You’re buying new IT equipment, mainly for use at home, but it will occasionally be used for work. Can you reclaim the VAT on the cost and is there any advantage in doing so?

Putting it through the business

You’ll often hear the proverbial man down the pub talking about putting expenses through his business as if there’s a magical tax advantage in doing so. There isn’t. Just because an expense is recorded in the business’s accounts doesn’t mean you’ll receive a tax deduction for it. In fact, your bookkeeper and accountant are obliged to adjust the figures for HMRC to exclude costs which are not for the business.

Excluded purchases
When it comes to completing your returns you can’t reclaim any VAT for a purchase which isn’t for your business. For example, if your business paid for a romantic dinner for you and your partner, it can’t reclaim the VAT. However, for a purchase which is both business and personal, say equipment which is mainly for private use but will also be used for the business, the amount of VAT that can be reclaimed depends on which of the two methods you use.

Tip. HMRC accepts that even a small amount of business use (as long as it isn’t for the purpose of making exempt supplies) entitles a business to reclaim VAT (see The next step ).

How much VAT?
If a purchase is of consumable goods or services, say stock or broadband, you can reclaim the VAT corresponding to the proportion of business use. HMRC will accept any fair or reasonable estimate. But if the goods are equipment where there could be varying business and private use, there are two ways to account for the VAT.

Method one - reclaim some VAT
If when you make a purchase you have a reasonable idea of the proportion of business and private use, you can simply reclaim VAT in proportion to the expected business use, and that’s the end of the matter. However, this method has a potential drawback or advantage.

Tip. If your private use turns out to be different from your estimate you can’t amend your claim. This can work in your favour or HMRC’s.

Method two - reclaim all the VAT
Alternatively, as long as you expect there to be some business use you can reclaim all the VAT on the purchase and then pay some only when you use the equipment for private use. HMRC has a formula for working out the VAT you must pay (see The next step ).

Example. In April 2018 Acom purchases a van for £20,000 plus VAT of £4,000. It was intended for business use only and Acom reclaims all the VAT. For the whole of the VAT quarter ended 31 March 2019 one of the firm’s partners uses the van solely for private purposes. Acom must account for VAT on the cost of the van divided by the lesser of the number of months the business expects to own and use the van, and 60. The result is multiplied by the number of months in the VAT return period, then multiplied by the proportion of private use, in this case 100%. The VAT payable is 20% of the result, i.e. £200 (see The next step ).

The ‘IR35’ rules are intended to prevent the avoidance of tax and National Insurance Contributions (NICs) using personal service companies (PSC) and partnerships. The rules only affect you if you:
  • Work for someone else or provide your services to clients; and
  • You would be considered to be their employee (in law) but for the existence of your limited company or partnership.

Thus this could affect you if you provide your services through a company and have one or two customers for whom you effectively work full-time. On the other hand, if you provide your services to many customers you are far less likely to be affected.

The rules do not stop you supplying your services through your own company or a partnership. However, they do seek to remove any possible tax advantages from doing so.

The IR35 shorthand reference to these rules dates back to when they were first introduced by the 35th IR press release of the Chancellor’s Budget in 2000.

Removal of tax advantages

The tax advantages mainly arise by extracting the net taxable profits of the company by way of dividend. This avoids any NICs which would generally have been due if that profit had been extracted by way of remuneration or bonus. The new dividend tax structure which came into effect from 6 April 2016 will also impact on the benefits of operating via a limited company.

The intention of the rules is to tax most of the income of the company as if it were salary of the person doing the work.

If you are within the rules

The main points to consider if you are within the IR35 rules are:
  • the broad effect of the legislation will be to charge the income of the company to NICs and Income Tax, at personal tax rates rather than corporate tax rates;
  • there may be little difference to your net income whether you operate as a company or as an individual;
  • to the extent you have a choice in the matter, do you want to continue to operate through a company?
  • if the client requires you to continue as a limited company, can you negotiate with the client for increased fees?
  • if you continue as a limited company you need to look at the future company income and expenses to ensure that you will not suffer more taxation than you need to.

Providing services to the public sector

Effective from April 2017, the rules for individuals providing services to the public sector via an intermediary such as a PSC has changed. The new rules shift the responsibility for deciding whether the IR35 legislation applies from the intermediary itself to the public sector receiving the service.

HMRC’s guidance will help public authorities, employment agencies, and other third parties who supply labour to identify if the contracts they have are within the scope of the changes. The new provisions apply where a worker personally performs services or is under an obligation to personally perform services for a public sector client.

In addition, the worker must be providing the services via an intermediary (usually a PSC) and the services must be such that if the contract had been directly with the client, the worker would be regarded for Income Tax purposes as an employee of the client.

The new rules also bring managed service company’s (MSC) within the scope of the new rules if all the conditions outlined above apply. The 5% flat rate allowance that currently applies to PSCs will also be removed when working with the public sector.

There are a number of scenarios that fall outside the scope of the reforms. For example, there is separate guidance where an agency directly employs a worker supplied to the public sector and PAYE and NIC is deducted. The rules will also not apply where a public authority has fully contracted out services to a service provider and the workers do not personally provide their services to the client.

Whilst the IR35 rules have not changed it is likely that the public sector receiving the services will take a more stringent approach to applying the rules. There are concerns that many agency staff will move away from supplying services to the public sector and instead work in the private sector where the changes do not currently apply.

Employment v self-employment

The question as to whether you would be an employee or not (but for the use of your company) is fundamental to the IR35 rules. The taxman will want to know how the relationship operates between you and your client regardless of the terms of any agreements or contracts. These will also be important but they cannot change the facts. This is because the dividing line between employment and self-employment has always been a fine one. All relevant factors will be considered, but overall it is the intention and reality of the relationship that matters.

The table below sets out the factors which are relevant to the decision.

HMRC will consider the following to decide whether a contract is caught under the rules
Mutuality of obligationthe customer will offer work and the worker accepts it as an on going understanding?
Controlthe customer has control over tasks undertaken/hours worked etc.?
Equipmentthe customer provides all of the necessary equipment?
Substitutionthe individual can do the job himself or send a substitute?
Financial riskthe company (or partnership) bears financial risk?
Basis of paymentthe company (or partnership) is paid a fixed sum for a particular job?
Benefitsthe individual is entitled to sick pay, holiday pay, expenses etc.?
Intentionthe customer and the worker have agreed there is no intention of an employment relationship?
Personal factorsthe individual works for a number of different customers and the company (or partnership) obtains new work in a business-like way?
HMRC have published guidance designed to help contractors self-assess their possible liability to the IR35 rules.
The Business Entity Tests (BETs) that businesses could take to self-assess their risk of IR35 were withdrawn with effect from 6 April 2015. HMRC will not re-visit a closed enquiry based on a result of the BETs within the 3 year period previously notified to the business.

Exceptions to the rules

If your company has employees who own 5% or less of the shares, the rules will not be applied to the income that those employees generate for the company.

Note however that in establishing whether the 5% test is met, any shares held by ‘associates’ must be included.

How the rules operate

The company operates PAYE & NICs on actual payments of salary to the individual during the year in the normal way.

If, at the end of the tax year – ie 5 April, the individual’s salary from the company, including benefits in kind, amounts to less than the company’s income from all of the contracts to which the rules apply, then the difference (net of allowable expenses) is deemed to have been paid to the individual as salary on 5 April and PAYE/NICs are due.

Allowable expenses
  • normal employment expenses (e.g. travel)
  • certain capital allowances
  • employer pension contributions
  • employer’s NICs – both actually paid and due on any deemed salary
  • 5% of the gross income to cover all other expenses.

Where salary is deemed to be paid
  • appropriate deductions are allowed in arriving at Corporation Tax profits and
  • no further tax/NICs are due if the individual subsequently withdraws the money from the company in a HMRC-approved manner (see below).

Related issues

Income and expenses

The income included in the computation of the deemed payment on 5 April includes the actual receipts for the tax year.

The expenses are those incurred by the company between these two dates.

In order to perform the calculations, you need to have accurate information for the company’s income and expenses for this period. You may need to keep separate records of the company expenses which will qualify as ‘employee expenses’.

Those working through a PSC can no longer claim travel and subsistence costs as expenses and incur tax relief on these costs.

Timing of Corporation Tax deduction for deemed payment

A deduction is given for the deemed payment against profits chargeable to Corporation Tax as if an expense was incurred on 5 April. This means that relief is given sooner where the accounting date is 5 April.

Will the company make a taxable loss because of the legislation?

If a company’s expenses are high the company may make a taxable loss. This can only be relieved by carry forward against future trading profits.

One reason why the projected expenses will create a loss would be where the company pays a spouse a salary. The amount of the salary may need reviewing if the IR35 rules start to apply.

Pension contributions

Payments made by your company into a personal pension plan will reduce the deemed payment. This can be attractive as the employer’s NICs will be saved in addition to PAYE and perhaps employee’s NICs.

Extracting funds from the company
For income earned from contracts which are likely to be caught by the rules, the choices available to extract funds for living expenses include:
  • paying a salary
  • borrowing from the company and repaying the loan out of salary as 5 April approaches
  • paying interim dividends.

The advantage of paying a salary is that the tax payments are spread throughout the year and not left as a large lump sum to pay on 19 April. The disadvantage is fairly obvious!

Borrowing from the company on a temporary basis may mean that no tax is paid when the loan is taken out, but it will result in tax and NICs on the notional interest on the loan. There may also be a need to make a payment to HMRC equal to 25% of the loan under the ‘loans to participators’ rules.

The payment of dividends may be the most attractive route. If a deemed payment is treated as made in a tax year, but the company has already paid the same amount to you or another shareholder during the year as a dividend, you will be allowed to make a claim for the tax on the dividend to be relieved to avoid double taxation.

The company must submit a claim identifying the dividends which are to be relieved.

Year-end planning

There is a tight deadline for the calculation of the deemed payment and paying HMRC. The key dates are:
  • the deemed payment is treated as if an actual payment had been made by the company on 5 April
  • tax and NICs have to be paid to HMRC by 19 April
  • form P35 showing details of the deemed payment has to be submitted to HMRC by 19 May.

Interest on overdue tax is chargeable from 19 April if tax and NICs are underpaid on the basis of provisional figures.

It is therefore in your interests to have accurate information on the company’s income and expenses on a tax year basis and, in particular, separate records of the amount of the company expenses which will qualify as ‘employee expenses’.

Umbrella companies

This form of ‘composite’ company is unaffected by the MSC legislation. Umbrella companies also enable contractors to operate as though they have a PSC without them having to set it up and run it themselves. The big difference though between MSCs and Umbrella companies is that the latter make all payments to the contractor through the PAYE system. There is no facility to secure tax savings through the payment of dividends.

We can advise as to the best course of action in your own particular circumstances. We can also assist you with:
  • Contentious status disputes with HMRC;
  • Advice on your contract and an opinion on whether it fails or passes IR35;
  • Assistance in improving your contract for the purposes of defeating IR35;
  • Maintaining the necessary records and information to support your position; and
  • All aspects of the accountancy and tax affairs of your business.
The government is set to phase in its landmark digital tax initiative, Making Tax Digital, between 2018 and 2020.
Making Tax Digital for Business (MTDfB) is a key part of the new government initiative. From April 2018 many unincorporated businesses and landlords will be required to register, file, pay and update their financial information using a secure online tax account at least quarterly. Following consultation, the government has now made a number of key decisions.

Provision of MTDfB software
Free software will be provided to businesses with the ‘most straightforward’ tax affairs. Firms will be required to use appropriate software for the needs of the business.

Businesses will also be permitted to use spreadsheets for their record-keeping but these must meet the relevant requirements of the MTDfB scheme. The requirement to keep digital records does not mean that firms will have to make and store receipts and invoices online.

Changes to cash basis accounting
The cash basis entry threshold for unincorporated businesses has increased to £150,000. The exit threshold has risen to £300,000 – double the revised entry threshold.

HMRC is set to introduce a cash basis for unincorporated property businesses, which will serve as the default accounting method. However, there will be a choice to opt out and make use of an accruals basis. A maximum entry limit will be introduced, which is set at £150,000.

Two of the key tasks required of businesses are to report summary information to HMRC quarterly and include an ‘End of Year’ statement.

Most will be required to use software or apps to keep digital business records and make updates to HMRC at least quarterly in respect of their income tax, VAT and NICs online. When an update is due, taxpayers will have a period of one month to compile and submit their financial records. Businesses will be required to conclude their end of year activity and send their information to HMRC by either 31 January or 10 months after the last day of the period of account (whichever is soonest).

Exemptions and deferments
An exemption from MTDfB for businesses and landlords with income below £10,000 had previously been announced. Charities (but not their trading subsidiaries) will also be exempted from the need to keep records digitally.

The government also outlined that, for partnerships with a turnover above £10 million, MTDfB will be deferred until 2020.

Further changes were unveiled in the 2017 Spring Budget, including a one year deferral from the mandating of MTDfB for unincorporated businesses and landlords with turnovers below the VAT registration threshold (£85,000 from 1 April 2017). They will now be required to start using the new digital service from April 2019.

Penalties and fines
Taxpayers will be given at least 12 months to familiarise themselves with the changes before any late submission penalties are applied.

Please note that following Theresa May’s decision to call a snap General Election on 8 June, the government removed legislation to implement MTD from the Finance Bill 2017. The clauses are likely to be reinstated after the election.

As your accountants, we will be keeping you up-to-date with the latest MTD developments.
Capital gains tax (CGT) is normally paid when an item is either sold or given away. It is usually paid on profits made by selling various types of assets including properties (but generally not a main residence), stocks and shares, paintings, and other works of art, but it may also be payable in certain circumstances when a gift is made.

The most common method for minimising a liability to capital gains tax is to ensure that the annual exemption is fully utilised wherever possible. Whilst this is relatively straight-forward where only capital gains are in question, the computation can be slightly more complex where capital losses are also involved.

Where a loss arises on the sale of assets it can be offset against any other gains made in the same year or in the future. However, a strict order applies for setting-off losses.

Firstly, losses arising in the tax year are deducted from any other chargeable gains for the same year. All losses for the year must be deducted, even if this results in chargeable gains after losses below the level of the annual exempt amount. If the allowable losses arising in the tax year are greater than the total chargeable gains for the year, the excess losses can be carried forward to be deducted from chargeable gains in future years. In this situation, the annual exemption for the year in question may be lost.

If chargeable gains remain after deducting the allowable losses arising from the same year, unused allowable losses brought forward from an earlier year may then be deducted. It is only necessary to deduct sufficient allowable losses brought forward to reduce the chargeable gains after losses to the level of the annual exempt amount. Any remaining losses brought forward are carried forward again without limit, to be deducted from chargeable gains in future years.

Plan ahead

For 2017/18, most individuals will be entitled to an annual exemption of £11,300, which means that no CGT will be payable on gains up to that amount for that tax year. Since spouses and civil partners are each entitled to the exemption, for jointly held assets, there is scope for exempting £22,600 worth of gains in 2017/18.

The annual exemption is good only for the current tax year - it cannot be carried forward or taken back to an earlier year - so anyone planning to make a series of disposals, may want to consider the timing of sales between two or more tax years to use up as much and as many annual exemptions as possible.
Pension auto enrolment, which requires employers to automatically enrol eligible workers into a qualifying pension scheme, has been described as the biggest shake-up of workplace entitlements for decades.

1) Know your staging date and develop a plan
Your ‘staging date’ is the date from which your auto enrolment duties first apply. It is determined by the total number of people in your largest PAYE scheme, based on HMRC’s records as at 1 April 2012. You can find out your staging date by visiting the Pensions Regulator website.

2) Assess your workforce
You will need to identify any eligible jobholders working for you. Automatic enrolment is required for those who:
  • are aged between 22 years and the state pension age
  • have qualifying earnings above the earnings trigger for automatic enrolment (£10,000 in 2014/15)
  • are working or ordinarily working in the UK
  • are not already a member of a qualifying pension scheme.

You will also need to consider whether you have an employer duty in relation to other types of workers including non-eligible jobholders and entitled workers.

3) Review your pension arrangements
Decide on the type of pension scheme you will offer. Do you have an existing scheme that meets (or can be changed to meet) the Government’s requirements, or will you need to set up a new one?

4) Communicate the changes
Employers are required by law to write to most workers explaining what automatic enrolment into a workplace pension means for them. There are different information requirements for each category of worker.

Make sure you have a strategy in place for briefing employees and plan how you will manage any queries that arise.

5) Automatically enrol eligible jobholders
Under the new regulations, employers are required to: provide information to the pension scheme about the eligible jobholder; give enrolment information to the eligible jobholder; and make arrangements to achieve active membership for the eligible jobholder. This should be carried out within the ‘joining window’ (the one-month period from the eligible jobholder’s automatic enrolment date).

6) Register with the Pensions Regulator and keep records
All employers will need to register online with the Pensions Regulator within five months of their staging date.
Employers must also keep specific records about their workers and their pension scheme(s).

7) Contribute to workers’ pensions
From October 2018 all businesses will need to contribute at least 3% on the qualifying pensionable earnings for eligible jobholders. Compulsory contributions will be phased in over a number of years.
Employers are also required to make contributions for non-eligible jobholders who choose to opt in to the pension scheme.

Whatever your staging date, it is important to prepare for auto-enrolment in good time.

If you require any further advice, or would like to find out more about our auto enrolment services please contact us

Chancellor Philip Hammond has delivered his Autumn Statement 2016, which is the first major review of government finances since the EU Referendum, and Mr Hammond's first major statement since taking responsibility for the work of the Treasury in July 2016. As previously speculated, this will be Mr Hammond's only Autumn Statement as it was confirmed that the government is to move to a single major fiscal event each year. This means that following the Spring 2017 Budget and Finance Bill, Budgets will be delivered in the Autumn, with the first one scheduled to take place in Autumn 2017. However, the Office for Budget Responsibility (OBR) is required by law to produce two forecasts a year - one of these will remain at the time of the Budget, the other will fall in the Spring and the government will therefore respond to it with a new 'Spring Statement'. This change means that we can expect a Finance Bill in Spring/Summer 2017 following the 2017 Budget. The effect of this new approach is that Finance Bills will be introduced following the annual Budget in Autumn, with the desired aim of reaching Royal Assent in the following Spring, before the start of the new tax year. This change in timetable is designed to help Parliament to scrutinise tax changes before the start of the tax year where most will take effect.

In addition to the Budget timetable changes, it has also been confirmed that, from next year, HMRC will publish customer service performance data more regularly and in greater detail. This will include the monthly publication of digital, telephony and postal performance data, as well as new customer complaints data.

Regarding tax, highlights from this Autumn Statement include:
  • confirmation of the government's commitment to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament. From that point the personal allowance will rise in line with the Consumer Prices Index (CPI);
  • affirmed commitment to the 'business tax road map', which sets out plans for major business taxes to 2020 and beyond, including cutting the rate of corporation tax to 17% by 2020, the lowest in the G20, and reducing the burden of business rates by £6.7 billion over the next 5 years;
  • fuel duty will be frozen from April 2017 for the seventh successive year. This will save the average driver around £130 a year, compared to pre-2010 fuel duty escalator plans;
  • certain changes will be implemented to promote fairness in the tax system, including:
  • to tackle tax avoidance, the government will strengthen sanctions and deterrents and will take further action on disguised remuneration tax avoidance schemes;
  • to ensure multinational companies pay their fair share, following consultation, the government will go ahead with reforms to restrict the amount of profit that can be offset by historical losses or high interest charges;
  • Insurance Premium Tax will rise from 10% to 12% in June 2017; and
  • to promote fairness and broaden the tax base, the government will phase out the tax advantages of salary sacrifice arrangements.

This newsletter provides a summary of the key tax points from the 2016 Autumn Statement based on the documents released on 23 November 2016. The overview of legislation in draft, providing further information on all tax changes and updates on all tax consultations, will be published on 5 December 2016. Draft Finance Bill clauses, explanatory notes, tax information and impact notes, and responses to consultations will also be published on this date. We will keep you informed of any significant developments.


Personal allowance and basic rate limit for 2017-18
The personal allowance for 2017-18 will be increased to £11,500 (£11,000 in 2016-17), and the basic rate limit will be increased to £33,500 (£32,000 in 2016-17). The additional rate threshold will remain at £150,000 in 2017-18. It was announced that the allowance will rise to £12,500 by the end of Parliament.

The marriage allowance will rise from £1,100 in 2016-17 to £1,150 in 2017-18.

Blind person's allowance will rise from £2,290 in 2016-17 to £2,320 in 2017-18.

Starting rate for savings
The band of savings income that is subject to the 0% starting rate will remain at its current level of £5,000 for 2017-18.

Dates for 'making good' on benefits-in-kind
As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to ensure an employee who wants to 'make good', on a non-payrolled benefit in kind will have to make the payment to their employer by 6 July in the following tax year. 'Making good' is where the employee makes a payment in return for the benefit-in-kind they receive. This reduces its taxable value. This will have effect from April 2017.

Assets made available without transfer of ownership
Existing legislation is to be clarified to ensure that employees will only be taxed on business assets for the period that the asset is made available for their private use. This will take effect from 6 April 2017.

Termination payments
As announced at Budget 2016, from April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. Following a technical consultation, tax will only be applied to the equivalent of an employee's basic pay if their notice is not worked, making it simpler to apply the new rules. The government will monitor this change and address any further manipulation. The first £30,000 of a termination payment will remain exempt from income tax and National Insurance.

Company car tax bands and rates for 2020-21
To provide stronger incentives for the purchase of ultra-low emissions vehicles (ULEVs), new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point.

Cars, vans and fuel benefit charges
The company car fuel benefit charge multiplier will be £22,600 for 2017-18 (rising from £22,200 in 2016-17).

The van fuel benefit charge will rise from £598 to £610 for 2017-18.

The van benefit charge will rise from £3,170 to £3,230 for 2017-18.

Life insurance policies
Finance Bill 2017 will contain provisions regarding the disproportionate tax charges that arise in certain circumstances from life insurance policy part-surrenders and part-assignments. This will allow applications to be made to HMRC to have the charge recalculated on a 'just and reasonable' basis. The changes will take effect from 6 April 2017 and are designed to lead to fairer outcomes for policyholders.

NS&I Investment Bond
From Spring 2017, National Savings and Investments (NS&I), the government-backed investment organisation, will offer a new three-year Investment Bond with an indicative rate of 2.2%. The bond will offer the flexibility for investors to save between £100 and £3,000 and will be available to those aged 16 or over.

Personal Portfolio Bonds
As announced at Budget 2016 and following a period of consultation, the government will legislate in Finance Bill 2017 to take a power to amend by regulations the list of assets that life insurance policyholders can invest in without triggering tax anti-avoidance rules. The changes will take effect on Royal Assent of Finance Bill 2017.

ISA, Junior ISA and Child Trust Fund investment limits
The annual subscription limit for Junior ISAs and Child Trust Funds are to rise in line with the Consumer Prices Index (CPI) to £4,128 from 6 April 2017.

As previously announced, the ISA subscription limit will also rise from 6 April 2017, from £15,240 to £20,000.

National Living Wage and National Minimum Wage increases
From April 2017, the National Living Wage (NLW) for those aged 25 and over will increase from £7.20 per hour to £7.50 per hour. The National Minimum Wage (NMW) will also increase from April 2017 as follows:
  • for 21 to 24 year olds - from £6.95 per hour to £7.05;
  • for 18 to 20 year olds - from £5.55 per hour to £5.60;
  • for 16 to 17 year olds - from £4.00 per hour to £4.05;
  • for apprentices - from £3.40 per hour to £3.50.

The government announced that £4.3 million is to be spent on helping small businesses to understand the rules, and cracking down on employers who are breaking the law by not paying the minimum wage.
Consultation on reducing money purchase annual allowance

The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. Once a person has accessed pension savings flexibly, if they wish to make any further contributions to a defined contribution pension, tax-relieved contributions are restricted to a special money purchase annual allowance (MPAA).

As announced in the Autumn Statement, a consultation has been launched relating to government proposals to reduce the MPAA to £4,000, with effect from April 2017. The consultation will run until 15 February 2017.

Foreign pensions
The tax treatment of foreign pensions is to be more closely aligned with the UK's domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. The government will also close specialist pension schemes for those employed abroad ('section 615' schemes) to new saving, extend from five to ten years the taxing rights over recently emigrated non-UK residents' foreign lump sum payments from funds that have had UK tax relief, align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

Cracking down on tax avoiders and those who help them
A new penalty is to be introduced for those helping someone else to use a tax avoidance scheme. Significant penalties may be imposed where HMRC successfully defeat avoidance schemes. The new penalty will ensure that those who help tax avoiders participate in avoidance schemes also face the consequences. In addition, tax avoiders will not be able to claim as a defence against penalties that relying on non-independent tax advice is taking reasonable care.

The taxation of different forms of remuneration
Employers can choose to remunerate their employees in a range of different ways in addition to a cash salary. The tax system currently treats these different forms of remuneration inconsistently and sometimes more generously. The government will therefore consider how the system could be made fairer between workers carrying out the same work under different arrangements and will look specifically at how the taxation of benefits in kind and expenses could be made fairer and more coherent. Proposed changes in this area are as follows:
  • Salary sacrifice - following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021;
  • Valuation of benefits in kind - the government is currently reviewing how benefits in kind are valued for tax purposes - a consultation on employer-provided living accommodation, and a call for evidence on the valuation of all other benefits in kind, will be published at Budget 2017;
  • Employee business expenses - at Budget 2017, the government will publish a call for evidence on the use of the income tax relief for employees' business expenses, including those that are not reimbursed by their employer.

Legal support
From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer. This will help support all employees and ensure fairness in the tax system, as currently only those requiring legal support because of allegations against them can use the tax relief.
Non-domiciled individuals

As previously announced, from April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin. Non-domiciled individuals who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK and retained in the trust.

From April 2017, inheritance tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property.

The government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. The government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.

Inheritance tax reliefs
From Royal Assent of Finance Bill 2017, inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections. This measure is designed to ensure consistent and fair treatment for all national political parties with elected representatives.

Social Investment Tax Relief (SITR)
From 6 April 2017, the amount of investment social enterprises aged up to 7 years old can raise through SITR will increase to £1.5 million. Other changes will be made to ensure that the scheme is well targeted. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250. The government will undertake a review of SITR within two years of its enlargement.

Offshore funds
UK taxpayers invested in offshore reporting funds pay tax on their share of a fund's reportable income, and capital gains tax (CGT) on any gain on disposal of their shares or units. The government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund's value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal of gains. This equalises the tax treatment between onshore and offshore funds.

Reduction in Universal Credit taper
Under the Universal Credit system, as a person's income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person's salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. From April 2017, the taper will be lowered to 63p in the pound, so the claimant will keep 37p for every £1 earned over the income threshold.

National Insurance Contributions
As recommended by the Office of Tax Simplification (OTS), the Class 1 secondary (employer) NIC threshold and the primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying NICs on weekly earnings above £157.

As announced at Budget 2016, Class 2 NICs will be abolished from April 2018, simplifying National Insurance for the self-employed. The Autumn Statement confirmed that, following the abolition of Class 2 NICs, self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. All self-employed women will continue to be able to access the standard rate of Maternity Allowance. Self-employed people with profits below the Small Profits Limit will be able to access Contributory Employment and Support Allowance through Class 3 NICs. There will be provision to support self-employed individuals with low profits during the transition.

For 2017-18, Class 2 NICs will be payable at the weekly rate of £2.85 (rising from £2.80) above the small profits threshold of £6,025 per year (rising from £5,965 in 2016-17).

Class 3 voluntary contributions will rise from £14.10 to £14.25 per week for 2017-18.

For 2017-18, the lower profits limit for Class 4 NICs will be £8,164 and the upper profits limit will be £45,000. Contributions remain at 9% between the two thresholds and at 2% above the upper profits limit.


Simplifying PSAs

As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to simplify the process for applying for and agreeing the Pay as You Earn Settlement Agreement (PSA) process. Broadly, a PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees. Further details will be published in due course. The changes will have effect in relation to agreements for the 2018-2019 tax year and subsequent tax years.

Capital allowances: first-year allowance for electric charge-points
From 23 November 2016, businesses will be able to claim a 100% first-year allowance (FYA) in relation to qualifying expenditure incurred on the acquisition of new and unused electric charge-points. The allowance will be available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.

The measure complements the 100% FYA for cars with low carbon dioxide (CO2) emissions, and the 100% FYA for cars powered by natural gas, biogas and hydrogen.

Employee shareholder status
The income tax reliefs and capital gains tax exemption will no longer be available with effect from 1 December 2016 on any shares acquired in consideration of an employee shareholder agreement entered into on or after that date. Any individual who has received independent advice regarding entering into an employee shareholder agreement before the 23 November 2016 will have the opportunity to do so before 1 December (but not later) and still receive the income and CGT tax advantages that were known to be available at the time the individual received the advice. The effective date is to be the 2 December where independent legal advice is received on 23 November prior to 1.30pm. Corporation tax reliefs for the employer company are not affected by this change.

New tax allowance for property and trading income
As announced at Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.

Expanding the museums and galleries tax relief
The new museums and galleries tax relief is to be expanded to include permanent exhibitions. The new relief, which starts in April 2017, was originally only intended to be available for temporary and touring exhibitions. The rates of relief will be set at 20% for non-touring exhibitions and 25% for touring exhibitions. The relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022.

Tax deductibility of corporate interest expense
Following recent consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group's net interest to earnings ratio in the UK exceeds that of the worldwide group. The provisions proposed to protect investment in public benefit infrastructure are also to be widened. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.

Reform of loss relief
Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group.

In implementing the reforms the government will take steps to address unintended consequences and simplify the administration of the new rules. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector.

Bringing non-resident companies' UK income into the corporation tax regime
The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.

Substantial Shareholding Exemption (SSE) reform
Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017.

Authorised investment funds: dividend distributions to corporate investors
The rules on the taxation of dividend distributions to corporate investors are to be modernised in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by authorised investment funds. Proposals and draft legislation will be published in early 2017.

Northern Ireland corporation tax
The government will amend the Northern Ireland corporation tax regime in Finance Bill 2017 to give all small and medium sized enterprises (SMEs) trading in Northern Ireland the potential to benefit. Other amendments will minimise the risk of abuse and ensure the regime is prepared for commencement if the Northern Ireland Executive demonstrates its finances are on a sustainable footing.

Corporation tax deduction for contributions to grassroots sport
As announced at Autumn Statement 2015 and following consultation, in Finance Bill 2017 the government will expand the circumstances in which companies can get corporation tax deductions for contributions to grassroots sports from 1 April 2017.

Patent Box rules
The government will legislate in Finance Bill 2017 to add specific provisions to the Patent Box rules, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a 'cost sharing arrangement'. The provisions ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. This will have effect for accounting periods commencing on or after 1 April 2017.

Authorised contractual schemes: reducing tax complexity for investors in co-ownership authorised contractual schemes
As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include legislation (to be supported by secondary legislation) to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS.

Off-payroll working rules
Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker's company. This reform aims to tackle high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.

Bank levy reform
As announced at Summer Budget 2015, the bank levy charge will be restricted to UK balance sheet liabilities from 1 January 2021. Following consultation, the government confirms that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and an exemption for UK liabilities relating to the funding of non-UK branches. Details will be set out in the government's response to the consultation, with the intention of legislating in Finance Bill 2017-18. The government will continue to consider the balance between revenue and competitiveness with regard to bank taxation, taking into account the implications of the UK leaving the EU.

Hybrids and other mismatches
The government will legislate in Finance Bill 2017 to make minor changes to ensure that the hybrid and other mismatches legislation works as intended. The changes will have effect from 1 January 2017.

Annual Tax on Enveloped Dwellings
The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2017-2018 chargeable period.

Clarification of tax treatment for partnerships
Following consultation, the government will legislate to clarify and improve certain aspects of partnership taxation to ensure profit allocations to partners are fairly calculated for tax purposes. Draft legislation will be published shortly for technical consultation.

Tax-advantaged venture capital schemes
The rules for the tax-advantaged venture capital schemes (Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) are being amended to:
  • clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December 2016;
  • provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS provisions, for investments made on or after 6 April 2017; and
  • introduce a power to enable VCT regulations to be made in relation to certain shares for share exchanges to provide greater certainty to VCTs.

In addition, a consultation will be carried out into options to streamline and prioritise the advance assurance service.

The government will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time, and will review this over the longer term.

Gift Aid digital
As announced at Budget 2016, intermediaries are to be given a greater role in administering Gift Aid, with the aim of simplifying the Gift Aid process for donors making digital donations.


Tackling aggressive abuse of the VAT Flat Rate Scheme

A new 16.5% VAT flat rate for businesses with limited costs will take effect from 1 April 2017.

The VAT Flat Rate Scheme (FRS) is a simplified accounting scheme for small businesses. Currently businesses determine which flat rate percentage to use by reference to their trade sector. From 1 April 2017, FRS businesses must also determine whether they meet the definition of a limited cost trader, which will be included in new legislation.

Businesses using the scheme, or thinking of joining the scheme, will need to decide whether they are a limited cost trader. For some businesses - for example, those who purchase no goods, or who make significant purchases of goods - this will be obvious. Other businesses will need to complete a simple test, using information they already hold, to work out whether they should use the new 16.5% rate.

Businesses using the FRS will be expected to ensure that, for each accounting period, they use the appropriate flat rate percentage.

A limited cost trader will be defined as one whose VAT inclusive expenditure on goods is either:
less than 2% of their VAT inclusive turnover in a prescribed accounting period;
greater than 2% of their VAT inclusive turnover but less than £1000 per annum if the prescribed accounting period is one year (if it is not one year, the figure is the relevant proportion of £1000).
Goods, for the purposes of this measure, must be used exclusively for the purpose of the business but exclude the following items:
  • capital expenditure;
  • food or drink for consumption by the flat rate business or its employees;
  • vehicles, vehicle parts and fuel (except where the business is one that carries out transport services - for example a taxi business - and uses its own or a leased vehicle to carry out those services).

These exclusions are part of the test to prevent traders buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.

Updating the VAT Avoidance Disclosure Regime
As announced at Budget 2016 and following consultation, legislation will be introduced in Finance Bill 2017 to strengthen the regime for disclosure of avoidance of indirect tax. Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes. This will have effect from 1 September 2017.

Penalty for participating in VAT fraud
As announced at Budget 2016, Finance Bill 2017 will introduce a new and more effective penalty for participating in VAT fraud. It will be applied to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The penalty will improve the application of penalties to those facilitating orchestrated VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. This will be implemented following Royal Assent of the Finance Bill 2017.

Power to examine and take account of goods at any place
The government will introduce legislation in Finance Bill 2017 to extend the current customs and excise powers of inspection. This will amend the Customs and Excise Management Act 1979 and enable officers to examine goods away from approved premises such as airports and ports, to search goods liable for forfeiture and open or unpack any container. This will take effect from Royal Assent of the Finance Bill 2017.

Retail Export Scheme
The government is to consult on VAT grouping and provide funding with a view to digitising fully the Retail Export Scheme to reduce the administrative burden to travellers.

Tackling exploitation of the VAT relief on adapted cars for wheelchair users
The government is to clarify the application of the VAT zero-rating for adapted motor vehicles to stop the abuse of this legislation, while continuing to provide help for disabled wheelchair users.

Indirect taxes

Landfill tax
As announced at Budget 2016, the definition of a taxable disposal for landfill tax purposes is to be amended in order to bring greater clarity and certainty. This will come into effect after Royal Assent of Finance Bill 2017, on a day to be appointed by Treasury Order
Insurance Premium Tax increase
Insurance Premium Tax (IPT) will increase from 10% to 12% from 1 June 2017. IPT is a tax on insurers and it is up to them whether and how to pass on costs to customers.

Air Passenger Duty (APD): regional review
A summary of responses is to be published shortly relating to a recent consultation on how the government can support regional airports in England from the potential effects of APD devolution. Given the strong interaction with EU law, the government does not intend to take specific measures now, but intends to review this area again after the UK has exited from the EU.

Freeplays in Remote Gaming Duty
Following the consultation announced at Budget 2016, the government will legislate in Finance Bill 2017 to bring the tax treatment of freeplays for remote gaming more in line with the treatment for free bets under General Betting Duty. The changes will take effect for accounting periods beginning on or after 1 August 2017.

Tobacco Illicit Trade Protocol: licensing of tobacco machinery and the supply chain
Following consultation the government will legislate in Finance Bill 2017 to introduce a licensing scheme for tobacco machinery to allow officials to quickly determine whether machines are being held legally. Applications for licences will be accepted from January 2018 and the scheme will come into force on 1 April 2018.

Implementation of the Fulfilment House Due Diligence Scheme
As announced at Budget 2016 and following a consultation on the scope and design of the scheme, the government will legislate in Finance Bill 2017 to introduce a new Fulfilment House Due Diligence Scheme in 2018. This will ensure that fulfilment houses play their part in tackling VAT abuse by some overseas businesses selling goods via online marketplaces. The scheme will open for registration in April 2018.

Soft Drinks Industry Levy
Draft legislation for the Soft Drinks Industry Levy will be published on 5 December 2016.

Tax evasion and compliance

Emerging insolvency risk

HMRC intend to develop their ability to identify emerging insolvency risk, using external analytical expertise. HMRC will use this information to tailor their debt collection activity, improve customer service and provide support to struggling businesses.

Offshore tax evasion
A new legal requirement is to be introduced to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.

Requirement to register offshore structures
The government intends to consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.
Hidden economy and money service businesses

The government will legislate to extend HMRC's data-gathering powers to money service businesses in order to identify those operating in the hidden economy.

Tackling the hidden economy
Following consultation, the government will consider the case for making access to licences or services for businesses conditional on them being registered for tax. It will also develop proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy. Further details will be announced in Budget 2017.

Tax administration

Making Tax Digital

In January 2017, the government will publish its response to the Making Tax Digital consultations and provisions to implement the previously announced changes.

Tax Enquiries: Closure Rules
The government will legislate to provide HMRC and customers earlier certainty on individual matters in large, high risk and complex tax enquiries.

Tax Avoidance

Disguised remuneration schemes

Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The government will now extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed. Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer's contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.

HMRC counter avoidance
The government is investing further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation, which is expected to bring forward over £450 million in scored revenue by 2021-22.

Finance Act 2016, which became law on 15 September 2016, contains provisions designed to help clarify the time allowed for making a self-assessment.

The time limit is four years from the end of the tax year to which the self-assessment relates. This is the same time limit as for assessments by HMRC. The provisions will have effect on and after 5 April 2017, although there are transitional arrangements for years previous to this, as follows:
  • for tax years prior to 2012/13, taxpayers have until 5 April 2017 to submit a self- assessment;
  • for 2013/14, the deadline is 5 April 2018;
  • for 2014/15, the deadline is 5 April 2019; and
  • for 2015/16, the deadline is 5 April 2020.

The four-year time limit applies to everyone and those that are currently outside the time limit have notice to put in their self-assessment by 5 April 2017.

The concept of 'finality' is a key feature of the self-assessment system. The time limit for HMRC to make enquiries into information given in a return is generally linked to the date it was submitted. For personal tax returns delivered by the filing date (generally 31 January following the end of the tax year), the enquiry window closes 12 months after the delivery date. Once this date has passed a taxpayer can usually assume that his affairs for that year are final.

However, finality of a return within the above timeframe can be jeopardised if HMRC discover a loss of tax. In cases of where there has been careless or deliberate behaviour resulting in the loss of tax, the normal four-year window may be extended to 20 years.

Many taxpayers are not aware of HMRC's discovery powers and even where they are aware of the possibility of discovery outside the enquiry window, they need to be aware that the subject of disclosure is itself not entirely free from doubt and may still be in a state of evolution.

The basic condition for a discovery assessment to make good a loss of tax is that an HMRC officer discovers income or gains which have not been assessed, or an insufficient assessment, or an excessive tax relief. However, this power is restricted in its application. Firstly, if the taxpayer has delivered a tax return containing an error or mistake, HMRC cannot make a discovery assessment if the return was based on the practice generally prevailing when it was made. Secondly, HMRC cannot make a discovery assessment unless one of the following conditions is satisfied:
  • the loss of tax, etc. was caused by careless or deliberate behaviour by the taxpayer or a person acting on his behalf; or
  • when HMRC can no longer enquire into the return, the officer could not have been reasonably expected from the information previously available to be aware of the matter giving rise to the discovery.

The taxpayer has the right of appeal against a discovery assessment on the ground that neither of the above conditions has been satisfied.

Taxpayers are required to exercise their judgment in providing the necessary level of disclosure. HMRC encourage submission of the minimum necessary, yet warn that 'Information will not be treated as being made available where the total amount supplied is so extensive that an officer 'could not have been reasonably expected to be aware' of the significance of particular information and the officer's attention has not been drawn to it by the taxpayer or taxpayer's representative.'

In the case of returns where discovery is a possibility, taxpayers must give careful thought to the question of disclosure.
The Finance Bill 2016 finally received Royal Assent on 15 September, enacting proposals announced in the 2016 Budget, Autumn Statement 2015 and Summer Budget 2015. Amongst other things, Finance Act 2016 includes provisions relating to income tax rates and allowances; restrictions on tax reliefs for travel and subsistence expenses (in effect since April 2016), the reduction of the lifetime allowance on pension contributions from £1.25m to £1m (again, effective from 6 April 2016); and the reduction in the main rate of corporation tax to 17% for financial year 2020.
The Act is based on George Osbourne's final Budget. The annual Finance Bill usually receives Royal Assent in early to mid-July. This year's extensive delay has been largely blamed on the Brexit referendum followed by the summer parliamentary recess.
Finance Act 2016 can be found online http://www.legislation.gov.uk/ukpga/2016/24/contents/enacted/data.htm.

This Budget was all about 'putting the next generation first'. The Chancellor said there are tough challenges ahead - financial markets are turbulent, productivity growth across the west is too low, and the outlook for the global economy is weak. However, the Government remains committed to its long term stability plan and will continue to put the next generation first - focusing on sound public finances to deliver security; lower taxes on business and enterprise to create jobs; reform to improve schools; investment to build homes and infrastructure; and help for working people who want to save for the future.

Last year, GDP grew by 2.2%. The Office for Budget Responsibility (OBR) now forecasts GDP will grow by 2% this year, then 2.2% in 2017, and then 2.1% in each of the three years after that. Although the forecasts have been revised down, the Chancellor said that because the country's problems have been confronted and difficult decisions taken in a long-term economic plan, the British economy is now set to grow faster than any other major advanced economy in the world.

With regards to public spending, the Chancellor said that the share of national income taken by the state will fall from its current level of 40% to 36.9% by the end of the decade, at which time the country will theoretically be spending no more than it raises in taxes. These figures mean that the Chancellor needs to be cutting public spending by an extra £35bn a year by 2019/20. There are no details yet on how this is going to be achieved, - the Treasury is to study the options.

The Chancellor focused heavily on tax avoidance and evasion. Changes in this area, which are expected to raise an additional £12bn over this Parliament, include:
  • shutting down disguised remuneration schemes;
  • ensuring that UK tax will be paid on UK property development;
  • changing the treatment of freeplays for remote gaming providers;
  • limiting capital gains tax treatment on performance rewards; and
  • capping exempt gains in the employee shareholder status.
In addition, public sector organisations will have a new duty to ensure that those working for them pay the correct tax rather than giving a tax advantage to those who choose to contract their work through personal service companies. Further, loans to participators will be taxed at 32.5% to prevent tax avoidance; and the rules governing the use of termination payments are to be tightened. Termination payments over £30,000 are already subject to income tax. From 2018, they will also attract employer national insurance. Last year's Budget delivered various measures designed to improve productivity, such as the apprenticeship levy and the national living wage. This theme was continued in this year's Budget Statement and, again intertwining well with the 'putting the next generation first' theme, the Chancellor set out five key areas for change, including plans for fundamental reform of the business tax system, devolution of power to local councils; new commitments to future national infrastructure projects; improvements to education; and incentives to help people save.
The controversial 'sin tax' - the sugar levy - will be introduced in 2018. The levy will be assessed by reference to the sugar contents in soft drinks. The expected £520m revenue raised from this tax will be used to extend the school day with sporting activities for children.

Faced with concerns that people are not saving for the future, the Chancellor announced that annual ISA limit will be rising from just over £15,000 to £20,000 from April next year. In addition, a new lifetime ISA will be introduced from April 2017.

This newsletter provides a summary of the key tax points from the 2016 Budget Statement based on the documents released on 16 March 2016. It is possible that changes will be made between now and the publication of the Finance Bill, which is expected on 24 March 2016. We will keep you informed of any significant developments.

Personal allowance and basic rate limit for 2017-18

The personal allowance for 2017-18 will be increased to £11,500, and the basic rate limit will be increased to £33,500. The higher rate threshold will be £45,000 in 2017-18.

Personal savings allowance

The previously announced tax-free personal savings allowance (PSA) will take effect from 6 April 2016, for savings income paid to individuals. This means that basic rate taxpayers will be able to receive up to £1,000 a year of savings income, and higher rate taxpayers up to £500 a year, tax-free. The PSA will not be available to additional rate taxpayers. Also from this date, banks, building societies and NS&I will cease to deduct tax from account interest they pay to customers.

Starting rate of savings tax

The band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2016-17.

Changes to dividend taxation

From 6 April 2016, the dividend tax credit will be replaced by a new dividend allowance in the form of a 0% tax rate on the first £5,000 of dividend income per tax year. UK residents will pay tax on any dividends received over the £5,000 allowance at the following rates:
  • 7.5% on dividend income within the basic rate band;
  • 32.5% on dividend income within the higher rate band; and
  • 38.1% on dividend income within the additional rate band.
In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual's income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice. Dividends received on shares held in an individual savings account (ISA) will continue to be tax-free. The dividend allowance will apply to dividends received from UK resident and non-UK resident companies.

Preventing liability to charge being removed from certain taxable benefits in kind

Legislation will be included in Finance Bill 2016 to clarify that the concept of 'fair bargain' applies only to general taxable benefits where the taxable amount is based on the cost to the employer of providing the benefit. The legislation will specifically exclude employees who work for an employer where the employer trades in the provision of hire cars to the public. In the circumstances where the employee hires a car from the employer at the same cost and under the same terms and conditions as any member of the public, there will not be a benefit in kind charge. The measure will have effect on and after 6 April 2016.

Royalty withholding tax

Legislation will be introduced to provide additional obligations to deduct income tax at source from royalties paid to certain non-resident persons where either:
  • arrangements have been entered into which exploit the UK's double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world;
  • the category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law; or
  • royalties which do not otherwise have a source in the UK are connected with the business that a non-UK resident person carries on in the UK through a permanent establishment in the UK
The measure will have effect for payments made under tax avoidance arrangements from 17 March 2016. The change to the definition of royalties to which deduction of tax applies and the change to the source rules in respect of royalties paid under obligations which are connected with a permanent establishment in the UK will have effect for payments made on or after the date Royal Assent to the Finance Bill 2016.

Bad debt relief for peer-to-peer investments
Individuals investing in certain peer-to-peer (P2P) loans will be allowed to set the losses they incur, from loans which default, against income that they receive from other P2P loans. An individual's personal savings allowance will apply to interest they receive from P2P lending after any relief for bad debts.

The relief will apply to losses incurred on all P2P eligible loans on or after 6 April 2016. It will also allow individuals to make a claim for relief on losses arising on eligible P2P loans between 6 April 2015 and 5 April 2016.

Exclusion of energy generation from the tax advantaged venture capital schemes

The venture capital schemes excluded activities list is to be amended so that any company whose trade consists substantially of energy generation activities (including the production of gas or other fuel) will be unable to use such schemes.

This change has effect from 6 April 2016, and applies to the seed enterprise investment scheme (SEIS), enterprise investment scheme (EIS) and venture capital trusts (VCTs). These activities will also be excluded from social investment tax relief (SITR) when this scheme is enlarged (expected within six to twelve months).

EIS and VCT revisions

Changes are being made to ensure that the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) legislation introduced by F(No2)A 2015 works as intended. The changes include:
  • clarification of the method for determining the 5 year period for the average turnover amount and the relevant 3 preceding years for the operating costs conditions for both EIS and VCTs to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period.
  • a new condition to clarify the non-qualifying investments a VCT may make for liquidity management purposes. The legislation will be introduced in Finance Bill 2016 and will have effect from 18 November 2015 for shares issued under EIS and for investments made by VCTs for determining the relevant accounting period of a company, although an investee company may elect to apply the existing legislation for investments received between 18 November 2015 and 5 April 2016 inclusive, and from 6 April 2016 for non-qualifying investments made by a VCT.

Treatment of income from sporting testimonials

Legislation will be included in Finance Bill 2016 to confirm that all income from sporting testimonials and benefit matches for an employed sportsperson will be chargeable to tax, and liable to employee and employers' National Insurance contributions. This treatment will, however, be subject to an exemption of £100,000 of the income received during the testimonial year, except where there is a contractual entitlement or customary right to the sporting testimonial or benefit match.

Independent testimonial committees will need to operate PAYE where the total proceeds from a non-contractual sporting testimonial or benefit match for a sportsperson exceed £100,000.

These provisions will have effect for the income from non-contractual or non-customary sporting testimonial events held on or after 6 April 2017, where the testimonial has been awarded on or after 25 November 2015. Income from sporting testimonial events held on or after 6 April 2017, where the testimonial or benefit match was awarded before 25 November 2015, will be subject to existing arrangements.

Retention of the three percentage point supplement for diesel cars

The three percent supplement for diesel company cars, which was due to be abolished with effect from 6 April 2016, is to be retained until April 2021 when EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions. The appropriate percentage for a diesel company car will therefore continue to be three percentage points higher than the petrol car equivalent, up to a maximum of 37%.

Setting company car tax rates for the 3 years to 2019 to 2020

Legislation will be introduced in Finance Bill 2016 to make the following changes:
  • the appropriate percentage which is applied to the list price of company cars subject to tax will increase by 3 percentage points to a maximum of 37% in 2019 to 2020.
  • there will be a 3 percentage point differential between the 0-50 and 51-75g CO2/km bands and between the 51-75 and 76-94g CO2/km bands.The legislation will also set the level of the appropriate percentage for the years 2017 to 2018 and 2018 to 2019 for cars which do not have a registered CO2 emissions figure and which cannot produce CO2.Van benefit charge for zero emissions vans

Legislation will be introduced in Finance Bill 2016 to apply the level of the van benefit charge for zero-emissions vans at 20% of the charge for conventionally fuelled vans for the tax years 2016-2017 and 2017-2018. This defers the planned increase to 40% of the van benefit charge for conventionally-fuelled vans to 2018-2019.

The van benefit charge for zero emission vans will be 60% of the van benefit charge for conventionally fuelled vans in 2019-2020, 80% in 2020-2021 and 90% in 2021-2022. From 2022-2023, the van benefit charge for zero emission vans is 100% of the van benefit charge for conventionally-fuelled vans.

Statutory exemption for trivial benefits-in-kind

A statutory exemption will apply from 6 April 2016, which will exempt from income tax and National Insurance contributions low-value benefits-in-kind which meet certain qualifying conditions, including a £50 limit per individual benefit. Qualifying 'trivial' benefits-in-kind provided to directors or other office holders of close companies, or to members of their families or households, will be subject to an annual cap of £300.

Employment intermediaries and relief for travel and subsistence

From 6 April 2016, certain temporary workers will not be able to claim tax relief or a disregard for National Insurance contributions (NICs) on the travel and subsistence expenses they incur on an ordinary commute from home to work. The restrictions will apply to workers who are employed through an employment intermediary, such as an umbrella company, or a recruitment agency/employment business, and who are supplying personal services (largely supplying their skills or labour) under the supervision, direction or control, of any person, in the manner in which they undertake their role.

Those individuals who supply their services through small limited companies, generally known as personal service companies, will no longer be able to claim tax relief or a NICs disregard for those contracts where they are required to operate the intermediaries legislation (commonly known as IR35), or they would otherwise be operating IR35 if they were not receiving all their remuneration as employment income.

Employee share schemes: simplification of the rules

Following recommendations from the Office of Tax Simplification (OTS), a number of changes are being made to the rules for employment-related securities (ERS) and ERS options. Broadly, the changes will:
  • for non-tax advantaged schemes, clarify the tax treatment for internationally mobile employees (IMEs) of certain ERS and ERS options;
  • reinstate rules for share incentive plans (SIPs) previously repealed, to enforce the principle that shares with preferential rights cannot be issued to selected employees only; and
  • permit late registration of tax-advantaged share schemes where the taxpayer had a reasonable excuse. The changes will generally take effect from Royal Assent to Finance Bill 2016. An amendment allowing a company controlled by an employee ownership trust to operate an enterprise management incentives (EMI) scheme will be backdated to 1 October 2014. A further change will provide that, following a company takeover, minority shareholders holding qualifying share options in an EMI will have the right for their share options to be acquired by the offeror without losing their tax advantage. This change will be backdated to 17 July 2013. (TIIN 9 December 2015)

Netherlands Benefit Act for victims of persecution 1940 to 1945

Payments made by the Netherlands government through the 'Wet uitkeringen vervolgingsslachtoffers 1940 to 1945' scheme for victims of national-socialist and Japanese aggression during World War 2 are exempt from income tax, with effect from 6 April 2016. (TIIN 9 December 2015)

Extension of averaging period for farmers

The period over which an individual who carries on a qualifying trade of farming, market gardening or the intensive rearing of livestock or fish, is allowed to average their profits for income tax purposes is to be extended from two years to five years. The option to average over two years will, however, continue. The measure will have effect for averaging claims made for 2016/17 and subsequent tax years.

Finance Bill 2016 will also include provisions to simplify the rules for farmers and creative artists who can benefit from two-year averaging, by removing marginal relief so that full averaging relief will be available where the profits of one year are 75% or less of the profits of the other year. (TIIN 9 December 2015)

Deductions at a fixed rate

Legislation will be introduced in Finance Bill 2016 to amend the simplified expenses legislation in ITTOIA 2005 to clarify how the provisions in respect of business use of home and premises used both for business and as a home apply to partnerships. This change, which is designed to ensure that partnerships and individuals are treated in the same way, applies from 6 April 2016.

The amended provisions will make it clear that the fixed rate deduction for use of home for business can be claimed by individual partners where appropriate, and also that partnerships can use the fixed rate non-business use adjustment where premises are used mainly for business but are also used as a home by a partner or partners.

Extending ISA tax advantages after the death of an account holder

The individual savings account (ISA) savings of deceased individuals will continue to benefit from income tax and capital gains tax advantages, where those savings are retained in an ISA.

The change is expected to take effect during 2016/17, following Royal Assent to Finance Bill 2016, consultation on further detail of the change and amendment of the ISA rules by secondary legislation.

Investment managers: performance linked rewards

A statutory test is being introduced to determine whether carried interest should be taxed as capital gains or income. This will be determined by testing the average period for which the fund holds assets. All returns which are not subject to capital gains tax (CGT) will be chargeable to income tax and Class 4 National Insurance contributions (NICs) as trading profits. This change is designed to ensure that a carried interest structure only attracts CGT treatment in relation to funds which carry on long-term investment activity, and will apply to sums of carried interest arising on or after 6 April 2016, whenever the arrangements giving rise to those sums were entered into.

Broadly, where an individual performs investment management services for a collective investment scheme, then any sum of carried interest arising from that fund will only be eligible for CGT treatment if the fund holds investments, on average, for at least four years. Partial CGT treatment will be available where the average holding period is between three and four years. Where the average hold period is below three years all sums of carried interest arising to the individual, however structured, will be charged to tax and NICs as trading profits.

This change will not affect the taxation of performance-linked rewards which are already charged to income tax, and it will not impact on co-investments made in the fund by fund managers or an arm's length return on such a co-investment.

Reform to the wear and tear allowance

In relation to expenditure incurred on or after 1 April 2016 (for corporation tax) and 6 April 2016 (for income tax), the existing wear and tear allowance for fully furnished properties will be replaced with a relief enabling all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The new relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, less any proceeds received for, the asset being replaced.

The amount of the deduction will be:
  • the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
  • the incidental costs of disposing of the old item or acquiring the replacement; less
  • any amounts received on disposal of the old item.
This deduction will not be available for furnished holiday lettings, as capital allowances continue to be available for them. The renewals allowance for tools (ITTOIA 2005, s 68; CTA 2009, s 68) will no longer be available for property businesses.

Tackling disguised remuneration avoidance schemes overview of changes and technical note

The Government is to bring forward a package of changes designed to tackle the use of disguised remuneration avoidance schemes. Initial legislation will be included in Finance Bill 2016 and further legislation will follow in future Finance Bills following a technical consultation. The first measure aims to prevent attempts to exploit the disguised remuneration legislation by inserting an additional targeted anti-avoidance rule (TAAR) with effect from 16 March 2016. The transitional relief on investment returns will also be withdrawn after 30 November 2016. The relief was intended to work alongside the EBT Settlement Opportunity, which closed on 31 July 2015. Anyone who has not settled with HMRC on or before 30 November 2016 will not qualify for the relief.

Applying 'English Votes for English Laws' to income tax

Changes to the current law will ensure that the Government meets its commitment that the 'English Votes for English Laws' (EVEL) procedure can apply to the main rates of income tax. From 6 April 2017, to coincide with the further devolution of income tax powers to the Scottish government, the government will legislate to separate the income tax rates that apply to savings (the savings rates), from those that apply to non-savings, non-dividends income (the main rates).

Simple assessment

HMRC are to be given new powers which will enable them to make income tax or capital gains tax assessments without the taxpayer first being required to complete a self-assessment tax return. The new provisions will allow HMRC to assess a person's tax liability on the basis of information held by them. For example, they will be used where it is not possible to collect the whole of a person's annual income tax liability through PAYE, and HMRC have sufficient information about the individual to make the assessment. This change will have effect on and after the date of Royal Assent to Finance Bill 2016.

Time limits for self-assessment

The time allowed for making a self-assessment is to be clarified by Finance Bill 2016. The time limit is four years from the end of the tax year to which the self-assessment relates. This is the same time limit as for assessments by HMRC. This measure will have effect on and after 5 April 2017, although there are transitional arrangements for years previous to this, as follows:
  • for tax years prior to 2012/13, taxpayers have until 5 April 2017 to submit a self- assessment;
  • for 2013/14, the deadline is 5 April 2018;
  • for 2014/15, the deadline is 5 April 2019; and
  • for 2015/16, the deadline is 5 April 2020.
The four year time limit applies to everyone and those that are currently outside the time limit have notice to put in their self-assessment by 5 April 2017. (TIIN 9 December 2015)

Gift Aid intermediaries
HMRC are to be given power to impose penalties on the intermediary sector if they fail to comply with requirements set out in secondary legislation. This change means that if intermediaries are fully compliant with HMRC requirements, donors and charities will be protected - currently, if the intermediary fails to comply, the donor or the charity would be liable to pay the shortfall.

The primary legislation (amendment to ITA 2007, s 428) will take effect on the date detailed regulations are laid. These regulations will set out the detailed operating models for intermediaries.

Lifetime ISA and ISA limit

The overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017.

From April 2017, a new Lifetime ISA will be available for adults under the age of 40. The Lifetime ISA is aimed at helping young people save flexibly for the long-term, allowing them to save for a first home and for their retirement, without having to choose one over the other.

A person can open a Lifetime ISA account between the ages of 18 and 40 and they will be able to contribute up to £4,000 per year, and anything put in before their 50th birthday will receive a 25% bonus from the government. This means that over a lifetime, a saver will be able to have contributions of £128,000 matched by the government for a maximum bonus of £32,000. Funds, including the government bonus, from the Lifetime ISA can be used to buy a first home in the UK worth up to £450,000 at any time from 12 months after the account opening, and be withdrawn from age 60. If a person withdraws their money before they are 60 (unless they have a terminal illness) they will lose the government bonus (and any interest or growth on it) and will also have to pay a 5% charge.

Individuals will be able to transfer savings from other ISAs as one way of funding their Lifetime ISA. During the 2017/18 tax year only, those who already have a Help to Buy: ISA will be able to transfer those funds into a Lifetime ISA and receive the government bonus on those savings.

Capital gains tax
Changes to capital gains tax rates

Legislation will be included in Finance Bill 2016 to reduce the rate of capital gains tax from 18% to 10% where the person is a basic rate taxpayer and from 28% to 20% where the person is a higher rate taxpayer or a trustee or personal representative, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief), and carried interest.

Provisions will also make clear that a residential property interest includes an interest in land that has at any time in the person's ownership consisted of or included a dwelling and an interest in land subsisting under a contract for an off-plan purchase. Rules will set out how gains should be calculated in the case of mixed use properties.

This change will have effect for relevant gains accruing on or after 6 April 2016.

Disposals of UK residential property by non-residents

The capital gains tax (CGT) provisions for disposals of UK residential property by non-residents (NRCGT) are being amended. Broadly, the computations required in relation to a disposal will be corrected and HMRC will be given news powers to prescribe circumstances in which an NRCGT return is not required. In addition, CGT is to be added to the list of taxes that the government may collect on a provisional basis between Budget day (or a day after the Budget), and the coming into operation of the subsequent Finance Act.

Amendments to the computations to put beyond doubt that a double charge does not arise will apply retrospectively to disposals made on or after 6 April 2015 and, in relation to an omission in how to compute the balancing gain, to disposals made on or after 25 November 2015.

The extension of HMRC powers provisions, and the inclusion of CGT on the government's provisional basis collection list, will apply from Royal Assent to Finance Act 2016.

Changes to rules to extend availability of Entrepreneurs' Relief on associated disposals

Entrepreneurs' Relief will be allowed on an 'associated disposal' of a privately-held asset when the accompanying disposal of business assets is to a family member. Relief can also be claimed in some cases where the disposal of business assets does not meet the present 5% minimum size condition.

Finance Act 2015 introduced new rules to combat abuse of ER. Whilst preventing the abuse, those rules also resulted in relief not being due on 'associated disposals' when a business was sold to members of the claimant's family under normal succession arrangements. It was announced at Autumn Statement 2015 that changes to mitigate the impact of the Finance Act 2015 rules on associated disposals in these circumstances were being considered. Legislation will be included in Finance Bill 2016 and the changes will be backdated to 18 March 2015, the date on which the Finance Act 2015 measures became effective.

This will be welcomed by owners of businesses who are retiring or reducing their participation in their business and passing it to other family members.

Entrepreneurs' relief: extension to long-term investors

The Chancellor announced that Entrepreneurs' relief (ER) will be extended to external investors in unlisted trading companies.

The extension to ER, introducing investors' relief, will apply to gains accruing on the disposal of certain qualifying shares by individuals (other than employees and officers of the company). In order to qualify for relief, a share must:
  • be newly issued, having been acquired by the person making the disposal on subscription for new consideration;
  • be in an unlisted trading company, or unlisted holding company of trading group;
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016;
  • have been held continually for a period of three years before disposal.
The rate of capital gains tax charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors' relief subject to a lifetime cap of £10 million per individual. Rules will ensure that this limit applies to beneficiaries of trusts.As the relief is designed to attract new capital into companies, avoidance rules set out in the Finance Bill 2016 legislation will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.

This change extends ER to external investors and is intended to provide a financial incentive for individuals to invest in unlisted trading companies over the long term.

Lifetime limit on employee shareholder status exemption

The Chancellor announced that for Employee Shareholder shares issued as consideration for entering into Employee Shareholder Agreements from midnight at the end of 16 March 2016 there will be a lifetime limit of £100,000 capital gains tax (CGT) exempt gains. Any past or future gains, realised or unrealised, on Employee Shareholder shares that were issued in respect of Employee Shareholder agreements made before midnight at the end of 16 March 2016 will not count towards the limit.

When Employee Shareholder shares issued as consideration for entering into Employee Shareholder Agreements from midnight at the end of 16 March 2016 are disposed of, gains made in excess of the lifetime limit will be chargeable to CGT.

For transfers of Employee Shareholder shares between spouses or civil partners, the transfer will be treated as being for consideration which gives rise to a gain equal to the transferor's unused lifetime limit, subject to the over-riding condition that the consideration does not exceed the market value of the shares transferred. This amount will fix the acquisition cost in the hands of the spouse.

Inheritance tax
Reforms to the taxation of non-domiciles

The existing inheritance tax (IHT) deemed domicile provisions for individuals are to be aligned with the proposed changes for income tax and capital gains tax. This will mean that an individual will become deemed domiciled for IHT purposes if they have been resident in at least fifteen of the previous twenty tax years (the 'long-term residence rule').

In addition, individuals born in the UK with a UK domicile of origin at birth who subsequently acquire a domicile of choice elsewhere will be deemed domiciled for IHT purposes whilst they are resident in the UK, provided they were resident in at least one of the previous two tax years ('returning UK domiciles').

Overseas property settled into trust by returning UK domiciles while they were domiciled elsewhere will also be subject to IHT once the individual has been resident in the UK in at least one of the previous two tax years. However, once the individual leaves the UK and ceases to meet the residence conditions, that trust property will be excluded for IHT purposes. These changes will apply from 6 April 2017.

Treatment of pension scheme drawdown funds on death

The scope of the current inheritance tax (IHT) exemption is to be extended, so that the failure to draw down all of the designated funds before a pension scheme member's death will not trigger an IHT charge. This minor change will ensure that the exemption applies as originally intended, and will therefore be backdated and apply to deaths on or after 6 April 2011.

Compensation and ex-gratia payments for victims of persecution during the World War 2 era

The practice currently afforded by extra statutory concession (ESC) F20, which gives an inheritance tax (IHT) exemption in respect of certain compensation and ex-gratia payments for World War 2 claims, is to be put on a statutory footing. In addition, the scope of the existing concession will be extended to include a one-off compensation payment of €2,500 made under a recently created scheme known as the Child Survivor Fund, and will allow the Treasury to add any further schemes to the current list by way of regulations.

The current ESC had effect until 1 January 2015, but the legislation to be included in Finance Bill 2016 will be backdated to that date.

Business tax
Cut in corporation tax rate

The rate of corporation tax will be reduced to 17% with effect from 1 April 2020 instead of the 18% rate previously announced.

Anti-hybrids rules

Following the OECD/G20 Base Erosion and Profit Shifting project and subsequent HMRC consultation in 2015, rules will be introduced to address hybrid mismatch arrangements. The rules will take effect from 1 January 2017 and will prevent multinational enterprises avoiding tax through the use of certain cross-border business structures or finance transactions.

Insurance linked securities

Finance Bill 2016 give the Government powers to make statutory instruments to deal with the treatment of insurance linked securities issued in the UK. Insurance linked securities are a means of transferring insurance risk to capital market investors. The legislation will allow regulations to determine the vehicles to which the rules will apply, the treatment of such vehicles, the conditions that must be satisfied to achieve that treatment, reporting requirements, the tax treatment of payments to investors in such vehicles and anti-avoidance provisions.

Rate of tax for the loans to participators charge

With effect from 6 April 2016, the rate of tax charged on loans to participators and other arrangements will be increased to the dividend income upper rate of tax of 32.5% from the existing rate of 25%.

Securitisation and annual payments

Existing regulation making powers concerning the taxation of securitisation companies will be changed to permit changes to existing regulations concerning the treatment of 'residual payments' made by securitisation companies. The changes will clarify that 'residual payments' will not be treated as annual payments which means that they can be paid without a withholding tax deduction.

The measure will be enacted in Finance Bill 2016 effective from the date of Royal Assent and the securitisation regulations will be changed following public consultation.

Updating the transfer pricing guidelines

Transfer pricing legislation will be updated to provide that the definition of 'transfer pricing guidelines' incorporates the revisions to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations published by the OECD in October 2015. These revisions were agreed as part of the OECD Base Erosion and Profit Shifting project. This measure will be achieved by updating the link between the UK transfer pricing rules and the OECD Guidelines which means that applying the UK rules will be done by reference to the revised OECD Guidelines. It will be enacted in Finance Bill 2016 effective for accounting periods beginning on or after 1 April 2016.

Extension of enhanced capital allowances for Enterprise Zones

The government is to ensure that all Enterprise Zones can offer Enhanced Capital Allowances (ECAs) for eight years from the establishment of relevant sites. ECAs in the form of a 100% first-year allowance for expenditure incurred by companies on qualifying plant or machinery in various assisted areas in Enterprise Zones (subject to certain conditions) were originally introduced for a five year period from 1 April 2012 to 31 March 2017. This was extended for a further three years to 2020, giving eight years of ECAs. From Royal Assent of Finance Bill 2016 the government propose that all Enterprise Zones will be entitled to eight years of ECAs from the date of their announcement.

The government is also to create a new Cornwall MarineHub Enterprise Zone, extend the Sheffield City Region Enterprise Zone (subject to necessary approvals and agreements) and create new Enterprise Zones at Brierley Hill and Loughborough and Leicester (subject to business case).

Business Tax Roadmap

The Business Tax Roadmap is a comprehensive document summarising the changes made to business taxation since 2010, and setting out various measures to take effect in the coming years as the government seeks to stimulate growth, respond to the OECD's BEPS project and modernise the tax system. The roadmap can be found at www.gov.uk/government/uploads/system/uploads/attachment_data/file/508173/business_tax_road_map_final.pdf.

Trading income received in non-monetary form

Legislation will be enacted to ensure that trading and property income received in non-monetary form is fully brought into account in calculating taxable profits for income tax and corporation tax purposes. The legislation will have effect in relation to trading and property business transactions occurring on or after 16 March 2016. State aid modernisation

In response to European Commission moves to modernise state aids, HMRC are to be given additional powers to collect information on state aids and to share this with the European Commission. The new powers will be provided for by legislation to be introduced in Finance Bill 2016 and will take effect from 1 July 2016.

Vaccine research relief

Vaccine research relief is to be removed in respect of expenditure incurred on or after 1 April 2017.

Representatives for overseas businesses and joint and several liability for online marketplaces

There are two aspects to this measure designed to protect the UK market from unfair online competition. Both come into effect from Royal Assent to the Finance Bill 2016.

Firstly, HMRC's power to direct an overseas business to appoint a VAT representative with joint and several liability is to be made more effective and HMRC is to be given greater flexibility when it comes to seeking security.

Secondly, HMRC will be allowed to hold an online marketplace jointly and severally liable for any unpaid VAT of an overseas business that sells goods in the UK on that marketplace. The notice so doing will specify a period of time (usually 30 days) during which the marketplace can avoid the liability by either securing the compliance of the overseas business or removing it from its online marketplace.

HMRC are to use these changed powers at their discretion on the highest risk cases. They will contact the overseas business directly in the first instance to gain compliance. If that fails then they will look to compulsorily register the overseas business for VAT in the UK, direct the appointment of a UK-established VAT representative or require an appropriate form of security. If compliance is still not forthcoming HMRC will then use its new power to put the relevant online marketplace on notice of joint and several liability.

HMRC will endeavour to give prior warning of any potential joint and several liability notice but where significant VAT revenue is identified no prior warning may be given. HMRC have advised that they will seek to collect the debt from a UK representative with joint and several liability first.

Revalorisation of registration and deregistration thresholds

From 1 April 2016, VAT thresholds are to be increased in line with inflation making the registration limit £83,000 (previously £82,000) and the deregistration limit £81,000 (previously £80,000). The limit applying to EU acquisitions also rises from £82,000 to £83,000.

Air passenger duty: rates

The rates of air passenger duty in relation to carriage of chargeable passengers on or after 1 April 2017 have been increased in line with the RPI. The increase in rates from 1 April 2016 which was announced in Budget2015 is confirmed.

Climate change levy: main and reduced rates

The climate change levy rates for supplies on and after 1 April 2017 and 1 April 2018 are increased in line with RPI. The rates from 1 April 2019 are to be increased to cover the lost revenue from the closure of the carbon reduction commitment.
The financial benefits of driving a company car have continued to erode over recent years, but this benefit remains one of the most popular and potent perks of a job. In general terms, less tax will be payable on 'greener' cars, but the tax charges on lower emissions vehicles are set to rise significantly in real terms over the next few years.

Two new appropriate percentage bands apply from 2015-16 for cars emitting between zero and 50gkm CO2, and between 51and 75gkm CO2, with the appropriate percentages set at 5% and 9% respectively. For cars emitting 76-94gkm CO2 the appropriate percentage band increased to 13% from 6 April 2015. Finance Act 2014 made further changes to increase these 'lower emissions' bands to 7% and 11% respectively from 2016-17. The appropriate percentage for cars with emissions of between 76-94gkm CO2 will rise to 15% from 6 April 2016.

It was announced at Budget 2014 that in 2017-18, the appropriate percentage for the 0-50gkm CO2 band will be 9% and 13% for the 51-75gkm CO2 band. Finance Act 2015 enacted these figures, together with the figure of 17% for the 76-94gkm CO2. Budget 2014 also announced that in 2018-19 and future years, the appropriate percentage for the 0-50gkm CO2 band will be 13% and 16% for the 51-75gkm CO2 band. Again, Finance Act 2015 enacted these figures, together with the figure of 19% for the 76-94gkm CO2.

If the emissions figure is equal to the relevant threshold, the appropriate percentage is 14% for 2015-16, rising to 16% in 2016-17. If the emissions figure exceeds the relevant threshold, the threshold percentage is increased by one percentage point for every 5gkm CO2 in excess of the relevant threshold up to a maximum of 37% for 2015-16 and subsequent years.

Although the tax payable on cars with lower emissions is still considerably lower than those with higher outputs, the increases set to take effect over the next few years will mean 'greener' company car drivers will experience steeper increases in the resulting tax payable.

It is worth noting that up to £5,000 may be deducted from the list price calculation for any capital contribution made by the employee, which could be provided in the form of an interest-free or low interest loan from the employer. This may help to reduce the tax payable on the provision of a company car.