March 2010 Budget: key business tax announcements
Our summary of the key business tax announcements in the 24 March 2010 Budget. See what other tax practitioners thought were the highlights of the Budget: Article, March 2010: When is a Budget not a Budget? Tax practitioners comment.
In Wednesday's Budget, the Chancellor effectively published a large part of Labour's election manifesto, both tax and non-tax. This article concentrates on the main tax announcements, the key ones being:
Doubling of the lifetime gains limit for capital gains tax entrepreneurs relief from £1 million to £2 million, see Entrepreneurs' relief doubled.
HM Treasury review of tax efficient arrangements for securing capital treatment of employee securities and interests in securities, see Review of tax treatment of growth shares, JSOPs, carried interest and similar arrangements.
Two year SDLT exemption for first-time buyers of residential property costing up to £250,000 and 5% SDLT rate on purchases of residential property costing over £1 million from April 2011, see SDLT and residential property: nil rate threshold doubled for first-time buyers.
Support for an internationally-coordinated systemic tax on the financial sector, see Taxation of financial institutions: "systemic risk tax".
See what other tax practitioners think were the highlights of the Budget: Article, March 2010: When is a Budget not a Budget? Tax practitioners comment ( www.practicallaw.com/1-501-7702) .
Not all the changes in the Budget will necessarily become law. Some of the measures will be enacted in the Finance Bill 2010, which is expected to get Royal Assent before the election, whilst others have been deferred to the next Parliament and so may never become law.
Disclosure of tax avoidance schemes (DOTAS): extension of scheme
The government has announced a series of changes to the DOTAS regime. These changes were heralded in an HMRC discussion document published as part of the 2009 Pre-Budget Report (see Legal update, 2009 Pre-Budget Report: key business tax announcements: Disclosure of tax avoidance schemes (DOTAS): consultation document on extension of scheme ( www.practicallaw.com/4-500-9404) . The changes comprise:
A new "trigger point" for the disclosure of actively marketed schemes. This will be the point at which a promoter first communicates a fully designed scheme to a third party for the purposes of obtaining clients of that scheme. To be effected by provisions contained in the Finance Bill 2010.
A new requirement for a person who introduces a client to a notifiable scheme to provide HMRC with the name and address of the promoter who provided them with details of that scheme. To be effected by provisions contained in the Finance Bill 2010.
An increase in the penalties for failure to comply with the DOTAS regime. To be effected by provisions contained in the Finance Bill 2010.
A new requirement for promoters to provide HMRC with periodic information about clients who implement a notifiable scheme for scheme reference numbers issued on or after the date the regulations come into force.
Extension of the DOTAS "hallmarks", including some particularly targeted at taxpayers attempting to avoid the 50% rate of income tax. To be effected by secondary legislation.
Introduction of equivalent provisions in the disclosure rules applicable to NICs.
The government has also published a consultation response document. The consultation response document confirms that HMRC will finalise regulations to extend DOTAS to employment income schemes and so-called "income to capital" schemes in summer 2010, with a view to them coming into force in autumn 2010.
The consultation response document notes that many respondents to the consultation considered that the scope of the proposals relating to employment income and "income to capital" schemes was too wide and would catch many ordinary tax planning arrangements. Consequently, HMRC proposes to amend (with input from the consultation respondents) the draft legislation to include descriptions of the types of schemes which must be disclosed, rather than a generic definition with a list of exceptions. However, the document does not give any further details of the types of arrangements which will be included on the list of disclosable arrangements.
Over the summer, the government will also look at how inheritance tax could be brought within the DOTAS regime, including developing IHT "hallmarks".
The changes will come into effect on days to be appointed but expected by HMRC to be on a common date in autumn 2010.
The disclosure of tax avoidance schemes (DOTAS) regime is a disclosure regime which requires promoters, and in some cases, users of certain tax planning arrangements to disclose details of the arrangements to HMRC. For further detail about the disclosure regime applicable to direct taxes, see Practice note, Direct tax disclosure regime ( www.practicallaw.com/1-107-4933) . A similar regime applies in relation to National Insurance contributions (NICs) ( www.practicallaw.com/8-201-8297) (see Practice note, National insurance contributions disclosure regime ( www.practicallaw.com/4-310-7954) ).
Double tax relief: anti-avoidance provisions
The government has announced that it will introduce provisions to prevent banks and financial institutions obtaining double tax relief where they have not suffered the cost of the foreign tax. One measure will ensure that where foreign tax is paid and no credit claimed, a person may only claim a deduction for foreign tax which has been included in his taxable income. The second measure will tighten up two aspects of the double tax relief targeted anti-avoidance rule. These new measures are to be included in the Finance Bill 2010 and will have effect for foreign tax payable on or after 1 April 2010, as regards corporation tax, and 6 April 2010, as regards income tax and capital gains tax.
The government has also amended the manufactured overseas dividend (MOD) regulations to prevent financial traders effectively obtaining relief for foreign tax twice. This change is effected by the Income Tax (Manufactured Overseas Dividends) (Amendment) Regulations 2010 (SI 2010/925), which were made on 24 March 2010 and apply MODs made (or treated as made) on or after 14 April 2010.
(See 2010 Budget - BN 17 - Countering double tax relief avoidance ( www.practicallaw.com/7-502-5916) , the Income Tax (Manufactured Overseas Dividends) (Amendment) Regulations 2010 and explanatory memorandum.)
As part of the 2010 Budget, HMRC has published a discussion document on the possibility of introducing a generic or principles-based rule in relation to group mismatch schemes.
A "group mismatch scheme" arises where a group seeks to take advantage of differing accounting treatments for financial instruments and/or differing tax treatment of transactions as between companies in the same group. Broadly, such schemes involve tax relief arising to one group company without a corresponding tax charge arising in another, meaning that the group incurs an overall tax loss without suffering an overall economic loss. HMRC provides examples of such schemes in the discussion document.
To date, HMRC has tended to address such schemes on a piecemeal basis. However, HMRC proposes addressing such schemes instead using generic legislation. This would take the form of principles-based legislation, similar in style to that used in the "shares as debt" rules (see Practice note, Taxation of investments: shares as debt legislation: Rules applying from 22 April 2009 ( www.practicallaw.com/2-375-8550) ).
The way in which HMRC suggests that this operates is to begin by identifying the type of arrangement targeted. These would be arrangements between connected companies (a definition for which is suggested in the discussion document) where it is reasonable to assume that (any part of) the arrangement, or any resulting transaction, was designed to secure a reduction in the group's UK tax rate as a result of differing tax treatments of an instrument. This would include possible reductions as a result of a contingency unless that contingency carries an equivalent likelihood of an equal increase in the group's UK tax rate. The discussion document states that the proposals are currently confined to loan relationships ( www.practicallaw.com/2-107-6781) and derivative contracts ( www.practicallaw.com/0-107-6094) , as these are the instruments most commonly used in the targeted schemes, although this position is to be kept under review. (In relation to the tax treatment of these instruments generally, see Practice note, Loan relationships ( www.practicallaw.com/9-219-4959) and Derivatives: tax ( www.practicallaw.com/6-204-7955) respectively). The discussion document also considers only UK-UK transactions at present, although views are sought on whether this could be expanded. If so, HMRC may consider repealing the existing arbitrage rules (see Practice note, Financing multinational groups: tax issues: UK inbound financing: Arbitrage rules ( www.practicallaw.com/9-375-8405) and UK outbound financing: Arbitrage rules ( www.practicallaw.com/9-375-8405) ).
The rules would then specify the tax consequences of the legislation applying. One possibility would be to ignore all credits and debits arising from the arrangement. However, HMRC's preferred approach is to adjust one party's position either to make the position symmetrical or to cancel the tax advantage.
Comments on the discussion document are invited by 31 May 2010. Those with an interest will be invited to attend a workshop on the proposals to be held in June or July (with details to follow). HMRC states that if the outcome of the initial consultation is positive, HMRC and HM Treasury will publish draft legislation as part of the 2010 Pre-Budget Report with a view its possible inclusion in the Finance Bill 2011.
The stated aim of the proposal is to reduce legislative complexity and taxpayers' compliance costs, as well as to ensure that the anti-avoidance rules are comprehensive (as opposed to the existing specific rules, which may leave gaps for novel avoidance). However, the risk with principles-based legislation is that it is couched vaguely or in terms open to subjective interpretation and, as HMRC admits, it can be very difficult to pinpoint an acceptable construction.
Losses from overhedging and underhedging
HMRC is to be permitted to extend the draft legislation, published as part of the 2009 Pre-Budget Report, intended to ensure that tax relief is given for losses from certain hedging ( www.practicallaw.com/8-107-6684) arrangements only to the extent that a real economic loss is suffered by the claimant's group as a whole.
Under the draft legislation, losses from overhedging and underhedging arrangements are to be ring-fenced to the extent that they exceed the real economic loss to the group and the excess will only be available to set against profits from the same arrangement. For further details, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Losses from overhedging and underhedging ( www.practicallaw.com/4-500-9404) . At present, these provisions are only drafted to apply to instruments that are categorised as loan relationships ( www.practicallaw.com/2-107-6781) or derivative contracts ( www.practicallaw.com/0-107-6094) for UK tax purposes. (In relation to the UK tax treatment of these instruments generally, see Practice notes, Loan relationships ( www.practicallaw.com/9-219-4959) and Derivatives: tax ( www.practicallaw.com/6-204-7955) respectively.) As part of the 2010 Budget, HMRC announced that the draft legislation, which will be in the Finance Bill 2010, is to be amended to provide HMRC with power to make regulations extending the rules to other instruments held on trading account by financial traders. This is intended to ensure that taxpayers cannot avoid the rules by using such instruments.
The provisions (including the 2010 Budget change) are to have effect for accounting periods beginning on or after 1 April 2010, with accounting periods straddling that date treated as two separate periods for these purposes.
Transactions in securities: anti-avoidance provisions
The government has announced that legislation will be included in the Finance Bill 2010 to replace the existing transactions in securities (TiS) legislation with clearer legislation.
HMRC currently has the power to disregard, or recharacterise for UK tax purposes, a transaction that has resulted in a "tax advantage" for a taxpayer (sections 703 - 706 Income and Corporation Taxes Act 1988 for corporation tax purposes (sections 703-706 will be replaced by sections 731-751 of the Corporation Tax Act 2010 from 1 April 2010 with effect for accounting periods ending on or after that date) and sections 682 - 700 Income Tax Act 2007 in respect of income tax). For further detail, see Practice note, Tax clearances: transactions in securities ( www.practicallaw.com/5-367-3998) .
The current legislation is complex and unwieldy. The possibility of reform has been mooted since the 2007 Pre-Budget Report (see further Legal update, 2007 Pre-Budget Report: Review of anti-avoidance legislation ( www.practicallaw.com/5-376-6308) . A consultation process followed and HMRC invited comments on various proposals in July 2009 (see Legal update, HMRC consultation on simplification of transaction in securities rules ends on 30 October 2009 ( www.practicallaw.com/1-500-3724) ). A consultation response document was published as part of the 2009 Pre-Budget Report (see 2009 Pre-Budget Report: key business tax announcements: Transactions in securities legislation: HMRC publishes its consultation response document ( www.practicallaw.com/4-500-9404) ).
The Budget materials are not clear but the changes to be effected by the Finance Bill 2010 appear to be as follows:
Limit the TiS legislation to transactions with a tax avoidance purpose but it will additionally apply to arrangements involving close companies, including overseas companies. The draft legislation indicates that those arrangements are the receipt by a person of relevant consideration in connection with, broadly, a distribution by a close company, a transfer or application of assets of a close company or a transaction involving one or more close companies, where that consideration is not taxed as income. "Relevant consideration" is consideration which represents the value of assets available for distribution, is received in respect of future receipts of the company or is or represents the value of trading stock of the company. It is not clear from the Budget announcement whether there will be any changes to the scope of the arrangements caught by the redrafted rules.
Restrict the "abnormal dividends" rule for income tax to close companies, including overseas companies. The draft legislation contemplated repealing the rule entirely for income tax and restricting it to arrangements designed to generate franked investment income for corporation tax purposes (for which enabling regulations have been mad, see Legal update, Shadow ACT regulations amended for transactions in securities changes ( www.practicallaw.com/4-501-7017) . However, the Budget note is not clear whether HMRC has changed its approach on this issue.
Clarify how the tax advantage will be quantified.
Introduce an additional exclusion covering fundamental changes of ownership of close companies. The draft legislation envisaged that this would require a minimum 75% interest in the company to be acquired and held for at least two years by someone not connected with the person who obtains the tax advantage. It is not clear from the Budget announcement whether there will be any changes to this rule.
As under the current legislation, counteract the income tax advantage.
Generally have effect for transactions where the tax advantage is obtained on or after 24 March 2010.
The new legislation is expected to take the form of that published in the consultation document in July 2009. Although that draft legislation amends only the provisions contained in the Income Tax Act 2007, the government has stated previously that it intends to apply the changes equally to the TiS provisions contained in the Corporation Tax Act 2010. A more comprehensive reform of the TiS legislation as it applies to corporates is expected in due course.
(See 2010 Budget - BN 41 - Anti-avoidance: Transactions in Securities ( www.practicallaw.com/7-502-5916) and Simplifying transactions in securities legislation: HMRC consultation document, July 2009).
Transfers of securities: SDRT
HMRC is to introduce anti-avoidance provisions limiting the exemption from stamp duty reserve tax (SDRT) for issues of securities into clearance services or depositary receipt systems.
In HSBC Holdings plc and Vidacos Nominees Ltd v HMRC (Case C-569/07), the ECJ held that the UK rules imposing an SDRT charge of 1.5% on an issue of securities into a clearance service is contrary to EU law (see Legal update, SDRT charge on entry into clearance system contrary to EU law ( www.practicallaw.com/5-500-3543) ). Following this, HMRC invited claims for repayment of SDRT charged on issues of securities into a clearance service or depositary receipt system in the EU (see Legal update, SDRT: claims for refunds following ECJ decision in HSBC case ( www.practicallaw.com/3-501-2402) ).
As part of the 2010 Budget, HMRC announced that legislation will be included in Finance Bill 2010 to disapply this exemption from SDRT where securities intended for non-EU markets are initially routed through an EU clearance service or depositary receipt system before being transferred to a non-EU clearance service or depositary receipt system.
Annual investment allowance doubled
From April 2010, the annual investment allowance (AIA) will be doubled to £100,000. The government will provide for this increase in the Finance Bill 2010, which will also include a targeted anti-avoidance rule. The anti-avoidance rule will disallow property loss relief against general income (as to which, see Practice note, Income tax: use of losses: Property loss relief against general income ( www.practicallaw.com/1-385-1247) ) to the extent the loss is attributable to the AIA where those losses arise from tax avoidance arrangements entered into on or after 24 March 2010.
The AIA is effectively a 100% capital allowance ( www.practicallaw.com/4-107-5846) available to all businesses on most expenditure on plant or machinery. For more information on the AIA, see Practice note, Capital allowances on property transactions: The annual investment allowance ( www.practicallaw.com/6-362-6968) .
Associated companies rules to change, but not yet
Changes to the associated company rules that formed the basis of a consultation which ended on 22 January 2010 (as to which see Legal update, Consultation on ignoring rights of associates for small companies' rate of corporation tax ( www.practicallaw.com/6-500-6471) ) are to be introduced in the Finance Bill 2011.
Capital distributions: corporation tax treatment clarified
The rules on the taxation of income distributions received by corporation tax ( www.practicallaw.com/1-107-5999) payers in Part 9A of the Corporation Tax Act 2009 (CTA 2009) will be extended so that they apply to certain capital distributions. The legislation will have retrospective effect (although a date is not specified, presumably, this will be 1 July 2009).
HMRC has long treated UK distributions as being of an income nature save in limited circumstances such as distributions in a liquidation. However, Part 9A CTA 2009 introduced a new corporation tax regime for UK and overseas source distributions from 1 July 2009, which expressly excludes distributions that are capital in nature (section 931A(2), CTA 2009). Essentially, Part 9A exempts from corporation tax all income distributions by UK or non-UK companies unless the distribution falls within certain anti-avoidance rules: see Practice note, Dividends: tax: Common corporation tax regime for UK and overseas dividends from 1 July 2009 ( www.practicallaw.com/1-366-8036) . By contrast, distributions that are capital in nature may be subject to corporation tax on chargeable gains ( www.practicallaw.com/8-107-5892) unless the substantial shareholding exemption ( www.practicallaw.com/2-107-7342) or another exemption or relief is available. (HMRC's approach to distributions by overseas companies has long been to determine whether the distribution is capital or income in nature on general principles and then tax the receipt accordingly.) This change means that distributions will not be prevented from falling within the distribution exemption regime at Part 9A of the Corporation Tax Act 2009 because they are capital in nature.
This confirms a HM Treasury and HMRC announcement made on 24 February 2010 (see Legal update, Some capital distributions to be brought within new corporation tax distribution rules ( www.practicallaw.com/6-501-6125) ). The legislation will be in a Finance Bill to be introduced in the next Parliament.
Code of Practice on Taxation for Banks
Banks have begun to inform HMRC that they have adopted the Code of Practice on Taxation for Banks, announced in the 2009 Pre-Budget Report, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Code of Practice on Taxation for Banks ( www.practicallaw.com/4-500-9404) . Many banks that have not yet adopted it have largely completed their internal processes and HMRC expects these banks to adopt the Code in the next few weeks.
Corporation tax rates unchanged for 2010-11
The main rate of corporation tax for the year commencing 1 April 2011 will remain at 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 remain at 30%). As announced in the 2009 Pre-Budget Report, the rate for companies paying tax at the small companies rate (those with profits of less than £300,000) will remain at 21% for the tax year 2010-11, except for ring-fenced profits: these continue to be taxable at 19%. Rates for marginal relief will similarly remain unchanged.
Debt cap rules to change
HMRC has announced further changes to the debt cap rules (as to which, see Practice note, Limits on tax deductions for interest: the "debt cap" ( www.practicallaw.com/7-386-4223) ). The changes are as follows:
If a group includes companies that are within the special corporation tax regime for securitisation companies (see Practice note, Securitisation: tax: The SPV: tax treatment as a securitisation company ( www.practicallaw.com/6-107-4445) ), the "available amount" for debt cap purposes (see Practice note, Limits on tax deductions for interest: the "debt cap": Available amount ( www.practicallaw.com/7-386-4223) ) will ignore the results of the securitisation companies in the group's consolidated accounts. This complements the previously announced provision excluding securitisation companies from the computation of UK financing costs and income (see Legal update, Worldwide debt cap: HMRC announces changes: Securitisation companies ( www.practicallaw.com/2-500-7279) ).
HMRC will be given power to make regulations enabling a company involved in capital market arrangements that incurs a corporation tax liability as a result of the debt cap rules to transfer that liability to another group company.
The assets and liabilities of companies that are taken into account for the "gateway test" (see Practice note, Limits on tax deductions for interest: the "debt cap": Gateway test ( www.practicallaw.com/7-386-4223) ) will include long-term arrangements that have the economic effect of loans and that give rise to an interest-like return regardless of their legal form. Groups will be able to elect for this change to apply only prospectively.
It will be made clear that a limited liability partnership cannot be the ultimate parent of a group of companies (see Practice note, Limits on tax deductions for interest: the "debt cap": The "ultimate parent" of a group ( www.practicallaw.com/7-386-4223) ) for debt cap purposes.
Distributions made by industrial and provident societies, which are normally treated as interest for tax purposes, will be excluded from the financing expenses of such companies for debt cap purposes.
All these changes have effect for periods of account of worldwide groups (see Practice note, Limits on tax deductions for interest: the "debt cap": The "worldwide group" ( www.practicallaw.com/7-386-4223) ) beginning on or after 1 January 2010 (except as mentioned above). They supplement those announced on 9 November 2009 (see Legal update, Worldwide debt cap: HMRC announces changes ( www.practicallaw.com/2-500-7279) ), which are to be effected under draft legislation published as part of the 2009 Pre-Budget Report (see Legal update, Draft legislation amending debt cap rules ( www.practicallaw.com/0-500-9892) ). Although the details of the new changes are not yet clear, and will not be clear until draft legislation is published, they are bound to add even further complexity to what is already a very challenging area of the UK tax rules.
The government intends to legislate the changes in a Finance Bill to be introduced as soon as possible in the next Parliament.
As part of the 2010 Budget, the government made two announcements concerning the taxation of alternative finance arrangements (as to which, see generally Practice note, Sharia-compliant transactions: tax ( www.practicallaw.com/4-201-9755) ):
The government intends to clarify how the capital allowances regime interacts with the rules governing the taxation of alternative finance arrangements.
The government is considering changes to the taxation of alternative property refinance arrangements that do not include payments of interest so that the tax treatment of such arrangements is equivalent to that of "conventional" loans.
Although further details of these measures are unknown at present, it is encouraging that the government is continuing to ensure that the tax treatment of alternative finance arrangements is equivalent to that of their "conventional" counterparts.
No tax deduction when loan to close company participator released or written off
Legislation will be introduced in the Finance Bill 2010 to deny a corporation tax deduction to a close company ( www.practicallaw.com/4-107-5926) releasing or writing off a loan to participator. This change will take effect for loans released or written off on or after 24 March 2010.
When a close company makes a loan to a participator, the company must pay HMRC a sum equal to 25% of the loan (section 419 of the Income and Corporation Taxes Act 1998, replaced by section 455 of the Corporation Tax Act 2010 from 1 April 2010 for accounting periods ending on or after that date) (section 419 tax). If the debt is released or written off by the company, the debt is treated for the borrower's purposes as a dividend (that is, it will be grossed up and treated as income received by the borrower for the tax year in which the release took place). The borrower is treated as having paid tax at the dividend ordinary rate on the grossed-up amount. (Chapter 6 of Part 4 of the Income Tax (Trading and Other Income) Act 2005.) Accordingly, the borrower will have no further tax liability unless he is a higher rate taxpayer. However, for the company's purposes, the debt released or written off was not treated as a dividend and, accordingly, the company was entitled under the loan relationship ( www.practicallaw.com/2-107-6781) rules to claim a tax deduction for it. Further, the close company is entitled to relief in respect of the section 419 tax. No change is to be made to the taxation of the borrower. In addition, the close company will continue to be able to claim relief from the section 419 tax. (For further detail about close companies and the release of loans to participators, see Practice note, Direct taxes: Close companies ( www.practicallaw.com/5-107-3724) . For more information about the loan relationship rules, see Practice note, Loan relationships ( www.practicallaw.com/9-219-4959) .)
Patents box consultation
The government will consult with business over the summer about the details of the proposed "patents box", a 10% corporation tax rate on patent income in the UK, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Intellectual property ( www.practicallaw.com/4-500-9404) . The consultation will look at how to identify and value embedded patent income and how to give relief to acquired patents. The consultation will also look at how to include patents not yet commercialised when the legislation is passed in 2011 and how the regime will apply to equivalent overseas patents held by UK companies.
Power to cater for changes in accounting standards
As part of the 2010 Budget, HMRC confirmed that it is to be given increased powers to amend the loan relationship ( www.practicallaw.com/2-107-6781) and derivative contract ( www.practicallaw.com/0-107-6094) rules to cater for changes in accounting standards. (In relation to the loan relationship and derivative contract rules generally, see Practice notes, Loan relationships ( www.practicallaw.com/9-219-4959) and Derivatives: tax ( www.practicallaw.com/6-204-7955) .) This measure was first announced on 12 February 2010, when draft legislation effecting this extension of HMRC's powers was published (see Legal update, Changes in accounting standards: draft HMRC powers ( www.practicallaw.com/2-501-4637) ).
The legislation effecting this measure, to be included in the Finance Bill 2010, will allow regulations to come into force on or after the date on which the Finance Bill 2010 receives Royal Assent. Such regulations may apply retrospectively if the accounting change to which they relate has effect in an accounting period beginning before then. HMRC states that the first regulations to be made under this power will cater for the new International Financial Reporting Standards ( www.practicallaw.com/9-107-6725) (IFRS) 9 (as to which, see PLC Magazine, Article, IFRS 9 "Financial Instruments" ( www.practicallaw.com/7-501-2952) ).
Proposed amendment to the consortium relief rules
Listed among the business tax changes on the Budget page of the HMRC website (and referred to briefly in the Budget Report) is a proposed change to the consortium relief rules, to be introduced in a Finance Bill in the next Parliament. The amendments will:
Allow European Economic Area (EEA) ( www.practicallaw.com/0-107-6555) -resident companies engaged in UK consortia to pass on relief for those losses to their UK-resident subsidiaries.
Strengthen rules to ensure that consortium relief is given in proportion to the member company's active involvement in the consortium.
The purpose of the first amendment is to correct an abuse of the principle of freedom of establishment identified in Philips Electronics UK Limited v HMRC  UKFTT 226(TC), (see Legal update, Consortium loss relief rules incompatible with EU law ( www.practicallaw.com/7-500-2825) ). The purpose of the second amendment is to prevent abuse of the consortium relief rules through artificial arrangements. For more information on the consortium relief rules, see Practice note, Joint venture companies: tax: Group and consortium relief: restrictions relevant to JVCs ( www.practicallaw.com/8-371-3988) .
Reform of investment funds tax rules
As part of the 2010 Budget, the government announced that it will consider various reforms to the UK tax rules applying to investment funds. The government intends to:
Work with industry to ensure that the stamp duty reserve tax rules relating to investment funds in Schedule 19 to the Finance Act 1999 (as to which, see Practice note, Unit trusts and open-ended investment companies: tax: Stamp duty surrenders and transfers of units in a unit trust or shares in an open-ended investment company ( www.practicallaw.com/2-382-5451) ) only apply to investments in underlying funds if they are themselves primarily invested in UK equities. HMRC will work with industry with a view to including as exempt investments for these purposes (see Practice note, Unit trusts and open-ended investment companies: tax: Exclusion from charge to SDRT ( www.practicallaw.com/2-382-5451) ) certain investments by a collective investment scheme ( www.practicallaw.com/5-107-5940) (CIS) in another CIS.
Consult on whether establishing a tax-transparent contractual fund vehicle would be beneficial for the UK.
Work with industry to address issues for authorised investment funds investing more than 20% in both reporting and non-reporting offshore funds (see Legal update, Authorised investment funds investing in offshore funds: regulations made ( www.practicallaw.com/3-501-4670) for background).
Review the tax rules relating to investment trusts in section 842 of the Income and Corporation Taxes Act 1988 (section 842) (as to which, see Practice note, Investment trusts: tax ( www.practicallaw.com/7-382-5458) ) with a view to modernising the rules. (Section 842 is replaced by Chapter 4 of Part 24 of the Corporation Tax Act 2010 from 1 April 2010 and with effect for accounting periods ending on or after that date.) A consultation document on this is to be issued in summer 2010.
Further details of these reforms are unknown at present.
Sale of lessor companies: changes to new option to elect for alternative treatment
Changes are to be made to the draft legislation, published as part of the 2009 Pre-Budget Report, allowing lessor companies to elect for alternative tax treatment when they are sold. This draft legislation allows lessors to elect for their profits after they are sold to be isolated for tax purposes (rather than incurring an immediate tax charge, as would ordinarily be the case where a lessor company is sold). For details of these provisions, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Sale of lessor companies: option to elect for alternative treatment ( www.practicallaw.com/4-500-9404) . (Note that Schedule 10 to the Finance Act 2006, containing the rules relating to sales of lessor companies, has since been rewritten in Chapters 3 and 4 of Part 9 of the Corporation Tax Act 2010 from 1 April 2010 and with effect for accounting periods ending on or after that date.)
As part of the 2010 Budget, HMRC has announced that the draft legislation has been revised in the following ways:
Under the existing draft legislation, if a company makes an election, it will not be entitled to capital allowances for expenditure incurred on new plant and machinery. This would be the case even if the contract for the purchase of that plant and machinery was concluded before 9 December 2009. In such cases, the company would not have been aware of the restriction on allowances when it entered into the contract. The 2010 Budget changes address this by providing that capital allowances will not be denied if the contract was made (and was unconditional) before 9 December 2009. This change has effect from 9 December 2009.
If the lessor company is a controlled foreign company (CFC) ( www.practicallaw.com/7-107-6340) , meaning that a UK company is subject to tax in relation to (part of) the CFC's profits (see Practice note, Controlled foreign companies and attribution of gains: tax ( www.practicallaw.com/7-367-0989) ), the UK company will not be permitted to make the same deductions from the amount of the CFC's profits attributed to it that it would be entitled to make from its own profits (as would usually be the case). This change, intended to preserve the integrity of the profit isolation in such cases, has effect for accounting periods beginning on or after 24 March 2010.
If there is a subsequent change in ownership following an election, the isolation of the lessor company's profits ends. Usually, this would involve the full amount of the isolated profits being brought into the charge to tax. However, if the lessor company is owned by a consortium and there is a small change in ownership, the isolation may end without all of the previously isolated profits being brought into the charge to tax. The 2010 Budget changes address this by providing that the isolation only ends in these circumstances if the full amount of the isolated profits are brought into the charge to tax (or would be but for a further election). This change has effect for changes in ownership occurring on or after 24 March 2010.
A company that makes an election will not be treated as a tonnage tax company (as to which, see Practice note, Tonnage tax ( www.practicallaw.com/1-200-9362) ). This change has effect from 24 March 2010.
HMRC has published revised draft legislation reflecting these changes, together with a draft explanatory note. The legislation is to be included in the Finance Bill 2010.
Stamp duty and stamp duty reserve tax relief: extension of relief to members of clearing houses and their nominees
The government has announced that legislation will be included in the Finance Bill 2010 to make clear that the power to make regulations to remove multiple charges to stamp duty or stamp duty reserve tax (SDRT) extends to regulations providing relief for members of clearing houses and their nominees.
Sections 116 and 117 of the Finance Act 1991 permit HM Treasury to make regulations that provide that where transactions in UK securities are cleared through a central counterparty such as a clearing house, the charge to stamp duty and SDRT may be removed in relation to all but the final transaction. The intention is to remove potential multiple charges to stamp duty and SDRT where there is essentially only one real buyer and seller.
The wording of sections 116 and 117 currently provides that such powers extend to transactions involving:
A member or nominee of an exchange.
A nominee of a member of an exchange.
A clearing house.
A nominee of a clearing house.
Transactions involving members of clearing houses and nominees of such members are not explicitly included.
In a report dated 9 December 2009, the Select Committee on Statutory Instruments suggested that regulations made recently by HM Treasury pursuant to these powers may have gone beyond the scope of the enabling power (see Legal update, Stamp duty and SDRT regulations may be invalid ( www.practicallaw.com/2-501-0408) ).
The new measure will provide that the power to make regulations under sections 116 and 117 of the Finance Act 1991 is extended to members of clearing houses and their nominees.
The measure will have effect from Royal Assent of the Finance Bill. However, in relation to regulations that have already been made, the measure will provide that the amendments are to be regarded as always having had effect.
For further detail on stamp duty and SDRT, see Practice note, Stamp duty and Practice note, Stamp duty reserve tax ( www.practicallaw.com/5-200-4032) .
Taxation of financial institutions: "systemic risk tax"
The government is considering the ways in which the financial sector can contribute to the costs of government interventions in that sector and is engaged in international discussions on this issue. As part of the 2010 Budget, the government stated that one approach that may be pursued is a systemic risk tax. The government states that there are several key principles that should be followed in developing any such tax:
It should be co-ordinated internationally. This would avoid competitive disadvantages and tax planning opportunities.
It should supplement, not replace, regulatory measures.
The proceeds of such a tax should be for national governments to use as part of their general tax income, rather than being ringfenced.
The nature, implementation and timing of any such tax should take into account regulatory reforms and the timing and strength of economic recovery.
It should aim to combine simplicity (minimising tax planning opportunities) with calibration (taking into account targeted entities' characteristics, such as size, interconnectedness and substitutability), aiming to achieve a compromise between these while recognising precise calibration may be impossible.
It should apply to all financial institutions that might contribute significantly to systemic risk. This would avoid tax planning opportunities and maintain competitiveness.
This proposal is only at a high level as yet and, although this will be unwelcome news in the financial sector, reaching international agreement as suggested is likely to be fraught with complications.
Tax relief for video games industry
The government has announced its intention, subject to state aid approval, to introduce a new tax relief to support the UK video games industry. The new relief will be introduced after a period of consultation as to its form and terms, and after approval by the European Commission as state aid. The government will consult later this year on the design of the new relief.
Venture capital schemes
Legislation to implement the four changes to the Enterprise Investment Scheme ( www.practicallaw.com/9-107-6532) (EIS) and the Venture Capital Trust scheme ( www.practicallaw.com/0-107-7480) (VCT), to meet commitments given to the European Commission ( www.practicallaw.com/1-107-6244) to obtain state aid ( www.practicallaw.com/9-385-1413) approval, will be brought forward in a Finance Bill to be introduced as soon as possible in the next Parliament. The four changes are to:
Replace the current rule that requires at least 50% of a company's qualifying activities to be in the UK with a requirement to have a permanent establishment ( www.practicallaw.com/6-107-6996) (PE) in the UK. (PE to be defined in secondary legislation and based on Article 5 of the OECD ( www.practicallaw.com/6-107-6901) Model Tax Convention.)
Prevent "enterprises in difficulty" from being eligible for investment under the schemes.
Replace the current requirement that VCTs must be listed in the UK with a requirement that their shares must be traded on an EU "Regulated Market".
Require VCTs to hold at least 70% of their qualifying holdings in "eligible shares" (eligible shares requirement).
(For further detail about these changes, see Legal update, EIS, VCTs and CVS obtain state aid approval ( www.practicallaw.com/3-385-8931) ).
HMRC published draft legislation intended to implement these changes as part of the 2009 Pre-Budget Report (see, Legal update, 2009 Pre-Budget Report: key business tax announcements: Venture capital schemes ( www.practicallaw.com/4-500-9404) ).
The first three changes will have effect from the date the legislation receives Royal Assent (irrespective of when the money was raised from the EIS or VCT investment); the eligible shares requirement will have effect for monies raised by the VCT after the date of Royal Assent.
The government has decided not to go ahead with the proposed new "small enterprise" qualifying requirement (intended to replace the current gross assets and number of employees requirements for both EIS and VCT purposes, see Practice note, Enterprise Investment Scheme: Conditions relating to the investee company ( www.practicallaw.com/2-375-9154) ). That proposal was announced in the 2009 Pre-Budget Report and draft legislation exposed for consultation (the consultation period was subsequently extended to 12 March 2010, see Legal update, Venture capital schemes new small enterprise condition: extended deadline for comments and grandfathering ( www.practicallaw.com/6-501-3792) ). Instead, the government will work with industry to review the case for increasing the employee limit to either 100 or 250 employees, the gross assets limit to £15 million before the investment and £16 million afterwards and the annual investment limit to £5 million for qualifying companies.
Zero-emission goods vehicles: 100% first year allowance
The Chancellor announced his intention to introduce a 100% first year allowance on all expenditure incurred on new (not second-hand) zero emission goods vehicles from 1 April 2010 for companies (6 April 2010 for unincorporated businesses) until 31 March 2105 (5 April 2015 for non corporates). Expenditure on assets for leasing will be excluded. A number of conditions will apply in order for the legislation to comply with State Aid rules, including a cap of 85 million euros per enterprise over the five year period of the scheme. The Chancellor intends that the new measures will be introduced in a Finance Bill by the next Parliament.
Financial security for PAYE and NICs
Enabling legislation will be introduced in the Finance Bill 2010 to allow HMRC to require financial security from employers where amounts due under PAYE as you earn ( www.practicallaw.com/4-200-3405) (PAYE) and national insurance contributions ( www.practicallaw.com/8-201-8297) (NICs) are "seriously at risk". (It would appear that HMRC will consider amounts to be seriously at risk where there has been a history of serious non-compliance in terms of paying late or not paying at all.) The detail (including the amount of the security and the right to appeal the request for security) will be set out in secondary legislation, which will be published in draft for public consultation.
In addition, a new criminal offence of failing to provide security will be introduced (punishable by a fine of up to £5,000).
It is intended that the new measures will take effect from 6 April 2011.
As part of the 2008 Pre-Budget Report, HMRC published a "next stage" consultation paper seeking views on a number of proposals, including the greater use of financial securities across all taxes but in particular for PAYE (see Legal update, Modernising Powers, Deterrents and Safeguards: Next stage: Financial security and tax clearance certificates ( www.practicallaw.com/8-384-1410) ). Despite HMRC indicating in its response paper published in April 2009 (see, HMRC: Response document ), that it would "continue to develop its thinking on [the greater use of financial securities] with a view to further consultation", there has been no further consultation on the issue.
(See 2010 Budget - BN 70 - Review of HMRC powers, deterrents and safeguards: security for payment of PAYE ( www.practicallaw.com/7-502-5916) and Enforcement and compliance: Arrears of Tax: PAYE - Holding Securities.)
Interest harmonisation: corporation tax and petroleum revenue tax
Legislation to bring corporation tax (CT) and petroleum revenue tax (PRT) within the harmonised interest regime will be included in a Finance Bill to be introduced as soon as possible in the next Parliament. The legislation will be brought into effect by Treasury Order, with implementation phased in over a number of years. HMRC has promised to publish more information on the implementation timetable shortly.
The Finance Act 2009 created a harmonised interest regime for most taxes and duties, with the exception of corporation tax and petroleum revenue tax (see Practice note, Penalties, compliance and powers reforms: legislation tracker: Alignment of interest rules across taxes (extension for corporation tax and petroleum revenue tax) ( www.practicallaw.com/7-385-1046) ). As part of the 2009 Pre-Budget Report, HMRC published for consultation draft legislation intended to bring CT (other than CT paid under the quarterly instalments payment regime) and PRT into the harmonised interest regime. In its consultation response document, HMRC reports that all respondents confirmed that the draft legislation was appropriate.
Penalties for late filing and late payment of tax: extension to remaining taxes and duties
Legislation to bring VAT, environmental taxes and duties within the harmonised penalty regime for late filing of tax returns and late payment of tax will be included in a Finance Bill to be introduced as soon as possible in the next Parliament. The legislation will be brought into effect by Treasury Order, with implementation phased in over a number of years.
The Finance Act 2009 created a new penalty regime for late filing and late payment of tax for income tax (including amounts collected under PAYE and the construction industry scheme), corporation tax, inheritance tax, stamp duty land tax ( www.practicallaw.com/2-107-7304) , stamp duty reserve tax ( www.practicallaw.com/9-107-7305) and petroleum revenue tax (see, Practice note, Penalties, compliance and powers reforms: legislation tracker) ( www.practicallaw.com/7-385-1046) ). As part of the 2009 Pre-Budget Report, HMRC published for consultation draft legislation intended to bring the remaining taxes and duties within the penalty regime, based on the same principles and with similar penalty models (see, Legal update, 2009 Pre-Budget Report: key business tax announcements: Penalties for late filing and late payment of tax: extension to remaining taxes and duties ( www.practicallaw.com/4-500-9404) ). In its summary of responses document (also published on 24 March 2010), HMRC confirms that it will replace the cumulative monthly fixed penalties set out in the 2009 draft legislation with a £100 fixed penalty for the first six failures and a £200 penalty thereafter (although note that the relevant Budget note (BN67) reflects the position in the draft legislation). In addition, HMRC has promised to review the scope of the enabling power in the draft legislation (which gives the power to amend, repeal or revoke any primary or secondary legislation by Treasury Order).
Tackling offshore tax evasion
The Finance Bill 2010 will introduce legislation providing for higher penalties to be imposed if a taxpayer fails to make a full disclosure of income tax and capital gains tax liabilities connected to a jurisdiction that does not automatically share tax information with the UK. The new rules would take effect for tax periods beginning on or after 1 April 2011.
The mechanics of the existing penalty regimes (that is, for inaccuracy in a tax return, for failure to notify and for failure to make a return) will not be changed. However, the percentage level of penalty imposed under those regimes will be increased depending on the jurisdiction involved. For example, penalties will be increased by a factor of 1.5 for jurisdictions that provide information to the UK only on request and a factor of 2 for jurisdictions that share no information with the UK (so penalties of up to 200% of the unpaid tax in the worst cases).
This announcement follows HMRC's consultation "Tackling offshore tax evasion", launched in the 2009 Pre-Budget Report (see, PLC - 2009 Pre-Budget Report: key business tax announcements: Consultation on tackling offshore tax evasion ( www.practicallaw.com/4-500-9404) ). HMRC has also published a response to this consultation. The measures to be introduced are more simple than those envisaged in the original consultation document. No action has been taken in the Budget on the other main aspect of the consultation: the proposed requirement to notify HMRC of new overseas bank accounts. This proposal was less well-received by those who responded to the consultation.
This development is part of HMRC's wider initiative "Modernising Powers, Deterrents and Safeguards", as to which, see PLC Tax, Penalties, compliance and powers reforms: legislation tracker ( www.practicallaw.com/7-385-1046) .
The Chancellor also announced that the UK is close to entering into Tax Information Exchange Agreements with Dominica, Grenada and Belize.
Employment and pensions
Amendments to enterprise management incentives (EMI) legislation
The March 2010 Budget confirmed that legislation is planned in 2010 to amend provisions in the enterprise management incentive (EMI) ( www.practicallaw.com/7-107-6533) legislation to allow companies with a permanent establishment ( www.practicallaw.com/6-107-6996) in the UK to grant EMI options, as previously announced (see 2009 Pre-Budget Report: amendments to enterprise management incentives legislation ( www.practicallaw.com/9-500-9779) ). However, the change will now:
Be included in a finance bill to be introduced after the forthcoming general election.
Apply only for options granted on or after the date on which that bill receives royal assent.
In the 2009 Pre-Budget Report, it had been announced that this change would apply for options granted on or after 6 April 2010. Currently, only companies which carry out a qualifying trade wholly or mainly in the UK can grant EMI options. The amendment is needed to ensure that the EMI legislation complies with EU state aid rules.
Bank payroll tax
The March 2010 Budget included (in BN02) an up-to-date summary of HMRC's detailed proposals for the bank payroll tax (BPT), as amended following consultations with financial sector firms and their representatives (for more information see the updates listed in PLC Share Schemes & Incentives bank payroll tax tracker ( www.practicallaw.com/8-501-1829) ). Updated draft BPT legislation does not appear to have been published on the date of the Budget (24 March 2010). However, the BPT Budget Note will be welcomed by banks and other companies subject to the BPT and their advisers, as it provides a clearer statement of several points announced in previous HMRC statements. We will report in more detail when updated draft legislation becomes available.
Corporation tax avoidance schemes using share incentive plans
The March 2010 Budget includes anti-avoidance measures relating to the availability of corporation tax (CT) deductions for contributions to an HMRC approved share incentive plan (SIP) ( www.practicallaw.com/3-107-7252) . The legislation will be included in Finance Bill 2010 but will have effect for contributions made on or after 24 March 2010.
This measure has been adopted to prevent companies from claiming CT deductions in relation to contributions to a SIP in circumstances where little real value is actually awarded to employees under the SIP, because the share capital or share rights are altered after the contribution is made to reduce the value of the SIP shares. The measure also gives HMRC powers to withdraw approval of a SIP where changes are made to share capital or share rights which materially affect the value of SIP shares, even if none have yet been awarded to participants.
For more detail, see PLC Share Schemes & Incentives, Legal update, March 2010 Budget: measures against corporation tax avoidance schemes using share incentive plans ( www.practicallaw.com/6-501-8252) .
Employer supported childcare: relaxing the "generally available to all employees" condition for tax exemption
Legislation will be introduced to amend the "generally available to all employees" condition that must be met for employer-provided childcare and childcare vouchers to be exempt from tax and NICs. HMRC has indicated that the legislation will be introduced in the next Parliament but will take effect retrospectively from 6 April 2005.
Currently, employer-provided childcare and childcare vouchers benefit from exemption if, among other conditions, they are provided under a scheme that is open to the employer's employees generally (sections 270A(5) and 318A(5) of the Income Tax (Earnings and Pensions) Act 2003). Many employers only offer these benefits through salary sacrifice arrangements. This effectively excludes employees if the salary sacrifice arrangement reduces the employee's earnings below the national minimum wage (and therefore excludes all employees). The measure will introduce an exception to the generally available to all employees condition in the case of such low-paid employees. For further information about employer-supported childcare, see Practice note, Taxation of employees: Tax-free benefits ( www.practicallaw.com/6-200-2122) .
Income tax rates as previously announced
The Budget held no surprises as far as income tax rates and personal allowances for 2010-11 are concerned. As announced in the 2009 Pre-Budget Report, personal allowances are to be frozen at their 2009-10 level (£6,475 for individuals under 65), as are the rate bands for basic (20%) and higher (40%) rate tax. Finance Bill 2010 will introduce an additional rate of 50% on income in excess of £150,000 and provisions reducing personal allowances at the rate of £1 of personal allowance for every £2 of income above £100,000.
Many people are taking steps to pre-empt the introduction of the 50% tax rate and loss of personal allowances (see Ask the team: Techniques for mitigating high earners' income tax at 50% ( www.practicallaw.com/8-501-7572) .
NICs: rates and thresholds
The following amounts announced at the 2009 Pre-Budget Report have been confirmed at Budget 2010.
For 2010-11, with two exceptions, all NICs rates and thresholds are unchanged from 2009-10. The two exceptions are:
The Lower Earnings Limit ( www.practicallaw.com/2-205-6579) (LEL), which is linked to the basic State Pension, will increase by £2 from £95 per week to £97 per week.
The special Class 2 rate for Volunteer Development Workers will increase by 10p from £4.75 per week to £4.85 per week, because this is linked to the LEL.
For 2011-12, in addition to the 0.5% increases announced at the 2008 Pre-Budget Report:
The main rates of Class 1 (employee) and Class 4 (self-employed) NICs will be increased by a further 0.5% to 12% and 9% respectively.
The employer rate for Class 1, 1A and 1B contributions will be increased by a further 0.5% to 13.8%.
The additional rate of Class 1 and 4 NICs will be increased by a further 0.5% to 2%.
The primary threshold ( www.practicallaw.com/1-205-6589) and lower profits limit will be increased by £570 to compensate the lowest earners.
No emissions, no taxable benefit boost for electric cars
The Chancellor announced that for the five tax years from 6 April 2010 to 5 April 2015 no income tax charge on benefits will arise on cars with zero CO2 emissions (and which are incapable of producing such emissions). Employees who have the benefit of a car provided by their employer are liable to tax under sections 139 and 140 of the Income Tax (Earnings and Pensions) Act 2003 at a rate that is calculated as a percentage of the cost of the car, the applicable percentage being determined by the emissions of the vehicle. Finance Bill 2010 will amend the existing provisions to introduce both the zero rate charge and a new reduced rate of 5% on ultra-low emission cars (those having emissions between zero and 75g per kilometre). Zero-emission vans will also benefit from the new zero benefit charge. (For more information on the taxation of car benefits, see Practice note, Taxation of employees: Cars ( www.practicallaw.com/6-200-2122) .
Although few zero-emissions cars are likely to be available before 2011-12, employers may wish to explore the extent to which employees will be interested in taking advantage of this tax break. Clearly, the Chancellor must hope that this measure will stimulate demand for the new Nissan electric cars to be produced in the UK, news of which has recently hit the headlines.
No more CSOP options over shares in subsidiaries of listed companies
The March 2010 Budget includes anti-avoidance measures which restrict the award of tax-favoured CSOP ( www.practicallaw.com/1-107-5956) options. Before 24 March 2010, these could be awarded over shares in an unlisted subsidiary of a company listed on a recognised stock exchange ( www.practicallaw.com/2-200-8362) . On and after 24 March 2010, CSOP options can no longer be granted over shares of this description. CSOPs which permit the grant of CSOP options over unlisted subsidiary shares will lose their HMRC approval, if they are not amended to reflect these changes before 24 September 2010.
These measures are designed to block CSOPs which grant options over special growth shares in unlisted subsidiaries of listed companies, which entitle their holders to participate only in any growth in value of the company after the date of grant. As these growth shares have a lower value than ordinary shares at the time of grant, they allow a greater potential gain to be sheltered within the limits on individual CSOP participation. However, the changes will also disrupt CSOPs which use ordinary shares in subsidiaries of listed companies.
Pensions tax changes
The main pensions-related announcements concerned the restriction of pensions tax relief for high-income individuals from 6 April 2011. The government has confirmed that it will proceed with its policy to restrict pensions tax relief for high earners and rejected alternative means, such as reducing the annual or lifetime allowance, which it says could potentially apply to members with much lower incomes.
Further details of how the government's policy will be implemented are set out in its response to the consultation document, Implementing the restriction of pensions tax relief, published alongside the 2010 Budget Report. In particular, the rate of relief available on incomes between £150,000 and £180,000 will be subject to a stepped tapered reduction of 1% of relief for every £1,000 of gross income. For the purposes of determining whether an individual's "gross income" exceeds the £150,000 threshold, deemed contributions to DB schemes will be valued by reference to two-way age-related factors, which will vary both by age and normal pension age.
The government also announced that it intends to introduce legislation allowing the National Employment Savings Trust (NEST) to register with HMRC and to operate as an occupational pension scheme for tax purposes. As a result, members of NEST and contributing employers will benefit from the same tax reliefs available to registered pension schemes. A number of other changes to pensions taxation are planned ahead of the introduction of automatic enrolment and NEST in 2012.
Regulations have been introduced implementing the Chancellor's announcement in his 2008 Pre-Budget report that the annual and lifetime allowances will be frozen at their 2010/11 levels for five years. For the 2011/12 to 2015/16 tax years, the lifetime allowance will remain frozen at £1.8 million and the annual allowance will remain frozen at £255,000.
For more detail on the pensions tax announcements, see PLC Pensions, Legal update, March 2010 Budget: pensions ( www.practicallaw.com/1-501-7943) .
Review of tax treatment of growth shares, JSOPs, carried interest and similar arrangements
The March 2010 Budget included an announcement by HM Treasury that there would be "consultation in summer 2010 on taxing ... returns from geared growth, following the increased use of tax-motivated arrangements involving employment-related securities" . . . "to ensure that income from employment is taxed correctly".
This appears to refer to arrangements such as growth share plans and shared growth/joint ownership and carried interest arrangements, which are intended to secure that employees pay capital gains tax (at 18%) rather than income tax (at 40 or 50%) on gains on shares (and other securities) or interests in them. There has been increased interest in these arrangements in anticipation of the increase in the highest rate of income tax on 6 April 2010. Any changes to their tax treatment may not include concessions for securities and interests already acquired by employees. The consultation and the threat of changed tax treatment will be of interest to employers and advisers who use "geared growth" arrangements.
For more detail, see PLC Share Schemes & Incentives, Legal update, March 2010 Budget: review of tax treatment of growth shares, JSOPs, carried interest and similar arrangements ( www.practicallaw.com/5-501-8337) .
Tackling tax avoidance using employee benefit trusts
The March 2010 Budget included an announcement that the government will be taking action to tackle tax avoidance arrangements using employee benefit trusts (EBTs) ( www.practicallaw.com/6-205-8072) and similar vehicles. The government will consider introducing legislation to counter arrangements which have the purpose of "avoiding, deferring or reducing liabilities to income tax and national insurance contributions or avoiding restrictions on pensions tax relief". If legislation is introduced, the March 2010 Budget Report notes that will take effect from April 2011.
This announcement is not surprising, as HMRC had already announced an intention to pursue companies which are using EBTs and family benefit trusts to avoid tax on benefits provided to employees (or their dependants). (Family benefit trusts are similar to EBTs, but provide benefits only to dependants of employees, rather than employees themselves.) For more details, see Legal update, HMRC avoidance spotlight on family benefit trusts ( www.practicallaw.com/2-422-3133) and Legal update, Taxpayer and HMRC withdrew their High Court appeals in Sempra Metals case on family benefit trusts ( www.practicallaw.com/0-386-2034) .
Changes to plant and machinery qualifying for enhanced capital allowances
The government has announced revisions to the list of expenditure qualifying for enhanced capital allowances (ECAs). The changes, which will take effect from a date to be appointed by Treasury Order to be made before the summer 2010 parliamentary recess, are:
The addition to the energy efficient scheme list of two new sub-technologies: permanent magnet synchronous motors and biomass fired warm air heaters.
The removal of one existing technology (compact heat exchangers) and one sub-technology (liquid pressure amplification).
The tightening of the criteria for taps and showers in the water efficient scheme.
Minor housekeeping changes to be made to the existing criteria of both schemes.
A business can claim ECAs if it incurs qualifying expenditure on designated energy-saving plant and machinery and environmentally beneficial plant and machinery. For more information on ECAs, see Practice note, Capital allowances on property transactions: Enhanced capital allowances ( www.practicallaw.com/6-362-6968) and Practice note, Enhanced capital allowances ( www.practicallaw.com/8-204-8355) .
Other environment announcements
For a summary of all the environment announcements in the Budget, tax and non-tax, see PLC Environment, Legal update, 2010 Budget: environmental announcements ( www.practicallaw.com/5-501-8097) .
Personal tax and investment
Capital gains tax rate and exemption
The rate of capital gains tax (CGT) remains 18%. The CGT annual exempt amount for the tax year 2010-11 has been set at £10,100 unless Parliament determines otherwise (the same as for 2009-10: see Legal update, CGT annual exempt amount for 2009-10 set at £10,100 ( www.practicallaw.com/0-385-5566) ). This amount is available to individuals and personal representatives, among others. (For an overview of the UK rules applying to the taxation of chargeable gains, see Practice note, Tax on chargeable gains: general principles ( www.practicallaw.com/1-205-7008) .)
Entrepreneurs' relief doubled
The Chancellor has announced that, with effect from 2010-11, the lifetime limit for the purposes of entrepreneurs' relief ( www.practicallaw.com/4-383-5915) is to double from £1 million to £2 million. This means that the taxpayer will suffer capital gains tax (CGT) at an effective rate of 10% on the first £2 million of lifetime gains (CGT at 18% being charged on 5/9 of the gain) made on the sale of a business or of shares in a personal company (one in which the taxpayer holds at least 5% of the ordinary share capital and controls at least 5% of the votes for a period of at least 12 months preceding the sale). For more information on the operation of entrepreneurs' relief, see Practice note, Entrepreneurs' relief ( www.practicallaw.com/4-381-1491)
The increased limit will apply in relation to disposals on or after 6 April 2010. To the extent that any gains realised by the taxpayer before 6 April 2010 exceed the current £1 million lifetime limit of entrepreneurs' relief, CGT will remain payable at the full rate on the excess, but only the £1 million of relief claimed will be set against the increased limit for future years.
Income tax adjustments between settlors and trustees
The requirement in section 646 of the Income Tax (Trading and Other Income) Act 2005 for a settlor of a settlor-interested trust to pay over to the trustees repayments of tax in respect of an allowance or relief in relation to trust income will be extended to cover all repayments of tax received by the settlor in relation to trust income. The change is aimed at making the settlor's income tax position neutral in relation to such trusts, so that he is no better or worse off than if he held the income-producing assets in his own name.
The extended rule will apply repayments relating to income tax chargeable on or after 6 April 2010. The government intends to legislate this measure in a Finance Bill as soon as possible in the next parliament.
For information on the way settlor-interested trusts are taxed, see Practice note, Taxation of UK trusts: overview: Income tax: how settlor-interested trusts are taxed ( www.practicallaw.com/0-383-6634) .
ISA limits to be linked to inflation
The Chancellor has announced that for 2011-12 and each subsequent tax year, the annual amount that an individual may contribute to an Individual savings account (ISA) ( www.practicallaw.com/7-107-6260) will rise in line with the Retail Price Index (RPI) or, if there is a fall in the RPI, remain at the same level as for the previous tax year. The legislation needed to increase the limit from £7,200 to £10,200 for 2010-11 is already in force (SI 2009/1550).
Relief for carers of children under special guardian and residence orders
The government intends to introduce legislation in the next Parliament to provide income tax relief for particular payments to special guardians and certain carers looking after children placed under a residence order (that is, certain kinship carers). The exemption (which will be similar to the current tax exemption for payments to those who have adopted a child) will only apply to qualifying payments to qualifying carers and will have effect for payments received on or after 6 April 2010.
Qualifying payments are payments made in relation to a special guardianship order or residence order:
By the child's parents or payments by, or on behalf of, the local authority.
To a qualifying carer.
Qualifying carers are those who care for a child or children placed with them under a special guardianship order or a residence order (where the carer is not the child's parent or step-parent). Kinship carers looking after a child who has not been placed under a residence order are not qualifying carers for the purpose of this exemption but will be entitled to the new income tax relief for shared lives carers, announced in the 2009 Pre-Budget Report (see 2009 Pre-Budget Report: key private client tax announcements: Measures to assist shared lives carers ( www.practicallaw.com/0-500-9383) ).
Currently, there are special income tax rules for foster carers, those who have adopted a child and shared lives carers. The decision to tax carers who take on legal parental responsibility for a child in a similar way to those who have adopted a child follows informal consultation about the new income tax relief for shared lives carers.
Remittance basis: definition of relevant person clarified
With effect from 6 April 2010, the definition of relevant person in section 809M of the Income Tax Act 2007 will be amended to clarify that it includes a subsidiary of a non-UK resident company which would be a close company ( www.practicallaw.com/4-107-5926) if it was resident in the UK.
The concept of relevant person was introduced as part of the statutory rules on the remittance basis brought in by the Finance Act 2008. This clarification of the definition is intended to remove a perceived potential for abuse.
For more information on the remittance basis, see Practice note, Residence, ordinary residence and domicile: UK tax implications ( www.practicallaw.com/3-385-8059) .
UK charity tax reliefs extended to equivalent organisations in EU, Norway and Iceland
The government will introduce legislation in the Finance Bill 2010 to extend UK tax reliefs for charities and community amateur sports clubs to equivalent organisations in the European Union and the European Economic Area countries of Norway and Iceland. The legislation will also align the definition of a charity across all charity tax reliefs and exemptions administered by HMRC, limit the scope for fraudulent claims to charity tax reliefs, remove inconsistencies in the current rules and make some changes to procedures.
The announcement follows the European Court of Justice (ECJ) decision in Persche v Finanzamt Lüdenscheid  EUECJ C-381/07, which held that denying tax reliefs available to charities in an EU member state to equivalent organisations in other member states restricted the free movement of capital (see Legal update, Tax breaks for charitable gifts must not infringe EC law ( www.practicallaw.com/3-384-8881) ). This principle was also applied in the Belgian court's decision that relief should be allowed on a testamentary gift by a Belgian resident to an English charity (see Legal update, Court rules tax on gift to British charity infringed EC law ( www.practicallaw.com/1-500-2847) ).
To be eligible for charity tax reliefs under the new rules, an organisation must be:
Set up for charitable purposes only (within the meaning of the Charities Act 2006 and earlier legislation).
Located in an EU member state or other territory specified by HMRC in regulations (HMRC will specify Norway and Iceland as soon as possible after the Finance Bill 2010 is enacted).
Regulated by a body in its home country that is equivalent to the Charity Commission or any similar regulator.
Supervised by managers (trustees, directors and others with a management function) who are fit and proper persons.
HMRC will consult informally with charities on changes to procedures in the coming months. The new rules will mainly take effect later in the tax year 2010/2011, but rules restricting payment of charitable funds outside the UK and rules on payroll giving will have effect from 24 March 2010, and some rules affecting gift aid will apply from 6 April 2010. HMRC will consider claims to tax relief on or after the date of the ECJ decision (27 January 2009) on a case-by-case basis. It will publish a list of organisations that it has confirmed qualify for relief on its website.
The Budget press notices indicate that HMRC is publishing draft guidance on some of the new rules and a Q&A briefing. The Q&A briefing was published with the other Budget documents, but the draft guidance was not.
(See 2010 Budget - BN 32 - Extending UK charity tax reliefs to certain organisations in Europe ( www.practicallaw.com/7-502-5916) , PN 03 - Protecting tax revenues, Impact assessment of extending charity tax reliefs to certain organisations in Europe ( www.practicallaw.com/8-502-6034) and HMRC: Extending UK charity tax reliefs to certain organisations in Europe: Questions and answers.)
Other private client announcements
For coverage of all the Budget measures relevant to private client practitioners, see PLC Private Client, 2010 Budget: key private client tax announcements ( www.practicallaw.com/4-501-7480) .
SDLT and residential property: nil rate threshold doubled for first-time buyers
The government has announced that it will provide for a two-year stamp duty land tax relief for first-time buyers of residential property in the Finance Bill 2010. The relief will be available where the effective date falls on or after 25 March 2010 and before 25 March 2012. Where the relief is available, the nil rate threshold is effectively doubled so that residential purchases up to £250,000 will not be subject to SDLT. The relief applies where the chargeable consideration on a freehold purchase or assignment of a lease does not exceed £250,000 and on the grant of a lease where the premium does not exceed £250,000 (the relief does not apply to SDLT on rent). The relief is limited to individuals who satisfy all of the following conditions:
They acquire a wholly residential property, which can be either freehold or leasehold (where there are at least 21 years left to run on the lease).
They have not previously acquired (including via inheritance) residential property anywhere in the world.
They intend to occupy the property as their main or only home.
If the property is acquired jointly, all the purchasers must satisfy the above conditions.
These extra conditions only apply where the consideration exceeds £125,000. The nil rate of SDLT on residential purchases not exceeding £125,000 continues to apply as before.
For more information on SDLT and residential property, see the following practice notes:
SDLT and residential property: new 5% rate for expensive properties
The government has also announced that it will provide for the introduction of an additional five per cent rate of SDLT for residential property over £1 million in the Finance Bill 2010. The new higher rate will apply to residential purchases where the effective date ( www.practicallaw.com/3-107-6200) is on or after 6 April 2011. Currently, the highest rate of SDLT applicable to residential property is 4% where the chargeable consideration exceeds £500,000. All other SDLT rates and thresholds remain unchanged (see Practice note, SDLT and stamp duty rates (for land): General rates of SDLT ( www.practicallaw.com/1-107-3900) and2010 Budget - PN02 - Rates and allowances in 2010-11).
For general information about SDLT, see Practice note, Stamp duty land tax ( www.practicallaw.com/0-107-3726) .
SDLT anti-avoidance rules modified
The government has announced that it will introduce legislation in the Finance Bill 2010 to disapply the SDLT partnerships rules from a "notional land transaction".
Where the existing SDLT anti-avoidance rules (as to which, see Practice note, Stamp duty land tax: Scheme transactions: an anti-avoidance measure ( www.practicallaw.com/0-107-3726) ) apply, they impose a SDLT charge on a notional land transaction. Currently, the SDLT partnerships rules apply to notional land transactions. The measure is directed at SDLT avoidance schemes in which the SDLT partnership rules are being exploited by contriving a partnership relationship between the vendor and the purchaser so that the chargeable consideration ( www.practicallaw.com/0-107-5891) , and therefore the SDLT due, is greatly reduced.
For general information on SDLT and partnerships, see Practice note, SDLT and partnerships ( www.practicallaw.com/3-107-4913) .
SDLT: overpayment claims
The government has confirmed that it will introduce legislation, in a Finance Bill to be introduced as soon as possible in the next Parliament, to provide a means of reclaiming SDLT overpayments where there is no other statutory route, with effect on and after 1 April 2011. In particular, the measure will:
Reduce the time limit for claiming repayments from the current six years to four years with effect from 1 April 2011.
Provide that no repayment is given where the return followed the general practice at the time it was made, or where the mistake is governed by another statutory claim.
Remove the requirement that the overpayment must be the result of a mistake in a return and that it must be made under an assessment.
Provide that HMRC will not be liable to repay an amount except as provided by the measure or by another provision of the Taxes Acts.
Remove the current restrictions on the right of appeal, allowing an appeal to the courts on the same grounds as appeals against other matters.
A transitional period will apply, during which claims can be made under the existing rules.
HMRC published the draft legislation for this measure, together with a Technical note, on 6 January 2010 (see Legal update, Consultation on recovery of overpaid SDLT paid in error or by mistake ( www.practicallaw.com/0-501-1809) ).
Curiously, the reduction in the claims time limit was already provided for in Schedule 51 to the Finance Act 2009, which has recently been implemented by a HM Treasury Order made on 18 March 2010 (see Legal update, New time limits for assessments and claims: environmental taxes, SDLT and IHT: start date ( www.practicallaw.com/3-501-7942) ).
For background information on SDLT generally, see Practice note, Stamp duty land tax ( www.practicallaw.com/0-107-3726) .
Similar measures are also to be introduced for petroleum revenue tax claims. For more information on petroleum revenue tax, see Practice note, Oil taxation: Petroleum revenue tax ( www.practicallaw.com/2-200-9267) .
Stock dividends will meet 90% distribution requirement for REITs
Legislation will be introduced to allow stock dividends to be counted as property income distributions for the purposes of the requirement for a UK real estate investment trust (REIT) to distribute 90% of the net income profits from its tax exempt business. Currently, section 107(8) Finance Act 2006 requires that the 90% test is satisfied by cash dividends. For more detail on REITs see Practice note, UK REITs: questions and answers ( www.practicallaw.com/7-201-8033) .
In the current economic climate this will be a welcome change for REITs. The change will apply to distributions made on or after the date of royal assent. It is expected that these measures will appear in the second Finance Bill introduced some time after the election.
Withdrawal of furnished holiday lettings rules from April 2010 confirmed
Legislation providing for the withdrawal of the furnished holiday lettings (FHL) rules will be introduced in the Finance Bill 2010. The FHL rules will be withdrawn from 6 April 2010 for income tax and capital gains tax purposes and from 1 April 2010 for corporation tax purposes. HMRC published draft legislation and related documents alongside the Pre-Budget Report 2009 and invited comments from the those affected, accountants and the general public. This confirmation follows the government's consideration of the feedback received.
For details of the proposed legislation, see 2009 Pre-Budget Report: key business tax announcements: Withdrawal of furnished holiday lettings tax treatment from April 2010 ( www.practicallaw.com/4-500-9404) .
Other property announcements
For a summary of all key property announcements, tax and non-tax, see PLC Property, Legal update, 2010 Budget: implications for property ( www.practicallaw.com/5-501-7837) .
There is no change to the rates of VAT.
Abolition of Lennartz accounting
The government has announced that it will introduce legislation, in a Finance Bill to be introduced as soon as possible in the next Parliament, to implement:
EU ( www.practicallaw.com/6-107-6562) changes abolishing the Lennartz rule on VAT input tax ( www.practicallaw.com/8-107-6716) recovery on the purchase of an interest in real property, boats and aircraft (see Legal update, EU Council adopts Directive abolishing Lennartz rule on VAT input tax recovery ( www.practicallaw.com/5-501-1717) ) and the removal of legislation on the recovery of VAT on directors' accommodation, which will become redundant as a result. These changes will take effect from 1 January 2011.
Revenue protection measures to ensure that existing Lennartz accounting users continue to pay the VAT due under the accounting mechanism. These measures will be treated as having always had effect.
Both the Value Added Tax Act 1994 (VATA 1994) ( www.practicallaw.com/3-107-7469) and the VAT regulations will be amended to reflect these measures.
Lennartz accounting is a method of recovery of input tax incurred on the purchase of certain assets used partly for business and partly for non-business purposes. The Lennartz method allows businesses to recover input tax in full upfront and account for output tax ( www.practicallaw.com/3-107-6950) relating to the non-business use over a number of years, giving rise to a cash-flow advantage. For more information about Lennartz accounting, see Practice note, Value added tax: Business purpose ( www.practicallaw.com/2-107-3725) and Legal update, HMRC restricts availability of Lennartz accounting ( www.practicallaw.com/0-501-3064) .
Amendments to scope of place of supply of gas, heat and cooling
Legislation will be introduced to amend the scope of the section 9A Value Added Tax Act 1994 reverse charge on gas supplied through the natural gas distribution network. The amended rules will also be extended so as to apply to heat and cooling supplied through networks. The measures will come into effect on 1 January 2011.
Definition of "qualifying aircraft" change for zero rating
Legislation is to be introduced in the next Parliament to amend the definition of a "qualifying aircraft" contained in Group 8 of Schedule 8 to Value Added Tax Act 1994. The supply of a qualifying aircraft and various supplies made in relation to it (such as repair and maintenance) are zero rated ( www.practicallaw.com/2-107-7530) . Currently, a qualifying aircraft is defined primarily by reference to its weight (not less than 8,000 kilograms). For supplies made on or after 1 September 2010 an aircraft will only qualify where it is used by airlines operating for reward chiefly on international routes. This is the definition used in Article 148 EC Directive 2006/112/EC.
EU cost sharing exemption to be implemented
The government is to work with charities and other interested sectors to consider how best to implement the exemption for services provided within cost sharing groups whose members carry out exempt or non business activities. The exemption is contained in Article 132(1)(f) EC Directive 2006/112.
Increases to VAT registration and deregistration thresholds
The following increases in the VAT registration and deregistration thresholds have been announced:
The taxable turnover registration threshold (which triggers the obligation to register for VAT) will increase from £68,000 to £70,000.
The taxable turnover deregistration threshold (which triggers the right to apply for deregistration) will increase from £66,000 to £68,000.
The taxable turnover registration and deregistration thresholds in respect of relevant acquisitions from other member states ( www.practicallaw.com/1-107-6833) will increase from £68,000 to £70,000.
The increases have been implemented by statutory instrument made on 24 March 2010 and will take effect from 1 April 2010.
(See 2010 Budget - BN45 - VAT: Increased Turnover Thresholds For Registration And Deregistration ( www.practicallaw.com/7-502-5916) , The Value Added Tax (Increase of Registration Limits) Order 2010 (SI 2010/920) and Explanatory memorandum to The Value Added Tax (Increase of Registration Limits) Order 2010.)
Postal services exemption to be narrowed
Legislation will be introduced in the next Parliament to amend the scope of the UK VAT exemption for supplies of postal services so as to comply with EU law. This is a direct response to the decision of the ECJ in R (on the application of TNT Post UK Ltd) v The Commissioners for Her Majesty's Revenue and Customs (Case C-357/07) (see Legal update, ECJ clarifies the scope of the Royal Mail's VAT exemption ( www.practicallaw.com/4-385-8681) ).
Currently, the exemption from VAT applies to the conveyance of postal packets (and connected services) by the Royal Mail (including Parcelforce). With effect for supplies made after 30 January 2011, the exemption will be confined to supplies made under a licence duty. Therefore, supplies made by Parcelforce and those made under conditions that have been freely negotiated will be subject to VAT at the standard rate.
Reverse charge extended to emissions allowances
Legislation will be introduced in the Finance Bill 2010 to extend the scope of section 55A of the Value Added Tax Act 1994 (VATA 1994), which currently applies the reverse charge to certain goods to combat missing trader intra-community fraud.
Currently, section 55A of the VATA 1994 requires taxpayers to apply the reverse charge to goods specified by statutory instrument. Most mobile phones and computer chips are specified goods. Section 55A will be amended so as to apply the reverse charge to services specified by statutory instrument. A statutory instrument specifying emissions allowances will be laid so as to apply the reverse charge to supplies of emissions allowances with effect from 1 November 2010. The reverse charge will replace the current zero rating for such supplies.
Simplification of the partial exemption and option to tax rules
The government has announced two changes to simplify the partial exemption de minimis rules and some minor changes to simplify the option to tax legislation, all of which take effect from 1 April 2010. No other details were available, but it seems likely that the changes are the same as those legislated for recently (see Legal update, Partial exemption de minimis rules simplified ( www.practicallaw.com/9-501-6628) , Legal update, HMRC guidance on amended option to tax rules ( www.practicallaw.com/5-501-7248) and Legal update, Order amending the option to tax rules made ( www.practicallaw.com/7-501-6554) ).
For background on the partial exemption and option to tax, see Practice note, Value added tax: Partial exemption ( www.practicallaw.com/2-107-3725) and Practice note, VAT and property: the option to tax ( www.practicallaw.com/4-107-4229) .
Other miscellaneous announcements
Insurance premium tax: administration fees
As part of the 2010 Budget, HMRC has published revised draft legislation preventing insurance-related fees from avoiding insurance premium tax (IPT) on the basis that they are chargeable under a separate contract (see Practice note, Insurance premium tax: Premiums ( www.practicallaw.com/7-200-9364) ).
Draft legislation effecting this measure was originally published as part of the 2009 Pre-Budget Report. For details of this original draft, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Insurance premium tax: administration fees ( www.practicallaw.com/4-500-9404) . Following discussions with industry representatives, HMRC has published revised draft legislation as part of the 2010 Budget. Under this revised draft, a contract (the relevant contract) is not a separate contract (and therefore any fee paid under it will be subject to IPT) if all of the following conditions are met:
The insured is an individual who enters into the insurance contract to which the relevant contract relates in a personal capacity.
The insured is required to enter into the relevant contract by, or as a condition of entering into, the taxable insurance contract, or would be unlikely to enter into the relevant contract without also entering into the insurance contract.
The insured cannot negotiate the terms or the price of the relevant contract.
The amount charged to the insured under the taxable insurance contract is arrived at without a comprehensive assessment of the individual circumstances of the insured that might affect the level of risk.
These provisions apply only if the insured is an individual, but the draft legislation gives HMRC power to extend the rules and HMRC states that it will keep the position under review and will consider extending the scope of the legislation if there is any evidence of avoidance moving into other areas.
The revised draft legislation is to have effect in relation to payments made on or after 24 March 2010 (rather than 9 December 2009 as in the previous draft).
North Sea tax regime
Legislation will be introduced in the next Parliament to amend the measures contained in the Finance Act 2009 giving an exemption for gains arising on the disposal of a ring fence asset that are reinvested in another ring fence asset. The Finance Act 2009 failed to give the option for the reinvestment relief to be claimed by another company within the same group as the company making the disposal. This was a "technical oversight". This will be corrected so as to apply to disposals made after 23 March 2010. For an overview of the tax treatment of companies extracting oil and gas from the UK continental shelf, see Practice note, Oil taxation ( www.practicallaw.com/2-200-9267) .