Finance Bill (No.2) 2017
The rapid pace of change in tax continues and the following provides a summary of the main provisions affecting our general client base, incorporated in the 665 paged Finance Bill (No.2) 2017, which was issued on 8 September 2017. Many of the provisions are as dropped from the Act passed shortly before this year’s General Election, and so contains no surprises.
The Bill refers to many provisions which will apply from April 2017, despite Royal Assent not being expected until early to mid-November, although does remain subject to debate, and therefore possible change before it becomes enacted.
There will be no time to rest though, as draft clauses for a further Finance Bill are to be released for consultation on Wednesday 13 September, ahead of the Budget planned for November 2017, which will surely see yet more draft legislation released shortly afterwards.
Proposed implementation date
|1 Making good benefits||Broadly provides for an employee to make good the provision of any benefit to his employer on or before 6 July in the following tax year, in order to avoid a BIK from arising.|
Applies to most BIK, including reimbursement for living accommodation and contributions towards private use of cars/fuel.
Applies for any potential BIK charge to be made from 6 April 2017 onwards.
|6 April 2017|
|2 Ultra low emission vehicles||Increases to BIK charge for low emission cars. Nil emissions, 2%.|
1-50 emissions, charge will depend on “electric range”, with charge being between 2-14% (the higher the electric range, the lower the charge).
>50 emissions, BIK charges increases, capped at 37%.
Electric range figure is miles equivalent of km specified in an EU/EC/UK certificate of conformity without having to recharge the battery.
|6 April 2020|
|3 Pensions advice||Exemption from tax for provision of limited pension advice to an employee, former, current or prospective of up to £500, under a scheme open to the employees generally or at a particular location, or provided employee is not more than 5 years under their pension age or is instead suffering from ill health|
|6 April 2017|
|5 Termination payments||Changes to termination payments, with broadly any contractual payment being taxed as earnings, with only non contractual redundancy payments benefiting from the £30k exemption, less any element that would normally be due had contractual arrangements been followed.|
The changes add greater complexity to termination payments made post 6 April 2018 and currently go beyond the anti avoidance intended for termination payments.
|6 April 2018|
|7 Money purchase annual allowance||Reduction in annual allowance from £10K to £4k for tax relief to be claimed on contributions made to pension schemes where you already have any plan in draw down, for contributions made post 6 April 2017.|
|6 April 2017|
|8 Dividend allowance||Tax free amount of dividend income per annum, reduced from £5k to £2k for dividends paid on or after 6 April 2018.|
|6 April 2018|
|9 Life insurance policy gains||You may now apply to HMRC within 4 tax years to have any gains recalculated on the partial surrender of life policies if the gain is wholly disproportionate, following the recent case of Lobler.|
|16 Profits of trades and property businesses||Sch 2|
Various amendments made to the cash basis, in respect of certain capital items for trades, with no deductions for costs incurred, for example, on the acquisition of a business; education and training or land, although some relief for certain fixtures, with other changes made to certain capital receipts.
Automatic cash basis to be used for property business owners if income is less than £150K, although can elect for the accruals basis to be used instead.
No election possible for companies, LLPs, corporate firms or trusts.
Automatic accruals basis for trades/professions and vocations unless you can elect for the cash basis to apply.
NB the ‘cash basis’ for tax purposes brings in prescribed deductions for certain expenses and is not simply a case of using ‘cash in and cash out’.
The new loan interest restrictions for property businesses will continue, with further restrictions applying if loans exceed market values of properties, with the ‘cash basis’ fixed deduction of £500 only not applying.
Various amendments made in respect of entering or leaving cash basis, including to calculation of capital allowances.
|6 April 2017|
|17 Trading and property allowances||£1k allowance introduced to cover trading, miscellaneous or property business income. Can elect for full relief not to apply if your income would be covered by the allowance, for example if you wanted to claim actual expenses instead in order to create a loss, or simply claim full relief and avoid the need of reporting this income in your return.|
If income exceeds £1k, you can either elect to deduct the allowance (partial relief) or just claim actual expenses incurred.
Meant to cover things like small internet sales, sharing goods and services; small rents from letting your home out over the internet, or perhaps renting your driveway out for parking.
|6 April 2017|
|18 Corporation tax losses||Schedule 4 – 144 pages of detailed legislation|
Relaxation on use of trading losses for companies where the loss arises on or after 1 April 2017, provided the company’s/group’s profits are not more than £5m in the year. Will allow greater flexibility in use of losses brought forward, which will now include sideways loss relief for group companies in later years, as well as in current years only, as is the position without this amendment.
Restriction on loss relief if profits are more than £5million in the year.
|Losses arising on or after 1 April 2017|
|19 CT losses – counteraction of avoidance arrangements||Counteracting loss related tax advantages if one of the main purposes of the loss is to obtain a loss related tax advantage and it is reasonable to regard the arrangements as circumventing or exploiting the limits of the loss relief.|
Includes contrived use of loan relationship deficits, trade losses, management expenses, property losses and group relief.
Applies to tax advantages gained on or after 1 April 2017 (or 17 July in certain cases), regardless of when the arrangements were made.
|Largely 1 April 2017, with certain cases applying from 17 July 2017|
|20 Corporate interest restrictions||Sch 5 – 158 pages|
Certain restrictions made to interest relief for worldwide groups of companies where the net interest deduction would otherwise exceed £2million for the purposes of corporation tax.
|26 Assets appropriated to trading stock||From 8 March 2017, if an asset is transferred from fixed assets to trading stock, and the transfer would give a capital loss if proceeds were deemed to be market value, the capital loss cannot be converted to a trading loss by the making of an election under section 161 TCGA 1992. Elections can still be made to convert a capital gain to a trading profit.|
|8 March 2017|
|27 Substantial shareholdings exemption (SSE) relaxations||Investing company no longer needs to be a trading company or a member of a trading group, either before or after the disposal, for the gain on a disposal of shares in another company to be exempt. This is a welcomed relaxation for investment companies. The invested in company may still need to meet certain conditions and the holdings still needs to be substantial (at least 10% of the ordinary share capital). The 12 month period to consider whether the conditions are met is extended from a 2 to a 6 year period.|
If a Newco is formed to sell one particular trade from a company carrying on multiple trades, Newco will have to continue to trade post sale for the SSE to apply.
Applies to disposals made on or after 1 April 2017.
|1 April 2017|
|29 Deemed domicile changes||Different changes made to deemed domicile in the UK for income tax and capital gains tax purposes, and for IHT purposes.|
|35 Trading income provided through third parties||Counter avoidance of income tax and national insurance by the self employed where trading profits are disguised as other non taxable receipts, such as loans.|
|6 April 2017 and to any outstanding loans at 5 April 2019|
|38 Electric charging points||Full capital allowances given in year of spend on the cost of new electric charging plant and machinery installed from 23 November 2016 to April 2019.|
|39 Transactions in land in UK||Non resident companies were previously only charged to tax on trading profits arising from UK permanent establishments, which meant trading profits on some land dealing and development activities would not be chargeable without the changes brought in by Finance Act 2016. FB (2) 2017 introduces a change to the start date of the FA 2016 provisions, which will now apply to all profits recognised in accounts on or after 8 March 2017, regardless of the contract date.|
|8 March 2017|
|60 Digital record keeping||Making Tax Digital requirements:|
Statutory requirement to keep digital records and to report digitally inserted into TMA 1970 for sole traders, professionals, vocation holders and property business owners (sole or joint), plus any partnerships where any member is chargeable to income tax. Requirements to be met by the nominated partners.
Regulations may be made to require the above to provide HMRC with specified electronic communications about the business’s financial information, periodically, but no more than once every three months, together with an end of period statement for each basis period or tax year.
The end of year communication may include a declaration stating the information provided is correct and complete and must be filed the earlier of 31 January following the end of the basis period and the normal self assessment filing date.
Regulations may be made to required the electronic filing of a self assessment individual or partnership tax return.
Regulations may be made to require a business to keep specified records in electronic form, and to retain them for a specified period and will include any records considered relevant to ascertaining the information required under these provisions otherwise a penalty of up to £3,000 will be charged on each person.
Regulations made be made for any change in accounting date to be disregarded for the purposes of these provisions.
No earliest date for these provisions has been included in the FB.
|No date specified for the MTD digital record keeping and quarterly reporting requirements.|
|61 Digital reporting: further amendments||Sch 14|
Persons may be required to file tax returns in a digital format, to include an end of year statement (traders and property owners), a self assessment and final declaration, plus any accounts, statements or other documents that may be reasonably required to make the return to HMRC.
|No date specified|
|62 Digital reporting: VAT||Regulations may be made about the form in which VAT records are kept where the business exceeds the VAT threshold, together with the electronic filing of returns, with the earliest date for these provisions to apply from being 1 April 2019.|
|1 April 2019|
|64 Errors and avoidance||More stringent penalties where tax returns contain errors relating to tax avoidance matters.|
For further information please get in touch with Tracey Watts