On 6 December, HM Treasury launched a consultation on the draft Finance Bill 2012. The consultation closes on 10 February. The following is an outline of the key measures for inclusion in draft Finance Bill, measures to be enacted through regulations and, in some cases, measures where draft legislation is yet to be published. For further guidance, see www.hm-treasury.gov.uk/finance_bill_2012_consultation.htm.
Armed forces etc: Exemption from income tax for payments of Continuity of Education Allowance to service personnel in the Armed Forces; provisions regarding tax treatment as required by the EU Status of Forces Agreement.
CGT, annual exempt amount: For 2012/13 to be kept at 2011/12 level of £10,600. AEA to rise in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from 2013, subject to usual Parliamentary override.
CGT, foreign currency bank accounts: No CGT gains and losses on withdrawals of funds from bank accounts denominated in a foreign currency. Such gains will be exempt from CGT and such losses will not be allowable where they arise to individuals (both non-domiciled and domiciled), trustees and personal representatives of deceased persons. Effective from 6 April 2012.
Champions League final 2013: Exemption from UK tax for money earned by non-resident footballers and team officials.
Company cars: Provisions regarding security enhanced cars.
EIS & VCTs: Simplifications to the EIS and VCT rules, and measures to better focus the schemes on higher risk activities, namely the introduction of a new disqualifying purpose test for the schemes; provision that acquiring shares in another company (other than by subscription in a subsidiary) will not be a qualifying activity; and provision that receipt of Feed-In Tariffs or similar subsidies will not generally be a qualifying activity. Subject to State aid approval, legislation will be introduced to increase the thresholds for both the EIS and VCTs for shares issued on or after 6 April 2012.
Employer asset-backed pension contributions:Changes to the tax rules with immediate effect to ensure no excessive relief can arise for new asset-backed pension contribution arrangements.
Farmers’ EU Single Payment Scheme (SPS):Availability of CGT roll-over relief for rights to payments for farmers under that scheme to be preserved with retrospective effect from 1 January 2009.
Gifts of pre-eminent objects: Donors to be given reduction in their UK tax liability based on a percentage of the value of the object they are donating.
Income tax rates, allowances &thresholds:As published on 29 November 2011. See page 2.
IHT, estates leaving 10% or more to charity:Reduction in IHT rate where 10%+ of a deceased person’s net estate left to charity.
IHT, nil rate band: To remain frozen at its current rate (£325,000) up to and including 2014/15. To rise in line with the CPI instead of the RPI from 2015/16, subject to usual Parliamentary override.
In-year repayments of tax to charities: Statutory footing for the practice by which HMRC makes repayments of tax, other than Gift Aid, on claims by certain charities outside a tax return.
Non-domiciled individuals:Changes for those who elect to be taxed on the remittance basis.
Qualifying time deposits:Requirement for deduction of income tax at source from interest paid on QTDs from 6 April 2012.
Seed Enterprise Investment Scheme: A new tax relief to encourage investment in new early stage companies carrying on, or preparing to carry on, a new business in qualifying trades. Complemented by a CGT holiday for assets disposed of in 2012/13 where the gains are reinvested in SEIS shares in the same year. Legislation implementing this will be published in draft in January 2012.
Statutory residence test:Publication of draft measures is delayed until around Budget 2012. The test will be introduced effective from 6 April 2013 and legislated in Finance Bill 2013.
Self-assessment Donate:Withdrawal of scheme from 6 April 2012.
Bank Levy: Increase in full rate to 0.088% from 1 January 2012. The half rate for chargeable equity and long-term chargeable liabilities will be similarly increased to 0.044%. Changes to ensure double taxation relief restricted where the amount of a foreign Bank Levy subsequently is reduced. Powers allowing the rules for the exchange of information with foreign authorities to be amended to work as intended.
CFC full reform:New regime ‘to better reflect the way that businesses operate in a globalised economy and strike the right balance between making the corporate tax system more competitive and protecting the UK corporate tax base’. Majority of legislation published on 6 December, remainder due 2012.
Capital allowances, Enterprise Zones:Enterprise Zones in assisted areas will qualify for enhanced capital allowances. First year allowances of 100% will apply for companies investing in plant or machinery for use primarily within designated areas within six Enterprise Zones. These allowances will be available from 1 April 2012 to 31 March 2017.
Capital allowances, renewable heat incentive:Changes to the capital allowances treatment of expenditure on plant or machinery to generate renewable electricity or heat.
Capital allowances, fixtures:To be made dependent on the pooling of relevant expenditure prior to a transfer, and on the seller and purchaser agreeing a value for fixtures within two years of a transfer or on formal proceedings to agree the value being commenced within that time.
Claims equalisation reserves: Repeal of legislation providing for tax deductions for claims equalisation reserves maintained by general insurance companies under FSA rules and equivalent reserves maintained by corporate and partnership members of Lloyd’s.
Company distributions: For the purposes of the distributions legislation, the treatment of transfers of assets and liabilities between UK resident companies will be the same as that which applies to transfers between a UK resident and non-UK resident company. Rules to take effect for transfers made from the date of Royal Assent for Finance Bill 2012.
Debt cap: Legislation ‘to resolve a number of issues that have arisen on the application of the debt cap rules’.
Lloyd's, stop-loss insurance: Rules to ensure that all premiums payable by corporate members of Lloyd’s for member-level stop-loss reinsurance taken out from 6 December 2011 shall be deducted for tax purposes at the same time as the recognition of the profits to which they relate.
Rates of CT:Main rate reduced to 24% for FY commencing 1 April 2013. Small profits rate stays at 20% from FY commencing 1 April 2012.
Patent box: 10% CT rate for profits attributable to patents and other qualifying intellectual property from 1 April 2013.
R&D tax relief:Rules ‘to improve the R&D tax relief for both small and medium enterprises and large companies’.
REITs: Some of the conditions when joining the REIT regime and some of the requirements of being in the regime to be relaxed.
Regulatory capital instruments: The government continues to consider the fiscal, financial stability and economic impacts of the Basel III proposals alongside the recommendations of the Independent Commission on Banking as well as the finalisation of the EU legislation on prudential requirements and remains committed to providing legislative certainty on the tax treatment in advance of 1 January 2013.
Solvency II & the taxation of life insurance companies: Rules to establish a new corporate tax regime for life insurance companies, from 1 January 2013, as required following the EU Solvency II Directive. Detailed rules relating to the transition and Friendly Societies will be included in secondary legislation to be published in draft for consultation in the early part of 2012.
Tax transparent investment fund:Rules to permit the authorisation of tax transparent funds from summer 2012. HM Treasury to be provided with powers make regulations that apply to collective investment schemes (CIS). Regulations to be made to establish the tax treatment applying to UK investors’ holdings as well as the stamp taxes on shares treatment of transactions. The legislation also provides a power to define in regulations the details of the types of CIS to which the new tax rules will apply. The capital gains rules for mergers and reconstructions of CIS will be simplified and rewritten in regulations to clarify the existing position, which will equally apply to the new tax transparent funds.
Oil & gas:Restriction of tax relief for supplementary charge purposes in respect of decommissioning expenditure to 20%. Legislation to ensure the supplementary charge applies to ring fence chargeable gains.
UK GAAP:Changes to ensure existing rules dealing with tax adjustments arising on a change in accounting policy apply to changes expected to be made to UK GAAP in 2012.
APD:Extended to business jets and smaller aircraft. Reduced rate for direct long-haul flights from Northern Ireland, which has been in place since 1 November 2011, will be given statutory effect.
Climate Change Levy: Change to the reduced rate on electricity; legislation to amend the CCL rates from 1 April 2013 (rates to be announced at Budget 2012); reform of climate change agreements; removal of the exemption for indirect supplies of combined heat and power electricity; lower rate of 20% of the full rates of CCL for supplies of taxable commodities used in the recycling of steel and aluminium.
DTR on gambling duties:Double taxation relief for remote gaming duty, general betting duty and pool betting duty.
Drawback of excise duty on rectified spirit and compounded spirit:To be repealed because drawback is available on these goods through alternative means.
Machine games duty:Machine games duty (MGD) to replace current amusement machine licence duty from 1 February 2013. With the introduction of MGD in 2013, receipts from dutiable machine games will become exempt from VAT.
SDLT, relief for National Health Service bodies: Re-enactment of an existing SDLT relief for health service bodies, and update of the list of bodies to which the relief applies. The existing SDLT relief and its predecessor stamp duty relief will be repealed.
VAT, cost sharing exemption:EU exemption to be brought into UK law.
VAT, evasion: Rules concerning fraud on imported road vehicles.
VAT grouping ESC 3.2.2:Concession on the valuation of certain reverse charges applicable to VAT groups to be given statutory footing.
VAT, low value consignment relief: This relief was reduced from £18 to £15 on 1 November 2011. Relief to be removed completely from the Channel Islands with effect from 1 April 2012.
VAT, online issues:An online system for VAT registration, de-registration, and changes to business details will be introduced, to be available from October 2012. Also from that date, certain VAT forms will be removed from the law (secondary legislation will be published in early February 2012). The VAT threshold for businesses not established in the UK will be removed from 1 December 2012. For VAT periods beginning from 1 April 2012, the second tranche of existing VAT businesses (with a VAT exclusive turnover of under £100k), will be mandated to file VAT returns online and make electronic payments.
VAT, public bodies:Changes to ensure that there is clear transposition of EU agreements relating to the VAT treatment of public bodies carrying out their statutory duties.
Capital allowances: Changes to anti-avoidance rules for plant and machinery, including measures effective from 12 August 2011 to prevent business accelerating capital allowances claims.
Listed tax avoidance schemes: Not included in FB 2012 following concerns regarding the proportionality and effectiveness of the measure proposed. The government will continue to explore these options and an update is expected at Budget 2012.
Manufactured overseas dividends:Legislation, effective from 15 September 2011, to ensure that manufactured overseas dividends cannot be used to obtain repayment or set-off of income tax that the Exchequer does not receive.
SDLT: Removal of SDLT disclosure of tax avoidance schemes grandfathering rules for certain avoidance schemes using the sub-sale rules and to remove the thresholds for making a disclosure. Draft regulations to be published at a later date.
Tax treaties:The government announced on 9 September 2011 that it had decided not to include legislation in Finance Bill 2012 because of the uncertainty the draft rules could create for UK business and overseas investors.
Incapacitated persons:Rules to remove the unsatisfactory definition from TMA 1970 (and other similar legislation).
HMRC’s information powers:To be brought up to the standards required by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Real Time Information (RTI):Additional powers for HMRC to make regulations that will facilitate the introduction of RTI.
Tax agents, dishonest conduct: A summary of responses to the July discussion document was published on 6 December 2011.
UK/Swiss agreement: Legislation will be introduced to give effect to the agreement signed on 6 October 2011. The agreement is expected to take effect from 1 January 2013.
Finance Bill 2012 will abolish provisions and reliefs, as identified by the OTS. However, the government has decided not to abolish the following reliefs: late-night taxis; land remediation relief; compensation for mis-sold pensions; and Class 1 NICs exemption for payments as a reward for assistance with lost or stolen credit cards.
Measures to be introduced by secondary legislation concern the following: fuel duty; VAT, diplomatic privilege; commutation of small personal pension funds; overseas transfers of UK pension savings; extension of business premises renovation allowances scheme; and the abolition of further reliefs as identified by the OTS.
On 6 December, HM Treasury launched a consultation on the draft Finance Bill 2012. The consultation closes on 10 February. The following is an outline of the key measures for inclusion in draft Finance Bill, measures to be enacted through regulations and, in some cases, measures where draft legislation is yet to be published. For further guidance, see www.hm-treasury.gov.uk/finance_bill_2012_consultation.htm.
Armed forces etc: Exemption from income tax for payments of Continuity of Education Allowance to service personnel in the Armed Forces; provisions regarding tax treatment as required by the EU Status of Forces Agreement.
CGT, annual exempt amount: For 2012/13 to be kept at 2011/12 level of £10,600. AEA to rise in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from 2013, subject to usual Parliamentary override.
CGT, foreign currency bank accounts: No CGT gains and losses on withdrawals of funds from bank accounts denominated in a foreign currency. Such gains will be exempt from CGT and such losses will not be allowable where they arise to individuals (both non-domiciled and domiciled), trustees and personal representatives of deceased persons. Effective from 6 April 2012.
Champions League final 2013: Exemption from UK tax for money earned by non-resident footballers and team officials.
Company cars: Provisions regarding security enhanced cars.
EIS & VCTs: Simplifications to the EIS and VCT rules, and measures to better focus the schemes on higher risk activities, namely the introduction of a new disqualifying purpose test for the schemes; provision that acquiring shares in another company (other than by subscription in a subsidiary) will not be a qualifying activity; and provision that receipt of Feed-In Tariffs or similar subsidies will not generally be a qualifying activity. Subject to State aid approval, legislation will be introduced to increase the thresholds for both the EIS and VCTs for shares issued on or after 6 April 2012.
Employer asset-backed pension contributions:Changes to the tax rules with immediate effect to ensure no excessive relief can arise for new asset-backed pension contribution arrangements.
Farmers’ EU Single Payment Scheme (SPS):Availability of CGT roll-over relief for rights to payments for farmers under that scheme to be preserved with retrospective effect from 1 January 2009.
Gifts of pre-eminent objects: Donors to be given reduction in their UK tax liability based on a percentage of the value of the object they are donating.
Income tax rates, allowances &thresholds:As published on 29 November 2011. See page 2.
IHT, estates leaving 10% or more to charity:Reduction in IHT rate where 10%+ of a deceased person’s net estate left to charity.
IHT, nil rate band: To remain frozen at its current rate (£325,000) up to and including 2014/15. To rise in line with the CPI instead of the RPI from 2015/16, subject to usual Parliamentary override.
In-year repayments of tax to charities: Statutory footing for the practice by which HMRC makes repayments of tax, other than Gift Aid, on claims by certain charities outside a tax return.
Non-domiciled individuals:Changes for those who elect to be taxed on the remittance basis.
Qualifying time deposits:Requirement for deduction of income tax at source from interest paid on QTDs from 6 April 2012.
Seed Enterprise Investment Scheme: A new tax relief to encourage investment in new early stage companies carrying on, or preparing to carry on, a new business in qualifying trades. Complemented by a CGT holiday for assets disposed of in 2012/13 where the gains are reinvested in SEIS shares in the same year. Legislation implementing this will be published in draft in January 2012.
Statutory residence test:Publication of draft measures is delayed until around Budget 2012. The test will be introduced effective from 6 April 2013 and legislated in Finance Bill 2013.
Self-assessment Donate:Withdrawal of scheme from 6 April 2012.
Bank Levy: Increase in full rate to 0.088% from 1 January 2012. The half rate for chargeable equity and long-term chargeable liabilities will be similarly increased to 0.044%. Changes to ensure double taxation relief restricted where the amount of a foreign Bank Levy subsequently is reduced. Powers allowing the rules for the exchange of information with foreign authorities to be amended to work as intended.
CFC full reform:New regime ‘to better reflect the way that businesses operate in a globalised economy and strike the right balance between making the corporate tax system more competitive and protecting the UK corporate tax base’. Majority of legislation published on 6 December, remainder due 2012.
Capital allowances, Enterprise Zones:Enterprise Zones in assisted areas will qualify for enhanced capital allowances. First year allowances of 100% will apply for companies investing in plant or machinery for use primarily within designated areas within six Enterprise Zones. These allowances will be available from 1 April 2012 to 31 March 2017.
Capital allowances, renewable heat incentive:Changes to the capital allowances treatment of expenditure on plant or machinery to generate renewable electricity or heat.
Capital allowances, fixtures:To be made dependent on the pooling of relevant expenditure prior to a transfer, and on the seller and purchaser agreeing a value for fixtures within two years of a transfer or on formal proceedings to agree the value being commenced within that time.
Claims equalisation reserves: Repeal of legislation providing for tax deductions for claims equalisation reserves maintained by general insurance companies under FSA rules and equivalent reserves maintained by corporate and partnership members of Lloyd’s.
Company distributions: For the purposes of the distributions legislation, the treatment of transfers of assets and liabilities between UK resident companies will be the same as that which applies to transfers between a UK resident and non-UK resident company. Rules to take effect for transfers made from the date of Royal Assent for Finance Bill 2012.
Debt cap: Legislation ‘to resolve a number of issues that have arisen on the application of the debt cap rules’.
Lloyd's, stop-loss insurance: Rules to ensure that all premiums payable by corporate members of Lloyd’s for member-level stop-loss reinsurance taken out from 6 December 2011 shall be deducted for tax purposes at the same time as the recognition of the profits to which they relate.
Rates of CT:Main rate reduced to 24% for FY commencing 1 April 2013. Small profits rate stays at 20% from FY commencing 1 April 2012.
Patent box: 10% CT rate for profits attributable to patents and other qualifying intellectual property from 1 April 2013.
R&D tax relief:Rules ‘to improve the R&D tax relief for both small and medium enterprises and large companies’.
REITs: Some of the conditions when joining the REIT regime and some of the requirements of being in the regime to be relaxed.
Regulatory capital instruments: The government continues to consider the fiscal, financial stability and economic impacts of the Basel III proposals alongside the recommendations of the Independent Commission on Banking as well as the finalisation of the EU legislation on prudential requirements and remains committed to providing legislative certainty on the tax treatment in advance of 1 January 2013.
Solvency II & the taxation of life insurance companies: Rules to establish a new corporate tax regime for life insurance companies, from 1 January 2013, as required following the EU Solvency II Directive. Detailed rules relating to the transition and Friendly Societies will be included in secondary legislation to be published in draft for consultation in the early part of 2012.
Tax transparent investment fund:Rules to permit the authorisation of tax transparent funds from summer 2012. HM Treasury to be provided with powers make regulations that apply to collective investment schemes (CIS). Regulations to be made to establish the tax treatment applying to UK investors’ holdings as well as the stamp taxes on shares treatment of transactions. The legislation also provides a power to define in regulations the details of the types of CIS to which the new tax rules will apply. The capital gains rules for mergers and reconstructions of CIS will be simplified and rewritten in regulations to clarify the existing position, which will equally apply to the new tax transparent funds.
Oil & gas:Restriction of tax relief for supplementary charge purposes in respect of decommissioning expenditure to 20%. Legislation to ensure the supplementary charge applies to ring fence chargeable gains.
UK GAAP:Changes to ensure existing rules dealing with tax adjustments arising on a change in accounting policy apply to changes expected to be made to UK GAAP in 2012.
APD:Extended to business jets and smaller aircraft. Reduced rate for direct long-haul flights from Northern Ireland, which has been in place since 1 November 2011, will be given statutory effect.
Climate Change Levy: Change to the reduced rate on electricity; legislation to amend the CCL rates from 1 April 2013 (rates to be announced at Budget 2012); reform of climate change agreements; removal of the exemption for indirect supplies of combined heat and power electricity; lower rate of 20% of the full rates of CCL for supplies of taxable commodities used in the recycling of steel and aluminium.
DTR on gambling duties:Double taxation relief for remote gaming duty, general betting duty and pool betting duty.
Drawback of excise duty on rectified spirit and compounded spirit:To be repealed because drawback is available on these goods through alternative means.
Machine games duty:Machine games duty (MGD) to replace current amusement machine licence duty from 1 February 2013. With the introduction of MGD in 2013, receipts from dutiable machine games will become exempt from VAT.
SDLT, relief for National Health Service bodies: Re-enactment of an existing SDLT relief for health service bodies, and update of the list of bodies to which the relief applies. The existing SDLT relief and its predecessor stamp duty relief will be repealed.
VAT, cost sharing exemption:EU exemption to be brought into UK law.
VAT, evasion: Rules concerning fraud on imported road vehicles.
VAT grouping ESC 3.2.2:Concession on the valuation of certain reverse charges applicable to VAT groups to be given statutory footing.
VAT, low value consignment relief: This relief was reduced from £18 to £15 on 1 November 2011. Relief to be removed completely from the Channel Islands with effect from 1 April 2012.
VAT, online issues:An online system for VAT registration, de-registration, and changes to business details will be introduced, to be available from October 2012. Also from that date, certain VAT forms will be removed from the law (secondary legislation will be published in early February 2012). The VAT threshold for businesses not established in the UK will be removed from 1 December 2012. For VAT periods beginning from 1 April 2012, the second tranche of existing VAT businesses (with a VAT exclusive turnover of under £100k), will be mandated to file VAT returns online and make electronic payments.
VAT, public bodies:Changes to ensure that there is clear transposition of EU agreements relating to the VAT treatment of public bodies carrying out their statutory duties.
Capital allowances: Changes to anti-avoidance rules for plant and machinery, including measures effective from 12 August 2011 to prevent business accelerating capital allowances claims.
Listed tax avoidance schemes: Not included in FB 2012 following concerns regarding the proportionality and effectiveness of the measure proposed. The government will continue to explore these options and an update is expected at Budget 2012.
Manufactured overseas dividends:Legislation, effective from 15 September 2011, to ensure that manufactured overseas dividends cannot be used to obtain repayment or set-off of income tax that the Exchequer does not receive.
SDLT: Removal of SDLT disclosure of tax avoidance schemes grandfathering rules for certain avoidance schemes using the sub-sale rules and to remove the thresholds for making a disclosure. Draft regulations to be published at a later date.
Tax treaties:The government announced on 9 September 2011 that it had decided not to include legislation in Finance Bill 2012 because of the uncertainty the draft rules could create for UK business and overseas investors.
Incapacitated persons:Rules to remove the unsatisfactory definition from TMA 1970 (and other similar legislation).
HMRC’s information powers:To be brought up to the standards required by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Real Time Information (RTI):Additional powers for HMRC to make regulations that will facilitate the introduction of RTI.
Tax agents, dishonest conduct: A summary of responses to the July discussion document was published on 6 December 2011.
UK/Swiss agreement: Legislation will be introduced to give effect to the agreement signed on 6 October 2011. The agreement is expected to take effect from 1 January 2013.
Finance Bill 2012 will abolish provisions and reliefs, as identified by the OTS. However, the government has decided not to abolish the following reliefs: late-night taxis; land remediation relief; compensation for mis-sold pensions; and Class 1 NICs exemption for payments as a reward for assistance with lost or stolen credit cards.
Measures to be introduced by secondary legislation concern the following: fuel duty; VAT, diplomatic privilege; commutation of small personal pension funds; overseas transfers of UK pension savings; extension of business premises renovation allowances scheme; and the abolition of further reliefs as identified by the OTS.
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