Below is a quick guide to the L-day provisions. More detailed insight will follow in this week’s edition.
On 6 July, the government published 40 draft Finance Bill clauses and 8 schedules for consultation until 31 August 2018, together with explanatory notes and 14 consultation responses. Four items of legislation have immediate or retrospective effect, concerning: income tax exemptions for emergency vehicles; exemption for workplace charging of battery vehicles; amendments to corporate interest restriction rules; and corporation tax relief for carried-forward losses. See www.gov.uk/government/collections/finance-bill-2018-19
The closing date for comments on the draft legislation is 31 August 2018.
Abolition of receipt checking for benchmark scale rates and changes to overseas scale rates
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will remove the requirement for employers to check evidence, such as receipts, of the amounts spent when using benchmark scale rates to pay or reimburse their employees’ qualifying subsistence expenses when travelling for work. The measure also places the concessionary accommodation and subsistence overseas scale rates onto a statutory basis, for which there will also be no requirement for employers to check evidence of amounts spent. Employers will only be asked to ensure that employees are undertaking qualifying business travel for both sets of rates. This will have effect on and after 6 April 2019.
Income tax rent-a-room relief
Following consultation, legislation in Finance Bill 2019 will introduce an additional test of ‘shared occupancy’ that must be met in order for the taxpayer to be eligible for rent a room relief. The test will require the taxpayer to be physically present in the property, for all or part of the period of the rental, with the individual whose occupation is generating receipts. This will have effect from 6 April 2019.
Simplification of donor benefits rules for Gift Aid
Following consultation, legislation in Finance Bill 2019 will replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim gift aid tax relief. From April 2019, the benefit threshold for the first £100 of the donation will remain at 25% of that amount. Charities will be able offer an additional benefit of 5% to donors on the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.
Changes to optional remuneration arrangements rules for taxable cars and vans
Legislation in Finance Bill 2019 will correct two anomalies in the optional remuneration arrangements rules. The changes:
These changes correct errors introduced inadvertently in Finance Act 2017 and will restore the intended legislative position with effect from 6 April 2019.
Workplace charging for all-electric and plug-in hybrid vehicles
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will exempt from income tax and NICs the provision of charging facilities (including electricity) to employees recharging all-electric or plug-in hybrid vehicles at or near the workplace, where facilities are made available generally to employees. It does not cover reimbursements for charging elsewhere paid for by the employee. This will have effect from 6 April 2018.
The new exemption will sit alongside the existing exemption for the provision of charging facilities for taxable cars and vans.
Changes to the taxation of emergency vehicles
Legislation in Finance Bill 2019 will ensure that certain employees in the emergency services will not face an immediate, significantly increased, taxable benefit charge for the private use of their emergency vehicle following changes to the ‘use of assets’ legislation in Finance Act 2017. The Finance Bill legislation will:
The changes will apply retrospectively from 6 April 2017.
Reform of employer contributions into life assurance and overseas pension schemes
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will change the tax treatment for certain premiums paid by employers into life assurance products and contributions to qualifying recognised overseas pension schemes. Currently, these contributions are only tax-exempt if the beneficiary is the employee, or a member of the employee’s family or household. The change will allow the beneficiary to be any individual or registered charity without the premiums being treated as a taxable benefit-in-kind and will have effect from 6 April 2019.
Entrepreneurs’ relief where shareholding ‘diluted’ below the 5% threshold
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will provide for individuals to make two elections allowing them to obtain entrepreneurs’ relief where their shareholding is diluted below the 5% qualifying threshold. The first election will treat the individual’s shares as having been disposed of and immediately reacquired at market value prior to dilution, giving rise to a chargeable gain at that point. The second election will allow the gain to be deferred until an actual disposal takes place. This gain will be treated according to the rules in force at the time of the actual disposal. This will have effect from 6 April 2019.
This measure is part of the government’s response to the patient capital review and seeks to remove factors which may discourage entrepreneurs from seeking external investment to finance business growth.
Capital gains tax and corporation tax on UK property gains
As announced at Autumn Budget 2017 and following consultation, legislation in Finance Bill 2019 will bring gains accruing to non-UK residents on disposals of interests in non-residential UK property within the scope of UK tax. It will extend the existing charge on disposals of interests in residential property to widely-held companies and funds, and life assurance companies. Indirect disposals of interests in UK ‘property rich’ entities (i.e. those deriving 75% or more of their value from UK land) will also be brought into charge. There will be an exemption for investors in such entities who have held a less than 25% interest for a period of 2 years prior to disposal. The legislation will have effect for disposals made on or after 6 April 2019. The anti-forestalling rule announced at Autumn Budget 2017 has effect for arrangements entered into on or after 22 November 2017.
This measure will also introduce the requirement for UK residents to make a payment on account of CGT within 30 days of completion of a residential property disposal with effect from 6 April 2020. For non-residents, the existing reporting requirement will be expanded to include all companies from 6 April 2019. The current exception from making a payment on account for non-residents who make self-assessment returns will cease after 6 April 2020, bringing non-residents into line with the introduction of payment on account for UK residents.
Deferral of exit charge payments for capital gains tax
Legislation in Finance Bill 2019 will allow deferral of the CGT exit charge in certain circumstances for trusts ceasing to be UK resident and certain non-residents trading through a branch or agency in the UK. The charge may be deferred and paid over 6 years in equal instalments where:
The change is made in response to the ECJ judgment in Trustees of the P Panayi Accumulation and Maintenance Settlements v HMRC [2017] STC 2495, which found that the UK should have offered a deferral mechanism for trusts with economically significant activities. The change will have effect from 6 April 2019.
Income tax and corporation tax response to accounting changes for leasing
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will amending existing tax rules so that they continue to work as originally intended when the new accounting standard for leases, IFRS 16, takes effect from 1 January 2019. The changes result from the fact that while a number of the existing rules for the taxation of plant and machinery leases depend on the classification of leases into operating leases and finance leases, a company adopting IFRS 16 will usually not need to make this distinction in respect of leases where it is the lessee, and instead will recognise a right-of-use asset and financial liability on its balance sheet. The legislation makes technical changes:
These amendments have effect for periods of account beginning on or after 1 January 2019.
Corporation tax changes to the corporate interest restriction rules
Legislation in Finance Bill 2019 will make a further group of technical amendments to ensure the corporate interest restriction rules operate as intended. Most of the changes will have effect for periods commencing on or after 1 January 2019. The period for appointing a reporting company will be extended to 12 months with effect from Royal Assent, and HMRC will be able to request additional information to be included returns from 1 April 2019. Amendments to the public infrastructure provisions are to apply retrospectively from 1 April 2017.
Climate Change Levy exemption for mineralogical and metallurgical processes
Legislation in Finance Bill 2019 will amend the definition of mineralogical processes to refer to internationally-recognised NACE codes, so that the exemption for energy used in those processes can remain operable following the UK’s departure from the EU. It will also clarify that a landlord can claim the exemption on behalf of a tenant business. These changes will come into effect following Royal Assent.
Changes to the corporation tax reform of loss relief rules
Legislation in Finance Bill 2019 will make group of technical amendments to ensure the new rules on corporation tax loss relief work as intended. These amendments bring basic life assurance and general annuity business (BLAGAB) within the definition of ‘relevant profits’ with effect from 6 July 2018. Other changes, which have effect from 1 April 2019, relate to:
Corporation tax on UK property income of non-UK resident companies
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will bring non-UK resident companies that carry on a UK property business, or have other UK property income, within the scope of corporation tax, rather than income tax. The change will apply to income arising on and after 6 April 2020. Transitional provisions will apply in relation to capital allowances, grandfathering of existing income tax losses to set against future corporation tax profits, and restriction of relief for past capital expenditure on contaminated or derelict land. Provision is also made for just and reasonable adjustments to be made for fair value movements arising on derivative contracts.
Oil and gas taxation: transferable tax history and retention of decommissioning expenditure
Following consultation, legislation in Finance Bill 2019 will introduce a transferable tax history mechanism for oil and gas companies operating on the UK continental shelf, and amend the petroleum revenue tax rules on retained decommissioning costs. The mechanism will be available for licence transfers that receive Oil and Gas Authority approval on or after 1 November 2018.
Tobacco Duty on heated tobacco
Legislation in Finance Bill 2019 will introduce a new category of tobacco product called ‘heated tobacco’. The duty rate for heated tobacco will be set at Budget 2018.
New still cider and perry bands for alcohol duty
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will introduce a new duty band for still cider and perries with a strength of at least 6.9% but not exceeding 7.5% ABV from February 2019. The rate of duty will be confirmed at Budget 2018. The government’s aim is for the duty increase to prompt higher prices for high-strength ‘white’ ciders, leading to a fall in consumption and encouragement for the industry to produce lower strength ciders.
HGV levy
Legislation in Finance Bill 2019 will introduce a 10% reduction in the rate of HGV road user levy for vehicles that meet the latest Euro 6 emissions standard, and a 20% increase for vehicles that do not, with effect from 1 February 2019. Primary legislation is required for any raising of levy rates. The 10% reduction is provided for in SI 2018/417.
VAT grouping eligibility criteria changes
Legislation in Finance Bill 2019 will allow non-corporate entities, such as partnerships or individuals, to join VAT groups. The non-corporate entity must control all of the members of the VAT group and be UK VAT registered. The change is being made in response to judgments of the ECJ. An amendment will be made to the VAT (Groups: eligibility) Order, SI 2004/1931, to prevent ‘misuse’ of the new rules.
Exempt zero-emission capable taxis from vehicle excise duty expensive car supplement
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will exempt purpose-built zero-emission capable taxis from the vehicle excise duty (VED) supplement for cars with a list price of over £40,000, with effect from 1 April 2019. As the VED supplement is only payable from the second year of registration, this will mean most new purpose-built zero-emission capable taxis, first registered on or after 1 April 2018, will be exempt. Following consultation, the government has indicated that a definition of ‘purpose-built zero-emission capable taxi’ will be included in regulations.
Changes to Gaming Duty accounting periods and administration
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will require businesses liable to gaming duty to complete returns on a 6-monthly basis from 1 October 2019. The current requirement to make payments on account part way through an accounting period will be removed. Businesses will also be allowed to carry forward losses from one accounting period to be offset against future gaming duty liabilities. Transitional arrangements will bring all accounting periods under the current system to a close on 30 September 2019, and begin all accounting periods under the new system from 1 October 2019.
Stamp Duty exemption for financial institutions in resolution
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will introduce provisions exempting from stamp duty, SDRT or SDLT certain transfers of shares or property from failing financial institutions to appointed temporary holding entities and creditors following exercise of the bail-in stabilisation power. This measure will have effect on and after the date of Royal Assent.
Changes to the stamp duty land tax filing and payment time limits
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will reduce the time limit purchasers have to file a SDLT return and pay the tax due from 30 days to 14 days. The new time limit will apply to transactions with an effective date on or after 1 March 2019.
Extension of offshore time limits for the assessment of tax
Legislation in Finance Bill 2019 will increase the tax assessment time limit for non-deliberate offshore non-compliance to 12 years for income tax, CGT and IHT. Where the taxpayer has sought deliberately to evade tax, the time limit will remain 20 years. The amendments will come into force from Royal Assent and will not be retrospective, but will cover the four years still in date at 6 April 2019 (2015/16 onwards), or six years where careless behaviour is involved (2013/14 onwards).
Extension of security deposit legislation
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will extend the scope of the existing security deposits regime to include corporation tax and construction industry scheme (CIS) deductions. This will have effect from 6 April 2019. The rules for corporation tax and CIS securities will broadly follow the approach used for PAYE securities and the detail of HMRC’s powers to require a security will be set out in regulations.
Interest harmonisation and sanctions for late payment
Legislation in Finance Bill 2019 will set out the new harmonised regime for late payment interest and penalties to apply across VAT and other taxes under ‘making tax digital’ rules. The general rules on VAT interest will involve:
Harmonised late payment penalties for corporation tax, income tax self-assessment and VAT will involve two penalty charges, the first based on a percentage of the tax unpaid, the second accruing on a daily basis as follows:
A staged implementation of the measure is expected starting with VAT from 1 April 2020.
Technical note on late submission penalties
Provides an overview of the points-based model for late submission penalties to be introduced for VAT from 1 April 2020, and for income tax self-assessment from a date to be confirmed. The government intends to expand the regime across other taxes in the future.
Profit fragmentation
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will target arrangements used by UK traders and professionals to avoid UK tax by transferring UK-taxable business profits to entities resident in territories where significantly lower tax is paid than in the UK. The measure will have effect from April 2019. HMRC willl be able to counteract arrangements which meet certain conditions. Taxpayers will be required to notify HMRC on their tax return if these conditions apply to their arrangements.
VAT treatment of vouchers
Legislation in Finance Bill 2019 will contain provisions to transpose the EU vouchers directive into UK law from 1 January 2019. The change will mean a single supply of the underlying goods or services, rather than treating the voucher as a separate supply. The new rules aim to provide a clear distinction between single purpose vouchers and multi-purpose vouchers.
Implementing a directive on tax dispute resolution mechanisms in the EU
Legislation in Finance Bill 2019 will provide for implementation of the ‘Double taxation dispute resolution mechanisms in the European Union directive’ in the UK. This directive replaces the EU arbitration convention, which provided for dispute resolution only in the context of transfer pricing. The new Directive has much broader scope to resolve double taxation disputes and sets out clear timetables and mechanisms for resolution. The implementing power come into force on the date of Royal Assent.
Technical note on anti-avoidance directive about controlled foreign companies and EU Exit
Provides an overview of changes required to the controlled foreign company (CFC) rules to comply with the EU anti-tax avoidance directive (ATAD). The directive comes into force with effect from 1 January 2019. The government intends to introduce these changes as part of Finance Bill 2019, although draft legislation has not yet been published.
Changes to the corporation tax exit charges
Legislation in Finance Bill 2019 will introduce changes to the UK rules concerning exit charges on certain unrealised profits or gains, in order to comply with the EU anti-tax avoidance directive (ATAD). Current UK rules on exit charge payment plans (ECPP) are to be replaced with a single system of deferral payable in instalments over a maximum of 5 years. The changes will have effect from 1 January 2020.
Hybrid and other mismatches: anti-tax avoidance directive
Legislation in Finance Bill 2019 will introduce changes to the hybrid mismatch rules in order to comply with the EU anti-tax avoidance directive (ATAD). The two changes involve the treatment of certain mismatches involving permanent establishments, and the replacement of the exemption for certain regulatory capital with a power to make regulations. The changes will have effect from 1 January 2020.
International tax enforcement disclosable arrangements
Legislation in Finance Bill 2019 will provide powers for HM Treasury to make regulations to give effect to international rules on the disclosure of cross-border tax arrangements. More specifically, it will allow the government to implement the EU directive on disclosure rules for cross-border tax planning intermediaries by 31 December 2019, and the OECD’s model mandatory disclosure rules, should the UK government decide to adopt them. The government has said it will consult during 2019 on the regulations and how to implement the directive.
The government also published the following consultation responses on 6 July.
The government published a call for evidence on rent-a-room relief at Autumn Budget 2017. Following that consultation, HM Treasury has decided to introduce a new ‘shared occupancy’ test for the relief. The new test will require the taxpayer to be living in the residence and physically present for at least some part of the letting period, for the income to qualify. The objective is to ensure the relief meets its original purpose of incentivising people to let spare rooms rather than whole properties. Rent-a-room relief was first introduced in 1992 to increase in the supply and variety of low-cost residential accommodation. Since then, the emergence of peer-to-peer online marketplaces and digital platforms has also had a significant impact on the market, making it easier to advertise and find rooms.
The government has included legislation for a ‘shared occupancy’ clause in Finance Bill 2019 and the change will take effect from 6 April 2019. The relief itself will remain at its current level of £7,500.
In practice, the future regime for property income will work as follows:
www.gov.uk/government/consultations/rent-a-room-relief
The government published a consultation at Spring Budget 2018 on a new mechanism allowing individuals to retain entitlement to entrepreneurs’ relief in circumstances where their own shareholding becomes diluted below 5%. The government’s ‘patient capital review’ had highlighted the loss of entrepreneurs’ relief in this way as a barrier to growth for some firms. While the response document notes that comments on the latest consultation did not present a convincing case for entrepreneurs’ relief acting consistently as a barrier to growth, the government acknowledged the role the relief plays in enabling individuals to retain additional funds for the purposes of reinvestment.
The proposal also included a second election that defers the gain, along with the opportunity to claim entrepreneurs’ relief in accordance with the rules in force at the time of an actual disposal.
The government has decided to retain the main features of the proposal, but with a revised approach to valuation, the costs of which could act as a disincentive to making an election. This will allow valuation of a shareholding for the purposes of the election based on the company’s pro-rated value, without discounting for minority shareholdings. This change is intended to mitigate the effect of the market placing a discount on minority shareholdings, which could reduce the accrued gain at the time of election and lower the associated tax benefit.
Draft legislation has been published for inclusion in Finance Bill 2019, to have effect from 6 April 2019.
www.gov.uk/government/consultations/allowing-entrepreneurs-relief-on-gains-made-before-dilution
The government announced at Autumn Budget 2017 an exemption from the VED supplement for zero emission capable taxis from April 2019. The exemption will also apply to VED renewals, even if vehicles were first registered before April 2019, which effectively means all zero-emission capable taxis purchased from April 2018 will be exempt from the supplement. HM Treasury subsequently consulted on finding an appropriate definition for a ‘purpose-built zero-emission capable taxi’.
The government has decided to include the definition in regulations, providing flexibility as the technology develops, rather than specify the requirements in primary legislation.
Respondents to the consultation also supported continuing the current practice of placing the onus on manufacturers/dealers to declare a vehicle as zero-emission capable at the time of first registration.
A draft clause has been published for Finance Bill 2019 to provide for the exemption with effect from 1 April 2019.
www.gov.uk/government/consultations/zero-emission-capable-taxis-vehicle-excise-duty-rates
The government published a consultation at Autumn Budget 2017 on proposals to bring all gains on disposals of UK property by non-residents within the scope of UK tax, for gains accrued on or after April 2019. This means gains will be chargeable on all direct disposals of both non-residential and residential property, while the current charge on residential property will be extended to indirect sales and disposals made by widely-held companies. This will lead to abolition of the ATED-related CGT provisions.
The charge on indirect disposals will apply to ‘property rich’ entities, meaning those with UK immovable property making up 75% or more of their assets, and will be triggered where a person has held a 25% or greater interest in the entity within a certain period prior to the disposal. Following consultation, the government has agreed to simplify the 25% test so that it will only look back two years (originally five years).
The government has decided to add a trading exemption for indirect disposals and will consult further on the detail. There will also be further consultation on treatment of collective investment vehicles involving, in particular, the impact on exempt investors in offshore funds and potential for multiple tax charges.
The new rules will generally require rebasing of property values at April 2019. However, the government has relaxed the original proposals for indirect disposals and will now allow original cost to be used, but not to create allowable losses. This recognises potential difficulties businesses may face in obtaining April 2019 valuations.
Proposals requiring reporting by third-party advisors have also been dropped.
An anti-forestalling rule applies from 22 November 2017, allowing HMRC to counteract tax advantages where taxpayers have moved investments to take advantage of double taxation treaties which do not give the UK taxing rights over non-UK residents’ gains.
Draft legislation has been published for Finance Bill 2019 covering the core provisions of the policy. This will be subject to further technical consultation before the detail is finalised and the changes come into force, expected to be in April 2019.
www.gov.uk/government/consultations/taxing-gains-made-by-non-residents-on-uk-immovable-property
The government consulted in February 2016 and again in November 2016 on proposals for changes to the gift aid donor benefit rules. Following the latest consultation, HMRC has decided to replace the current three-tier thresholds with two thresholds operating on a cumulative basis. This will allow charities to offer benefits worth up to 25% on the first £100 of a donation, plus 5% of any additional amount donated, up to a maximum benefit value of £2,500.
The government will not introduce a low-value disregard for benefits.
Draft legislation has been published for Finance Bill 2019 and the changes will come into effect from 6 April 2019.
The government published a consultation in December 2017 setting out three options for amending the corporate interest restriction (CIR) rules to accommodate the new lease accounting standard, IFRS 16. These three options were to: follow accounting treatment; keep a distinction between operating and finance leases; or introduce a distinction between ‘funding leases’ and ‘non-funding leases’.
Following consultation, the government has decided to adopt a modified version of option 2, requiring companies adopting IFRS 16, or the equivalent FRS 101 under UK GAAP, to continue to classify their leases as either ‘finance leases’ or ‘operating leases’ for the purposes of the CIR, but placing less reliance on the lessors’ classification. The key points are:
HMRC has confirmed that companies will not have to determine how the corresponding lessor classifies the same lease, or apply classifications to all leases held by the worldwide group.
Draft legislation has been published for Finance Bill 2019. This will remain open for comments until 28 September 2018.
www.gov.uk/government/consultations/corporate-interest-restriction-consultation-on-leases
The government announced at Autumn Budget 2017 its decision to adapt the system of lease taxation to the accounting changes introduced by new IFRS 16 by making legislative changes necessary to preserve the current tax treatment overall. A consultation setting out options for these legislative changes was published in December 2017. Following this consultation, the government has decided to make the following changes to its original proposals for the long funding lease regime:
For the purposes of oil activities, an IFRS 16 lessee will identify a finance lease by testing whether it would have been a finance lease under UK GAAP.
Any transitional adjustments will be spread over the weighted average remaining length of leases at the date of transition, to be recognised and spread as one overall figure.
The ‘temporary’ provisions in FA 2011, s53 will be repealed.
Draft legislation has been published for Finance Bill 2019 to take effect for accounting periods beginning on or after 1 January 2019.
www.gov.uk/government/consultations/plant-and-machinery-lease-accounting-changes
HMRC published a consultation in December 2017 setting out options for aligning late payment interest and penalties across VAT, income tax self-assessment and corporation tax, as part of preparations for the introduction of making tax digital (MTD).
The government is to proceed with a two-step model for late payment penalties under MTD. The first penalty will be based on a percentage of the tax unpaid after 15 days, payable at half the full rate until 30 days after the due date. After 30 days, the first charge becomes payable in full, plus a second penalty accruing from the due date on a basis similar to interest.
HMRC summarises this penalty model in the response document as follows:
There was broad support for alignment of late payment interest rules for VAT, but HMRC has revised its proposals for repayment interest, which it will pay from the later of:
Draft legislation for the changes has been published for Finance Bill 2019. These penalties will not apply before April 2020.
HMRC published a consultation document in December 2017 on transposing the new EU vouchers directive into UK law from January 2019. The new rules aim to ensure that when customers pay with gift cards and vouchers, businesses account for the same amount of VAT as when other means of payment are used. The changes do not extend to discount vouchers or money-off tokens.
The main thrust of the change is that for VAT purposes there will be a single supply of the underlying goods or services, replacing the current UK rules treating the customer as receiving separate supplies of a voucher and an underlying supply of goods or services.
The government acknowledges possible issues around the likelihood that many businesses will change their business model from a buy/sell arrangement to an agency arrangement, and difficulties in tracking vouchers issued before and after 1 January 2019. In this regard, HMRC says in the response document it will take a ‘pragmatic approach’ during the transition.
The government has published draft legislation for Finance Bill 2019.
www.gov.uk/government/consultations/vat-and-vouchers
The government announced at Autumn Budget 2017 its intention to extend the assessment time limit for offshore tax to a minimum of 12 years. HMRC published a consultation in February 2018 on the design principles for legislation to introduce the change.
The response document confirms the extended time limit will apply to income tax, CGT and IHT and will use the existing definition of ‘offshore’ in the ‘requirement to correct’ legislation.
Apportionment where both offshore and onshore tax is involved will be applied on a just and reasonable basis (as set out in the ‘requirement to correct’ legislation). The draft Finance Bill legislation does not include a specific rule for apportionment.
The legislation will have effect from April 2019 and will not be retrospective, but will cover the 4 years still in date at 6 April 2019, plus two earlier years where careless behaviour is involved.
The government has published draft legislation for Finance Bill 2019, which will come into force following Royal Assent.
www.gov.uk/government/consultations/extension-of-offshore-time-limits
HMRC published a consultation in March 2018 on proposals to extend the scope of the existing security deposit regime to include corporation tax and the construction industry scheme with effect from April 2019.
The response document confirms that security for corporation tax and CIS will be payable by cash or performance bond, in line with current practice applied to PAYE and NICs.
No companies will be specifically excluded, but HMRC says it will only seek securities where ‘reasonable and proportionate’. Safeguards will be put in place through review and appeals procedures to allow companies to challenge the amount of security required.
The government does not intend to introduce specific provisions for instalments or staged payments.
The criminal offence for failure to provide a corporation tax or CIS security will mirror the existing approach for PAYE and NICs, which is a simple offence of failing to provide a security within a specified period.
The government intends to allow HMRC to seek a security from any person who is, or may be, liable to make tax deductions from payments to subcontractors. It believes such tough action to be justified where ‘necessary for protection of the current and future revenue’.
Draft legislation for Finance Bill 2019 will enable the government to make regulations to introduce the new requirements.
www.gov.uk/government/consultations/extension-of-security-deposit-legislation
HMRC published a consultation in April 2018 setting out three options for changing the current 6-month accounting period for gaming duty, with the aim of bringing the administration of gaming duty more into line with the other gambling duties.
The response document confirms the government has decided to remain with a 6-month accounting period, while removing the requirement to make 3-monthly payments on account and allowing carry-forward of losses between periods.
HMRC’s preferred option had been for a change to a 3-month accounting period, but the government has accepted respondents’ concerns that the volatile nature of gaming revenues could mean casinos being pushed into higher duty bands over shorter periods.
Draft legislation has been published for Finance Bill 2019, to have effect from 1 October 2019.
www.gov.uk/government/consultations/gaming-duty-review-of-accounting-periods
The government published a consultation in April 2018 on proposals to target arrangements through which individuals, trading alone or through partnerships or companies, transfer part of their profits to offshore entities taxed at a lower level and whose activities are not sufficient to support the profits attributed to them.
Following consultation, the government has published draft legislation for Finance Bill 2019, having refined the relevant tests and some of the terminology used. HMRC has confirmed in the response document that the tests for ‘significantly less tax’ paid in the overseas jurisdiction and ‘excess profit’ will use ‘like for like’ comparisons and reflect the profit after all applicable UK rules, such as transfer pricing, have been taken into account.
Taxpayers will have to notify HMRC in their self-assessment returns of arrangements which meet the relevant conditions, even those to which DOTAS applies. However, the government has ‘postponed’ the original proposal which would have allowed HMRC to issue preliminary payment notices and require earlier payment where it had reason to believe an amount was chargeable under the new rules.
The legislation is expected to take effect from April 2019.
www.gov.uk/government/consultations/tax-avoidance-involving-profit-fragmentation
The government confirmed at Autumn Budget 2017 a start date of April 2020 for the new requirement to make a payment on account of CGT due on disposals of residential property within 30 days of completion. The change was first announced in 2015, with a start date of April 2019, before being rescheduled under the parliamentary ‘wash up’ at the 2017 general election.
HMRC published a technical consultation in April 2018 concerning calculation of payments, administration, and extension of the existing system of payments on account for disposals by non-residents.
The government has published draft legislation for Finance Bill 2019 to introduce these changes from April 2020. The existing payment-on-account scheme for disposals by non-residents will be extended to include those who make self-assessment returns or pay ATED charges. This means the existing reporting exclusions for non-residents within self-assessment or who make ATED returns will cease from April 2020.
www.gov.uk/government/consultations/capital-gains-tax-payment-window-for-residential-property-gains
Below is a quick guide to the L-day provisions. More detailed insight will follow in this week’s edition.
On 6 July, the government published 40 draft Finance Bill clauses and 8 schedules for consultation until 31 August 2018, together with explanatory notes and 14 consultation responses. Four items of legislation have immediate or retrospective effect, concerning: income tax exemptions for emergency vehicles; exemption for workplace charging of battery vehicles; amendments to corporate interest restriction rules; and corporation tax relief for carried-forward losses. See www.gov.uk/government/collections/finance-bill-2018-19
The closing date for comments on the draft legislation is 31 August 2018.
Abolition of receipt checking for benchmark scale rates and changes to overseas scale rates
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will remove the requirement for employers to check evidence, such as receipts, of the amounts spent when using benchmark scale rates to pay or reimburse their employees’ qualifying subsistence expenses when travelling for work. The measure also places the concessionary accommodation and subsistence overseas scale rates onto a statutory basis, for which there will also be no requirement for employers to check evidence of amounts spent. Employers will only be asked to ensure that employees are undertaking qualifying business travel for both sets of rates. This will have effect on and after 6 April 2019.
Income tax rent-a-room relief
Following consultation, legislation in Finance Bill 2019 will introduce an additional test of ‘shared occupancy’ that must be met in order for the taxpayer to be eligible for rent a room relief. The test will require the taxpayer to be physically present in the property, for all or part of the period of the rental, with the individual whose occupation is generating receipts. This will have effect from 6 April 2019.
Simplification of donor benefits rules for Gift Aid
Following consultation, legislation in Finance Bill 2019 will replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim gift aid tax relief. From April 2019, the benefit threshold for the first £100 of the donation will remain at 25% of that amount. Charities will be able offer an additional benefit of 5% to donors on the amount of the donation that exceeds £100. The total value of the benefit that a donor can receive remains at £2,500.
Changes to optional remuneration arrangements rules for taxable cars and vans
Legislation in Finance Bill 2019 will correct two anomalies in the optional remuneration arrangements rules. The changes:
These changes correct errors introduced inadvertently in Finance Act 2017 and will restore the intended legislative position with effect from 6 April 2019.
Workplace charging for all-electric and plug-in hybrid vehicles
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will exempt from income tax and NICs the provision of charging facilities (including electricity) to employees recharging all-electric or plug-in hybrid vehicles at or near the workplace, where facilities are made available generally to employees. It does not cover reimbursements for charging elsewhere paid for by the employee. This will have effect from 6 April 2018.
The new exemption will sit alongside the existing exemption for the provision of charging facilities for taxable cars and vans.
Changes to the taxation of emergency vehicles
Legislation in Finance Bill 2019 will ensure that certain employees in the emergency services will not face an immediate, significantly increased, taxable benefit charge for the private use of their emergency vehicle following changes to the ‘use of assets’ legislation in Finance Act 2017. The Finance Bill legislation will:
The changes will apply retrospectively from 6 April 2017.
Reform of employer contributions into life assurance and overseas pension schemes
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will change the tax treatment for certain premiums paid by employers into life assurance products and contributions to qualifying recognised overseas pension schemes. Currently, these contributions are only tax-exempt if the beneficiary is the employee, or a member of the employee’s family or household. The change will allow the beneficiary to be any individual or registered charity without the premiums being treated as a taxable benefit-in-kind and will have effect from 6 April 2019.
Entrepreneurs’ relief where shareholding ‘diluted’ below the 5% threshold
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will provide for individuals to make two elections allowing them to obtain entrepreneurs’ relief where their shareholding is diluted below the 5% qualifying threshold. The first election will treat the individual’s shares as having been disposed of and immediately reacquired at market value prior to dilution, giving rise to a chargeable gain at that point. The second election will allow the gain to be deferred until an actual disposal takes place. This gain will be treated according to the rules in force at the time of the actual disposal. This will have effect from 6 April 2019.
This measure is part of the government’s response to the patient capital review and seeks to remove factors which may discourage entrepreneurs from seeking external investment to finance business growth.
Capital gains tax and corporation tax on UK property gains
As announced at Autumn Budget 2017 and following consultation, legislation in Finance Bill 2019 will bring gains accruing to non-UK residents on disposals of interests in non-residential UK property within the scope of UK tax. It will extend the existing charge on disposals of interests in residential property to widely-held companies and funds, and life assurance companies. Indirect disposals of interests in UK ‘property rich’ entities (i.e. those deriving 75% or more of their value from UK land) will also be brought into charge. There will be an exemption for investors in such entities who have held a less than 25% interest for a period of 2 years prior to disposal. The legislation will have effect for disposals made on or after 6 April 2019. The anti-forestalling rule announced at Autumn Budget 2017 has effect for arrangements entered into on or after 22 November 2017.
This measure will also introduce the requirement for UK residents to make a payment on account of CGT within 30 days of completion of a residential property disposal with effect from 6 April 2020. For non-residents, the existing reporting requirement will be expanded to include all companies from 6 April 2019. The current exception from making a payment on account for non-residents who make self-assessment returns will cease after 6 April 2020, bringing non-residents into line with the introduction of payment on account for UK residents.
Deferral of exit charge payments for capital gains tax
Legislation in Finance Bill 2019 will allow deferral of the CGT exit charge in certain circumstances for trusts ceasing to be UK resident and certain non-residents trading through a branch or agency in the UK. The charge may be deferred and paid over 6 years in equal instalments where:
The change is made in response to the ECJ judgment in Trustees of the P Panayi Accumulation and Maintenance Settlements v HMRC [2017] STC 2495, which found that the UK should have offered a deferral mechanism for trusts with economically significant activities. The change will have effect from 6 April 2019.
Income tax and corporation tax response to accounting changes for leasing
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will amending existing tax rules so that they continue to work as originally intended when the new accounting standard for leases, IFRS 16, takes effect from 1 January 2019. The changes result from the fact that while a number of the existing rules for the taxation of plant and machinery leases depend on the classification of leases into operating leases and finance leases, a company adopting IFRS 16 will usually not need to make this distinction in respect of leases where it is the lessee, and instead will recognise a right-of-use asset and financial liability on its balance sheet. The legislation makes technical changes:
These amendments have effect for periods of account beginning on or after 1 January 2019.
Corporation tax changes to the corporate interest restriction rules
Legislation in Finance Bill 2019 will make a further group of technical amendments to ensure the corporate interest restriction rules operate as intended. Most of the changes will have effect for periods commencing on or after 1 January 2019. The period for appointing a reporting company will be extended to 12 months with effect from Royal Assent, and HMRC will be able to request additional information to be included returns from 1 April 2019. Amendments to the public infrastructure provisions are to apply retrospectively from 1 April 2017.
Climate Change Levy exemption for mineralogical and metallurgical processes
Legislation in Finance Bill 2019 will amend the definition of mineralogical processes to refer to internationally-recognised NACE codes, so that the exemption for energy used in those processes can remain operable following the UK’s departure from the EU. It will also clarify that a landlord can claim the exemption on behalf of a tenant business. These changes will come into effect following Royal Assent.
Changes to the corporation tax reform of loss relief rules
Legislation in Finance Bill 2019 will make group of technical amendments to ensure the new rules on corporation tax loss relief work as intended. These amendments bring basic life assurance and general annuity business (BLAGAB) within the definition of ‘relevant profits’ with effect from 6 July 2018. Other changes, which have effect from 1 April 2019, relate to:
Corporation tax on UK property income of non-UK resident companies
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will bring non-UK resident companies that carry on a UK property business, or have other UK property income, within the scope of corporation tax, rather than income tax. The change will apply to income arising on and after 6 April 2020. Transitional provisions will apply in relation to capital allowances, grandfathering of existing income tax losses to set against future corporation tax profits, and restriction of relief for past capital expenditure on contaminated or derelict land. Provision is also made for just and reasonable adjustments to be made for fair value movements arising on derivative contracts.
Oil and gas taxation: transferable tax history and retention of decommissioning expenditure
Following consultation, legislation in Finance Bill 2019 will introduce a transferable tax history mechanism for oil and gas companies operating on the UK continental shelf, and amend the petroleum revenue tax rules on retained decommissioning costs. The mechanism will be available for licence transfers that receive Oil and Gas Authority approval on or after 1 November 2018.
Tobacco Duty on heated tobacco
Legislation in Finance Bill 2019 will introduce a new category of tobacco product called ‘heated tobacco’. The duty rate for heated tobacco will be set at Budget 2018.
New still cider and perry bands for alcohol duty
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will introduce a new duty band for still cider and perries with a strength of at least 6.9% but not exceeding 7.5% ABV from February 2019. The rate of duty will be confirmed at Budget 2018. The government’s aim is for the duty increase to prompt higher prices for high-strength ‘white’ ciders, leading to a fall in consumption and encouragement for the industry to produce lower strength ciders.
HGV levy
Legislation in Finance Bill 2019 will introduce a 10% reduction in the rate of HGV road user levy for vehicles that meet the latest Euro 6 emissions standard, and a 20% increase for vehicles that do not, with effect from 1 February 2019. Primary legislation is required for any raising of levy rates. The 10% reduction is provided for in SI 2018/417.
VAT grouping eligibility criteria changes
Legislation in Finance Bill 2019 will allow non-corporate entities, such as partnerships or individuals, to join VAT groups. The non-corporate entity must control all of the members of the VAT group and be UK VAT registered. The change is being made in response to judgments of the ECJ. An amendment will be made to the VAT (Groups: eligibility) Order, SI 2004/1931, to prevent ‘misuse’ of the new rules.
Exempt zero-emission capable taxis from vehicle excise duty expensive car supplement
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will exempt purpose-built zero-emission capable taxis from the vehicle excise duty (VED) supplement for cars with a list price of over £40,000, with effect from 1 April 2019. As the VED supplement is only payable from the second year of registration, this will mean most new purpose-built zero-emission capable taxis, first registered on or after 1 April 2018, will be exempt. Following consultation, the government has indicated that a definition of ‘purpose-built zero-emission capable taxi’ will be included in regulations.
Changes to Gaming Duty accounting periods and administration
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will require businesses liable to gaming duty to complete returns on a 6-monthly basis from 1 October 2019. The current requirement to make payments on account part way through an accounting period will be removed. Businesses will also be allowed to carry forward losses from one accounting period to be offset against future gaming duty liabilities. Transitional arrangements will bring all accounting periods under the current system to a close on 30 September 2019, and begin all accounting periods under the new system from 1 October 2019.
Stamp Duty exemption for financial institutions in resolution
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will introduce provisions exempting from stamp duty, SDRT or SDLT certain transfers of shares or property from failing financial institutions to appointed temporary holding entities and creditors following exercise of the bail-in stabilisation power. This measure will have effect on and after the date of Royal Assent.
Changes to the stamp duty land tax filing and payment time limits
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will reduce the time limit purchasers have to file a SDLT return and pay the tax due from 30 days to 14 days. The new time limit will apply to transactions with an effective date on or after 1 March 2019.
Extension of offshore time limits for the assessment of tax
Legislation in Finance Bill 2019 will increase the tax assessment time limit for non-deliberate offshore non-compliance to 12 years for income tax, CGT and IHT. Where the taxpayer has sought deliberately to evade tax, the time limit will remain 20 years. The amendments will come into force from Royal Assent and will not be retrospective, but will cover the four years still in date at 6 April 2019 (2015/16 onwards), or six years where careless behaviour is involved (2013/14 onwards).
Extension of security deposit legislation
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will extend the scope of the existing security deposits regime to include corporation tax and construction industry scheme (CIS) deductions. This will have effect from 6 April 2019. The rules for corporation tax and CIS securities will broadly follow the approach used for PAYE securities and the detail of HMRC’s powers to require a security will be set out in regulations.
Interest harmonisation and sanctions for late payment
Legislation in Finance Bill 2019 will set out the new harmonised regime for late payment interest and penalties to apply across VAT and other taxes under ‘making tax digital’ rules. The general rules on VAT interest will involve:
Harmonised late payment penalties for corporation tax, income tax self-assessment and VAT will involve two penalty charges, the first based on a percentage of the tax unpaid, the second accruing on a daily basis as follows:
A staged implementation of the measure is expected starting with VAT from 1 April 2020.
Technical note on late submission penalties
Provides an overview of the points-based model for late submission penalties to be introduced for VAT from 1 April 2020, and for income tax self-assessment from a date to be confirmed. The government intends to expand the regime across other taxes in the future.
Profit fragmentation
As announced at Autumn Budget 2017, legislation in Finance Bill 2019 will target arrangements used by UK traders and professionals to avoid UK tax by transferring UK-taxable business profits to entities resident in territories where significantly lower tax is paid than in the UK. The measure will have effect from April 2019. HMRC willl be able to counteract arrangements which meet certain conditions. Taxpayers will be required to notify HMRC on their tax return if these conditions apply to their arrangements.
VAT treatment of vouchers
Legislation in Finance Bill 2019 will contain provisions to transpose the EU vouchers directive into UK law from 1 January 2019. The change will mean a single supply of the underlying goods or services, rather than treating the voucher as a separate supply. The new rules aim to provide a clear distinction between single purpose vouchers and multi-purpose vouchers.
Implementing a directive on tax dispute resolution mechanisms in the EU
Legislation in Finance Bill 2019 will provide for implementation of the ‘Double taxation dispute resolution mechanisms in the European Union directive’ in the UK. This directive replaces the EU arbitration convention, which provided for dispute resolution only in the context of transfer pricing. The new Directive has much broader scope to resolve double taxation disputes and sets out clear timetables and mechanisms for resolution. The implementing power come into force on the date of Royal Assent.
Technical note on anti-avoidance directive about controlled foreign companies and EU Exit
Provides an overview of changes required to the controlled foreign company (CFC) rules to comply with the EU anti-tax avoidance directive (ATAD). The directive comes into force with effect from 1 January 2019. The government intends to introduce these changes as part of Finance Bill 2019, although draft legislation has not yet been published.
Changes to the corporation tax exit charges
Legislation in Finance Bill 2019 will introduce changes to the UK rules concerning exit charges on certain unrealised profits or gains, in order to comply with the EU anti-tax avoidance directive (ATAD). Current UK rules on exit charge payment plans (ECPP) are to be replaced with a single system of deferral payable in instalments over a maximum of 5 years. The changes will have effect from 1 January 2020.
Hybrid and other mismatches: anti-tax avoidance directive
Legislation in Finance Bill 2019 will introduce changes to the hybrid mismatch rules in order to comply with the EU anti-tax avoidance directive (ATAD). The two changes involve the treatment of certain mismatches involving permanent establishments, and the replacement of the exemption for certain regulatory capital with a power to make regulations. The changes will have effect from 1 January 2020.
International tax enforcement disclosable arrangements
Legislation in Finance Bill 2019 will provide powers for HM Treasury to make regulations to give effect to international rules on the disclosure of cross-border tax arrangements. More specifically, it will allow the government to implement the EU directive on disclosure rules for cross-border tax planning intermediaries by 31 December 2019, and the OECD’s model mandatory disclosure rules, should the UK government decide to adopt them. The government has said it will consult during 2019 on the regulations and how to implement the directive.
The government also published the following consultation responses on 6 July.
The government published a call for evidence on rent-a-room relief at Autumn Budget 2017. Following that consultation, HM Treasury has decided to introduce a new ‘shared occupancy’ test for the relief. The new test will require the taxpayer to be living in the residence and physically present for at least some part of the letting period, for the income to qualify. The objective is to ensure the relief meets its original purpose of incentivising people to let spare rooms rather than whole properties. Rent-a-room relief was first introduced in 1992 to increase in the supply and variety of low-cost residential accommodation. Since then, the emergence of peer-to-peer online marketplaces and digital platforms has also had a significant impact on the market, making it easier to advertise and find rooms.
The government has included legislation for a ‘shared occupancy’ clause in Finance Bill 2019 and the change will take effect from 6 April 2019. The relief itself will remain at its current level of £7,500.
In practice, the future regime for property income will work as follows:
www.gov.uk/government/consultations/rent-a-room-relief
The government published a consultation at Spring Budget 2018 on a new mechanism allowing individuals to retain entitlement to entrepreneurs’ relief in circumstances where their own shareholding becomes diluted below 5%. The government’s ‘patient capital review’ had highlighted the loss of entrepreneurs’ relief in this way as a barrier to growth for some firms. While the response document notes that comments on the latest consultation did not present a convincing case for entrepreneurs’ relief acting consistently as a barrier to growth, the government acknowledged the role the relief plays in enabling individuals to retain additional funds for the purposes of reinvestment.
The proposal also included a second election that defers the gain, along with the opportunity to claim entrepreneurs’ relief in accordance with the rules in force at the time of an actual disposal.
The government has decided to retain the main features of the proposal, but with a revised approach to valuation, the costs of which could act as a disincentive to making an election. This will allow valuation of a shareholding for the purposes of the election based on the company’s pro-rated value, without discounting for minority shareholdings. This change is intended to mitigate the effect of the market placing a discount on minority shareholdings, which could reduce the accrued gain at the time of election and lower the associated tax benefit.
Draft legislation has been published for inclusion in Finance Bill 2019, to have effect from 6 April 2019.
www.gov.uk/government/consultations/allowing-entrepreneurs-relief-on-gains-made-before-dilution
The government announced at Autumn Budget 2017 an exemption from the VED supplement for zero emission capable taxis from April 2019. The exemption will also apply to VED renewals, even if vehicles were first registered before April 2019, which effectively means all zero-emission capable taxis purchased from April 2018 will be exempt from the supplement. HM Treasury subsequently consulted on finding an appropriate definition for a ‘purpose-built zero-emission capable taxi’.
The government has decided to include the definition in regulations, providing flexibility as the technology develops, rather than specify the requirements in primary legislation.
Respondents to the consultation also supported continuing the current practice of placing the onus on manufacturers/dealers to declare a vehicle as zero-emission capable at the time of first registration.
A draft clause has been published for Finance Bill 2019 to provide for the exemption with effect from 1 April 2019.
www.gov.uk/government/consultations/zero-emission-capable-taxis-vehicle-excise-duty-rates
The government published a consultation at Autumn Budget 2017 on proposals to bring all gains on disposals of UK property by non-residents within the scope of UK tax, for gains accrued on or after April 2019. This means gains will be chargeable on all direct disposals of both non-residential and residential property, while the current charge on residential property will be extended to indirect sales and disposals made by widely-held companies. This will lead to abolition of the ATED-related CGT provisions.
The charge on indirect disposals will apply to ‘property rich’ entities, meaning those with UK immovable property making up 75% or more of their assets, and will be triggered where a person has held a 25% or greater interest in the entity within a certain period prior to the disposal. Following consultation, the government has agreed to simplify the 25% test so that it will only look back two years (originally five years).
The government has decided to add a trading exemption for indirect disposals and will consult further on the detail. There will also be further consultation on treatment of collective investment vehicles involving, in particular, the impact on exempt investors in offshore funds and potential for multiple tax charges.
The new rules will generally require rebasing of property values at April 2019. However, the government has relaxed the original proposals for indirect disposals and will now allow original cost to be used, but not to create allowable losses. This recognises potential difficulties businesses may face in obtaining April 2019 valuations.
Proposals requiring reporting by third-party advisors have also been dropped.
An anti-forestalling rule applies from 22 November 2017, allowing HMRC to counteract tax advantages where taxpayers have moved investments to take advantage of double taxation treaties which do not give the UK taxing rights over non-UK residents’ gains.
Draft legislation has been published for Finance Bill 2019 covering the core provisions of the policy. This will be subject to further technical consultation before the detail is finalised and the changes come into force, expected to be in April 2019.
www.gov.uk/government/consultations/taxing-gains-made-by-non-residents-on-uk-immovable-property
The government consulted in February 2016 and again in November 2016 on proposals for changes to the gift aid donor benefit rules. Following the latest consultation, HMRC has decided to replace the current three-tier thresholds with two thresholds operating on a cumulative basis. This will allow charities to offer benefits worth up to 25% on the first £100 of a donation, plus 5% of any additional amount donated, up to a maximum benefit value of £2,500.
The government will not introduce a low-value disregard for benefits.
Draft legislation has been published for Finance Bill 2019 and the changes will come into effect from 6 April 2019.
The government published a consultation in December 2017 setting out three options for amending the corporate interest restriction (CIR) rules to accommodate the new lease accounting standard, IFRS 16. These three options were to: follow accounting treatment; keep a distinction between operating and finance leases; or introduce a distinction between ‘funding leases’ and ‘non-funding leases’.
Following consultation, the government has decided to adopt a modified version of option 2, requiring companies adopting IFRS 16, or the equivalent FRS 101 under UK GAAP, to continue to classify their leases as either ‘finance leases’ or ‘operating leases’ for the purposes of the CIR, but placing less reliance on the lessors’ classification. The key points are:
HMRC has confirmed that companies will not have to determine how the corresponding lessor classifies the same lease, or apply classifications to all leases held by the worldwide group.
Draft legislation has been published for Finance Bill 2019. This will remain open for comments until 28 September 2018.
www.gov.uk/government/consultations/corporate-interest-restriction-consultation-on-leases
The government announced at Autumn Budget 2017 its decision to adapt the system of lease taxation to the accounting changes introduced by new IFRS 16 by making legislative changes necessary to preserve the current tax treatment overall. A consultation setting out options for these legislative changes was published in December 2017. Following this consultation, the government has decided to make the following changes to its original proposals for the long funding lease regime:
For the purposes of oil activities, an IFRS 16 lessee will identify a finance lease by testing whether it would have been a finance lease under UK GAAP.
Any transitional adjustments will be spread over the weighted average remaining length of leases at the date of transition, to be recognised and spread as one overall figure.
The ‘temporary’ provisions in FA 2011, s53 will be repealed.
Draft legislation has been published for Finance Bill 2019 to take effect for accounting periods beginning on or after 1 January 2019.
www.gov.uk/government/consultations/plant-and-machinery-lease-accounting-changes
HMRC published a consultation in December 2017 setting out options for aligning late payment interest and penalties across VAT, income tax self-assessment and corporation tax, as part of preparations for the introduction of making tax digital (MTD).
The government is to proceed with a two-step model for late payment penalties under MTD. The first penalty will be based on a percentage of the tax unpaid after 15 days, payable at half the full rate until 30 days after the due date. After 30 days, the first charge becomes payable in full, plus a second penalty accruing from the due date on a basis similar to interest.
HMRC summarises this penalty model in the response document as follows:
There was broad support for alignment of late payment interest rules for VAT, but HMRC has revised its proposals for repayment interest, which it will pay from the later of:
Draft legislation for the changes has been published for Finance Bill 2019. These penalties will not apply before April 2020.
HMRC published a consultation document in December 2017 on transposing the new EU vouchers directive into UK law from January 2019. The new rules aim to ensure that when customers pay with gift cards and vouchers, businesses account for the same amount of VAT as when other means of payment are used. The changes do not extend to discount vouchers or money-off tokens.
The main thrust of the change is that for VAT purposes there will be a single supply of the underlying goods or services, replacing the current UK rules treating the customer as receiving separate supplies of a voucher and an underlying supply of goods or services.
The government acknowledges possible issues around the likelihood that many businesses will change their business model from a buy/sell arrangement to an agency arrangement, and difficulties in tracking vouchers issued before and after 1 January 2019. In this regard, HMRC says in the response document it will take a ‘pragmatic approach’ during the transition.
The government has published draft legislation for Finance Bill 2019.
www.gov.uk/government/consultations/vat-and-vouchers
The government announced at Autumn Budget 2017 its intention to extend the assessment time limit for offshore tax to a minimum of 12 years. HMRC published a consultation in February 2018 on the design principles for legislation to introduce the change.
The response document confirms the extended time limit will apply to income tax, CGT and IHT and will use the existing definition of ‘offshore’ in the ‘requirement to correct’ legislation.
Apportionment where both offshore and onshore tax is involved will be applied on a just and reasonable basis (as set out in the ‘requirement to correct’ legislation). The draft Finance Bill legislation does not include a specific rule for apportionment.
The legislation will have effect from April 2019 and will not be retrospective, but will cover the 4 years still in date at 6 April 2019, plus two earlier years where careless behaviour is involved.
The government has published draft legislation for Finance Bill 2019, which will come into force following Royal Assent.
www.gov.uk/government/consultations/extension-of-offshore-time-limits
HMRC published a consultation in March 2018 on proposals to extend the scope of the existing security deposit regime to include corporation tax and the construction industry scheme with effect from April 2019.
The response document confirms that security for corporation tax and CIS will be payable by cash or performance bond, in line with current practice applied to PAYE and NICs.
No companies will be specifically excluded, but HMRC says it will only seek securities where ‘reasonable and proportionate’. Safeguards will be put in place through review and appeals procedures to allow companies to challenge the amount of security required.
The government does not intend to introduce specific provisions for instalments or staged payments.
The criminal offence for failure to provide a corporation tax or CIS security will mirror the existing approach for PAYE and NICs, which is a simple offence of failing to provide a security within a specified period.
The government intends to allow HMRC to seek a security from any person who is, or may be, liable to make tax deductions from payments to subcontractors. It believes such tough action to be justified where ‘necessary for protection of the current and future revenue’.
Draft legislation for Finance Bill 2019 will enable the government to make regulations to introduce the new requirements.
www.gov.uk/government/consultations/extension-of-security-deposit-legislation
HMRC published a consultation in April 2018 setting out three options for changing the current 6-month accounting period for gaming duty, with the aim of bringing the administration of gaming duty more into line with the other gambling duties.
The response document confirms the government has decided to remain with a 6-month accounting period, while removing the requirement to make 3-monthly payments on account and allowing carry-forward of losses between periods.
HMRC’s preferred option had been for a change to a 3-month accounting period, but the government has accepted respondents’ concerns that the volatile nature of gaming revenues could mean casinos being pushed into higher duty bands over shorter periods.
Draft legislation has been published for Finance Bill 2019, to have effect from 1 October 2019.
www.gov.uk/government/consultations/gaming-duty-review-of-accounting-periods
The government published a consultation in April 2018 on proposals to target arrangements through which individuals, trading alone or through partnerships or companies, transfer part of their profits to offshore entities taxed at a lower level and whose activities are not sufficient to support the profits attributed to them.
Following consultation, the government has published draft legislation for Finance Bill 2019, having refined the relevant tests and some of the terminology used. HMRC has confirmed in the response document that the tests for ‘significantly less tax’ paid in the overseas jurisdiction and ‘excess profit’ will use ‘like for like’ comparisons and reflect the profit after all applicable UK rules, such as transfer pricing, have been taken into account.
Taxpayers will have to notify HMRC in their self-assessment returns of arrangements which meet the relevant conditions, even those to which DOTAS applies. However, the government has ‘postponed’ the original proposal which would have allowed HMRC to issue preliminary payment notices and require earlier payment where it had reason to believe an amount was chargeable under the new rules.
The legislation is expected to take effect from April 2019.
www.gov.uk/government/consultations/tax-avoidance-involving-profit-fragmentation
The government confirmed at Autumn Budget 2017 a start date of April 2020 for the new requirement to make a payment on account of CGT due on disposals of residential property within 30 days of completion. The change was first announced in 2015, with a start date of April 2019, before being rescheduled under the parliamentary ‘wash up’ at the 2017 general election.
HMRC published a technical consultation in April 2018 concerning calculation of payments, administration, and extension of the existing system of payments on account for disposals by non-residents.
The government has published draft legislation for Finance Bill 2019 to introduce these changes from April 2020. The existing payment-on-account scheme for disposals by non-residents will be extended to include those who make self-assessment returns or pay ATED charges. This means the existing reporting exclusions for non-residents within self-assessment or who make ATED returns will cease from April 2020.
www.gov.uk/government/consultations/capital-gains-tax-payment-window-for-residential-property-gains
