Draft Finance Bill 2017-2018
After two Finance Acts in 2017 and Brexit demanding the Government’s attention it is perhaps no surprise that Finance Bill 2017-18 is relatively light at only 192 pages. Nonetheless, the draft rules that have been published will have a significant impact on the taxpayers they affect, and the Government also published a number of consultation documents alongside the draft legislation.
We have analysed the key proposals in the Bill (some of which were announced in September 2017) and the consultations, to provide insight into who may be affected and how. Please scroll down for more information.
Venture capital scheme changes
The Finance Bill 2017-18 includes a proposal to introduce a new ‘risk to capital’ condition for companies raising capital under the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) rules, with the aim of disqualifying companies where there is low risk to the investors’ capital.
Royalties withholding tax
A consultation document published on 1 December 2017 provides further details of proposals to extend the scope of UK withholding tax to royalties and other payments made to a connected person not resident in the UK. It is intended that from April 2019 royalties and similar payments made to companies in tax havens are subject to UK income tax, regardless of whether the payer has a taxable presence in the UK.
Withholding tax on interest (13.9.2017)
In order to increase the competitiveness of the UK debt markets, the Finance Bill 2017-18 includes an exemption from withholding tax on interest arising on debt traded on a Multilateral Trading Facility operated by an EEA-regulated recognised stock exchange. This is achieved by extending the definition of a quoted Eurobond. The change will have effect for interest payments made on or after 1 April 2018.
In addition, the definition of alternative finance investment bonds (AFIBs), which applies to Sharia compliant financial instruments, has been widened to include securities admitted to trading on a Multilateral Trading Facility operated by an EEA-regulated recognised stock exchange. Amendments in relation to AFIBs will have effect for corporation tax purposes for accounting periods beginning on or after 1 April 2018 and for income tax purposes for the tax year 2018-19 and subsequent years.
HMRC Consultation on Business Risk Reviews for large businesses (13.9.2017)
Alongside the draft Finance Bill, HMRC has published a consultation on changing its Business Risk Reviews for large businesses. The aim is make the Business Risk Reviews more precise to help improve tax compliance.
Future Bank Levy Changes (13.9.2017)
Draft legislation has been published on simplifying administration of the Bank Levy from 2018 and reducing the scope and rate of the levy in 2021.
Partnership tax reform
The latest draft of the new rules significantly reduces the financial impact the reforms will have on many partnerships by abandoning a controversial change to the way partnership profit allocations are taxed. However, a number of administrative changes will still be made and partnerships will need to begin preparing for them in 2018.
Changes for Non-UK Domiciliaries (13.9.2017)
After a further period of uncertainty, with the removal of the draft legislation affecting the taxation of non-UK domiciled individuals from the March Finance Bill 2017, followed by the extraordinary General Election and repercussions that now brings, the Finance (No 2) Act 2017 reintroduced and enacted the removed provisions, confirming that they are effective from the original commencement date of 6 April 2017.
The Finance Bill 2017-18 includes a number of further proposals, such as rules to tax payments from offshore trusts that are routed through an overseas beneficiary (or remittance basis user) to a UK resident individual, which will take effect from 6 April 2018.
VAT and vouchers
A formal consultation was published alongside the draft Finance Bill to change the VAT treatment of vouchers from 1 January 2019. Under the proposed rules, voucher transactions will no longer give rise to two supplies – one of a voucher and a separate supply of the goods or services: from 2019, there will be just the one supply of the underlying goods or services.
HMRC has published a summary of responses to its long running consultation on the future of VAT grouping. While the responses covered a wide range of important issues, HMRC’s comments suggest that no firm decisions will be made on VAT grouping reforms until more is known about the effect of Brexit.
Domestic VAT reverse charge on construction industry labour
In the Autumn Budget 2017, the Government announced that a new VAT reverse charge would be introduced on supplies of construction labour in October 2019. On 1 December 2017, it published a summary of responses to its recent consultation on the proposal which gives further information on how it will be implemented.
Making Tax Digital: Digital reporting and record keeping for VAT (13.9.2017)
HMRC has now published a draft of the legislation that will implement Making Tax Digital for VAT. This has been offered for consultation in advance of the planned introduction of the requirements on 1 April 2019.
Landfill Tax – illegal waste sites (13.9.2017)
Following a consultation earlier this year, the Government has published draft legislation to extend the scope of Landfill Tax to disposals made at illegal waste sites. The tax will be payable by anyone disposing of waste on a site without an environmental disposal permit and anyone who knowingly facilitates that disposal.
HMRC plans to fund additional staff to enforce this change and says it will work closely with the Environment Agency to share information about illegal sites.
Finally, another planned Landfill Tax measure from the Summer Finance Bill has been rolled over into the Finance Bill 2017-18. The ‘taxable disposal’ for Landfill Tax purposes will be redefined so that any material disposed of at a landfill site will be taxable unless expressly exempt. Both changes will come into force on 1 April 2018.
Termination payments – removal of foreign service relief (13.9.2017)
Employers will need to understand the implications of this change to the tax treatment of termination payments. This will be particularly true if they have internationally mobile staff or are considering employment terminations on or after 6 April 2018.
Disguised remuneration (13.9.2017)
To support HMRC’s ongoing efforts “to tackle disguised remuneration tax avoidance schemes” two new provisions have been published. The first extends the existing rules to close companies. The second introduces a new reporting requirement in relation to loans. There will also be a settlement opportunity for affected taxpayers.