UK Budget 08 March 2017 - Simmons & Simmons' expert commentary

Simmons & Simmons' expert commentary on those tax aspects of the 2017 UK Budget, released on 08 March 2017, which are of particular interest to the business community.

Budget overview

The new Chancellor of the Exchequer, Philip Hammond, is, of course, renowned as something of a safe, if unexciting, pair of hands. Spreadsheet Phil, as he has been called, will, however, be responsible for steering the course of UK fiscal policy through, arguably, its greatest period of uncertainty in many decades, as the UK appears to move towards a potentially controversial “hard” Brexit. In such turbulent times, the skills of a phlegmatic accountant may be much in need, but the Chancellor recognises that other skills will be important too. And there are signs that Philip Hammond would very much like to move beyond the spreadsheet moniker to that of the grand storyteller.

Indeed, bolstered by better than expected Office for Budget Responsibility forecasts, the story the Chancellor wishes to write is that of an adventurous but successful road ahead - with challenges to meet, certainly, but many opportunities to explore too. As we, with some trepidation, turn the page and commence a new chapter of British history post-Brexit, the Chancellor’s message is one of caution but also one which stresses the optimism of new possibilities.

Undoubtedly, of central importance in this unfolding story will be the competitiveness of the UK tax system in attracting and retaining business in the UK. The Chancellor has already committed himself to the reduction of the headline rate of corporation tax to 17% by 2020. Low rates and a wide tax base remain the leitmotiv of the UK’s corporate tax system, with UK taxpaying non-resident companies also likely to find themselves welcomed into the corporation tax fold. For now, however, stability and sticking to the roadmap seem key.

The Chancellor is equally passionate that the story he tells is one that involves compassion and fairness for ordinary working families. Investing in skills and education and addressing the productivity challenge. But also ensuring that the form in which a person engages in business should not significantly affect the amount of tax they pay. Further developments on this perennially knotty problem may well be in the pipeline. The villains of the piece remain tax avoidance and those who promote it and, as usual, these were singled out for special measures.

Overall, however, from a tax perspective, this was a low-key chapter - merely a scene setter for the new main event in the autumn?

Whether, ultimately, the true chronicle of the UK’s exit from the EU is a work of horror or one of boundless adventure (or both?) is yet to be written. If the Chancellor has his way, the tale will be, despite the inevitable twists and turns, an uplifting one in which the Chancellor will himself play no small part. The question at the end of the day, of course, is whether the Chancellor’s tale is a work of pure fiction or one of prescient fact.

Expand all
Company taxation
  • Tax rates and allowances

    As previously announced, the rate of corporation tax will fall from 20% to 19% in 2017/18 and to 17% in 2020/21.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    Restricting tax deductions for interest

    Spring Budget 2017 reconfirmed the Government’s existing approach to restricting deductibility of interest for corporation tax purposes and announced some further technical changes to the rules, such as including all of banks’ income or expenses from dealing in financial instruments in the calculation of net interest expense.

    The new rules will restrict a group’s net interest deductions for UK corporation purposes to 30% of EBITDA for UK tax purposes, subject to an option to substitute the group’s worldwide net interest to EBITDA ratio for the 30% limit, and a £2m de minimis. The Government is persisting with a highly expedited timetable of applying these rules from 01 April 2017 even though the details of the rules are still being finalised.

    It has been confirmed that the rules will apply to banks and insurance companies in the same way. While the introduction of the interest deductibility restrictions is to be expected as it is part of the OECD recommendations on BEPS (base erosion profit shifting), the rushed timing is more difficult to understand and appears to sacrifice quality of legislation and consultation for speed.

    The forthcoming consultation on applying corporation tax instead of income tax / capital gains tax to non-UK companies (expected on 20 March 2017 - see “Non-resident companies” below) could also make such companies subject to the interest deductibility restrictions.

    Non-resident companies

    The Government today confirmed its intention to consult on proposals to bring non-UK resident companies within the scope of UK corporation tax, announcing that the consultation will be launched on 20 March 2017. At present, corporate non-residents in receipt of some types of income such as UK rental or UK trading income, but which are not trading in the UK through a UK permanent establishment are liable to basic rate income tax, and subject to UK capital gains tax on UK residential property whilst gains realised on a disposal of UK assets other than residential property are outside the scope of UK taxation. Previous announcements on this topic tended to indicate the Government was only considering substituting corporation tax in place of income tax or capital gains tax rather than imposing a substantial new tax charges, though the Spring Budget announcement was less clear on this.

    Given that from April 2017 the corporation tax rate will reduce to 19% and thus drop below the 20% basic rate of income tax, this proposed change would have at least one benefit for affected non-residents. However, this may well be outweighed in many cases by the wider effects of being subject to the corporation tax rules. In particular, the application of the new interest deductibility restrictions and loss relief rules could have a major impact. In addition, the extent to which gains on, for example, UK commercial property could be brought within the charge to corporation tax remains unclear. Details of the proposals will therefore no doubt be scrutinised carefully by stakeholders, who may well wonder whether the prospect of Brexit might ultimately persuade the Government that care should be taken in the introduction to avoid any barriers to inward investment.

    Offshore property developers

    Finance Act 2016 brought into the charge to UK corporation tax or income tax all profits from dealing in or developing UK land, irrespective of the residence of the person making the disposal. This placed all developers of UK land on an equal footing for tax purposes, irrespective of whether the developer was resident in the UK or elsewhere.

    The new charge applied to all disposals made on or after 05 July 2016, except where the contract for disposal was entered into before 05 July 2016. The intention was to exclude from the new charge the standard property disposal arrangement where the parties are committed to the transfer on exchange of contracts but the transfer itself takes place a short time later. However, some profits from long term development contracts entered into before 05 July 2016 are still not within the new charge. As a result, Finance Bill 2017 will bring into the charge to UK corporation tax or income tax all profits from dealing in or developing UK land that are recognised in the accounts on or after 08 March 2017, even if the contract for disposal was entered into before 05 July 2016.

    Substantial shareholdings exemption

    Budget 2016 saw the announcement of a review into the Substantial Shareholdings Exemption (SSE). That resulted in the Government bringing forward proposals to simplify the rules, remove the investing company requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The Spring Budget 2017 confirms that these changes will take effect from April 2017, subject only to minor amendments to provide clarity and certainty.

    Withholding tax exemption for debt securities traded on a multilateral trading facility

    Spring Budget 2017 announced the introduction of a new withholding tax exemption for debt securities traded on a multilateral trading facility (MTF). This appears to be part of the UK’s wider efforts to develop the UK’s wholesale debt securities markets and coincides with the London Stock Exchange’s Spring Budget day announcement of a new International Securities Market (ISM), to be launched in Q2 2017. The new withholding tax exemption appears to be intended to sit alongside the existing Quoted Eurobond exemption for debt securities listed on a “recognised stock exchange”. The UK already has an existing MTF - ie the London Stock Exchange’s Professional Securities Market (PSM), which qualifies as a “recognised stock exchange” and hence benefits from the Quoted Eurobond exemption from UK withholding tax. However the PSM is increasingly infrequently used to list debt securities in practice - listing on the PSM is perceived as slower and more burdensome (and more demanding on disclosure) than listing on equivalent MTFs in Ireland (GEM) or Luxembourg (EuroMTF), which also qualify for the Quoted Eurobond exemption. Perhaps the key difference is that the PSM is overseen by the Financial Conduct Authority (FCA - a regulator concerned primarily to maintain regulatory standards), whereas the Irish and Lux MTFs are overseen by their stock exchanges (effectively commercial bodies with a more customer-friendly approach).

    Accordingly the creation of a new MTF exemption from UK withholding tax appears to be intended to enable the London Stock Exchange to establish a more successful MTF platforms in the UK for trading wholesale debt securities - ie the proposed ISM. The new ISM will be an exchange-regulated market (like GEM and EuroMTF), to provide a more efficient and customer-centric listing process in which users deal just with the London Stock Exchange rather than the FCA. However the ISM is not envisaged to involve listing the securities on the UK’s official list maintained by the FCA (unlike the Irish and Lux exchanges which maintain their official lists themselves), so would not currently qualify for the Quoted Eurobond exemption (unlike GEM or EuroMTF). So the new MTF exemption from UK withholding tax appears to be intended to plug this gap.

    At present, little detail is available of what is proposed. consultation document is promised on 20 March 2017 which should shed some further light.

    Double taxation treaty passport scheme

    The Government announced a review of the double tax treaty passport (DTTP) scheme in Budget 2016. The DTTP scheme was introduced in 2010 and reduces the administrative burden for foreign corporate lenders relying on the UK’s network of tax treaties.

    Following the review, the Government has announced that it will renew and extend the administrative simplifications of the scheme to assist foreign lenders obtain exemption from UK withholding tax on interest. In particular, the scheme was previously restricted to corporate lenders and corporate borrowers, but from 06 April 2017, this restriction will be removed and it will now apply to all types of lenders and borrowers. Further guidance and the revised terms and conditions applying to the scheme will be published on 06 April 2017. This seems likely to be a welcome development overall, though the details of reform to the DTTP processes (and extent to which the suggestions of the consultation feedback will be adopted) are not yet clear. However, the Government’s timing leaves a lot to be desired, as the new guidance and terms and conditions will not be published until the date they go live, even though the consultation closed on 12 August 2016.

    Patent Box rules

    As previously announced in the Autumn Statement 2016, the Government will legislate in Finance Bill 2017 to add specific provisions to the Patent Box rules, effective from 01 April 2017, catering for where research and development (R&D) is undertaken collaboratively by two or more companies under a "cost sharing arrangement". These provisions, which inevitably add further complexity, are intended to ensure that companies which undertake R&D under cost sharing arrangements are neither penalised nor able to gain an advantage under these rules, compared with companies that subcontract their R&D to connected and/or unconnected persons. The Government has now announced that, following consultation, the legislation previously released will be amended to narrow the definition of cost-sharing arrangement and to better align the treatment of payments into, and payments received from, a cost-sharing arrangement by the relevant company.

    R&D tax review

    The Government has conducted a review of the tax environment for R&D. Whilst it has concluded that the UK’s current R&D tax regime is competitive, the Government will be making administrative changes to R&D tax credits with the intention of increasing the certainty and simplicity of claims. The Government will also be taking action to improve awareness of R&D tax credits among small and medium sized enterprises.

    Plant and machinery leasing

    The Spring Budget 2017 announced that the Government will consult in summer 2017 on the legislative changes required following the announcement of the International Accounting Board’s new leasing standard - IFRS16, which comes into effect on 01 January 2019. The tax treatment of a lease, in some important respects, is determined by its treatment in the accounts. Following the discussion document published in summer 2016, the Government intends to maintain the current system of lease taxation by making legislative changes which enable the rules to continue to work as intended.

    Enterprise management incentives (EMI) schemes

    EMI schemes provide tax reliefs which are regarded as State Aid to small and medium enterprises. Accordingly, in order to be effective, the EMI regime relies on continued approval from the European Commission. The current approval for EMI tax relief is due to expire in April 2018. The Government has stated that it will seek State Aid approval from the European Commission to extend provision of EMI tax relief beyond 2018. 

Income Tax and NICs
  • Income tax rates and allowances

    In 2015, the Government introduced a “tax lock” to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT and employer and employee NICs ensuring that they cannot rise above their 2015/16 levels. Accordingly, no changes to the income tax rates were announced so that the basic rate of income tax for 2017/2018 remains at 20%, the higher rate at 40% and the top (or additional) rate of income tax at 45%.

    The Government has also committed itself to raising the income tax personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this Parliament.

    The personal allowance for those aged under 65 rises to £11,500 and the higher rate threshold rises to £45,000 in 2017/2018. Once the personal allowance reaches £12,500, the Government has announced that it will then rise in line with the Consumer Price Index (CPI) as the higher rate threshold does, rather than in line with the National Minimum Wage. These changes will take effect by the end of this Parliament.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    National insurance contributions

    No changes to national insurance contribution (NICs) rates were announced for 2017. Accordingly, the main rates of NICs from April 2017 will be 12% for Class 1 employee contributions, 13.8% for Class 1 employer contributions and 9% for Class 4 contributions. The additional rate that applies over the Upper Earnings Limit will be 2%.

    As recommended by the Office of Tax Simplification (OTS), the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying National Insurance on weekly earnings above £157.

    The NICs Upper Earnings/Profit Limits will remain aligned to the higher rate threshold and will therefore increase accordingly for 2017/2018.

    Following consultation, the Government announced that it will abolish Class 2 NICs from April 2018 and reform Class 4 NICs so that self-employed individuals continue to build entitlement to the State Pension and other contributory benefits.

    In connection with the forthcoming abolition of Class 2 NICs from April 2018, the Government has announced legislation to reduce the differential between the rates of National Insurance paid by employees as compared with those paid by the self-employed.

    The Government will increase the main rate of Class 4 NICs (which currently applies to profits between £8,060 and £43,000) from 9% to 10% (from 06 April 2018) and from 10% to 11% (from 06 April 2019).

    Apprenticeship levy

    The apprenticeship levy will be payable by businesses who are liable for employers' NICs in any tax year. The rate of the levy for 2017/18 will be 0.5% of the “pay bill” for a tax year less an annual allowance of £15,000.

    Reduction in the dividend allowance

    The Government has announced that with effect from 06 April 2018 the annual tax-free dividend allowance for individuals (introduced in April 2016 as a replacement for the deemed dividend tax credit) will be reduced from £5,000 to £2,000. This is an early change to the new regime for dividend taxation, and appears to reflect a concern that the level of the current allowance helps to incentivise individuals trying to reduce their tax bill by providing services through a service company, with fees for services extracted by way of dividend replacing salary or self-employed income.

    Against a backdrop of increases to both the personal allowance and the ISA allowance (increasing from £15,240 to £20,000 from 06 April 2017), the Government clearly feels that it can justify decreasing the specific dividend allowance on the grounds that taxpayers already have considerable scope to receive tax-free dividend income.

    Trading and property income allowances

    The Government announced in Budget 2016 that it would legislate in Finance Bill 2017 to create two new income tax allowances of £1,000 each, for trading and property income.

    Following the publication of the draft legislation, the Government has now announced that revisions will be made to prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership.

    Personal service companies in the public sector

    The Government reconfirmed the previously announced changes to the intermediaries legislation which will affect workers and personal service companies (PSCs) working in the public sector. These changes will have effect for contracts entered into, or payments made, on or after 06 April 2017.

    The legislation will move responsibility for deciding if the off-payroll rules for engagements in the public sector apply from an individual worker’s PSC to the public sector body, agency or third party paying the worker.

    The public sector body, agency or third party will also be responsible for deducting and paying associated taxes and national insurance contributions, and providing information to agencies and workers about whether engagements are within the off-payroll rules. It will be optional for the public sector body, agency or third party whether to take account of the worker’s expenses when calculating the tax due, and they will not be entitled to the 5% allowance currently available to those applying the rules (which aims to reflect the cost of administering the rules).

    These changes will not affect workers or PSCs providing their services to private sector organisations.

    Disguised remuneration

    As announced at Autumn Statement 2016, the Government intend to make a number of changes to the disguised remuneration legislation. It was intended that all of these changes would be included in the Finance Bill 2017. However, the changes which relate to disguised remuneration arrangements involving close companies will now be delayed until 06 April 2018, in order to ensure that they are appropriately targeted, following concern from some practitioners that their ambit was wider than the intended policy aim.

    Partnership taxation

    The Government has pushed back the timetable for its reforms to the taxation of partnerships, announcing that it will now publish a response document and draft legislation to clarify and improve aspects of partnership taxation for inclusion in Finance Bill 2017/18, rather than the first Finance Bill of 2017.

    Reform of domicile rules

    From April 2017, non-UK domiciled individuals will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident. Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.

    Non-doms will be able to segregate amounts of income, gains and capital within overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation, the Government has announced that this will be extended to income, gains and capital held in mixed funds from years before 2007 to 2008, as well as those from subsequent years.

    In addition, the Government has announced that those who become deemed domicile in April 2017, excepting those who were born in the UK with a UK domicile of origin, will be able to rebase all their assets, including their non-UK based assets, to their market value on 05 April 2017.

    Time limits for the recovery of NICs

    The Government announced changes to the NICs regime in the Autumn Statement 2016. These changes included removing NICs from the effects of the Limitation Act 1980 and aligning the time limits for the recovery of NICs debts with those for tax. The Government has now announced that it is deferring these measures in order to undertake a full consultation on the draft legislation. A future NICs bill will be introduced thereafter.

    Rent-a-room relief

    The Government has announced that it will consult on proposals to amend rent-a-room relief to ensure that it is targeted at longer-term lettings.

Capital Gains Tax
  • Tax rates and allowances

    The annual exemption for 2017/2018 will increase to £11,300.

    No changes were announced to the rates of capital gains tax with the higher rate remaining at 20% and the basic rate at 10%. The former 28% and 18% rates continue to apply to chargeable gains made on the disposals of residential property and the receipt of carried interest, however. A 28% rate of capital gains tax also applies to ATED-related chargeable gains.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    Appropriation of assets to trading stock

    Where capital assets are appropriated to trading stock, the default is for this to take place at market value - hence crystallising a capital gain or capital loss. However an election is available for the appropriation to be at nil gain-nil loss so the trading stock is then taxed by reference to the asset’s original acquisition cost. This can apply to financial assets (such as shares or securities appropriated from investments to trading book), to physical assets such as real estate and equipment and to intangible assets (where treated as capital assets).

    Spring Budget 2017 announced that this election will cease to be permitted where the appropriated asset would trigger a capital loss if appropriated at market value. This is to address Government concerns that in such cases permitting an election allows an existing accrued capital loss to be converted into a trading deduction. A similar restriction will apply in relation to elections for real estate subject to the annual tax on enveloped dwellings (ATED) rules - ie to prevent elections converting a non-ATED-related loss into a more valuable tax relief. This measure applies immediately from 08 March 2017.

Stamp Duty and SDLT
  • Rates

    The main rates and thresholds for stamp duties and stamp duty land tax (SDLT) on both residential property and non-residential property remain unchanged for 2017/2018.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    SDLT filing and payment time limits

    Following consultation in 2016 on a reduction in the SDLT filing and payment window from 30 days to 14 days, as well as on the SDLT filing and payment process generally, the Government has announced that it will delay the reduction in the filing and payment window until after April 2018.

Pensions and investments
  • Money purchase annual allowance

    Individuals who have flexibly accessed their money purchase (defined contribution) registered pension savings are currently subject to a special £10,000 money purchase annual allowance (MPAA). The MPAA is designed to stop individuals diverting earnings or savings into a registered tax pension scheme and then receiving pensions tax relief on withdrawal.

    As widely expected, legislation will be introduced in the Finance Bill 2017 to reduce the level of MPAA from £10,000 to £4,000 from 06 April 2017. No changes are being made to the operation of the MPAA, just to its amount.

    Qualifying recognised overseas pension schemes (QROPS): transfer charge

    The Finance Bill 2017 will introduce a 25% tax charge on pension transfers to a QROPS for transfer requests made on or after 09 March 2017. This charge is targeted at those seeking to reduce taxes on pension withdrawals by moving their pension wealth to another jurisdiction, rather than for “legitimate” purposes.

    The charge will not apply where:

    • both the individual and the pension scheme are in countries within the European Economic Area (EEA)
    • if outside the EEA, both the individual and the pension scheme are in the same country, or
    • the QROPS is an occupational pension scheme provided by the individual’s employer,

    but the tax treatment of the transfer will be able to be revisited for up to five years after the transfer is made.

    Separately, UK tax relieved funds transferred to a QROPS on or after 06 April 2017 will continue to be subject to UK tax rules for the first 5 years after the transfer is made. This is the case regardless of whether the individual is or has been UK resident in that period.

    Master trust tax registration

    The Government will amend the tax registration process for master trust pension schemes to align with the Pensions Regulator’s new authorisation and supervision regime. Legislation will be included in the Finance Bill 2017/18 and will apply to all master trust pension schemes from October 2018.

    State pension age review

    The Government is carrying out the first statutory review of State pension age with the aim of ensuring that the State pension remains sustainable and fair across generations. The review will be published by 07 May 2017 and will take account of the recent independent report on State pension age by John Cridland.

    Changes to the tax treatment of certain foreign pension schemes

    From 06 April 2017 the treatment of certain schemes for those employed abroad (section 615 schemes) will more closely align with the UK’s domestic pension tax regime.

    ISAs

    As previously announced, the annual ISA limit increases from £15,240 to £20,000 on 06 April 2017. In addition, the new Lifetime ISA will be introduced from 06 April 2017 which allows savers to contribute up to £4,000 a year and receive a 25% bonus from the Government. The bonus will be paid annually, allowing for compound interest. The Lifetime ISAs will be open to anyone between the ages of 18 and 40, and savers will keep receiving the bonus on contributions until they turn 50.

    First-time buyers wanting to use the Lifetime ISA to purchase a first home can withdraw up to 100% of the balance and put the money towards a property worth up to £450,000. All money remaining within an ISA can be withdrawn with no penalty once the individual reaches their 60th birthday. Individuals can withdraw the money for any reason before the age of 60 but they will lose the entirety of the Government bonus (including interest on it) and will have to pay a 5% charge.

Inheritance Tax
  • Tax rates and allowances

    The Government has previously announced that the inheritance tax (IHT) threshold will remain frozen at £325,000 until 2021/2022.

    The rate remains at 40%. However, a reduced rate of IHT of 36% applies where a person leaves 10% or more of the net estate to charity.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    Reform of domicile rules and inheritance tax

    From April 2017, non-UK domiciled individuals (non-doms) will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident. Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust. In addition, from April 2017 IHT will be charged on all UK residential property even when indirectly held by a non-dom through an offshore structure.

    Following further consultation on draft legislation published in December 2016 on charging IHT on UK residential property, the limit below which minor interests in UK property are disregarded will be increased from 1% to 5% of an individual’s total property interests.

Value Added Tax and indirect taxes
  • Thresholds

    The Government introduced a “tax lock” in 2015 to set a ceiling for the main rates of income tax, the standard and reduced rates of VAT and employer and employee NICs to ensure that they cannot rise above their 2015/16 levels. It also prevents the removal of any items from the zero and reduced rates of VAT.

    The VAT registration and deregistration thresholds will be increased to £85,000 and £83,000 respectively from April 2017.

    For a table of the main tax rates and allowances for 2017/2018, go to the section headed "HM Revenue and Customs tax rates and allowances for 2017/18".

    VAT: “split payments” model

    The Government remains concerned that VAT properly due is not being collected, particularly in the case of online transactions. In Budget 2016, steps were taken to strengthen the VAT representative regime and to impose joint and several liability upon online marketplaces through which overseas businesses transact, where VAT was not being collected and paid over to HMRC.

    To supplement these measures, the Government is now considering an alternative VAT collection mechanism for online sales. The so-called "split payments" model would make use of technology to enable any VAT due to be paid over directly to HMRC at the point of purchase, with only the net amount being received by the retailer.

    From the limited information in the Spring Budget 2017 announcement, it is not clear whether the model would apply to all online sales, or only those involving a non-UK seller. Affected businesses, including online marketplaces through which sales are made, will therefore be keen to assess the potential impact of the split payments model when the Government’s call for evidence is published on 20 March 2017.

    Use and enjoyment provisions for B2C mobile phone services

    The Government has announced it will remove the VAT use and enjoyment provisions that apply to business to consumer mobile phone services, which result in calls made by consumers whilst outside of the EU not being subject to UK VAT. This is a new measure which had not previously been trailed. Secondary legislation to effect the change will be published before summer recess with an implementation date expected to be 01 August 2017. Business to business use and enjoyment provisions appear to be unaffected.

    HMRC says the measure will bring those services used outside the EU within the scope of the tax and ensure that “mobile phone companies can’t use the inconsistency to avoid UK VAT”.

    The methodology for apportioning user revenues between EU and non-EU use has been an area of review for HMRC and also the subject of recent litigation (see R (on the application of Telefonica Europe Plc & Anor) v HMRC [2016] UKUT 0173 (TCC).

    VAT: fraud in the provision of labour in the construction sector

    The Government has announced that it will launch a consultation on 20 March 2017 on a range of policy options to combat supply chain fraud in supplies of labour within the construction sector. Options include a VAT reverse charge mechanism so the recipient accounts for VAT. It will also consider other changes, including to the qualifying criteria for gross payment status within the Construction Industry Scheme. The aim of the consultation is to ensure any option taken forward is targeted effectively, is simple to operate and minimises the impact on businesses, whilst tackling the fraud as effectively as possible.

    Insurance premium tax

    The Government has confirmed that the standard rate of insurance premium tax (IPT) will increase to 12% from June 2017.

    The Spring Budget has announced anti-forestalling measures designed to prevent businesses taking steps to forestall or avoid this and any future rate changes. The new anti-forestalling measures will apply whenever a change in the rate or scope of IPT is announced and replace the existing rules.

    The first measure applies where a taxable premium is received after a change is announced (Announcement Date) but before that change takes effect (Change Date), and the period of cover begins on or after the Change Date. In these circumstances the premium is to be taken as received on the Change Date for the purposes of applying IPT.

    The second measure applies where a taxable premium is received between the Announcement Date and the Change Date, and although the period of cover begins before the Change Date, it ends on or after the first anniversary of the Change Date. In this situation so much of the taxable premium as is attributable to the period of cover which falls after the first anniversary of the Change Date is to be treated as a separate premium received on the Change Date.

    From 01 June 2018, the new rate will apply to all premiums that are taxable at the standard rate, regardless of when the period of cover begins.

    The Treasury publication states that the new measures are designed to ensure that the new rate of IPT is applied fairly. Both measures exclude situations where any apparent forestalling is simply a consequence of the insurer’s normal commercial practice, for example because it is normal practice in respect of the type of risk insured for the premium to be received before the date that cover begins, or because it is normal practice for a period of cover to exceed 12 months.

    Landfill tax

    The new definition of “taxable disposal”, announced in last year’s budget and consulted on last year, will be introduced in the Finance Act 2017. HMRC considers that this will provide clarity on what constitutes a taxable disposal for landfill tax purposes. Any material disposed of at a landfill site will be taxable, unless it is expressly exempt. The current draft of the Finance Bill 2017 removes the “intention to discard” from the existing definition and provides that all “qualifying disposals” made at a landfill site are subject to tax. The definition of a qualifying disposal mirrors that of a disposal by way of landfill under the existing framework. A number of additional exemptions will be introduced through secondary legislation to ensure that no materials that are currently exempt will be brought within the scope of landfill tax by the new regime.

    The Government does not anticipate that these provisions will generate any additional landfill tax for HMRC.

    The Government announced that HMRC will consult on extending the scope of landfill tax to disposals of waste made without the required permit or licence. The consultation will be published on 20 March 2017 and appears to be focussed on the use of illegal waste sites. Whether HMRC will be able to successfully levy a tax on illegal activity is of course a point of debate.

    Landfill operators contributing to the Landfill Communities Fund (LCF) are still permitted to claim a credit for any qualifying contributions made to the LCF. The cap for credits claimed has increased to 5.3% of the landfill operator’s landfill tax liability for 2017/18.

    An increase in landfill tax rates to £86.10/tonne (lower rated £2.70/tonne) takes place on 01 April 2017 with the rates further increasing to £88.95/tonne (lower rated £2.80/tonne) from April 2018.

    Carbon pricing

    The Chancellor reaffirmed the Government’s commitment to carbon pricing and announced that it will set carbon prices and specific tax rates from 2021/22. Further details on carbon pricing will be announced in the Autumn Budget 2017.

    Aggregates levy

    The Government announced that it will continue to freeze the rate of the aggregates levy for 2017/18 at £2 per tonne.

Tax Administration
  • Making tax digital for businesses

    As first announced during the Autumn Statement 2015 and now confirmed in the Spring Budget 2017, the Government will legislate in the Finance Bill 2017 to implement digital record keeping and updating by businesses, the self-employed and landlords, as part of Making Tax Digital for Business (MTD).

    The Government published a package of 6 consultations on MTD in the summer of 2016, which closed on 07 November 2016 and in his speech Philip Hammond reiterated that “in a digital age, it is right that we develop a digital tax system”. However, in response to concerns about the timetable which were expressed by many businesses, it has been decided that the start date for unincorporated businesses and landlords with gross income below the VAT registration threshold will be deferred until April 2019. The intention is that this deferred start date will provide more time to prepare for digital record keeping and quarterly updates.

    This change means that only those businesses, self-employed people and landlords with turnovers in excess of the VAT threshold with profits chargeable to income tax and that pay Class 4 NICs will be required to start using the new digital service from April 2018.

    Following consultation on the draft legislation, the legislation which will be introduced in the Finance Bill 2017 was expanded and will set out (i) how to keep records of trading and transactions digitally; (ii) how MTD will help to establish taxable profit; (iii) how businesses will provide HMRC with quarterly updates; and (iv) how businesses might finalise their taxable profit for a period.

    The legislation will generally have effect from Royal Assent, however some consequential amendments will apply from specific future income tax years of assessment.

    Promoters of tax avoidance

    As announced during the Autumn Statement 2016, the Government will legislate in the Finance Bill 2017 to ensure that promoters of tax avoidance schemes cannot circumvent the Promoters of Tax Avoidance Schemes (POTAS) regime by re-organising their business so that they either share control of a promoting business or put a person or persons between themselves and the promoting business.

    The POTAS legislation was introduced in the Finance Act 2014 and subsequent changes were made in the Finance Act 2015 to ensure that promoters could not use associated and successor entities to circumvent the legislation. The changes being introduced in the Finance Bill 2017 are intended to ensure that HMRC can apply the POTAS regime as intended when introduced and will include, amongst other things, amendments to the control definitions and the introduction of the term “significant influence”.

    These changes will take effect from 08 March 2017.

    Large business risk review

    HMRC has announced that it will launch a consultation into its process for risk profiling large businesses. The ominous-sounding consultation will review how HMRC can promote stronger compliance. The consultation will be released ahead of the summer recess and will run for 12 weeks.

HM Revenue & Customs tax rates and allowances for 2017/18
  • Income tax allowance 2016/17 (£) 2017/18 (£) 
    Personal allowance  11,000 11,500
    Income limit for personal allowance*  100,000 100,000
    Transferrable marriage allowance**  1,060 1,150
    Blind person's allowance  2,290 2,320

    * The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit.

    ** The marriage allowance cannot be transferred to a recipient spouse liable to income tax at the higher or additional rate.

    Other allowances/thresholds  2016/17 (£) 2017/18 (£)
    Capital gains tax annual exempt amount for individuals etc  11,100 11,300
    Inheritance tax threshold  325,000 325,000
    Income tax bands 2016/17 (£)  2017/18 (£)
    Starting savings rate 0%* 5,000 5,000
    Basic rate 20% 0 - 32,000 0 - 33,500
    Higher rate 40% 32,000 - 150,000 33,501 - 150,000
    Additional rate 45% Over 150,000 Over 150,000

    * If non-savings taxable income exceeds the starting rate limit the starting savings rate will not apply to savings income.

    Corporation tax profits 2016/17 (£)  Corporation tax profits 2017/18(£) 
    Main rate 20% Whole of profits Main rate 19% Whole of profits
     Stamp duty land tax
     Rate  Residential
    Non-residential or mixed-use property
       2016/17** (£)  2017/18** (£)  2016/17 (£)  2017/18 (£)
     Total value of consideration
    0% 0 - 125,000 0 - 125,000 0 - 150,000 0 - 150,000
    2% 125,001 - 250,000 125,001 - 250,000 150,000 - 250,000 150,000 - 250,000
    5% 250,001 - 925,000 250,001 - 925,000 Over 250,000 Over 250,000
    10% 925,001 - 1,500,000 925,001 - 1,500,000 N/A N/A
    12% Over 1,500,000 Over 1,500,000 N/A N/A
    15%* Over 500,000 Over 500,000 N/A N/A

    * Stamp duty land tax will be charged at a rate of 3% above the current stamp duty land tax residential rates from 01 April 2016 on purchases by individuals of additional residential properties (such as second homes and buy-to-let properties), and by non-natural persons (companies, partnerships including companies or collective investment schemes) of a residential property, even if they do not own another residential property.

    ** The 15% rate applies to certain acquisitions of residential property by “non-natural persons” (a company, a partnership including a company or a collective investment scheme).

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.