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Tax policy updates and draft Finance Bill 2011 legislation
Practical Law UK Legal Update 7-504-1803 (Approx. 10 pages)
Tax policy updates and draft Finance Bill 2011 legislation
by PLC Tax
| Published on 09 Dec 2010 • England, Wales |
HMRC and HM Treasury published tax policy updates and draft legislation for the Finance Bill 2011 on 9 December 2010. Areas covered include CFCs (interim reform), taxation of foreign branches, bank levy, chargeable gains of corporates and a new approach to tax policy making.
Note: we have added links to more detailed coverage published by PLC after 9 December. See also this practice note this summarising tax consultations and draft legislation published in autumn 2010. (Free access.)
Speedread
On 9 December 2010, HM Treasury and HMRC published tax policy updates and draft legislation for the Finance Bill 2011. Although most of the measures have been the subject of consultation, this is the first time we have seen draft legislation on, among others, the interim CFC changes, taxation of foreign branches and changes to the taxation of corporate chargeable gains. Other key measures include draft anti-avoidance legislation targeting disguised remuneration, a draft protocol on immediate anti-avoidance measures and revised draft bank levy legislation, including the rates. In this update, we have briefly summarised the announcements. We have also linked to more detailed analysis of some of the key announcements.
Tax policy updates and draft legislation published on 9 December 2010
On 9 December 2010, HM Treasury and HMRC published tax policy updates and draft legislation for the Finance Bill 2011.
The draft legislation published today is open for comment until 9 February 2011. The legislation (revised if appropriate) will be included in the Finance Bill 2011. This will be published on 31 March 2011, shortly after the Budget on 23 March 2011. Alongside the draft legislation published today, HM Treasury also announced that a consultation to reform climate change levy will be published shortly (published on 16 December 2010, see Legal update, Government publishes major consultations on reform of electricity market and carbon floor price). Subject to the outcome of the consultation, the government will publish draft legislation in January 2011 with a view to including it in the Finance Bill 2011 (see HM Treasury: Overview of draft legislation for Finance Bill 2011 (paragraph 1.53)).
The contents of the Finance Bill 2011 will be confirmed at Budget 2011 but the government does not envisage there being a large number of additional measures.
We have summarised below the key publications and linked to the draft legislation, which is accompanied in the same document by a draft explanatory note and a "Tax Information and Impact Note", which explains what the measure does, why it is proposed and what its impacts are. Many of these measures have been consulted on or announced previously. We have also updated the Practice note, Tax consultations and legislation: what to expect for the rest of 2010 to reflect what was published on 9 December 2010. That practice note also indicates whether the draft legislation or other publication is a new development or simply reflects a previous announcement.
Anti-avoidance
- Amounts not fully recognised for accounting. Draft legislation (HM Treasury: Anti-avoidance: Derecognition of Corporation Tax Loan Relationships).
- Disguised remuneration. Ministerial statement (HMRC: Anti-Avoidance: Disguised remuneration) and draft legislation (HM Treasury: Disguised remumeration). Legislation will be introduced to ensure that income tax and national insurance contributions (NICs) on employment income are not avoided or deferred through the use of trusts or other intermediaries, including employee benefit trusts (EBTs) and employer financed retirement benefit schemes (EFRBS). For more detail about these measures, see PLC Share Schemes & Incentives, Legal update, Draft anti-avoidance provisions to tax disguised remuneration (including EBT benefits and EFRBS).
- Group mismatches. Draft legislation (HM Treasury: Corporation Tax Loan Relationships and Derivative Contacts: Anti-Avoidance: Group Mismatches).
- Investment companies: currency for tax. Draft legislation (HM Treasury: Functional currency: Investment companies). For more detail, see Legal update, Functional currency of investment companies: draft Finance Bill 2011 clauses.
- VAT zero-rating: splitting of supplies. Draft legislation (HM Treasury: Value added tax: supply splitting). For more detail, see Legal update, VAT: no zero-rating for printed matter where supply artificially split: draft Finance Bill 2011.
Compliance
- HMRC data gathering powers. Consultation document seeking views on proposals to modernise HMRC’s powers to gather data from particular groups of data-holders (HMRC: Data-gathering powers). For more detail, see Legal update, HMRC's data gathering powers: draft Finance Bill 2011 legislation.
- Security for PAYE and NICs. Consultation document seeking views on requiring cash and assets as security, with a criminal sanction for non-compliance, where there is a serious risk of failure to pay PAYE and/or NICs (HMRC: Security for PAYE and NICs). For more detail, see Legal update, Financial security for PAYE and NICs: draft Finance Bill 2011 legislation.
Corporate tax
- Bank levy. Revised draft legislation (HM Treasury: Bank levy), including, from 1 January 2012, rates set at 0.0375% (0.025% for 2011) for long term equity and liabilities and 0.075% (0.05% for 2011) for short term liabilities, plus other changes to earlier draft legislation and revised technical note (HMRC: Bank levy - technical note). For more detail, see Legal update, Bank levy: draft Finance Bill clauses.
- Capital allowances: plant and machinery allowances and annual investment allowance. Draft legislation to reduce the rate of writing-down allowances on the main pool of plant and machinery expenditure to 18% and on the special rate pool to 8%, both from April 2012, and to reduce the annual investment allowance to £25,000 (from £100,000) from April 2012 (HM Treasury: Writing down allowances: reduction from April 2012 and HM Treasury: Annual investment allowance: reduction to £25,000).
- CFC interim improvements. Draft legislation (HM Treasury: CFC interim improvements). For more detail, see Legal update, Interim CFC reform: draft Finance Bill 2011 clauses.
- Corporate capital gains. Summary of consultation responses (HM Treasury: Simplification review: capital gains rules for groups of companies) and draft legislation (HM Treasury: Corporate capital gains: value shifting, capital losses after a change of ownership and degrouping charges). These measures aim to remove some existing restrictions on the use of capital losses within a group of companies after acquisition of a business, replace the value-shifting rules with a clearer purpose-based rule and modernise the degrouping charge rules, in particular how they interact with the substantial shareholding exemption (SSE). For more detail, see Legal update, Responses to consultation on simplification of chargeable gains for corporate groups.
- Corporation tax: charge and main rate for 2012. Draft legislation to reduce the rate to 26% from 1 April 2012 (HM Treasury: Reduction in the main rate of corporation tax).
- Corporation tax: small companies rate and associated companies. Draft legislation to reduce the rate by 1% to 20% from 1 April 2011 (HM Treasury: Reduction in the small profits rate of corporation tax) and relax the associated companies rules (Reform of associated companies rules as they apply to the small profits rate of corporation tax), plus accompanying draft secondary legislation and guidance (HMRC: Small Profits Rate – Associated Companies).
- Foreign branches opt-in tax exemption. Draft legislation (HM Treasury: Taxation of foreign branches). Next week the government will also publish a short technical note giving additional information not within the scope of the explanatory note accompanying the draft legislation, including detail on the relationship between the draft legislation and the OECD Model Tax Convention, and matters not covered in the draft legislation. For more detail, see Legal update, Foreign branch exemption: draft Finance Bill 2011 clauses.
- Investment trust companies. Summary of responses to consultation (HMRC: Consultation on the modernisation of the tax and company law rules for investment trust companies: summary of responses) and draft legislation (HM Treasury: Modernisation of the tax rules for investment trust companies). For more detail, see Legal update, Investment trusts modernisation: draft Finance Bill 2011 clauses and response to consultation.
- Leases and changes to accounting standards. Draft legislation (HM Treasury: Changes to accounting standards for leases). New accounting standards are expected to be introduced from 2011. Legislation will be introduced to ensure that the tax treatment of lease transactions is not affected by future changes to lease accounting standards. For more detail, see Legal update, Taxation of leases: draft Finance Bill 2011 clauses.
- Oil and gas: minor measures. Draft legislation (HM Treasury: Oil and gas minor measures).
- Tonnage tax and leasing. Draft legislation (HM Treasury: Leasing into tonnage tax). Consequential on the changes to the wider capital allowances regime.
- Transfer pricing: application of OECD principles Draft legislation (HM Treasury: OECD transfer pricing guidelines). Following new guidelines approved by the OECD for publication in July 2010, legislation will be introduced to amend the definition of "transfer pricing guidelines".
Pensions tax
- Restriction of pensions tax relief: Ministerial statement (HM Treasury: Restricting pensions tax relief), updated draft legislation (HM Treasury: Restriction of pensions tax relief), and draft guidance on legislation (HMRC: Pensions: Reduction of the lifetime allowance: draft guidance). The government is separately consulting on options to meet high annual allowance charges from pension benefits. The government intends to publish draft legislation covering this element by February 2011.
- Ending effective requirement to purchase annuity at 75. Responses to consultation (HM Treasury: Removing the requirement to annuitise by age 75) and draft legislation (HM Treasury: Removing the effective requirement to annuitise by age 75).
For more detail about pensions-related measures in the draft legislation, see Legal update, Finance Bill 2011: pensions provisions.
Personal tax
- Employer supported childcare: relaxation of "available to all" condition and changes to tax relief. Draft legislation (HM Treasury: Employer supported childcare: changes to the "open generally" condition and changes to tax reliefs for employer-supported childcare).
- Furnished holiday lettings: making the legislation EU law compliant. Responses to consultation (HM Treasury: Furnished Holiday Lettings consultation) and draft legislation (HM Treasury: Furnished holiday lettings). The government has decided to proceed with the loss relief proposals it put forward in July 2010 (see Legal update, Consultation on furnished holiday lettings rules) but the revised availability and occupancy thresholds will now apply from April 2012, rather than April 2011. The government will also proceed with proposals to increase the availability threshold to 210 days and the occupancy threshold to 105 days. For more detail, see Legal update, Furnished holiday lettings rules: consultation responses and draft legislation.
- Income tax rates, rate limits and personal allowances. Draft legislation (HM Treasury: Income tax rates, rate limits and personal allowances for 2011-12).
- Tainted charity donations. Draft legislation (HM Treasury: Replacement of the anti-avoidance legislation on substantial donors to charities). For more detail, see PLC Private Client, Legal update, Finance Bill 2011: tainted charity donations.
Tax policy making
- Responses to June 2010 consultation.
- Ministerial statement on Improving Tax Policy Making and Draft Finance Bill 2011.
- Draft Tax Consultation Framework.
- Draft Protocol for announcing immediate changes to tax law.
VAT and stamp duties
- SDRT and collective investment vehicles. Draft legislation on reform of regime (HM Treasury: Reform of stamp duty reserve tax on collective investment schemes) and draft guidance (HMRC: Draft guidance on the reform of the stamp duty reserve tax regime for collective investment schemes). For more detail, see Legal update, SDRT: collective investment schemes: draft Finance Bill 2011.
- VAT: academies. Draft legislation to allow academies to recover VAT on a similar basis to local authority maintained schools (HM Treasury: Refunding irrecoverable VAT costs incurred by academies).
- VAT: treatment of business samples. Draft legislation (HM Treasury: VAT: change of treatment of business samples) and HMRC: Revenue & Customs Brief 51/10. Legislation will be introduced to ensure that where businesses provide samples of their products free of charge to individuals for marketing purposes, none of the samples is liable to VAT. For more detail, see Legal update, HMRC confirms VAT restriction on samples to be removed.