 (para 3.50) and OOTLAR (para 2.10).
Income tax allowances for trading and property income
As announced at Budget 2016, FB 2017 will include two new income tax allowances of £1,000 each for property and trading income for individuals. The draft legislation will be amended to prevent the allowances from applying to income of a participator in a close company or to any income of a partner from a partnership.
See: OOTLAR (para 1.3).
Insurance premium tax (IPT)
At Spring Budget 2017, draft legislation to be included in FB 2017 was published to increase the standard rate of IPT to 12% with effect from 1 June 2017 (as was previously announced at AS 2016) and to replace the current anti-forestalling provisions found in FA 1994 ss 67–67C with new ones to be inserted at FA 1994 ss 66A, 66B and 66C that take effect from 8 March 2017.
See: Spring Budget 2017 (para 3.38), OOTLAR (para 1.27) and TIIN, draft legislation and explanatory notes: IPT: standard rate and anti-forestalling.
ISAs
The ISA limit will be £20,000 in 2017/18 (up from £15,420 in 2016/17), as previously trailed in Budget 2016. The chancellor used this above inflation increase to partly justify his reduction to the dividend nil rate band; individuals can purchase shares via an ISA to benefit from the tax-free wrapper.
See: Spring Budget 2017 (para 3.6).
Landfill tax
The value of the landfill communities fund (LCF) for 2017/18 will remain unchanged at £39.3m and the cap on contributions made by landfill operators will increase to 5.3%. The current cap will be maintained, subject to consideration of landfill tax receipts, continuing progress in reducing the level of unspent funds that are held by environmental bodies and the proportion of the LCF that are spent on administration costs.
The government announced that it intends to consult on extending the scope of landfill tax to cover illegal waste disposals that are made without the required permit or licence.
The government previously announced at Budget 2016 that legislation will be introduced in Finance Bill 2017, and in secondary legislation, to amend the definition of a taxable disposal for landfill tax. The government has consulted in the draft legislation and changes have been introduced in order to clarify the tax treatment of material disposed of at landfill sites and give greater certainty to landfill site operators. The draft legislation has been restructured to simplify and improve ease of comprehension. The measure will come into effect after royal assent of FB 2017 and the changes will apply to disposals to landfill in England, Wales and Northern Ireland.
See: Spring Budget 2017 (para 3.31) and OOTLAR (para 1.28).
Large business risk review
The government will consult over the summer on its process for HMRC’s risk profiling of large businesses and for promoting stronger compliance.
See: Spring Budget 2017 (para 3.41) and OOTLAR (para 2.35).
Life insurance: part surrenders and part assignments
As announced at AS 2016, the government will legislate in FB 2017 to change the current tax rules for part surrenders and part assignments of life insurance policies, to allow policyholders who have generated a wholly disproportionate gain to apply to HMRC to have the gain recalculated on a just and reasonable basis. Currently, a policy holder who surrenders in part or assigns in part a life insurance policy can be subject to disproportionate tax charges.
Following consultation, the legislation has been revised to clarify who can apply, when and how the recalculation is given effect. These changes will have effect from royal assent of FB 2017.
See: OOTLAR (para 1.11).
Making tax digital
Deferral for small businesses: As announced at AS 2016 and published in draft on 31 January 2017, FB 2017 will include measures forming part of the government’s ‘making tax digital’ initiative. These include digital record keeping, changes to when and how businesses record accounting and tax adjustments, and a requirement to provide HMRC with summary tax data on a quarterly basis.
At Spring Budget 2017, the government announced a one year deferral for the implementation of these measures for unincorporated businesses, and landlords, with turnovers below the VAT threshold (increased by this Budget to £85,000). This means that only:
• businesses, self-employed people and landlords;
• with turnovers in excess of the VAT threshold; and
• that pay income tax and class 4 NICs.
will be required to start using the new digital service from April 2018. This change will be made in regulations. There will also be a number of changes to the primary legislation in FB 2017, including new provisions to replicate existing income tax compliance powers so that they apply to the new digital requirements.
The measures generally take effect from royal assent (expected July 2017).
See: Spring Budget 2017 (para 3.39) and OOTLAR (para 1.47).
Late submission penalties: HMRC will publish a consultation on 20 March 2017 on proposals for late submission penalties (the digital equivalent of late filing penalties) and the charging of penalty interest on late payments of tax.
See: OOTLAR (para 2.34).
Museums and galleries
As announced at Budget 2016 and included in draft FB 2017 (clause 22 and Sch 8), a new tax relief will be introduced with effect from 1 April 2017. Minor amendments will be made to allow for exhibitions which have live performances as part (but not the main focus) of the exhibition. The rates of relief to be introduced (as announced at AS 2016) as from 1 April 2017 will be:
• 25% for touring exhibitions; and
• 20% for non-touring exhibitions.
This will enable museums and galleries to claim a credit of up to:
• £100,000 for touring exhibitions; and
• £80,000 for non-touring exhibitions,
up to a maximum allowable credit equivalent to qualifying expenditure of £500,000.
See: OOTLAR (para 1.20).
National living wage
The national living wage will be increased to £7.50 per hour from April 2017. The following table shows all minimum wage rates for all age groups:
|
Category |
Current rate |
New rate from 1 April 2017 |
|
Workers 25 and over |
£7.20 per hour |
£7.50 per hour |
|
21-24 year olds |
£6.95 per hour |
£7.05 per hour |
|
18-20 year olds |
£5.55 per hour |
£5.60 per hour |
|
16-17 year olds |
£4.00 per hour |
£4.05 per hour |
|
Apprentices |
£3.40 per hour |
£3.50 per hour |
|
Accommodation offset |
£6.00 per day |
£6.40 per day |
NICs: class 4 rate increase
The government will legislate to increase the main rate of class 4 NICs from April 2018. Currently, the self-employed pay class 4 NICs at 9% on profits between £8,060 and £43,000 (with a 2% rate applying to profits over £43,000). From 6 April 2018, the 9% main rate will increase to 10%, with a further increase to 11% from 6 April 2019.
This increase will address the exacerbated differential between the rates of NICs paid by employees and those paid by the self-employed when class 2 NICs are abolished from April 2018 (as announced at Budget 2016), and also reflects the post-April 2016 pension entitlement changes.
See: Spring Budget 2017 (para 3.5), OOTLAR (para 2.7) and National Insurance and the self-employed: factsheet.
NICs: collection of arrears
As announced at AS 2016, the government will remove NICs from the effects of the Limitation Act 1980 and will align the time limits for the recovery of NICs debts with those for tax. It was originally intended this would be effective from April 2018. However, the government will defer this measure, which will be introduced in a future NICs Bill, to allow more time for a full consultation on the draft legislation.
See: OOTLAR (para 2.8).
Non-domiciliaries
As first announced at Summer Budget 2015, there are to be fundamental changes to the tax regime for non-domiciled individuals. They involve deeming an individual to be UK domiciled for tax purposes even though he may be non-domiciled in the UK under general law. The rules will apply for income tax, CGT and IHT.
From 2017/18, it is expected that an individual will be deemed UK domiciled for income tax and CGT:
· if he has been UK resident for at least 15 out of the last 20 tax years; or
· if he was born in the UK with a UK domicile of origin, subsequently left the UK and acquired a non-UK domicile of choice and later becomes resident in the UK.
The 20-year ‘look-back’ period for 2017/18 is 1997/98 to 2016/17. The ‘clock’ does not restart from 2017/18.
Following the responses to the initial consultation, it was announced that non-domiciliaries:
· caught by the deemed domicile 15-year rule in 2017/18 will be able to rebase their foreign chargeable assets for CGT purposes as at 5 April 2017;
· will have a one-off opportunity to clean-up existing mixed funds within foreign bank accounts (transfers out should be made between 6 April 2017 and 5 April 2019).
Whilst both these measures are good news for the non-domiciliary, they have underlying traps for the unwary that were not obvious at the time of the original announcements. Great care will be needed in advising clients.
See: OOTLAR (para 1.26).
Non-resident companies
As announced at AS 2016, the government will consult on the options for bringing non-UK resident companies within the charge to corporation tax. The Spring Budget 2017 announcement suggests that the consultation will be limited to non-resident companies that are currently subject to income tax on their UK taxable income and to non-resident capital gains tax on disposals of UK residential property.
See: OOTLAR (para 2.19).
Northern Ireland: corporation tax
As announced at AS 2016 and included in draft FB 2017 (clause 25 and Sch 9), changes will be made to the Corporation Tax (Northern Ireland) Act 2015 to open it up to all SMEs trading in NI to benefit (and prevent abuse), and minor drafting improvements will be made.
See: OOTLAR (para 1.18).
Oil and gas: late-life assets
The government has announced that it will publish a discussion paper on 20 March 2017 on ‘late-life’ oil and gas assets. This will consider the case for allowing transfers of tax history (including decommissioning obligations) between buyers and sellers, to make it easier for oil and gas assets to be transferred.
In addition, as announced at Summer Budget 2015 and consulted on in 2016, the government is introducing regulations to extend the scope of investment allowances and cluster area allowances. The rules will have retrospective effect to 8 October 2015.
See: Spring Budget 2017 (para 3.29) and OOTLAR (paras 2.17, 2.18).
Offshore property developers
At Budget 2016, the government announced rules to tax profits from trading in and developing UK land. Legislation will be included in FB 2017 to amend the commencement provisions for these rules so that all profits recognised in the accounts of developers on or after 8 March 2017 will be taxed, regardless of the date of the sale contract. Previously profits arising from contracts entered into before 5 July 2016 were excluded from the rules.
See: Spring Budget 2017 (para 3.21), OOTLAR (para 1.15), and TIIN, draft clause and explanatory notes.
Partnerships
At AS 2016, the government announced that it would legislate in FB 2017 to clarify and improve certain aspects of partnership taxation (including legislation to ensure profit allocations to partners are fairly calculated for tax purposes). Draft legislation was expected in early 2017 for consultation. The government has now announced that it intends to legislate in FB 2017.
See: OOTLAR (para 2.3).
Patent box: cost sharing arrangements
As announced at AS 2016 and included in draft FB 2017 (clause 24), the government will legislate to ensure that a company entering into a cost-sharing arrangement is not disadvantaged, or advantaged, under the revised patent box rules introduced in FA 2016. Following consultation, the legislation will be revised to narrow the definition of cost sharing arrangement and to better align payments. The provisions have effect for accounting periods starting after 1 April 2017.
See: OOTLAR (para 1.22).
Patient capital review
The patient capital review was launched by HM Treasury and the Department for Business, Energy & Industrial Strategy (BEIS) in January 2017 and forms part of the government’s consultation on building a modern industrial strategy. The terms of reference for this review did not previously include consideration of the tax measures linked with patient or long term funding for growing businesses, but the chancellor today announced that the consultation to be launched in spring will extend to consider the tax reliefs aimed at encouraging investment and entrepreneurship. The announcement does not identify specific reliefs, but it is assumed that it would cover some or all of: EIS reliefs, SEIS reliefs, VCT reliefs, entrepreneurs’ relief and investors’ relief.
The final recommendations from the review will be presented to the chancellor ahead of Autumn Budget 2017.
See: Spring Budget 2017 (para 3.13) and OOTLAR (para 2.5).
Pensions
Foreign pension regimes: As announced at Autumn Statement 2016, the government will legislate in FB 2017 to more closely align the treatment of foreign pensions with the UK’s domestic pension regime. Following consultation, the legislation has been revised to set out the position for defined benefit specialist pension schemes for those employed abroad (‘section 615’ schemes) and clarify that all lump sums paid out of funds built up before 6 April 2017 will be subject to existing tax treatment. These changes will have effect from 6 April 2017.
A section 615 scheme is an occupational pension scheme established under ICTA 1988 s 615(6) which:
• is established under trust by an employer that operates wholly or partly outside the UK; and
• provides retirement benefits for employees that work wholly outside the UK.
Currently, a section 615 scheme is exempt from many, but not all, of the regulatory provisions that apply to UK pension schemes. In particular, it benefits from the same IHT exemptions as a UK pension scheme. For tax purposes, it is neither a registered pension scheme nor an employer-financed retirement benefits scheme (EFRBS).
See: OOTLAR (para 1.13), AS 2016 (para 4.21).
Money purchase annual allowance: At Spring Budget 2017, the chancellor announced that legislation will be included in FB 2017 to reduce the money purchase annual allowance from £10,000 to £4,000 with effect from 6 April 2017. This measure follows a consultation launched at AS 2016 as to the detail of the reduction in the allowance.
The reduction in the allowance is designed to limit the extent to which pension savings can be recycled to take advantage of an unintended double pension tax relief (eg on recycled pension savings), while also retaining the flexibility for individuals who need to access their pension savings to rebuild them if they subsequently have opportunity to do so. A response to the consultation is due to be published along with FB 2017 on 20 March 2017.
See: Spring Budget 2017 (Table 2.2), OOTLAR 2017 (para 1.12), TIIN: Reducing the money purchase annual allowance.
QROPS transfer charge: This is a measure that had not been pre-announced. The government will legislate in FB 2017 to apply a 25% charge to pension transfers made to qualifying recognised overseas pension schemes (QROPS). Exceptions will be made to the charge, allowing transfers to be made tax free where people have a genuine need to transfer their pension, where:
• both the individual and the pension scheme are in countries within the European Economic Area (EEA); or
• if outside the EEA, both the individual and the pension scheme are in the same country; or
• the QROPS is an occupational pension scheme provided by the individual’s employer.
If the individual’s circumstances change within five tax years of the transfer, the tax treatment of the transfer will be reconsidered.
The changes will take effect for transfers requested on or after 9 March 2017.
The government will also legislate in FB 2017 to apply UK tax rules to payments from funds that have had UK tax relief and have been transferred, on or after 6 April 2017, to a QROPS. UK tax rules will apply to any payments made in the first five full tax years following the transfer, regardless of whether the individual is or has been UK resident in that period.
See: Spring Budget 2017 (para 3.46), OOTLAR (para 1.14) and TIIN: Qualifying recognised overseas pension schemes: charge on transfers.
Personal allowance and higher rate threshold
By the end of this parliament in 2020, the personal allowance is set to increase to £12,500 and the higher rate threshold to £50,000. In order for personal allowance increases not to be eroded by inflation going forward, once the personal allowance reaches £12,500, it will then rise in line with the consumer price index (CPI).
However, following legislation introduced in FA 2016 s 6, the government will separate the ‘main rates’ of income tax into three distinct groups for the first time, to be set in FB 2017:
• ‘main rates’ will apply to non-savings, non-dividend income of taxpayers in England, Wales and Northern Ireland;
• ‘savings rates’ will apply to savings income of all UK taxpayers; and
• ‘default rates’ will apply to a very limited category of income taxpayers that do not fall within the two groups above, such as trustees and non-residents.
From April 2017, the income tax rates and thresholds for non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament and the basic rate limit for Scottish taxpayers will be different.
See: Spring Budget 2017 (para 3.4) and OOTLAR 2017 (para 1.1).
Petroleum revenue tax (PRT) simplification
Since 1 January 2016, PRT has been charged at a zero rate, but it has not been abolished, largely to enable companies to create losses that can be carried back to recover past PRT paid. As announced at AS 2016, FB 2017 will include provisions to simplify the process for opting out of PRT and remove various reporting requirements. Following consultation, the legislation has been revised to make some consequential amendments. The changes have retrospective effect to 23 November 2016 and the revised legislation will be published on 20 March 2017.
See: OOTLAR (para 1.25).
Plant and machinery leases
HMRC published a discussion document in autumn 2016 on options for reforming the tax treatment of plant and machinery leases in light of the new International Accounting Standards Board leasing standard, IFRS16. The government has now announced that it will take this proposal forward with a consultation in summer 2017, with the intention of making legislative changes that will maintain the effect of the current rules.
See: OOTLAR (para 2.12).
Promoters of tax avoidance schemes (POTAS)
The government is introducing legislation with immediate effect (from 8 March 2017) to prevent promoters from getting around the POTAS rules by restructuring how their business is owned. The POTAS rules are triggered where, within the previous three years, the promoter has met any one of a number of threshold conditions set out in the legislation. Threshold conditions include:
• being found guilty of certain types of misconduct by a professional body;
• imposing provisions on clients that restrict the disclosure of information to HMRC; and
• repeatedly promoting tax avoidance schemes that do not work (‘defeated’ avoidance schemes).
The POTAS rules were introduced by FA 2014 and were changed by FA 2015 to catch situations where a threshold condition has been met by someone with a defined type of connection, via a company or partnership, to the promoter. The new measures announced at Spring Budget 2017 extend these provisions by amending the definition of control, and introducing the term ‘significant influence’ to ensure promoters cannot get around the rules by inserting a person or persons between themselves and the promoting business.
See: Spring Budget 2017 (para 3.43),OOTLAR (para 1.40) and TIIN, draft clause and explanatory notes: Promoters of tax avoidance schemes: associated and successor entities rules.
Public sector off-payroll working
As announced at Budget 2016 and confirmed at Autumn Statement 2016, FB 2017 will reform the way IR35 applies to public sector bodies. As a result of feedback received during the technical consultation on FB 2017, it will be optional for the public sector body (or agency, if used) to take account of the worker’s expenses when calculating the tax due. This change puts the affected workers in the same position as employees, whose employers can choose whether or not to reimburse incurred expenses. This will not affect the individual’s right to claim tax relief on legitimate employment expenses from HMRC as part of their own tax returns. In addition, the application of the rules to parliament and statutory auditors will be clarified.
The reform to IR35 will come into effect from 6 April 2017.
See: OOTLAR (para 1.9) and Updated TIIN: Off-payroll working in the public sector: changes to the intermediaries legislation.
Reasonable care defence
As announced at AS 2016 and included in draft FB 2017 (clause 91), FB 2017 will prevent taxpayers who face inaccuracy penalties in respect of a marketed tax avoidance scheme from citing generic advice or marketing material to demonstrate that they have taken reasonable care. The changes come into effect at royal assent and apply to inaccuracies in documents relating to tax periods which begin on or after 6 April 2017.
See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41).
Research and development (R&D) tax review
Following a review of the R&D tax regime, the government will:
• make administrative changes to the R&D expenditure credit to increase certainty and simplify claims; and
• take action to improve awareness of R&D tax credits among SMEs.
See: Spring Budget 2017 (para 3.12) and OOTLAR (para 2.13).
Rent-a-room relief
In a surprise announcement, in summer 2017 the government will launch a consultation on rent-a-room relief, with a view to better supporting longer-term lodgings.
The reference to longer-term lodging may suggest that the conditions for rent-a-room relief could be altered to ensure it applies to long-term lets only. Currently anyone letting a room in their home on a short-term basis using sharing websites, such as Airbnb, can receive up to £7,500 per year in rents without paying income tax. When rent-a-room relief was introduced in 1992, this type of short-term letting could not be envisaged and the government may decide this does not meet the original policy objective.
See: OOTLAR (para 2.2 and Annex B).
Salary sacrifice
As announced at AS 2016, legislation in FB 2017 will remove income tax and NICs advantages with effect from 6 April 2017 where benefits in kind are provided through salary sacrifice or other optional remuneration arrangements. Transitional provisions will apply for contractual arrangements entered into before 6 April 2017, but these will normally only apply until 6 April 2018 or, if earlier, their variation or renewal. These transitional provisions will extend to 6 April 2021 for arrangements relating to cars with emissions above 75g CO2 per kilometre, accommodation and school fees. Employer provided pensions and pension advice, childcare vouchers, employer-provided childcare and workplace nurseries as well as cycle to work schemes and ultra-low emissions cars will be excluded from this measure.
See: OOTLAR (para 1.7).
Savings bonds
As expected, National Savings and Investments (NS&I) will launch a new three-year savings bond in April 2017. It was confirmed in the Spring Budget 2017 that the interest rate will be 2.2% per annum. The bond will be open to those over 16 years of age and the maximum investment will be £3,000.
This interest rate is significantly higher than the rates offered by banks and building societies for mainstream savings products and there is likely to be a high take-up amongst basic rate and higher rate taxpayers (who also benefit from the savings nil rate band).
See: Spring Budget 2017 (para 3.9).
SDLT: deferring acceleration of receipts
The government has announced that it will delay the reduction in the SDLT filing and payment window (from 30 to 14 days) until after April 2018. The government consulted on changes to the filing and payment process in 2016 and the changes were expected to be introduced in FB 2017.
See: Spring Budget 2017 (para 3.20) and OOTLAR (para 2.31).
Social investment tax relief (SITR)
As announced at AS 2016, the chancellor confirmed at Spring Budget 2017 that the government will amend the requirements for the SITR scheme with effect for investments made on or after 6 April 2017. The measure enlarges the existing scheme and includes amendments to:
• increase the amount of investment that a qualifying social investment enterprise may receive over its lifetime from the current three year rolling limit of €344,000 to £1.5m;
• reduce the limit on full-time equivalent employees from 500 to 250 employees (not including volunteers);
• exclude the use of money raised under the SITR to pay off existing loans;
• clarify that individuals will be eligible to claim relief under the SITR scheme only if they are independent from the social enterprise; and
• introduce provisions to exclude investments where the main purpose of arrangements is to deliver a benefit to an individual or party connected to the social enterprise.
See: Spring Budget 2017 (Table 2.2), OOTLAR 2017 (para 1.4) and TIIN: Income Tax – enlarging Social Investment Tax Relief.
Soft drinks industry levy
The government has announced the rates that will apply for the purposes of the soft drinks industry levy. The levy was announced at Budget 2016 and will need to be paid by producers and importers of soft drinks with added sugar. The levy will be charged on volumes according to total sugar content and will apply from 6 April 2018. The main rate charge for drinks above 5 grams of sugar per 100 millilitres will be 18 pence per litre and the higher rate for drinks with more than 8 grams of sugar per 100 millilitres will be 24 pence per litre. The levy is included in the draft FB 2017 (clauses 51–78 and Schs 15–17) but following consultation, the legislation has been revised to include a criminal offence for evasion of the levy (in addition to some other minor changes).
See: Spring Budget 2017 (para 3.37) and OOTLAR (para 1.33).
Substantial shareholding exemption (SSE) reform
As announced at AS 2016 and included in draft FB 2017, FB 2017 will remove the investing company requirement within the SSE, and provide a more comprehensive exemption for companies owned by qualifying institutional investors. Following consultation, amendments have been made to the legislation in draft FB 2017 ‘to provide clarity and certainty’. The changes take effect from 1 April 2017.
See: OOTLAR (para 1.16).
Termination payments
As announced at Budget 2016 and confirmed at AS 2016, FB 2017 will tighten and clarify the tax treatment of termination payments and the NICs Bill 2017 will align the tax and employer NICs treatment of termination payments. Following consultation on the draft legislation, the government will legislate to abolish the foreign service exemption in FB 2017/18. All of these changes will take effect from 6 April 2018.
See: OOTLAR (para 1.8).
Trading stock, appropriations to
In order to address a perceived unfairness in the tax code that can be exploited for avoidance, the government is removing an ability for businesses to convert capital losses into trading losses with immediate effect.
Where a capital asset is appropriated to trading stock, there is a deemed disposal for CGT purposes at market value. Currently, however, businesses can elect for an alternative tax treatment which can be particularly advantageous where a capital loss would otherwise have arisen on the deemed disposal. In such a case, the effect of the election is to reduce the allowable loss to zero and to increase (by the equivalent amount) the market value of the asset which can be brought into account as expenditure in computing trading profit. Effectively, such an election converts what would be a capital loss into a more useful trading deduction that can be offset against the total trading profits of the business.
Draft legislation released alongside Spring Budget 2017 (together with an explanatory note) removes the ability to make such an election where an appropriation to trading stock would give rise to a loss for chargeable gains purposes, meaning that an allowable loss is crystallised when the appropriation takes place and remains within the chargeable gains rules. This change has effect for appropriations to trading stock made on or after 8 March 2017 (i.e. the date of Spring Budget 2017). This measure will be included in FB 2017.
Similar changes are also being made to the equivalent rules relating to assets within the charge to the annual tax on enveloped dwellings (ATED), with the result that the current ability to make an election in respect of the non-ATED related part of any loss is removed. Again, the change has effect from 8 March 2017.
In both cases, the ability to make an election where an appropriation to trading stock would give rise to a chargeable gain is unaffected by these changes.
See: Spring Budget 2017 (para 3.45), OOTLAR (para 1.24) and TIIN: Corporation Tax and Income Tax - Tax treatment of appropriations to trading stock.
Trusts default rate of income tax
The OOTLAR (para 1.1) makes a somewhat cryptic reference to a ‘default rate’ of income tax which will apply to trustees. This is not a new rate of tax for trusts but requires some explanation.
With effect from 6 April 2017, the Scottish parliament will be able to set a Scottish rate of income tax to apply to non-savings, and non-dividend income in Scotland. This ‘main rate’ of tax will apply to individuals’ employment, trade, pensions and property income. It does not apply to trusts.
To correspond with the creation of a main rate for Scottish taxpayers, the same term will apply to the non-savings, non-dividend income of individuals in the rest of the UK. The inference is, of course, that the main rates for each part of the UK could diverge in due course.
The regional authority over tax rates does not extend to the standard rates applied to trusts or non-residents. Hence the introduction of a new term, ‘default rate’ which describes the standard rate applied to non-savings, non-dividend income of those entities. For trusts, this category is primarily property income.
Although no additional measures are proposed at present, the separation of the rates does pave the way for different rates for trusts in the future.
See: OOTLAR (para 1.1).
VAT: construction sector labour fraud
The government will publish a consultation on 20 March 2017 on various options to combat supply chain fraud in supplies of labour within the construction sector including:
• a reverse charge mechanism so that the recipient accounts for the VAT; and
• changing the criteria for gross payment status within the construction industry scheme.
See: Spring Budget 2017 (para 3.48) and OOTLAR (para 2.30).
VAT: mobile phone services
The government will remove the VAT use and enjoyment provision for mobile phone services provided to consumers. This will resolve the inconsistency where UK VAT is applied to mobile phone use by UK residents when in the EU, but not when outside the EU. It will also ensure mobile phone companies are unable to use the inconsistency to avoid UK VAT. This removal will bring UK VAT rules into line with the internationally agreed approach. Secondary legislation to effect the change, together with a TIIN, will be published before the parliamentary summer recess.
See: Spring Budget 2017 (para 3.47) and OOTLAR (para 2.29).
VAT: registration and deregistration thresholds
From 1 April 2017 the VAT registration threshold will increase from £83,000 to £85,000 and the deregistration threshold from £81,000 to £83,000, in line with inflation. The registration and deregistration threshold for relevant acquisitions from other EU member states will also be increased from £83,000 to £85,000 from 1 April 2017, in line with the VAT registration threshold.
See: Spring Budget 2017 (para 3.36), OOTLAR (para 2.27) and TIIN: VAT registration threshold.
VAT: ‘split payment’ model
The government will publish a call for evidence on 20 March 2017 on proposals to introduce a new VAT collection mechanism for online sales. This would harness technology to allow VAT to be extracted directly from transactions at the point of purchase (often referred to as ‘split payment’). This measure is a further step in tackling the non-payment of VAT by some overseas traders who sell goods online to UK consumers and follows the announcement at Budget 2016 in respect of HMRC’s increased powers to combat the VAT fraud associated with online marketplaces.
See: Spring Budget 2017 (para 3.50) and OOTLAR (para 2.28).
VAT: penalty changes in fraud cases
As announced in AS 2016 the government will introduce a new and more effective penalty for participating in VAT fraud in FB 2017. Minor changes have been made to the draft legislation and a company officer will only be named where the amount of VAT due exceeds £25,000.
See: OOTLAR (para 1.39).
Venture capital schemes
As announced at AS 2016, the government confirmed at Spring Budget 2017 that it will amend the requirements of the enterprise investment scheme (EIS), the seed enterprise investment scheme (SEIS) and venture capital trusts (VCTs). The amendments, which follow wholesale changes made in November 2015 and small tweaks in FA 2016, will:
• clarify the EIS and SEIS share conversion rights on shares issued on or after 5 December 2016 (when the draft FB 2017 legislation was published);
• provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017;
• introduce the power for the government to make regulations in the context of share for share exchanges in the VCT regime, with effect from the date of Royal Assent of FB 2017 (expected to be in July 2017).
The government also announced that a summary of responses to a consultation on options to streamline and prioritise the advance assurance service will be published after Spring Budget 2017.
See: OOTLAR (para 1.5).
Withholding tax on interest
At Spring Budget 2017, the government responded to the double taxation treaty passport (DTTP) scheme review consultation by confirming that it will renew and extend the DTTP scheme, which simplifies access to reduced withholding tax rates on interest that are available in the UK’s network of double tax treaties. With effect from 6 April 2017, the DTTP scheme should apply to ‘all types of lenders and UK borrowers’ and not be restricted (as it is prior to 6 April 2017) to corporate lenders and corporate UK borrowers. The government has confirmed that revised terms and conditions and guidance on the DTTP scheme will be published on gov.uk on 6 April 2017.
The government also announced that it will introduce a withholding tax exemption for interest on debt traded on a multilateral trading facility and that it will consult on this exemption in spring 2017. The Spring Budget 2017 states that this exemption will remove a barrier to the development of UK debt markets.
The OOTLAR also seems to confirm that draft FB 2017, clause 12 and schedule 4 will remain unchanged following consultation. This means that with effect for payments made on or after 6 April 2017, there will no longer be a requirement to deduct UK income tax at source from interest on peer-to-peer (P2P) lending (which broadly puts the interim non-statutory withholding tax exemption from P2P interest that has applied since 8 January 2016 on a statutory footing) or from interest distributions (i.e. dividends that are treated as yearly interest) from open-ended investment companies, authorised unit trusts or investment trust companies.
See: Spring Budget 2017 (para 3.14) and OOTLAR (paras 2.14, 2.37 and see also under the heading: ‘Measures unchanged following consultation on the draft legislation’).
This commentary was derived from Lexis®PSL Tax and Private Client services, with additional material from Tolley Guidance. The Lexis®PSL Tax and Private Client services provide lawyers with practice notes and precedents, with links to trusted sources. Tolley Guidance is an online service for tax practitioners that combines tax technical commentary with practical guidance.
