HMRC will shortly publish a list of avoidance schemes that it believes to be ineffective, to discourage potential users of these schemes, and has said that it will challenge these schemes when encountered. It will also commence discussions with interested parties about extending the hallmarks used to identify avoidance schemes and increasing penalties for the non-compliant (for background, see Practice note, Direct tax disclosure regime. This summer the government will consult on improvements to the transactions in securities rules (see Practice note, Tax clearances: transactions in securities) and publish a consultation document on greater alignment of the purpose tests in tax law.

(See Budget 2009 - Press Notice 3 and Budget Report, paragraph 4.53.)

Legislation will be introduced to reduce the scope for avoidance schemes which involve routing loans and other financial transactions through an investment subsidiary, where the income is taxed differently from the parent. HMRC is currently involved in a dispute with at least one major banking group over the application of the Finance Act 2005 anti-avoidance legislation to artificial structures that are avoiding millions of pounds of tax. The measures, the draft legislation for which has not yet been released, will take effect from 22 April 2009.

(See 2009 Budget - BN60 - Double Taxation Relief Avoidance: Credit Abuse.)

The Finance Bill 2009 will include provisions relating to the corporate intangible fixed asset regime. For more detail on the taxation of intangible assets see Practice note, Intangible property: tax.

The provisions are intended to clarify the existing regime with a view to preventing tax avoidance. Specifically, they will confirm that, for the purposes of the corporate intangible fixed asset regime:

The legislation will have effect on and after 22 April 2009 and will be treated as always having had effect.

(See Budget 2009 - BN31 - Corporate intangible fixed asset regime.)

The Finance Bill 2009 will deny or withdraw double taxation relief for a UK company, where foreign tax is repaid to the company or a permanent establishment or subsidiary of it.

The legislation will take effect from 22 April 2009.

(See 2009 Budget - BN61 - Double taxation relief avoidance: repayment of foreign tax.)

The Finance Bill 2009 will deny relief for employment-related liabilities and losses where the liability or loss results from arrangements the main purpose or one of the main purposes of which is the avoidance of tax.

HM Treasury announced that it would introduce legislation to counteract these schemes on 12 January 2009 and 1 April 2009 and HMRC published draft legislation on 1 April 2009. For further details, see Legal update, More schemes that seek to generate losses from employment income blocked and Legal update, HMRC moves to block a tax deduction scheme in respect of employment-related liabilities.

The legislation will apply to employment-related liabilities and losses arising on or after 12 January 2009. However, in view of the retroactive nature of the anti-avoidance measures, provisions will be included to prevent penalties and surcharges arising in certain circumstances.

(See 2009 Budget - BN58 - Avoidance using employment income legislation.)

The Finance Bill 2009 will counter two avoidance schemes notified to HMRC under the tax avoidance disclosure rules. Draft legislation has not been published but the essence of the proposed anti-avoidance legislation is as follows:

(See 2009 Budget - BN32 - Financial arrangements avoidance.)

A targeted anti-avoidance rule will be introduced to counteract schemes which exploit the foreign exchange (forex) matching rules for avoidance purposes.

Broadly, the forex matching rules allow companies to "match" non-sterling shares with, for example, a loan or derivative in the same non-sterling currency. Once matched, exchange gains and losses on the loan or derivative are ignored for corporation tax purposes until the shares are sold. (For further detail, see Practice note, Derivatives: tax.)

The new measure will prevent matching of exchange gains or losses on derivative contracts in the two following circumstances:

The legislation will apply to accounting periods beginning on or after 22 April 2009. Where an accounting period straddles 22 April 2009, the new measures will apply to exchange gains or losses arising between 22 April 2009 and the end of the accounting period.

(See 2009 Budget - BN35 - Foreign exchange losses: targeted anti-avoidance rule.)

The Finance Bill 2009 will restrict tax relief for interest payments on loans used to invest in partnerships and close companies and which are guaranteed to produce a post-tax profit.

The measure was announced by HM Treasury on 19 March 2009 and HMRC published draft legislation and an explanatory memorandum shortly after. For further details, see Legal update, Draft legislation counteracting avoidance involving interest relief. The draft legislation has been amended since then with a view to ensuring that the normal commercial transactions are not affected.

The legislation will apply to interest payments made on or after 19 March 2009.

(See 2009 Budget - BN38 - Anti-avoidance: interest relief.)

The 2009 Budget confirmed that legislation will be introduced in the Finance Bill 2009 to counter avoidance involving the leasing of plant and machinery with effect from 13 November 2008. For details, see Legal update, Pre-Budget Report 2008: key business tax announcements: Leasing: anti-avoidance measures confirmed.

In addition, for sales on or after 22 April 2009, changes are proposed to the definition of sale and leaseback in sections 216 and 221 of the Capital Allowances Act 2001 to cover a sale and leaseback to a person connected with the seller and unspecified changes are proposed "to reduce avoidance opportunities" (the latter will be assessed once draft legislation is available).

(See 2009 Budget - BN33 - Anti-avoidance: plant and machinery leasing.)

Legislation will be introduced in the Finance Bill 2009 to counter a scheme which enables groups to use the manufactured overseas dividend (MOD) rules in schedule 23A of ICTA 1988 to convert a pre-tax loss on an intra-group repo transaction into a post-tax profit (for background on the tax treatment of repos, see Practice note, Repos: tax).

The scheme relies on the recipient of the MOD claiming a deduction for foreign withholding tax on an overseas dividend that is treated under the MOD rules as suffered by the recipient of the MOD even though under the the terms of the repo the recipient does not economically suffer the cost of the withholding tax and receives the full amount of the overseas dividend. The legislation, which has not been published yet, will deny a deduction for foreign tax where the economic cost of the tax has not been borne by the recipient of the MOD. The measure will have effect on and after 22 April 2009.

(See Budget 2009 - BN59- Double taxation relief avoidance: banks using manufactured overseas dividends).

The Finance Bill 2009 will include legislation relating to transfers of income streams and disguised interest. These provisions are the result of a long period of consultation focusing on a principles-based approach to financial products avoidance.

The initial consultation was launched on 6 December 2007 (see further Legal update, Consultation on principles-based approach to financial products tax avoidance).

The original intention was to include the legislation in the Finance Act 2008. However, as part of the 2008 Budget, the introduction of this legislation was deferred until 2009 (see Legal update, Budget 2008: Financial products avoidance: disguised interest).

As part of the 2008 Pre-Budget Report, HM Treasury and HMRC published a new consultation document on the rules (see Legal update, Pre-Budget Report 2008: key business tax announcements: Principles-based approach to financial products avoidance: further consultation).

The foreign profits package will be introduced in the Finance Bill 2009. The package consists of four elements as follows:

For a background to these changes, see Legal update, Taxation of foreign profits of companies: analysis of 9 December 2008 draft legislation and Legal update, Foreign profits tax: details of proposed changes to the worldwide debt cap rules.

HMRC has now published operative dates for each of the above changes as follows:

HMRC has announced certain additional modifications to the foreign profits package:

(See 2009 Budget - BN05 - Taxation of Foreign Profits.)

A first-year allowance of 40% will be available for expenditure incurred on plant and machinery in the 12 month period commencing 1 April 2009 (for the purposes of corporation tax) or 6 April 2009 (for the purposes of income tax) and will apply to expenditure that would otherwise qualify for a writing-down allowance in the general pool at the rate of 20%. As this temporary allowance will not be available for expenditure on long-life assets, integral features, cars, or assets for leasing, taxpayers may wish to allocate their £50,000 100% Annual Investment Allowance, to the extent possible, against those non-qualifying items.

For more detail on plant and machinery allowances, see Practice note, Capital allowances on property transactions: Plant and machinery allowances (PMAs).

(See 2009 Budget - BN04 - Capital allowances: plant and machinery: temporary first-year allowance.

The main rate of corporation tax for the year commencing 1 April 2010 will be 28% for companies and groups whose profit for the accounting period exceeds £1.5 million (apart from companies with ring-fenced profits from oil extraction in the UK and UK continental shelf; for which it will be 30%). As announced in the Pre-Budget Report 2008, the rate for companies paying tax at the small companies rate (those with profits of less that £300,000) will remain at 21% for the tax year 2009-10, except for ring-fenced profits: these will be taxable at 19%. Rates for marginal relief will similarly remain unchanged.

(See 2009 Budget - BN02 - Corporation tax main rates and BN03 - Corporation tax small companies rate.)

Legislation will be introduced in the Finance Bill 2009 to allow companies to carry unused losses back or forward in the company's functional currency, rather than in sterling. This will mean that the sterling value of the losses as compared with the profits against which they are set will not fluctuate in line with exchange rates.

The changes introduced by this measure were announced by HM Treasury on 18 December 2008. HMRC published drafted legislation and an explanatory memorandum on 23 March 2009. For further detail, see Legal update, Draft legislation on tax treatment of foreign-denominated losses.

The new measure is intended to take effect for accounting periods beginning on or after 29 December 2007, although companies are to have the option of irrevocably electing to defer this date to the first accounting period beginning on or after the date the Finance Bill 2009 receives Royal Assent.

(See 2009 Budget - BN19 - Foreign denominated losses.)

The Finance Bill 2009 will include provisions to ensure that companies are not degrouped solely because they issue certain types of preference share.

The UK group relief rules set out rules for determining whether two companies are in the same group for tax purposes. For further detail see Practice note, Groups of companies: tax. The existing provisions ignore certain fixed rate preference shares when determining the group relationship.

HM Treasury announced on 18 December 2008 that it would introduce a measure to ensure that companies are not degrouped solely because they issue non-cumulative preference shares. For further detail on the announcement, see Legal update, Tax grouping rules and losses carried forward where sterling is not the functional currency. Draft legislation was subsequently published on 10 March 2009 (see Legal update, Draft legislation on effect of preference share issues on tax grouping). The draft legislation extended this treatment to preference shares whose dividends fluctuate by reference to a market interest rate or the retail price index and preference shares the dividends on which may be reduced if the issuer is in severe financial difficulties or for regulatory reasons.

The Budget announcement confirms that this legislation will be included in the Finance Bill 2009. The changes will apply to all accounting periods commencing on or after 1 January 2008, unless an election is made to retain the existing treatment of shares issued before 18 December 2008 (or shortly after where a commitment to issue the shares was entered into before that date).

(See 2009 Budget - BN17 - Group relief: preference shares.).

Legislation will be introduced in the Finance Bill 2009, with effect from Royal Assent, to facilitate the matching of chargeable gains and losses within groups of companies.

Where a company elects, section 171A of the Taxation of Chargeable Gains Act 1992 deems an asset to have been transferred from one group company to another group company before a disposal outside the group. However, an election cannot be made unless there is a disposal to a third party. For further detail on the existing rules, see Practice note, Groups of companies: tax: Chargeable gains.

The government intends that new provisions will amend section 171A so as to disapply the existing restrictions. Instead of deeming a transfer of an asset from one group company to another before the disposal, the provision will transfer a gain or loss from the company making the disposal to one or more other specified companies within the group when they jointly elect. This is a welcome extension of this role as it will apply to deemed disposals, including negligible value claims.

HMRC will publish a discussion document before the summer on further simplification of the group aspects of corporate gains and will consult this summer on further simplification of the associated companies rules.

(See Budget 2009 - BN28 - Groups: reallocation of chargeable gains and Budget Report, paragraph 4.53.)

It was announced in the 2008 Pre-Budget Report that, as a temporary measure only, businesses would be able to carry back trading losses against the profits of the three preceding years and obtain a repayment of tax see, Legal update, Pre-Budget Report 2008: key business tax announcements: Extension of trading loss carry-back for business. In the 2009 Budget, the Chancellor has doubled the length of the period in which losses arising may benefit from the extended carry-back.

For corporation tax purposes, the rule will apply to losses for accounting periods ending in the period 24 November 2008 to 23 November 2010 and for unincorporated businesses it will apply to trading losses made in 2008-09 and 2009-10 (the periods previously ended on 24 November 2009 and 6 April 2009 respectively). In both cases, the carry-back to the previous year remains unlimited. There is now a separate £50,000 cap for each of the two 12-month accounting periods ending in the relevant period, so that a total of £100,000 of losses can be carried back. (For accounting periods of less than 12 months, the £50,000 limit will apply pro-rata).

(See 2009 Budget: BN13 - Extension of trading loss carry back for business.)

The Finance Bill 2009 will ensure that where a company agrees with HM Treasury or another government department or agency to surrender its right to tax losses or other reliefs in connection with arrangements such as the Asset Protection Scheme or similar arrangements designated by the HM Treasury, such an agreement overrides the effect of those statutory provisions which would otherwise confer a tax relief automatically without a claim having to be made.

This is a technical amendment to the Corporation Tax Acts to deal with provisions such as section 393(1) of ICTA 1988 which provide for the automatic carry forward of trading losses from one accounting period to the next without a claim being required. The legislation will also clarify that there will be no tax relief for expenses or losses arising out of any relief forgone under such arrangements. The legislation will apply to qualifying arrangements entered into on or after 22 April 2009.

(See 2009 Budget - BN07 - Agreements to forgo tax reliefs).

The application of the mixer cap is to be amended, with effect from 1 April 2008, to ensure that the reduction in the corporation tax rate to 28% does not unjustly affect the amount of double taxation relief applying to foreign dividends by reference to the rate of corporation tax. Draft legislation was published on 8 April 2009 (see Legal update, Double tax relief on foreign income: draft legislation published).

(See 2009 Budget - BN29 - Double taxation relief on dividends.)

The government will review the balance of taxation of innovative activity in the UK, including intellectual property. The review will consider the relative attraction of the UK to global firms when they consider where to locate research and development activity and the possible impact of any tax reforms on location of investment and employment (and the place where IP assets are held). The government will publish its proposed approach before the 2009 Pre-Budget Report.

(See Budget Report, paragraph 4.34.)

The government has announced that it will introduce three new measures in the Finance Bill 2009, which will allow HMRC to:

The measures are part of a package of proposals consulted on in November 2008 (for further details, see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Payments, repayment and debt). In addition, HMRC published draft legislation for implementing the managed payment scheme and for tracing missing debtors in December 2008 (see Legal update, Interest, penalties, payment services and debt management: draft legislation published). The following two proposals mentioned in the November 2008 consultation document will not be implemented in the Finance Bill 2009 but HMRC will continue to consider them:

The government has indicated that managed payment plans will not be introduced before April 2011 and the collection of small debts through PAYE is likely to begin from April 2012. Power to trace missing debtors, however, will have effect from the date the Finance Bill receives Royal Assent.

(See 2009 Budget - BN88 - Review of HMRC powers, deterrents and safeguards: payments, repayments and debt; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations; Impact assessment for Payments, Repayments and Debt.)

The Finance Bill 2009 will extend the new compliance checking framework set out in Schedules 36 (information-gathering powers), 37 (record-keeping obligations) and 39 (alignment of time limits) to the Finance Act 2008 to:

This measure was consulted on in November 2008 (for further detail, see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Compliance checks). Draft legislation on record-keeping obligations and alignment of time limits was published in February 2009 (see Legal update, Record-keeping and time limits: draft legislation published).

HMRC has indicated that, as a result of the responses to the consultation, a number of changes to the draft legislation will be reflected in the Finance Bill 2009, including:

The measure introducing HMRC's information-gathering powers and taxpayers' record keeping obligations will be brought into effect by Treasury Order (expected to be from 1 April 2010). The alignment of time limits is not expected to become fully operative until 1 April 2011.

(See 2009 Budget - BN89 - Review of HMRC powers, deterrents and safeguards: compliance checks; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: compliance checks.)

Legislation will be included in the Finance Bill 2009 to reform the penalties regimes for late filing of returns and late payment of tax.

HMRC consulted on the proposed reforms in November 2008 (see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Penalties for late filing and late payment). Despite concern from respondents about the increased administrative burden on employers, the reforms will include penalties for late payment of in-year PAYE.

The new regime will require changes to HMRC's computer systems, and so will be phased in over a number of years. Penalties for late payment of in-year PAYE will be introduced first, in April 2010.

Under the new regime for in-year penalties for late payment of PAYE, penalties will depend on the number of defaults in any 12 month period:

The consultation proposed a number of methods for determining employers' compliance in this area, including possibly requiring employers to complete monthly returns, or expanding the annual PAYE return (form P35) to include information to break down the tax liability by month. Respondents to the consultation were concerned about the additional administrative burden of the proposals, particularly for small companies. HMRC therefore proposes initially to apply the new penalty regime for PAYE on a "risk assessment basis targeting the worst offending late payers", and that publicity for the new regime should help improve compliance rates.

Penalties for late filing where the obligation is annual or "occasional" will be as follows:

Penalties for late payment where the obligation is annual or "occasional" will be as follows:

Penalties for late filing of construction industry scheme returns will be as follows:

Penalties for late payment of tax will be suspended where the taxpayer has agreed a "time to pay" arrangement with HMRC.

Penalties will not be imposed where the taxpayer has a "reasonable excuse", and HMRC is considering expanding its guidance on the meaning of this phrase to take into account responses to its consultation document. Taxpayers will also have a right of appeal against all penalty decisions.

The government intends to introduce legislation in Finance Bill 2010 to align penalties for the remaining taxes and duties administered by HMRC (VAT, climate change levy, aggregates levy, landfill tax, air passenger duty, excise duties and insurance premium tax).

(See 2009 Budget - BN90 - Review of HMRC powers, deterrents and safeguards: penalties for late filing of returns and late payment of tax; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: Working towards a harmonised regime for interest and meeting the obligations to file returns and pay tax on time.)

The Finance Bill 2009 will create a harmonised interest regime for most taxes and duties, with the exception of corporation tax and petroleum revenue tax.

Current provisions provide for a range of interest regimes with a number of differences adding unnecessary complexity. The new provisions will replace the different regimes with a single legislative framework. HMRC consulted on proposals for harmonising interest in November 2008 (see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Interest) and published draft legislation in December 2008 (see Legal update, Interest, penalties, payment services and debt management: draft legislation published. HMRC has indicated that it proposes to pursue interest on late paid employers' in-year PAYE on a risk assessment basis.

Rates will be aligned by a series of Treasury Orders to have effect shortly after the date that the Finance Bill 2009 receives Royal Assent.

(See 2009 Budget - BN91 - Interest harmonisation; Modernising Powers, Deterrents and Safeguards: Responses to consultations and explanations and Impact assessment: Working towards a harmonised regime for interest and meeting the obligations to file returns and pay tax on time.)

The government has announced a new disclosure opportunity (NDO) for UK residents holding offshore accounts. The NDO is described as a final opportunity and will run from autumn 2009 to March 2010. It will allow account holders to make voluntary disclosures of unpaid tax. They will be expected to pay the tax that they owe plus interest and penalties. The level of penalty will be announced before the scheme opens and is likely to be lower than under normal rules. HMRC will also ask the permission of the First tier Tribunal to issue notices requiring financial institutions to provide information about offshore account holders.

The NDO was mentioned in the 2008 Pre-Budget Report (see Pre-Budget Report 2008: key business tax announcements: Offshore disclosure). For details of the previous disclosure procedure, see Legal update, Income Tax: Offshore bank accounts: disclosure procedure for taxpayers.

(See 2009 Budget - HMRC: Compliance Proposals. This information is confirmed in paragraph 5.97, Chapter 5, Economic and Fiscal Strategy Report; paragraph A.163, Chapter A, Financial Statement and Budget Report; and page 16, PN01 - Building Britain's future.)

The Finance Bill 2009 will include provisions intended to ensure the adequacy of accounting systems in large companies for the purposes of accurate tax reporting.

The new obligations will apply to large companies (defined as companies that are not "small" or "medium sized" for the purpose of the Companies Act 2006) and their senior accounting officers. The legislation will require:

The regime will be supported by penalties imposed on both the company and the senior officers personally in the case of non-compliance. The new legislation will apply to returns due to be made for accounting reference periods beginning on or after the date on which the Finance Bill 2009 receives Royal Assent. An Impact Assessment has also been published. This measure is almost certainly a response to recent high profile press reports about tax planning by large corporates and is likely to prove controversial in that sector. Companies affected will need to ensure that they have in place measure to monitor the adequacy of tax reporting functions.

(See 2009 Budget - BN62 - Corporate transparency: personal tax accountability of senior accounting officers of large companies and 2009 Budget - Final stage impact assessment: Corporate transparency: personal tax accountability of senior accounting officers of large companies.)

HMRC has launched a consultation on working with tax agents. This forms a part of its continuing review of Powers, Deterrents and Safeguards. The consultation considers HMRC's relationship with tax agents, including their wider role in terms of tax compliance. It also considers what changes can be made to improve and monitor agent performance.

It is estimated that there are 130,000 agents working in the UK, the majority of which are compliant. However, HMRC has concerns that changes in the market for tax advice and service, combined with the use of software, can lead to a deterioration in standards and poor practices. It continues to have concerns about volumes of mass marketed schemes by agents in the tax avoidance industry.

The consultation asks whether tax agents should be subject to an additional form of registration in order to assist in the monitoring of their performance. It also examines HMRC's existing powers to inspect information and documents from third parties. There is also consideration as to what sanctions (in the form of a new penalty regime) can be applied to agents who make mistakes or fail to take reasonable care.

(See Budget 2009 - HMRC consultation - Working with Tax Agents.)

Provisions in the Finance Bill 2009 will permit the publication of details of taxpayers penalised for deliberate tax defaults of more than £25,000. This measure will not apply to taxpayers who make a full unprompted disclosure or full prompted disclosure within the required time.

In addition, those who incur a penalty of £5000 or more for deliberate evasion of tax will be required to submit returns for up to the following five years showing more detailed information and detailing the nature and value of any balancing adjustments within the accounts.

(See 2009 Budget - BN63 - Publishing the names of deliberate tax defaulters. and Budget Report, paragraph A.162.)

HMRC's Business Payment Support Service (BPSS) was launched in November 2008, following the 2008 Pre-Budget Report, to assist viable businesses that, as a result of the credit crunch, were having difficulty in paying their tax. Taxpayers have been permitted to spread the payment of their VAT, PAYE and NIC, corporation tax and income tax liabilities over an agreed period.

As a result of the economic downturn, many businesses foresee a current year loss which, once agreed, will significantly reduce or eliminate the unpaid corporation tax or income tax liability for the earlier year. The BPSS is inviting viable businesses which find themselves in that position and which are genuinely unable to pay immediately to contact the service and discuss the position. HMRC is prepared to agree payment schedules for the outstanding corporation tax or income tax liability which extend beyond the date on which the current year loss will be ascertained.

(See 2009 Budget - Business Payment Support Service: Further extending our support to businesses.)

The Finance Bill 2009 will make it easier for taxpayers to reclaim overpaid tax. In particular, the requirement that the overpayment must be the result of a mistake in a return and that it must be made under as assessment, will be removed.

The legislation will take effect for claims made on or after 1 April 2010.

(See 2009 Budget - BN87 - Reclaiming income tax, capital gains tax and corporation tax overpayments.)

The Finance Bill 2009 will require HMRC to prepare and maintain a charter. The charter will set out standards of behaviour and values to which HMRC will aspire in dealing with taxpayers and others. The legislation will require the charter to be in place by 31 December 2009.

(See 2009 Budget - BN92 - HMRC charter.)

The income tax and pensions tax relief changes (see Top income tax rate for individuals increases to 50% from 2010-11 and Higher-rate relief restricted for pension contributions from April 2011) will clearly have a significant impact on high earners. There is likely to be even greater emphasis on structuring returns as capital, rather than income, although anti-avoidance rules, including those relating to transfers of income streams will make this is a challenge in many cases. For analysis and comment on how employees are affected, see PLC Share Schemes & Incentives, Legal update, Budget 2009: a changed tax environment for remuneration planning.

Entrepreneurs may want to consider taking out dividends in the current tax year, where cashflow permits, and possibly lending the funds back to the company.

The improvements to the enterprise investment scheme, announced in the 2008 Pre-Budget Report (as to which, see Legal update, Pre-Budget Report 2008: key business tax announcements: Enterprise Investment Scheme: making it more attractive) are confirmed. Accordingly, the following changes will be included in Finance Bill 2009:

Two further changes have been announced, which will be effected in the Finance Bill 2009:

These changes will take effect broadly from 22 April 2009 (the carry back change will apply from the tax year 2009/10).

For details of the venture capital schemes, see Practice note, Enterprise Investment Scheme, Practice note, corporate venturing scheme and Practice note, Venture capital trusts.

(See 2009 Budget - BN08 - Improvements to the venture capital schemes.)

The Finance Bill 2009 will include legislation to set the rates of company car tax for tax year 2011-12 and following years and make other changes to the taxation of company cars.

A car which is available for the employee's private use is a taxable benefit. The tax charge is calculated by reference to the list price of the car, and its carbon dioxide emissions (see Practice note, Taxation of employees: Cars).

The changes to taxation of company cars include:

(See 2009 Budget - BN64 - Changes to company car tax from 2011-12.)

Reforms to tax relief for business expenditure on cars come into effect on 1 April 2009 for businesses within the charge to corporation tax and 6 April 2009 for businesses within the charge to income tax.

The proposed changes to capital allowances rules applicable to cars have been the subject of a lengthy consultation process, which was announced in the 2006 Budget. Draft legislation was published at the time of the 2008 Pre-Budget Report, and following further consultation, revised draft legislation was published on 1 April 2009 (see Legal update, Tax relief for business expenditure on cars: revised draft legislation published).

The reforms are intended to simplify the capital allowances rules for cars, and align them with the government's environmental objectives by linking the tax reliefs to carbon dioxide emissions. The revised draft legislation also includes provisions to block two specific tax avoidance schemes.

(See 2009 Budget - BN65 - Modernising tax relief for business expenditure on cars.)

The Finance Bill 2009 will contain legislation to stop a scheme for avoidance of tax on the benefit of living accommodation using lease premiums.

The benefit of living accommodation provided by an employer to an employee is generally taxable (see Practice note, Taxation of employees: Living accommodation). If the employer pays the rent on a property, the taxable benefit is based on the amount of rent actually paid by the employer. The scheme HMRC proposes to block involves an upfront payment by the employer, described as a lease premium, and payment of a much lower rent, to avoid tax on the benefit.

Under the proposed legislation, a lease premium paid by the employer on a lease of up to ten years will be subject to the same tax treatment as rent, with the lease premium spread over the duration of the lease. The new legislation will apply to leases entered into or extended on or after 22 April 2009.

(See 2009 Budget - BN56 - Living accommodation provided by reason of employment: payments of lease premiums.)

Following HMRC consultations which began in November 2008, the 2009 Budget announced changes to the administration of the savings arrangements linked to HMRC-approved SAYE option schemes:

At the same time, the method by which HMRC will set rates by reference to market swap rates is expected to change, although this does not require any legislative amendments.

The changes are expected to take effect on 29 April 2009, the day after the Budget Resolutions are passed. For further information see,PLC Share Schemes & Incentives, Legal update, Budget 2009: changes to SAYE option scheme administration.

(See 2009 Budget - BN30 - Save As You Earn process simplification and

2009 Budget - Draft legislation - Certification of Save as You Earn savings arrangements.)

The government has decided not to proceed with the options outlined in the 2008 Pre-Budget Report, see Legal update, Pre-Budget Report 2008: key business tax announcements: Company tax simplification review. Instead, BERR will consider whether there is scope for simplifying the accounting requirements for micro companies and HMRC will consider whether the tax calculations for micro companies can be simplified.

(See Budget Report, paragraph 4.53.)

The government is to introduce legislation in the Finance Bill 2009 to provide relief from SDLT and the chargeable gains for persons wishing to raise finance by issuing alternative finance bonds secured using UK land assets. Further provisions will also entitle the person obtaining the finance to capital allowances whilst the land is held by the bond issuer.

These measures are intended to place alternative finance investment bonds backed by UK land assets on a level playing field with normal bond issuances by removing SDLT charges and capital gains tax on the transactions involved in setting up the bonds and preserving entitlements to capital allowances.

For background information, see Legal update, HMRC response to consultation on commercial sukuk and SDLT and Legal update, Islamic finance: HM Treasury and FSA publish discussion papers.

(See 2009 Budget - BN43 - SDLT, capital allowances and tax on capital gains: alternative finance investment bonds.)

The Finance Bill 2009 will implement the proposed tax disregard for profits and losses on a derivative contract entered into to hedge foreign exchange risk on the proceeds of a rights issue. For details of this proposal, see Legal update, Government announces measures to counteract exchange rate fluctuations during rights issues.

(See 2009 Budget - BN40 - Hedging proceeds from future share issues.)

The Finance Bill 2009 will amend the loan relationship rules affecting connected companies in relation to late paid interest and releases of trading and property business debts. Draft legislation has already been published (see Legal update, Late paid interest and releases of trade debts: draft legislation published and Legal update, Loan relationships: late paid interest rules: revised draft legislation published). It should be noted, however, that the change to releases of trade or property business debt will apply to releases taking place on or after 22 April 2009 (in contrast to the previously announced commencement date). As previously announced, the changes to the late paid interest rules will apply for accounting periods beginning on or after 1 April 2009.

(See 2009 Budget - BN06 - Corporation tax: Loan relationships: connected companies.)

As announced on 27 January 2009, legislation will be introduced to prevent the DCC Holdings decision on deemed payments of manufactured interest from affecting the tax treatment of real manufactured interest payments, commonly made under stocklending and repo transactions. The new legislation is intended to align the tax treatment of real and deemed manufactured interest payments with the accounting treatment in accordance with Generally Accepted Accounting Practice (GAAP) and will protect the government from "excessive" claims for tax relief in respect of real payments of manufactured interest.

The legislation will be retrospective in that it will apply not only to real and deemed payments of manufactured interest made on or after 27 January 2009 but also to past real payments where the tax return is still open (see Legal update, Manufactured interest rules: draft legislation published following DCC Holdings judgment).

(See 2009 Budget - BN39 - Manufactured Interest.)

Legislation will be introduced in the Finance Bill 2009 to amend schedule 10 to the Finance Act 2006 relating to transactions involving partnerships and consortia and extend the period over which losses triggered by the operation of Schedule 10 may be used by the purchasing group.

Schedule 10 applies to sales of leasing companies on or after 5 December 2005. It seeks to prevent profitable groups from extracting, by way of group relief, for example, the benefit of capital allowances on plant and machinery owned by group companies which carry on leasing activities and then selling the leasing companies to loss-making groups when the leasing companies begin to make taxable profits as capital allowances amortise away.

Schedule 10 operates, very broadly, to recapture (on the day of a "qualifying change of ownership" of the lessor company), some of the capital allowances given to the lessor company. This is done by treating the lessor as receiving an amount of income broadly equal to the difference between the balance sheet value of the plant or machinery and the tax written down value of the plant or machinery. An accounting period ends on the date of the change of ownership. The amount of the deemed income is then allowed as a "matching expense" which is treated as incurred on the day after the change in ownership of the lessor company. This matching expense cannot be carried back (paragraph 5 of Schedule 10). In this way, capital allowances are effectively recaptured from the selling group and are transferred to the buying group. This blocks the effectiveness of sale of lessor schemes.

Broadly, where the matching expense creates a loss (a schedule 10 loss) which cannot be used by the lessor company in the new accounting period which begins when it joins the purchasing group, the loss may be treated under paragraph 39, as an expense that is deductible for an accounting period starting within 12 months of the date of the change of ownership (instead of being a carried forward loss). This means that the schedule 10 loss is available for surrender by way of group relief on a current year basis (by contrast, carried forward losses cannot be surrendered by way of group relief). The proposed change will extend this treatment to allow a schedule 10 loss to be treated as an expense that is deductible for an accounting period starting within five years of the date of the change of ownership. This will assist purchasing groups which are generating tax losses in the current economic climate in the utilisation of schedule 10 losses. To augment the value of the losses, the amount of the losses will also be increased at the interest rate payable on overpaid tax for a (limited) period equating to the length of the new accounting period for which the schedule 10 loss arises.

Other changes will:

(See 2009 Budget - BN12 Sale of lessor companies and Sale of lessor companies - draft legislation).

The Finance Bill 2009 will provide relief from stamp duty and SDRT charges that would arise if a stock lending or repo arrangement terminates and the stock is not returned to the originator under the terms of the stock lending or repo owing to the insolvency of one of the parties. These proposed changes were announced in the 2008 Pre-Budget Report. See Legal update, Pre-Budget Report 2008: key business tax announcements: Stock lending and repos: disapplication of tax charges). If collateral is used by a stock lender to acquire replacement securities following the insolvency of the borrower, a parallel relief will apply for the purposes of the tax on chargeable gains to avoid the charge which would otherwise arise under section 263B of the TCGA 1992 (stock lending).

The changes will apply where the insolvency of the borrower or lender occurs on or after 1 September 2008.

(See 2009 Budget - BN18 - Stock lending and repurchase arrangements: stamp duty, stamp duty reserve tax and tax on chargeable gains).

From April 2011, the availability of higher-rate relief on contributions to registered pension schemes will be restricted for those earning more than £150,000 a year. Tapering will operate so that for those earning above £180,000 a year, relief will be available only at the basic rate. A full consultation on these provisions will be announced in due course.

Anti-forestalling measures to be enacted in the Finance Bill 2009 have been published in draft. These are designed to prevent individuals likely to be affected by the change making pension contributions outside their regular pattern in the run-up to April 2011. The anti-forestalling measures will in turn be subject to anti-avoidance provisions.

The core of the anti-forestalling measures will be the introduction of a "special annual allowance", which will apply in the 2009/10 and 2010/11 tax years in addition to the standard annual allowance. The special annual allowance will apply to an individual who:

For 2009/10, the special annual allowance charge will be levied at 20% of the amount by which total contributions taken into account exceed the special annual allowance. In other words, the effect of the charge will be to restrict the available tax relief to the basic rate.

In assessing liability for the special annual allowance charge, an individual's "total pension input amounts" (as used for testing against the standard annual allowance) will be adjusted by deducting "protected pension input amounts". There will be two types of protected deduction: normal ongoing pension saving and contributions to new (or reactivated) schemes set up on or after 22 April 2009.

The draft legislation contains detailed provisions relating to what counts as normal ongoing pension saving. Broadly, for defined benefit schemes, further accrual will be protected provided there has been no material change to the way that benefits are calculated under the arrangement on or after 22 April 2009. Material changes could include changes in the calculation of pensionable salary or an increase in the accrual rate.

For money purchase schemes, contributions are protected provided that on or after 22 April 2009, the rate at which contributions are being paid under the arrangement does not increase otherwise than in accordance with an increased rate which was expressly agreed before 22 April 2009. Note that individuals whose regular savings exceed £20,000 for 2009/10 or 2010/11 will only be liable for the special annual allowance charge on the amount by which their contributions exceed their regular savings. So an individual with a pattern of contributions in excess of this sum can continue to make them without incurring the charge, and attract higher-rate relief until April 2011.

As the new measures have immediate effect, special provisions will allow an individual who has inadvertently become liable for the special annual allowance charge to take a "contributions refund lump sum" if scheme rules allow this. Contributions made to schemes between 6 April and 22 April 2009 will not be liable for the special annual allowance charge, but will reduce the amount of the allowance available for the 2009/10 year.

HMRC says that if an individual were to become liable for the special annual allowance charge in addition to the standard annual allowance charge, the special charge would be reduced to prevent double charging. A test against the special annual allowance will be made in the year in which a member retires, even though this does not trigger a test against the standard annual allowance.

Anti-avoidance measures contained in the draft legislation will provide that protection from the special allowance charge will be lost if an individual participates in a scheme or arrangement which has as its main purpose (or one of its main purposes) the avoidance of liability to the special annual allowance charge, the current annual allowance charge or the lifetime allowance charge by reducing either the total adjusted pension input amount or the protected pension input amount.

Likewise, HMRC seems keen that salary sacrifice should not be used to circumvent the new restriction: for individuals in these arrangements, an amount equal to the employer's pension contribution corresponding to the salary sacrifice will count as "relevant income". Indeed, in the case of any "scheme" which has as its main purpose (or one of its main purposes) to secure that an individual's income is less than £150,000, his or her income is deemed to be £150,000 in any event.

In addition to technical guidance and draft legislation, HMRC has also published guidance for the pensions industry and for individuals.

For further analysis and comment, see PLC Share Schemes & Incentives, Legal update, Budget 2009: a changed tax environment for remuneration planning.

(See 2009 Budget - BN47 - Pensions: limiting Tax Relief for High Income Individuals (Anti-Forestalling).)

Provisions in the Finance Bill 2009 will ensure that compensation payable by two public bodies will be treated on the same footing as payments by registered pension schemes:

(See 2009 Budget - BN48 - Taxation of payments from the Financial Assistance Scheme and 2009 Budget - BN49 - Avoiding unintended tax consequences in relation to pension savings.)

From 6 April 2010, there will be new top rates of income tax for individuals with taxable income over £150,000. The dividend additional rate will be 42.5% and the additional rate for other income will be 50%. The new rates are 5% higher, and take effect one year earlier, than those announced in the 2008 Pre-Budget Report. In addition, on 6 April 2010, the trust rate of income tax will increase from 40% to 50%, and the dividend trust rate will increase from 32.5% to 42.5%.

From 2010, the basic personal allowance for income tax will be reduced for individuals with adjusted net income over £100,000. The reduction will be £1 for every £2 over the income limit until the allowance is reduced to nil. This replaces the reduction that was due to take effect from 2010-11 in two stages, for individuals with income over £100,000 and over £140,000.

This change, together with the restriction on tax relief for pension contributions (see Pensions) will clearly have a significant impact on high earners. For analysis and comment, see PLC Share Schemes & Incentives, Legal update, Budget 2009: a changed tax environment for remuneration planning. As the differential between effective tax rates on capital gains and income widens, it is inevitable that there will be greater interest in structuring returns as capital rather than income, although anti-avoidance rules, such as those relating to transfers of income streams, will pose a challenge.

For the earlier announcements, see Pre-Budget Report 2008: key business tax announcements: Tax rates and allowances. For more information about income tax, see Practice note, Direct taxes: Taxation of income: general principles.

(See 2009 Budget - BN01 - Additional rate of income tax and income-related reduction of the personal allowance from 2010-11.)

Following changes in the Finance Act 2008 to the remittance rules (which affect individuals who are either not domiciled, or not ordinarily resident, in the UK, see Practice note, Residence, ordinary residence and domicile: UK tax implications: Remittance basis of taxation), the Chancellor announced that the Finance Bill 2009 will contain further minor changes to the rules, in order to correct some anomalies and drafting errors in the original legislation.

Following advice that the current rules do not comply with the Human Rights Act 1998, the Chancellor has announced that non-resident individuals who currently qualify for personal allowances and reliefs from income tax solely because they are Commonwealth citizens, will no longer be entitled to the allowances and reliefs, with effect from 6 April 2010.

(See Budget 2009 - BN54 - UK personal allowances and reliefs for non-resident individuals.)

The Chancellor announced an increase in the savings limit for individual savings accounts (ISAs) to £10,200, of which up to £5,100 can be saved in cash. The new limits will apply:

The new limits will be introduced by statutory instrument (see Draft Legislation, The Individual Savings Account (Amendment) Regulations 2009).

Under the current regulations on ISAs (The Individual Savings Account Regulations 1998 (SI 1998/1870)), the existing overall annual subscription limit is £7,200, of which £3,600 can be saved in a cash ISA with one provider. Savers can invest the balance of their ISA in stocks and shares with either the same or a different provider.

In the 2008 Pre-Budget Report, the Chancellor extended the range of investments eligible for ISAs (see Legal update, Pre-Budget Report 2008: Qualifying ISA investments to include multilateral institution bonds).

(See 2009 Budget - BN51 - Individual Savings Accounts (ISAs): Increasing ISA Limits for People Aged 50 and Over and Increasing ISA Limits for All.)

Following the European Commission's formal request to the UK to amend its legislation on inheritance tax (IHT) reliefs for agricultural property and woodlands (see Legal update, European Commission asks UK to amend inheritance tax legislation), the Chancellor announced that these reliefs will be extended in the Finance Bill 2009 to cover property within the European Economic Area (EEA). The extension will take effect from 22 April 2009, and will also apply retrospectively for:

In both cases the earliest deadline for reclaiming tax overpayments will be 21 April 2010.

Agricultural property and woodlands within the EEA that qualify for the extended IHT reliefs will also qualify for capital gains tax hold-over relief for business assets under section 165 of the Taxation of Chargeable Gains Act 1992 (see Tax on chargeable gains: general principles: gifts of business assets.) The extension will apply retrospectively to past disposals, subject to the usual time-limits for making claims (five years from 31 January following the tax year to which the claim relates, reducing to four years from 1 April 2010).

(See Budget 2009 - BN50 - Inheritance tax: extension of agricultural property and woodlands reliefs to land in the European Economic Area.)

The threshold of tax relievable donations that a person can make to a charity without becoming a substantial donor to that charity is to be increased.

The substantial donors rules are intended to prevent the abuse of tax reliefs by "substantial donors" and those connected with them. The rules are based on the premise that all transactions between a substantial donor and a charity potentially have the effect of returning value from the charity to the donor. So certain transactions between a charity and a substantial donor, or a person connected with a substantial donor, result in the charity being treated as incurring "non-charitable expenditure". As a result, the charity is taxed on an amount of income or gains equivalent to the non-charitable expenditure, whereas it would normally be exempt from tax. (For more information, see Legal update, Substantial donors to charity: HMRC publishes consultation responses document: Background.)

The current rules define a substantial donor as a person who makes tax relievable donations to a charity of £25,000 or more in 12 months or £100,000 or more in a six year period. The latter threshold is being increased to £150,000 by statutory instrument (see Draft legislation, The Substantial Donor Transactions (Variation of Threshold Limits) Regulations 2009).

The government also announced that it would consult further with the charitable sector about the anti-avoidance rules relating to substantial donors to charity before amending the existing legislation. It aims to bring forward the proposals at the 2009 Pre-Budget Report, with amended legislation to follow in 2010.

The existing legislation on substantial donors addresses abuse of tax reliefs for charities and donors by substantial donors (and those connected with them) and has met with criticism since its introduction in 2006. Legislative reform was anticipated, following HMRC's publication of the summary of the responses to its consultation on the legislation in January 2009. However, the Government has indicated the need for further consultation before making substantial legislative changes.

(See Budget 2009 Report, Helping People Fairly, 5.85 and 2009 Budget - BN53 - Charities: Substantial Donors Regulations.)

The Finance Bill 2009 will change the definition of an offshore fund for UK tax purposes. In particular, the existing definition, based on the regulatory definition of a "collective investment scheme" will be replaced by a characteristics-based definition. In addition, the primary legislation governing the offshore funds regime will be amended so that changes to the regime can be made by regulations. Transitional measures will also be put in place for existing investors.

Originally it was intended that the new definition of an offshore fund would take effect from 1 October 2009. This date has been revised to 1 December 2009.

For background to the offshore funds regime, and for details of the offshore funds consultations, see Legal update, Offshore funds: "further steps" paper and draft legislation published.

(See 2009 Budget - BN25 - Offshore funds.)

Legislation will be introduced in the Finance Bill 2009 to treat an interest in a transparent offshore fund that satisfies the new definition of an offshore fund (as to which, see, Offshore funds: revised definition) as an asset for capital gains tax purposes. The government is exploring making a similar change for corporate investors.

The new treatment will apply to investments made on or after 1 December 2009 but investors may make an irrevocable election for the new treatment to apply retrospectively from to the tax year 2003/04.

(See 2009 Budget - BN24 - Chargeable gains and offshore funds. )

The government has confirmed that legislation will be introduced, the aim of which is to provide legislative certainty on the distinction between trading and investment transactions undertaken by Authorised Investment Funds (AIFs) and equivalent offshore funds.

The legislation will set out a "white list" of transactions that will be treated as non-trading transactions provided the AIF or equivalent offshore fund meets a "genuine diversity of ownership" condition. In addition, a measure will be introduced to ensure that financial traders cannot gain an advantage by routing transactions through AIFs and equivalent offshore funds. The new measure will ensure that financial traders recognise profits or losses on movements in the value of their interests in AIFs and bring them into account when computing the profits of their financial trade.

For background, see Legal update, Pre-Budget Report 2008: key business tax announcements: Asset management and Legal update, Authorised Investment Funds: HM Treasury proposes statutory white list of non-trading transactions.

The legislation will take effect from 1 September 2009 (for AIFs) and from 1 December 2009 (for equivalent offshore funds) and will bring welcome certainty in this area.

(See 2009 Budget - BN26 - Certainty on trading and investment for authorised investment funds and investors in equivalent offshore funds.)

With effect from 1 September 2009, a UK AIF will be able to elect to be treated as a tax elected fund (TEF). The effect of this election will be that the TEF will distinguish between its dividend and interest income and, corrrespondingly, make two types of distribution. Amounts distributed by way of non-dividend (interest) distribution will be deductible from the TEF's profits and will be received without deduction of tax by the investor. Dividend distributions will continue to carry a tax credit. For more background on this change, see Legal update, Authorised Investment Funds: Tax Elected Funds response paper.

(See 2009 Budget - BN23 - Tax elected funds).

A new elective framework will be introduced to enable investment trust companies (ITCs) to invest in interest bearing bonds in a tax efficient way.

Under the new framework, interest income will remain taxable in the ITC. However, the ITC will be entitled to a tax deduction for any distribution to its investors, which the ITC designates as an interest distribution. The tax deduction will remove the corporation tax liability arising on the interest income. The interest distribution will be treated as yearly interest in the hands of the ITC's shareholders so that withholding tax may apply.

For the background to the new measure, see Legal update, Pre-Budget Report 2008: key business tax announcements: Asset management and for the draft legislation intended to implement the new measure, see Legal update, New tax regime for investment trusts investing in bonds: draft regulations published.

The legislation will apply to interest distributions made on or after 1 September 2009.

(See 2009 Budget - BN27 - New tax rules for investment trust companies investing in interest bearing assets.)

Individual investors whose shareholding in a non-UK company or fund is 10% or more will, for dividends received on or after 22 April 2009, have the benefit of a non-refundable tax credit (equal to one-ninth of the amount received) provided that the distributing company is resident in a country which has a double tax treaty with the UK that contains a non-discrimination article. HMRC has previously consulted on the draft legislation (see Legal update, HMRC publishes draft legislation on personal dividend tax credits.) Anti-avoidance measures will be added to the legislation to tackle the use of conduct structures designed to secure a credit for dividends originating from a territory that does not qualify for the credit.

Holders of less than 10% of the shares in a non-UK company have, since 6 April 2008, been entitled to such a tax credit on dividends, but the corresponding entitlement was withdrawn on distributions from funds because of abuse by bond funds (see, Legal update, Finance Bill 2008: Public Bill Committee Proceedings (20 May, morning).)

. With effect from 22 April 2009, a tax credit will be available in respect of distributions from offshore funds that are largely invested in equities. If an offshore fund holds 60% or more of its assets in bonds and other interest-bearing assets, distributions will be treated as interest in the hands of investors and will not carry a tax credit. Exactly how and when the fund valuation will be carried out so as to give certainty to investors as to the nature of the distribution they are likely to receive could, for a mixed fund, present a challenge for the draftsmen.

(See 2009 Budget - BN21- Taxation of Personal Dividends and 2009 Budget - BN22 - Taxation of Personal Dividends Distributions from Offshore Funds.)

After a lengthy consultation (see Legal update, HM Treasury discussion paper on SDRT and investment funds), the government has decided not to proceed with changes to the stamp duty reserve tax rules for dealings in units in unit trusts (Schedule 19 of the Finance Act 1986).

(See Box 3.10 of the 2009 Budget Report.)

The government has announced that the Finance Bill 2009 will include provisions to ensure that individuals who receive a payment in respect of accrued interest from the Financial Services Compensation Scheme (FCSC) will be in the same tax position as if the accrued interest had been paid by the defaulting financial institution.

Payments by the FCSC may include an element in respect of accrued interest. However, the legal nature of this provision was unclear. As a result it was not possible to apply the normal rules relating to the taxation of interest. Amendments to be made by the Finance Bill 2009 will address this issue. The new provisions will apply in relation to income tax only; for companies the taxation of bank deposits is addressed by the loan relationships legislation.

The new provisions will apply to payments made by the FSCS on or after 6 October 2008.

(See 2009 Budget BN15 - Financial services compensation scheme: payments representing interest.)

The Finance Bill 2009 will introduce legislation to stop schemes intended to obtain income tax loss relief using offshore life insurance policies, as announced in a statement by HM Treasury on 1 April 2009 (see Legal update, Draft legislation to counteract avoidance using life insurance policies).

When gains are made on chargeable events relating to life policies, such as the assignment or surrender of a policy, income tax is charged on the gains under the rules in Chapter 9 of Part 4 of the Income Tax (Trading and Other Income) Act 2005. HMRC has identified avoidance schemes that purport to create losses from offshore life insurance policies that can be set against other income. The HM Treasury's announcement stated that the government does not accept that the schemes work. However, it has introduced the proposed legislation to put beyond any doubt that income tax loss relief is not available where a chargeable event calculation produces a negative result.

The draft legislation amends section 152 of the Income Tax Act 2007 (ITA 2007), which allows for loss relief against miscellaneous income, to make it clear that the loss relief cannot be claimed.

The legislation will apply where chargeable events occur on or after 6 April 2009, removing any scope to claim income tax loss relief for losses relating to 2009-10 and subsequent years.

In addition, the legislation includes transitional provisions that:

(See Budget 2009 - BN57 - Avoidance using life insurance policies.)

The temporary increase in the residential SDLT threshold (from £125,000 to £175,00) will be extended so that it will now apply to property acquisitions with effective dates (normally completion) falling on or before 31 December 2009.

When the temporary threshold increase was introduced in September 2008, it was apply to transactions with an effective date after 2 September 2008 and before 3 September 2009 (see Legal update, SDLT exemption for residential property transactions of up to £175,000 from 3 September 2008). The temporary increase was introduced by way of regulations (see Legal update, £175,000 SDLT exemption: implementing regulations made). Those regulations will be revoked and replaced by new provisions in the Finance Bill 2009.

The measure will benefit buyers of residential property, where the chargeable consideration is not more than £175,000, for an extended period (previously, this measure was only available for acquisitions with an effective date falling before 3 September 2009).

For more information on SDLT and residential property, see Practice note, SDLT reliefs for residential property.

(See 2009 Budget - BN45 - Stamp Duty Land Tax: Temporary Increase in Thresholds.)

Legislation will be introduced in Finance Bill 2009 to change the SDLT relief for leasehold enfranchisement by removing the requirement that the relief can only be claimed by a statutory "Right to Enfranchise Company". This change will apply to land transactions with effective dates falling on or after 22 April 2009.

Until this change, although the relief was provided for in the legislation, it could not be claimed because statutory provision for Right to Enfranchise Company has never been brought into force (see Practice note, SDLT reliefs for residential property: The reliefs and Legal update, SDLT: collective enfranchisement relief (High Court)).

This is a welcome measure because it means that the relief can now be claimed by leaseholders exercising statutory rights of leasehold enfranchisement.

(See 2009 Budget - BN46 - Stamp Duty Land Tax: Leasehold Enfranchisement.)

Legislation will be introduced in the Finance Bill 2009 to:

These measures will apply to transactions where the effective date of the grant under a shared ownership lease, or the declaration of the shared ownership trust, falls on or after 22 April 2009. The other measures will apply to transactions with an effective date on or after the date of Royal Assent to the Finance Bill 2009.

RSLs, which can currently claim SDLT relief (see Practice note, SDLT reliefs for residential property: The reliefs) are to be replaced in England with a new system of RPSH, which is inclusive of profit-making companies. The new measures will widen the relief to make it available to RPSH where the purchase is fund by public subsidy.

In addition, SDLT relief will be extended to individuals buying homes under shared ownership schemes operated by profit-making RPSH.

The new Rent to HomeBuy scheme will help individuals to purchase homes using shared ownership schemes by allowing them initially to occupy the property under an assured shorthold tenancy, so that they can save for a deposit to buy. Under current rules, the SDLT treatment of these schemes can be complex, therefore the provisions in the Finance Bill 2009, intended to simplify the SDLT rules for these schemes, should be welcomed.

(See 2009 Budget - BN44 - Stamp Duty Land Tax: Treatment of Shared Ownership.)

The government has published a consultation document and impact assessment considering possible amendments to the disclosure of tax avoidance schemes rules as they relate to stamp duty land tax (SDLT).

The government announced in April 2008 that the SDLT disclosure rules would be extended to residential property where the value of the property is greater than £1 million (see Practice note, SDLT disclosure regime: Extending the SDLT disclosure regime for high value residential properties). It was subsequently announced as part of the 2008 Pre-Budget Report that this would include a mechanism for identifying users of schemes which are disclosed (see Legal update, Pre-Budget Report 2008: key business tax announcements: SDLT disclosure regime and residential property: identification of scheme users).

The consultation document published as part of the 2009 Budget includes draft legislation effecting the proposed amendments

PLC Tax will publish an update considering the consultation document in more detail shortly.

(See Consultation document: Disclosure of Tax Avoidance Schemes.)

HMRC has announced measures to simplify the VAT option to tax process where previous exempt supplies of the land over which the option is to be exercised have been made (see Practice note, VAT and property: the option to tax: Where previous exempt supplies have been made). The VAT option to tax is important to landowners because it allows them to recover their input tax.

Currently, if prior exempt supplies have been made, unless one of four automatic permission conditions is met, the option to tax cannot take effect without express HMRC consent. The measures replace one of the conditions with effect from 1 May 2009 (with a condition that it is thought will apply to more taxpayers) and withdraws two related extra-statutory concessions. The informal concessions will continue to apply until 30 April 2010, after which, one will continue in part whilst that area of VAT law is reviewed and the remainder will be withdrawn.

HMRC has announced that it will publish shortly legislation and guidance on the new automatic permission condition, in an HMRC Information Sheet.

Simplifying the current process of exercising an option to tax is a welcome improvement, especially if the new automatic permission condition is as easily met as suggested. However, the two concessions allow taxpayers to recover more input tax than a strict interpretation of the law would permit: their withdrawal may therefore disadvantage taxpayers.

(See 2009 Budget - BN67 - VAT: Simplifying the Procedure for Opting to Tax Land and Buildings .)

This decision has been taken as part of a package of measures designed to stimulate the recovery of the residential construction sector.

(See Budget Report, paragraph 5.80.)

The government will consult with a view to future legislation to ensure that construction workers and those they work for are taxed appropriately.

(See Budget Report, paragraph 5.114.)

As part of the 2009 Budget, the government has published a Technical note on Furnished Holiday Lettings (FHL) in the European Economic Area (EEA).

Landlords with income from furnished holiday accommodation in the UK are currently treated as if they are trading for certain tax purposes, as long as they satisfy certain tests set out under the FHL rules. Landlords with income from furnished holiday lettings outside the UK but elsewhere in the EEA do not qualify for this treatment.

It has been recognised that this divergence in treatment may not be compliant with European law. As a result, the government has decided to repeal the FHL rules with effect from 2010-11.

Until then HMRC will treat the FHL rules as applying to landlords with furnished holiday accommodation outside the UK but within the EEA. This Technical note addresses in more detail how HMRC will apply these rules.

(See 2009 Budget: Furnished holiday lettings in the European Economic Area: Technical note.)

The following increases in the VAT registration thresholds were announced in Budget 2009:

Otherwise the existing conditions for VAT registration and deregistration are unchanged (see Practice note, Value added tax: Taxable persons and VAT registration).

The increases have been implemented by a statutory instrument made on 22 April 2009 and will take effect for supplies made on and after 1 May 2009.

(See 2009 Budget - BN70 - VAT: Increased Turnover Thresholds for Registration and Deregistration, The Value Added Tax (Increase of Registration Limits) Order 2009 (SI 2009/1031) and Explanatory memorandum to The Value Added Tax (Increase of Registration Limits) Order 2009 (SI 2009/1031).)

Provisions in the Finance Bill 2009 will return the standard rate of VAT (from the current rate of 15%) to 17.5% with effect from 1 January 2010.

The cut in the standard rate of VAT was intended to last only until 31 December 2009. This measure, which implements the final month of the VAT cut, was previously announced in the 2008 Pre-Budget Report (see Legal update, Pre-Budget Report 2008: key business tax announcements: Temporary reduction to the standard rate of VAT) and is necessary because the secondary legislation implementing the rate cut has effect only for 12 of the 13 months for which the reduced rate applies.

As previously announced in the 2008 Pre-Budget Report and reiterated by the Financial Secretary to the Treasury in two Written Ministerial Statements of 25 November 2008 and 31 March 2009, the Finance Bill 2009 will also include anti-avoidance provisions to prevent the exploitation of the temporary reduction to the standard rate of VAT beyond 31 December 2009.

For details of the draft legislation as previously exposed on 31 March 2009, see Legal update, Standard rate VAT cut: anti-avoidance legislation published.

The main provisions will apply to supplies made on or after 25 November 2008 and the supplementary charge for pre-payments exceeding £100,000 will have effect for supplies made on or after 31 March 2009.

(See 2009 Budget - BN71 - VAT: Change of Standard Rate and 2009 Budget - BN72 - VAT: Change of Standard Rate: Anti-Forestalling Legislation.)

The government has confirmed four previously announced changes to the VAT rules governing the supply of cross-border services and that they will be enacted as part of the Finance Bill 2009 and in secondary legislation. The changes are necessary to implement new EC legislation as part of the EC VAT package measures aimed at simplifying and modernising the VAT system for cross-border trading and to counter fraud.

For general background information, see Practice note, Cross-border transactions and VAT: supply of services.

HMRC will include further information on the changes in a Revenue & Customs Brief which it will make available from 1 May 2009 and also conduct seminars on the changes.

See also, Impact Assessment of implementing EC Legislation regarding the place of supply of services and measures to combat VAT fraud.

Legislation will be introduced in the Finance Bill 2009 that will:

Most of the proposed changes were announced in the 2008 Pre-Budget Report (see Legal update, Pre-Budget Report 2008: key business tax announcements: North Sea tax regime: tax changes to maximise recovery of oil and gas).

(See 2009 Budget - BN09 - North Sea Fiscal Regime, 2009 Budget - BN10 - Incentivising production, Draft legislation: Capital Allowances for Oil Decommissioning Expenditure and 2009 Budget - BN 34 - accelerated decommissioning relief.)

Following the case of R (on the application of Wilkinson) v Inland Revenue Commissioners [2005] UKHL 30 [2006] STC 270, HMRC has been reviewing its extra statutory concessions to make sure they are within the scope of its administrative discretion (see Legal update, Order enacting extra-statutory concessions made).

Following the review, HMRC determined that some of the concessions can remain as they are, some can be enacted to preserve their effect, and the remainder will need to be withdrawn. HMRC has identified ten concessions which need to be withdrawn, with effect from 1 April 2010:

(See Budget 2009 - Technical note- withdrawal of extra statutory-concessions).