On 13 September, the government published eight sets of draft clauses for inclusion in the Finance Bill 2018, to be introduced following the Autumn Budget in November. Consultation on the draft clauses will remain open until Wednesday 25 October. In getting to this point, all eight measures have been previously announced and consulted on since Autumn Statement 2016. These measures, which concern the bank levy, disguised remuneration, multilateral trading facilities, landfill tax, offshore trusts, partnership taxation, pension schemes registration, and termination payments (see http://bit.ly/2xYQkLp), are summarised below.
Bank Levy: clause and schedule introducing changes from 2021 limiting the scope of the levy to UK operations, and exempting liabilities relating to certain funding for UK banks’ overseas subsidiaries, as well as liabilities relating to the funding of UK banks’ overseas branches. Details of the reforms were set out in a consultation response document in December 2016.
Disguised remuneration: clause and schedule introducing the close companies’ gateway, which is intended to put beyond doubt when the disguised remuneration rules apply to the remuneration of owners of close companies. Originally due to start in April 2017, the government announced at Spring Budget 2017 that the gateway would be deferred until a later Bill and start on 6 April 2018. The technical note published in December 2016 contains details of the main gateway provisions. This latest draft of the legislation:
· introduces an avoidance purpose condition;
· introduces a period of one year in which the material interest condition must be met;
· requires a stronger link between the relevant transaction and relevant step;
· corrects an error in the definition of a distribution in a winding-up for the purposes of excluded transactions;
· includes priority rules to clarify the interaction with the loans to participators legislation; and
· includes a requirement for all employees to report additional information to HMRC before 1 October 2019 in relation to the new loan charge.
Changes to ensure the tax and NICs from a disguised remuneration employment income charge are collected from the appropriate person, outlined in the 2016 consultation, are not included in this legislation, but will be set out in detail later in 2017.
Multilateral trading facilities: clause removing the requirement to withhold tax on interest for debt issued on a multilateral trading facility operated by a recognised stock exchange regulated in the EEA, by extending the definition of a ‘quoted Eurobond’ to include such securities, having effect for payments of interest made on or after 1 April 2018.
The government announced its intention to make these changes at Spring Budget 2017, and consulted between March and June 2017. Following responses to the consultation, the clause also widens the definition of alternative finance investment bonds to include securities admitted to trading on multilateral trading facilities regulated in the EEA from April 2018.
Landfill tax: clause and schedule extending the scope of landfill tax to disposals made illegally at sites without an environmental disposal permit. The legislation also introduces new exemptions so that landfill tax is not charged at permitted sites on material currently outside the scope of the tax. This incorporates changes to the definition of a taxable disposal for landfill tax which were intended for inclusion in the Summer Finance Bill, but will now be incorporated into Finance Bill 2018 for implementation on 1 April 2018.
Offshore trusts: clause and schedule introducing anti-avoidance measures for offshore trusts, designed to ensure that the deemed domicile reforms are not circumvented. The changes mean that:
· capital payments to non-residents made on or after 6 April 2018 won’t be matched against the pool of trust gains for the purposes of the attribution of gains rules in TCGA 1992, s87, regardless of the domicile status of the settlor and whether or not the recipient of the payment is the settlor or another beneficiary of the trust;
· where a benefit is provided to a close family member of a UK resident settlor, the benefits are taxable as if they were received by the settlor; and
· capital payments or benefits received by non-resident or non-domiciled individuals, who then gift them to a UK resident, will be taxable on the UK resident as if they had received an equivalent capital payment or benefit from the trust.
These measures were originally intended to form part of the deemed domicile changes in Finance Bill 2017 and draft legislation was published in January 2017, but deferred following Spring Budget 2017.
Partnership taxation: draft clauses clarifying partnership rules and information requirements for:
· partners in nominee or bare trust arrangements;
· partnerships with partnerships as partners;
· investment partnerships, with relaxed information requirements for overseas partners where the partnership reports under the CRS; and
· partnerships that are partners in another partnership.
The legislation makes clear that partnership profits for tax purposes must be allocated between partners in the same ratio as the commercial profits and that the allocation of partnership profits shown on the partnership return is the allocation that applies for tax purposes.
HMRC consulted between August and November 2016 on the proposed changes, publishing its responses in March 2017.
Most of the new rules will apply to returns from 2018/19 onwards, but the rules on allocation of partnership profits and losses take effect for periods beginning on or after the date of royal assent, and the relaxation in respect of overseas partners in investment partnerships takes effect for returns made after the date of royal assent in respect of any period.
Pension schemes registration: clause and schedule widening the circumstances in which HMRC may refuse to register pension schemes, to include master trust (multi-employer) pension schemes not authorised by the Pensions Regulator, or where the sponsoring employer is a dormant company. Similar changes will also be made to the circumstances in which HMRC can de-register a pension scheme.
Termination payments: draft clause removing foreign service relief on termination payments for UK residents, having effect for employment contracts terminated on or after 6 April 2018, ensuring that all employees who are UK resident in the tax year their employment is terminated will be taxed in the same way as others who have not worked abroad. Foreign service relief is retained for seafarers.
Further provisions will be added to Finance Bill 2018 following the Autumn Budget on 22 November.
On 13 September, the government published eight sets of draft clauses for inclusion in the Finance Bill 2018, to be introduced following the Autumn Budget in November. Consultation on the draft clauses will remain open until Wednesday 25 October. In getting to this point, all eight measures have been previously announced and consulted on since Autumn Statement 2016. These measures, which concern the bank levy, disguised remuneration, multilateral trading facilities, landfill tax, offshore trusts, partnership taxation, pension schemes registration, and termination payments (see http://bit.ly/2xYQkLp), are summarised below.
Bank Levy: clause and schedule introducing changes from 2021 limiting the scope of the levy to UK operations, and exempting liabilities relating to certain funding for UK banks’ overseas subsidiaries, as well as liabilities relating to the funding of UK banks’ overseas branches. Details of the reforms were set out in a consultation response document in December 2016.
Disguised remuneration: clause and schedule introducing the close companies’ gateway, which is intended to put beyond doubt when the disguised remuneration rules apply to the remuneration of owners of close companies. Originally due to start in April 2017, the government announced at Spring Budget 2017 that the gateway would be deferred until a later Bill and start on 6 April 2018. The technical note published in December 2016 contains details of the main gateway provisions. This latest draft of the legislation:
· introduces an avoidance purpose condition;
· introduces a period of one year in which the material interest condition must be met;
· requires a stronger link between the relevant transaction and relevant step;
· corrects an error in the definition of a distribution in a winding-up for the purposes of excluded transactions;
· includes priority rules to clarify the interaction with the loans to participators legislation; and
· includes a requirement for all employees to report additional information to HMRC before 1 October 2019 in relation to the new loan charge.
Changes to ensure the tax and NICs from a disguised remuneration employment income charge are collected from the appropriate person, outlined in the 2016 consultation, are not included in this legislation, but will be set out in detail later in 2017.
Multilateral trading facilities: clause removing the requirement to withhold tax on interest for debt issued on a multilateral trading facility operated by a recognised stock exchange regulated in the EEA, by extending the definition of a ‘quoted Eurobond’ to include such securities, having effect for payments of interest made on or after 1 April 2018.
The government announced its intention to make these changes at Spring Budget 2017, and consulted between March and June 2017. Following responses to the consultation, the clause also widens the definition of alternative finance investment bonds to include securities admitted to trading on multilateral trading facilities regulated in the EEA from April 2018.
Landfill tax: clause and schedule extending the scope of landfill tax to disposals made illegally at sites without an environmental disposal permit. The legislation also introduces new exemptions so that landfill tax is not charged at permitted sites on material currently outside the scope of the tax. This incorporates changes to the definition of a taxable disposal for landfill tax which were intended for inclusion in the Summer Finance Bill, but will now be incorporated into Finance Bill 2018 for implementation on 1 April 2018.
Offshore trusts: clause and schedule introducing anti-avoidance measures for offshore trusts, designed to ensure that the deemed domicile reforms are not circumvented. The changes mean that:
· capital payments to non-residents made on or after 6 April 2018 won’t be matched against the pool of trust gains for the purposes of the attribution of gains rules in TCGA 1992, s87, regardless of the domicile status of the settlor and whether or not the recipient of the payment is the settlor or another beneficiary of the trust;
· where a benefit is provided to a close family member of a UK resident settlor, the benefits are taxable as if they were received by the settlor; and
· capital payments or benefits received by non-resident or non-domiciled individuals, who then gift them to a UK resident, will be taxable on the UK resident as if they had received an equivalent capital payment or benefit from the trust.
These measures were originally intended to form part of the deemed domicile changes in Finance Bill 2017 and draft legislation was published in January 2017, but deferred following Spring Budget 2017.
Partnership taxation: draft clauses clarifying partnership rules and information requirements for:
· partners in nominee or bare trust arrangements;
· partnerships with partnerships as partners;
· investment partnerships, with relaxed information requirements for overseas partners where the partnership reports under the CRS; and
· partnerships that are partners in another partnership.
The legislation makes clear that partnership profits for tax purposes must be allocated between partners in the same ratio as the commercial profits and that the allocation of partnership profits shown on the partnership return is the allocation that applies for tax purposes.
HMRC consulted between August and November 2016 on the proposed changes, publishing its responses in March 2017.
Most of the new rules will apply to returns from 2018/19 onwards, but the rules on allocation of partnership profits and losses take effect for periods beginning on or after the date of royal assent, and the relaxation in respect of overseas partners in investment partnerships takes effect for returns made after the date of royal assent in respect of any period.
Pension schemes registration: clause and schedule widening the circumstances in which HMRC may refuse to register pension schemes, to include master trust (multi-employer) pension schemes not authorised by the Pensions Regulator, or where the sponsoring employer is a dormant company. Similar changes will also be made to the circumstances in which HMRC can de-register a pension scheme.
Termination payments: draft clause removing foreign service relief on termination payments for UK residents, having effect for employment contracts terminated on or after 6 April 2018, ensuring that all employees who are UK resident in the tax year their employment is terminated will be taxed in the same way as others who have not worked abroad. Foreign service relief is retained for seafarers.
Further provisions will be added to Finance Bill 2018 following the Autumn Budget on 22 November.
