The Treasury launched on 9 December 2010 a consultation on draft legislation for Finance Bill 2011. The following brief outline of the measures is based on the Treasury’s overview and draft explanatory notes.
Comments are invited by 9 February 2011 on the draft legislation and explanatory notes. For further guidance, see the Treasury website.
PERSONAL TAX
Income tax rates, rate limits and personal allowances
The rates, limits and allowances for 2011/12 are specified. The basic rate limit is reduced to £35,000 and the personal allowance is set at £7,475.
Employer supported childcare
The requirement for employers who deliver childcare schemes through salary sacrifice or flexible remuneration arrangements to make them available to all employees is removed. The level of tax relief on childcare vouchers and directly-contracted childcare provided through employer-supported schemes will be the same for all taxpayers.
Furnished holiday lettings
Changes will be made, as set out in a response to the recent consultation, to ensure that the tax reliefs are compliant with European Law.
Tainted charity donations
The substantial donor rules will be changed so that tax relief is denied only where the donor is party to arrangements, the main purpose (or one of the main purposes) of which is to obtain an advantage for the donor or a connected person, directly or indirectly from the charity.
Accommodation expenses of MPs
Changes will address the income tax consequences of the new MPs’ expenses scheme introduced by the Independent Parliamentary Standards Authority.
Protection of Vulnerable Groups Scheme (Scotland only)
Legislation will ensure that an income charge does not arise on the registration fee.
PENSIONS TAX
Restricting pensions tax relief
The annual allowance is reduced to £50,000 and the lifetime allowance is reduced to £1.5 million. The Government is consulting on options to meet high annual allowance charges.
Pensions annuitisation
Removal of the obligation for members of registered pensions schemes to secure an income by age 75.
Enabling retirement savings programme
Changes to deal with unintended tax consequences arising from the interaction of Pensions Act 2008 and tax legislation.
CORPORATE TAX
Corporation tax: charge and main rate for FY 2012
As already announced, there is to be a phased reduction in the main rate (for profits other than ‘ring-fence’ profits) over four years. FB 2011 will reduce the rate from 27% to 26% from April 2012. Views are invited on whether legislating for all the remaining pre-announced reductions in FB 2011 would provide greater certainty to business.
Corporation tax: small profits rate and fractions for FY 2011
The small profits rate (for profits other than ‘ring-fence’ profits) is reduced to 20% from April 2011.
Plant and machinery writing-down allowances
WDAs on the main pool the special rate pool are reduced to 18% and 8% respectively, from April 2012.
Capital allowances: annual investment allowance
The AIA is reduced to £25,000 from April 2012.
Interim CFC reform
The current rules will be made ‘easier to operate’ as a first step to making them ‘more competitive’, ahead of full reform in FB 2012.
Taxation of foreign branches
An opt-in exemption from corporation tax for the profits of foreign branches of UK companies will remove the need for a credit to prevent double taxation.
Bank levy
A charge based on the total chargeable equity and liabilities as reported in the balance sheet will apply for periods of account ending on or after 1 January 2011. The rate is now set at 0.075% for 2012, with an initial rate of 0.05% in 2011. There is no charge on the first £20 billion of chargeable liabilities.
Corporate capital gains: value shifting
Complex anti-avoidance provisions will be replaced with a new targeted anti-avoidance rule.
Corporate capital gains: restriction on set-off of pre-entry losses
Measures will remove some restrictions on the use of capital losses within a group of companies after acquisition of a business.
Corporate capital gains: company ceasing to be member of group
Where a company leaves a group as a result of a disposal of its shares, a degrouping charge will be treated as additional consideration for the disposal.
Associated companies
Companies will be treated as associated only where substantial commercial interdependence exists between them.
Investment trust companies modernisation
A simpler tax framework for investment trust companies will remove ‘unnecessary restrictions on their commercial activities’.
SDRT: interests in collective investment schemes
Exemptions will be expanded so that the ‘Schedule 19’ regime applies only to collective investment schemes’ investments in underlying funds where the underlying funds themselves are significantly invested in UK equities.
Oil and gas minor measures
Measures will make minor changes to legislation relating to the field allowance and the swap of oil licences, and governing whether assets have been decommissioned. The scope of the chargeable gains ring fence reinvestment relief is extended.
Tonnage tax and leasing
Following changes to the wider capital allowances regime, the capital allowances treatment of ships leased to companies that have elected to have their corporation tax profits from qualifying activities calculated under the tonnage tax legislation is amended. The rate of writing down allowances available on the first £40 million of expenditure on a ship is brought into line with the rate available on a ship used by a company that has not elected for tonnage tax.
Transfer pricing: application of OECD principles
The definition of ‘transfer pricing guidelines’ is amended to take account of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by OECD for publication in July 2010.
Leases and changes to accounting standards
Measures will ensure that the tax treatment of lease transactions is not affected by changes, expected to be introduced from 2011, to accounting standards for leasing.
Life insurance apportionment rules
The apportionment rules are amended to address an unintended tax change that was identified in informal consultation with the insurance industry.
INDIRECT TAX
High strength beer duty
Following a review of alcohol taxation the Government intends to introduce a new duty on beers exceeding 7.5% alcohol by volume (abv) and a reduced rate of duty for beers at or below 2.8% abv. Further discussion with industry on the draft clauses will take place ahead of inclusion in FB 2011.
Exceptional rates of vehicle excise duty for certain HGVs
Higher, exceptional rates of VED will be applied to categories of HGVs for which an existing rate is below the mandatory EU minimum tax rate.
VAT: academies
A new, self-contained VAT refund scheme will enable academies to recover VAT incurred on purchases made to support non-business activities (principally the provision of free education) which would have ordinarily been recovered by the local authority maintained schools.
VAT: treatment of business samples
Where a business provides samples of products free of charge to individuals for marketing purposes, none of the samples will be chargeable to VAT. The legislation will be amended when FB 2011 receives Royal Assent but in the meantime taxpayers are invited to make claims to repayment of output tax charged, subject to the capping rules. See Revenue & Customs Brief 51/10.
ANTI-AVOIDANCE
The Government ‘remains committed to addressing tax avoidance and may introduce further measures for Finance Bill 2011 as required’, the Treasury said.
Group mismatches
‘Principles-based legislation’ will ensure that groups of companies cannot use loan relationships or derivative contracts to generate profits or losses ‘purely as a result of accounting asymmetries’. An interim measure, announced on 6 December, has been introduced with immediate effect to prevent tax losses from newly disclosed schemes.
Amounts not fully recognised for accounting
Legislation will prevent avoidance of corporation tax in respect of loan relationships and derivative contracts where amounts in respect of financial assets are not fully recognised for accounting purposes.
Disguised remuneration
Legislation will ensure that income tax and NICs on employment income are not avoided or deferred through the use of trusts or other intermediaries, including Employee Benefit Trusts and Employer Financed Retirement Benefit Schemes (EFRBS). Some of the types of transaction that will be chargeable to tax under this measure are ‘not accepted HMRC as effective in avoiding tax under the present law’, and HMRC ‘will continue to challenge such transactions under the present law’.
UK resident investment companies: currency for tax
Legislation will counter avoidance involving changes in the functional currency of an investment company, and introduce an option for investment companies to elect for a functional currency for tax purposes other than that used in the accounts.
Value added tax: supply splitting
Zero-rating will not apply to printed matter that is ancillary to a differently rated service where, if the service and printed matter had been supplied by a single company, the two supplies would have been treated as a single standard rated, reduced rated or exempt supply.
MISCELLANEOUS
Security for payment of PAYE
The Government is consulting on proposals to allow HMRC to require a security from employers for PAYE and NICs that is seriously at risk. A consultation document, ‘Security for PAYE and NICs’, was published on 9 December. The measure will not affect employers meeting their obligations under time to pay arrangements.
Data gathering powers
Legislation will update bulk information powers used by HMRC to gather specific pieces of information about a group of taxpayers, for use in risk analysis; update ‘unnamed taxpayer’ powers to be used in very specific circumstances during a compliance check, for example where it is not clear who the taxpayer is; allow HMRC to apply to the tribunal for increased daily penalties where data is not supplied; cover data about certain foreign taxes, to enable HMRC to meet international obligations to exchange information; and provide for a penalty if a person is aware of an inaccuracy when providing information or documents. A consultation document, ‘Data-gathering powers’, was published on 9 December 2010.
The Treasury launched on 9 December 2010 a consultation on draft legislation for Finance Bill 2011. The following brief outline of the measures is based on the Treasury’s overview and draft explanatory notes.
Comments are invited by 9 February 2011 on the draft legislation and explanatory notes. For further guidance, see the Treasury website.
PERSONAL TAX
Income tax rates, rate limits and personal allowances
The rates, limits and allowances for 2011/12 are specified. The basic rate limit is reduced to £35,000 and the personal allowance is set at £7,475.
Employer supported childcare
The requirement for employers who deliver childcare schemes through salary sacrifice or flexible remuneration arrangements to make them available to all employees is removed. The level of tax relief on childcare vouchers and directly-contracted childcare provided through employer-supported schemes will be the same for all taxpayers.
Furnished holiday lettings
Changes will be made, as set out in a response to the recent consultation, to ensure that the tax reliefs are compliant with European Law.
Tainted charity donations
The substantial donor rules will be changed so that tax relief is denied only where the donor is party to arrangements, the main purpose (or one of the main purposes) of which is to obtain an advantage for the donor or a connected person, directly or indirectly from the charity.
Accommodation expenses of MPs
Changes will address the income tax consequences of the new MPs’ expenses scheme introduced by the Independent Parliamentary Standards Authority.
Protection of Vulnerable Groups Scheme (Scotland only)
Legislation will ensure that an income charge does not arise on the registration fee.
PENSIONS TAX
Restricting pensions tax relief
The annual allowance is reduced to £50,000 and the lifetime allowance is reduced to £1.5 million. The Government is consulting on options to meet high annual allowance charges.
Pensions annuitisation
Removal of the obligation for members of registered pensions schemes to secure an income by age 75.
Enabling retirement savings programme
Changes to deal with unintended tax consequences arising from the interaction of Pensions Act 2008 and tax legislation.
CORPORATE TAX
Corporation tax: charge and main rate for FY 2012
As already announced, there is to be a phased reduction in the main rate (for profits other than ‘ring-fence’ profits) over four years. FB 2011 will reduce the rate from 27% to 26% from April 2012. Views are invited on whether legislating for all the remaining pre-announced reductions in FB 2011 would provide greater certainty to business.
Corporation tax: small profits rate and fractions for FY 2011
The small profits rate (for profits other than ‘ring-fence’ profits) is reduced to 20% from April 2011.
Plant and machinery writing-down allowances
WDAs on the main pool the special rate pool are reduced to 18% and 8% respectively, from April 2012.
Capital allowances: annual investment allowance
The AIA is reduced to £25,000 from April 2012.
Interim CFC reform
The current rules will be made ‘easier to operate’ as a first step to making them ‘more competitive’, ahead of full reform in FB 2012.
Taxation of foreign branches
An opt-in exemption from corporation tax for the profits of foreign branches of UK companies will remove the need for a credit to prevent double taxation.
Bank levy
A charge based on the total chargeable equity and liabilities as reported in the balance sheet will apply for periods of account ending on or after 1 January 2011. The rate is now set at 0.075% for 2012, with an initial rate of 0.05% in 2011. There is no charge on the first £20 billion of chargeable liabilities.
Corporate capital gains: value shifting
Complex anti-avoidance provisions will be replaced with a new targeted anti-avoidance rule.
Corporate capital gains: restriction on set-off of pre-entry losses
Measures will remove some restrictions on the use of capital losses within a group of companies after acquisition of a business.
Corporate capital gains: company ceasing to be member of group
Where a company leaves a group as a result of a disposal of its shares, a degrouping charge will be treated as additional consideration for the disposal.
Associated companies
Companies will be treated as associated only where substantial commercial interdependence exists between them.
Investment trust companies modernisation
A simpler tax framework for investment trust companies will remove ‘unnecessary restrictions on their commercial activities’.
SDRT: interests in collective investment schemes
Exemptions will be expanded so that the ‘Schedule 19’ regime applies only to collective investment schemes’ investments in underlying funds where the underlying funds themselves are significantly invested in UK equities.
Oil and gas minor measures
Measures will make minor changes to legislation relating to the field allowance and the swap of oil licences, and governing whether assets have been decommissioned. The scope of the chargeable gains ring fence reinvestment relief is extended.
Tonnage tax and leasing
Following changes to the wider capital allowances regime, the capital allowances treatment of ships leased to companies that have elected to have their corporation tax profits from qualifying activities calculated under the tonnage tax legislation is amended. The rate of writing down allowances available on the first £40 million of expenditure on a ship is brought into line with the rate available on a ship used by a company that has not elected for tonnage tax.
Transfer pricing: application of OECD principles
The definition of ‘transfer pricing guidelines’ is amended to take account of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by OECD for publication in July 2010.
Leases and changes to accounting standards
Measures will ensure that the tax treatment of lease transactions is not affected by changes, expected to be introduced from 2011, to accounting standards for leasing.
Life insurance apportionment rules
The apportionment rules are amended to address an unintended tax change that was identified in informal consultation with the insurance industry.
INDIRECT TAX
High strength beer duty
Following a review of alcohol taxation the Government intends to introduce a new duty on beers exceeding 7.5% alcohol by volume (abv) and a reduced rate of duty for beers at or below 2.8% abv. Further discussion with industry on the draft clauses will take place ahead of inclusion in FB 2011.
Exceptional rates of vehicle excise duty for certain HGVs
Higher, exceptional rates of VED will be applied to categories of HGVs for which an existing rate is below the mandatory EU minimum tax rate.
VAT: academies
A new, self-contained VAT refund scheme will enable academies to recover VAT incurred on purchases made to support non-business activities (principally the provision of free education) which would have ordinarily been recovered by the local authority maintained schools.
VAT: treatment of business samples
Where a business provides samples of products free of charge to individuals for marketing purposes, none of the samples will be chargeable to VAT. The legislation will be amended when FB 2011 receives Royal Assent but in the meantime taxpayers are invited to make claims to repayment of output tax charged, subject to the capping rules. See Revenue & Customs Brief 51/10.
ANTI-AVOIDANCE
The Government ‘remains committed to addressing tax avoidance and may introduce further measures for Finance Bill 2011 as required’, the Treasury said.
Group mismatches
‘Principles-based legislation’ will ensure that groups of companies cannot use loan relationships or derivative contracts to generate profits or losses ‘purely as a result of accounting asymmetries’. An interim measure, announced on 6 December, has been introduced with immediate effect to prevent tax losses from newly disclosed schemes.
Amounts not fully recognised for accounting
Legislation will prevent avoidance of corporation tax in respect of loan relationships and derivative contracts where amounts in respect of financial assets are not fully recognised for accounting purposes.
Disguised remuneration
Legislation will ensure that income tax and NICs on employment income are not avoided or deferred through the use of trusts or other intermediaries, including Employee Benefit Trusts and Employer Financed Retirement Benefit Schemes (EFRBS). Some of the types of transaction that will be chargeable to tax under this measure are ‘not accepted HMRC as effective in avoiding tax under the present law’, and HMRC ‘will continue to challenge such transactions under the present law’.
UK resident investment companies: currency for tax
Legislation will counter avoidance involving changes in the functional currency of an investment company, and introduce an option for investment companies to elect for a functional currency for tax purposes other than that used in the accounts.
Value added tax: supply splitting
Zero-rating will not apply to printed matter that is ancillary to a differently rated service where, if the service and printed matter had been supplied by a single company, the two supplies would have been treated as a single standard rated, reduced rated or exempt supply.
MISCELLANEOUS
Security for payment of PAYE
The Government is consulting on proposals to allow HMRC to require a security from employers for PAYE and NICs that is seriously at risk. A consultation document, ‘Security for PAYE and NICs’, was published on 9 December. The measure will not affect employers meeting their obligations under time to pay arrangements.
Data gathering powers
Legislation will update bulk information powers used by HMRC to gather specific pieces of information about a group of taxpayers, for use in risk analysis; update ‘unnamed taxpayer’ powers to be used in very specific circumstances during a compliance check, for example where it is not clear who the taxpayer is; allow HMRC to apply to the tribunal for increased daily penalties where data is not supplied; cover data about certain foreign taxes, to enable HMRC to meet international obligations to exchange information; and provide for a penalty if a person is aware of an inaccuracy when providing information or documents. A consultation document, ‘Data-gathering powers’, was published on 9 December 2010.
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