Tax update: clauses for the 2013 Finance Bill.
Subscribers - click here for your Adviser's Update to Finance Bill 2013 for your more detailed version of this update which also tracks pre-announced measures.
Finance Bill 2013 and tax update
The Chancellor announced several new tax measures which will be of interest SME owners and tax advisers in his Autumn Statement last week.
NEW key announcements
- Personal income tax allowance: increase to £9,440 from April 2013.
- Capital allowances: annual investment allowance raised to £250,000 from 1 January 2013
- Small firms allowed to cash account and claim simplified expenses
- Childcare vouchers: small increase in amounts for higher earners from April 2013
- Employee shareholders new CGT relief
- EMI - one year holding period no longer required for CGT Entrepreneurs' Relief
- IR35 to apply to office holders
- IHT: new changes to benefit non-UK-domiciled spouses
- Employer pension contributions: restriction on tax relief on contributions made for family members
- Extended reliefs for “non-natural persons” owing high value property from Annual Residential Property Tax and SDLT
- Abolition of one type of income tax relief on patent royalties
- Disincorporation relief
Key measures as previously announced which will apply from April 2013
- The higher rate of income tax decreases to 45%
- A cap on unlimited income tax reliefs
- Corporation tax main rate 23%
- A statutory non residence test
- General Anti-Abuse Rule (GAAR)
Measures from 2014
- Corporation tax main rate reduced to 21%
- RTI new penalty systems from April 2014
- Pensions: reduction in annual allowance from April 2014
Measures dropped following consultation
- Taxation of controlling persons provisions (IR35 will be enforced instead)
- Changes that had been proposed to extend access to EMI for academic employees
Measures on hold (for now)
- Income tax and national insurance contributions (NICs) reform.
- Re-writing of ESC A19 - this is non-statutory so we would not expect to see anything in relation to this in a Finance Bill.
Biggest surprises
- Changes to give non-domiciled spouses the benefit of the full IHT exempt band.
- The decision to overcomplicate “simplified tax accounting for small business” which is now very different to the Office of Tax Simplification's original proposal.
Personal Allowances & tax rates
From April 2013
- NEW: the personal tax allowance £9,440 and basic rate limit £32,010.
- The top income tax rate falls to 45%
From April 2014 and later
- NEW: the higher rate threshold will increase by 1% so that higher rate tax will not be paid until income is above £41,865 in 2014/15 and £42,285 in 2015/16.
Universal credits
- Universal credits will be exempt from income tax.
Overpayment relief
NEW measure: limiting the effect of prevailing practice and timing of loss mistakes
-
Cap on unlimited tax reliefs
From 6 April 2013
- Anyone seeking to claim more than £50,000 in tax relief will be capped at the greater of 25% of income or £50,000
- See Cap on unrestricted tax reliefs
Abolition of income tax relief on patent royalties
- The relief for payments of patent royalties which are not deducted in calculating income tax liability from any source (for example, a trade) in being abolished.
- The measure will have effect for payments made on or after 5 December 2012
Pensions: family pension contributions
From April 2013
- NEW: employer paid contributions into family members' registered pension schemes will no longer qualify for income tax exemption.
Pensions: higher rate restrictions
From April 2014
- The pensions savings annual allowance reduced to £40,000 from £50,000
- The lifetime allowance is reduced to £1.25 million (from £1.5 million)
Small business tax reporting
NEW: from April 2013
- Cash accounting optional if turnover < £77,000
- Simplified flat rate expenses system for business
- Repeal of cash basis rules for barristers
Corporation tax
From April 2013
- Main rate 23%
- Tax breaks for the creative sector (video games, animation & and "high-end" TV)
- Above the line R & D credits for big companies
From April 2014
- NEW Corporation tax main rate to be cut by 1% to 21%.
Disincorporation relief for small companies
From 1 April 2013 to 31 March 2018
- NEW: A joint claim made by a small company and its shareholders to allow qualifying business assets (goodwill and land and buildings used in the business) to transfer at a reduced value for CT and capital gains tax purposes.
Inheritance tax
- From April 2013
The IHT threshold is unchanged at £325,000 - In 2015/16 it will rise to £329,000.
IHT: non-dom spouses
From April 2013
- Increase in the IHT exempt amount for a non-dom spouse or civil partner to the level of the prevailing nil-rate band level.
- NEW: individuals will be able to elect to be treated as UK-domiciled for IHT purposes.
Capital Gains Tax (CGT)
From April 2013:
- The annual exempt amount is unchanged at £10,600
- NEW: the annual exempt amount will increase by 1 per cent in 2014-15 to £11,000 and by 1 per cent in 2015-16 to £11,100.
CGT charge on disposals to offshore non-natural person
- A CGT charge on the disposal proceeds of high value residential property held by an offshore non-natural person from April 2013.
- The rate of the CGT will be 28 per cent, with a tapering relief for gains where the property is worth just over £2million;
- As non-resident NNPs are not currently subject to the CGT regime, this charge will apply only to that part of the gain that is accrued on or after 6 April 2013.
- These changes will come into effect from Royal Assent of Finance Bill 2013.
Employment taxes
RTI: real time information penalties
- RTI is mandatory for most employers from 6 April 2013
- Existing system for penalties applies for 2013/14
- See Tax penalties: RTI (Real Time Information)
From 6 April 2014
- New late filing penalties for RTI returns, changes to the current late payment penalties to ensure they can be charged in-year, and to the inaccuracy penalties.
See Tax penalties: RTI (Real Time Information)
Employee shareholder status CGT exempt shares
- NEW: employee shareholder status: capital gains tax exemption
- See Employee Shareholder Status - CGT exemption
Share schemes
- Changes will be made following the recommendations of the Office of Tax Simplification (OTS) to the rules governing the four tax advantaged employee share schemes - Share Incentive Plans (SIP), Save As You Earn Option Schemes (SAYE), Company Share Option Plans (CSOP) and Enterprise Management Incentives (EMI).
- See below for all measures affecting EMI schemes.
Enterprise Management Initiatives (EMI)
From April 2012:
- For shares acquired through the exercise of a qualifying EMI option, the requirement for Entrepreneurs’ Relief that the person must hold 5 per cent or more of the ordinary share capital in the company is removed.
- The normal 12 month minimum holding period requirement for Entrepreneurs’ Relief is modified, this includes the period the option, rather than the shares are held.
- Finance Act 2013 will extend from 40 to 90 days the time available for those holding qualifying EMI options to exercise them with favourable tax treatment after a 'disqualifying event' occurs.
See Enterprise Management Incentives (EMIs)
Employer supported childcare
- NEW: from April 2013: the tax exempt amount for employer supported childcare (childcare vouchers or directly contracted childcare) increases from £22 per week to £25 per week for additional rate taxpayers who join such a scheme on or after 6 April 2011.
- Separate secondary legislation will align the value of the national insurance contributions disregard for childcare vouchers with the tax treatment.
Pensions – employer contributions
- NEW: rules amended to deny tax relief when employers paying pension contributions to employees' family members as part of a remuneration package.
Capital allowances
Plant and machinery – Annual Investment Allowance
- NEW: the maximum amount of the annual investment allowance (AIA) is increased from £25,000 to £250,000 for a temporary period of two years from 1 January 2013.
- Madly complicated rules for the change.
See AIA: rules where there is a change of rate
Energy Saving Plant and Machinery
- From April 2013 to extend the availability of first-year tax credits for a further period of five years, to 31 March 2018.
See Enhanced Capital Allowances (ECA)
R & D and media
- The introduction of an 'Above the Line' (ATL) Credit to further encourage R&D investment by large companies.
Tax relief for qualifying high-end television production, animation production and video game production
- An additional deduction of 100% qualifying core expenditure and a payable tax credit of 25% of losses surrendered calculated on the basis of UK core expenditure up to a maximum of 80% of the total core expenditure by the qualifying company.
Land and property
Annual residential property tax
- A tax charge on residential properties worth more than £2 million owned by non-natural persons.
- NEW: various reliefs for property held as stock, used in business and rented out on a commercial basis.
See Annual tax property tax (ARPT)
Lease premium relief: effective duration of a lease
- Relief will no longer be available to a trader or intermediate landlord that pays a lease premium on a lease that is only deemed to be short because of the operation of the rule in section 243 CTA 2009.
Stamp Duty Land Tax
- NEW: reliefs from higher SDLT charge for non-natural persons acquiring residential UK properties
- NEW: anti-avoidance measures to strengthen legislation for transfers of rights
- NEW: leases simplification measures to abolilsh the rules on abnormal rent increased and simplify reporting requirements
See Stamp Duty Land Tax: rates & reliefs
VAT
Road fuel scale charges
- VAT law and practice on RFSCs to be streamlined with minor changes made to the way thtat partially exempt businesses account for private use of business fuel.
- Supplies of fuel to staff or family at below open market value (OMV) will be valued at OMV from 11 December 2012
Reduced rate energy saving materials (ESM) in charity buildings
- The reduced rate for the installation of ESM is to be withdrawn for ESM supplied on or after 1 August 2013.
Residence, domicile and offshore
Statutory residency test
From April 2013
- A new statutory residence test and legislating split year treatment
- Legislation will be introduced to eliminate the concept of ‘ordinary residence’ for tax purposes “as far as possible”.
The remittance basis
- Changes are being made to the remittance basis to prevent inadvertent remittances to the UK being taxed.
- Legislation will be introduced to put SP1/09 on a statutory basis.
See Remittance basis (overseas income)
UK-Switzerland agreement: remittance basis
- Levies received by HMRC under the agreement are not treated as taxable remittances where they are made by or on behalf of non-UK domiciled individuals.
US: FATCA
- Legislation will be introduced to bring into effect the UK-US Agreement to Improve International Tax Compliance and to Implement FATCA (US provisions commonly known as the Foreign Account Tax Compliance Act) which was signed on 12 September 2012.
Exemption from UK taxation for foreign sports stars
- Football Championship League Final 2013
- Glasgow Commonwealth Games 2014
Attributions of gains to members of non-resident companies
- New measures extend the range of commercial activities excluded from the application of Section 13 TCGA 1992 and raise the threshold at which apportionment of gains takes place.
- S13 is an anti-avoidance provision that may attribute to UK-resident participators in a non-UK resident closely controlled company gains arising from the disposal of assets.
Transfer of assets abroad
- A new exemption is added from the transfer of assets charge where EU treaty freedoms are engaged which focuses on the nature of transactions and activities related to the transfer rather than their purpose.
Disclosure of Tax Avoidance Schemes – DOTAS
- Revisions to DOTAS were consulted on over summer 2012 as part of the 'Lifting the Lid on Tax Avoidance Schemes' consultation. Finance Bill 2013 will contain two powers for secondary legislation which will be consulted on in early 2013 alongside other changes.
Tax Agents: civil penalties for dishonest conduct
Apply from 1 April 2013
- Penalties for dishonest conduct to range from £5,000 to £50,000
- Legislation broadly drafted
- See Tax penalties: agents (dishonest conduct)
General anti-abuse rule (GAAR)
As announced in Budget 2012, legislation to target abusive tax avoidance schemes.
The GAAR has effect in relation to any tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013 (late July 2013).
HMRC’s guidance about the GAAR is divided into 3 parts, this is subject to consultation:
- Part A: Scope of the GAAR legislation (PDF 337K)
- Part B: Examples of how the GAAR applies to tax arrangements (PDF 504K)
- Part C: GAAR Procedure (PDF 307K)
Consultation closes in February 2013.
Adminstration
Withdrawing a notice to file a self assessment return
HMRC will be given a statutory power relieving individuals, partnerships and trustees of completing a SA return if HMRC agree they no longer need to be in SA for that year. Seems amazing that they never required this before.