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Taxpayers caught out by shortened Finance Act

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28th Apr 2017
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A slim Finance Act 2017 was passed on 27 April, after shedding some 600 pages of tax proposals, some of which were due to take effect on 1 or 6 April. Taxpayers who acted on the basis the new tax rules would apply may lose out.

Drastic cuts

The largest Finance Bill in UK history was cut from 762 pages to 148 pages so that the opposition parties would agree to it being passed in the wash-up before Parliament dissolves. This strategy worked as the Bill received Royal Assent on 27 April 2017 and became Finance Act 2017. However, it has left many taxpayers and advisers confused as to what happens to the tax reliefs and exemptions which hit the cutting room floor.

Pensions    

An expanded tax exemption (from £150 to £500) for the cost of pension advice provided to employees and former employees was to apply from 6 April 2017. This advice may already have been given on the understanding it was tax free. But, as the tax exemption limit now remains at £150, employers need to be wary of breaching that limit, as a breach will incur a benefit in kind charge for employees. That’s unless of course this measure is reintroduced in a future Finance Bill, and backdated to 6 April 2017.

This change also means that the pensions regulations are now out of sync with tax law.

The Registered Pension Schemes (Authorised Payments) (Amendment) Regulations 2017 (SI 2017/397) allows for the pensions advice to be paid for by authorised withdrawals from a defined contribution pension plan. Up to three withdrawals of up to £500 per year may be made to pay for pensions advice.

Where an individual has already drawn taxable pension benefits from a defined contribution scheme, their subsequent pension contributions are capped by the Money Purchase Annual Allowance (MPAA). These taxpayers won’t know how much pension contributions they can make in 2017/18, as MPAA was set to reduce from £10,000 to £4,000 on 6 April 2017, but now won’t.

Capital allowances

Businesses expected to claim 100% first year capital allowances on electric vehicle charging points installed from 23 November 2016 to 31 March 2019. These first-year allowances won’t be available, as the provision was removed before FA 2017 was passed.  

Property and trading allowances

George Osborne announced two new allowances of £1,000 each in his 2016 Spring Budget, which would be available to be set against sundry income, and property income that doesn’t qualify for rent-a-room relief. These allowances were to apply from 6 April 2017, but they were removed from the Finance Bill. Taxpayers need to be careful to record all extra sources of income, however small.

Cash Basis

A new compulsory cash basis for individual landlords with annual turnover under £150,000 was due to apply from 6 April 2017. Landlords would have had to opt out of the cash basis in order to use the accruals basis if their letting business otherwise qualified. Those landlords who have recorded transactions under the cash basis since 6 April 2017 will need to ensure the accruals basis is applied. 

The entry and exit thresholds for the cash basis for trading businesses were also increased from the VAT threshold and twice the VAT threshold to £150,000 and £300,000 respectively. However, as that change was made by regulations (SI 2017/293), those higher limits did come into effect on 6 April 2017.

Companies

The rules for the substantial shareholdings exemption (SSE) were to be relaxed for transactions made on and after 1 April 2017, a move which was hailed as a positive step.  However, those measures were removed from the Finance Bill. This may catch out companies that already made share disposals on or after 1 April 2017 but before 27 April. 

A new tax relief for museums and galleries, who operate as companies, was to take effect for costs incurred on new exhibitions from 1 April 2017. Such organisations may have budgeted for exhibitions on the basis that the new tax relief would apply.

IR35 in public sector

The controversial measure to apply a version of the IR35 rules to off-payroll contracts performed in the public sector was retained in the Finance Bill, but it was amended at the last minute.

The original draft of these rules would have applied to contracts performed for retail pharmacies, who had an NHS dispensing contract, as they were treated as being part of the public sector. As these businesses routinely use locum pharmacists, who often operate through personal service companies, this was a big issue. An amendment was made to the definition of public authority to exclude provision of pharmaceutical services and ophthalmic services for the NHS.

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Replies (11)

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By SteveHa
28th Apr 2017 15:32

And therein lies the problem of changes enacted on a date prior to legislation. The issues highlighted here, and the potentially drastic outcome for some non-doms could have all been avoided by simply bringing the changes after legislation.

Thanks (1)
Chris M
By mr. mischief
28th Apr 2017 17:56

People making wholesale changes to their operations on the basis of MTD would benefit from reading this article several times just to ram it home.

Thanks (10)
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By graweb901
03rd May 2017 10:05

It is also strange that Schedule 6 which contains rules that prevent a double tax charge for certain disguised remuneration events has been retained, but the key driver of the need for those rules - the 20 year retrospective tax charge on alleged but unproven tax avoidance - did not make the cut.

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By hedglen
03rd May 2017 10:16

Won't they just have another post-election budget and reintroduce the 'missing' legislation so that they have time to discuss it in parliament?

MTD isn't going away. This article does not "ram" anything "home". Ignoring the changes coming is simply foolish.

Thanks (3)
Replying to hedglen:
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By lisaknowles
03rd May 2017 10:29

Of course be ready, but expecting it all to happen on schedule might be a bit optimistic. Remember all personal Tax Credits claims would definitely be moved over to Universal Credit by 2013? Now there's still no date in sight to have everybody moved over, because HMRC just can't build the systems required to support it.

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Replying to lisaknowles:
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By hedglen
03rd May 2017 10:46

That's a good reminder about the Universal Credit carry on!

I expect we will hear more around half way through the pilot scheme. They may not bring it all in on time, but there will not be that many taxpayers starting in April 2018 (granted, there will be pockets of 'types' of non-VAT registered taxpayers who are drawn in).

I'd rather they just got on with it now. There's a lot of questions that need answered by HMRC, but we've worked out (in theory) which of our clients will be "in" from April 2018, while updating for 2016/17 turnover throughout the year to bring in any that didn't qualify based on 2015/16 figures. Knowing those individuals, we can start to push them towards sorting out their records/software etc to be ready.

Having a small number starting for April 2018 will allow us to deal with the larger number starting in 2019.

Thanks (1)
accountant in london
By Accountant in London
03rd May 2017 10:26

i hope in the post election new budget the new chancellor will realise that housing market is deteriorating (or has started to) post brexit, and that any of George Osborne's policies to curb the 'artificial' growth in the housing market will be reversed. i.e. the additional 3% stamp duty and interest deduction restriction for individual landlords.
(among many other things he unnecessarily introduced!)

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By Mr J Andrews
03rd May 2017 11:28

I think Hedglen has missed Mr Mischief's point about ''ramming home''.
MTD may not be going away ; it goes without saying that only a complete and utter foolish practitioner would show ignorance to any proposed / imminent tax legislation change.
Conversely ,Mr Mischief emphasises close study of the article and infers that any practitioner taking advance compliant steps from the spin of the initial biased dodgy dossiers { aka 'Consultation Documents' } through the ensuing amateur dumb ''make it up as you go along'' stages , will have created a whole load of costly administration for ......WHAT ? And now having to go back to clients and advise what probably wasn't positive advice in the first place.
As above , MTD may not be going away .But why call it MTD ? Why not QRD [ Quarterly Reporting Obligations ]. Let's not pretend Hammond's inherited MTD mess is supposed to make life easier . We all know the aim of this £1.3 billion investment is an investigative tool to increase the tax yield with more penal consequences.
And who's to say MTD won't go away ? Come 8th June , who knows what changes may surprise us ?
Forget an additional 25000 police force on a salary of £8K . Who / what is going to fund a new wave of different tax hikes ?

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Replying to Mr J Andrews:
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By leon0001
03rd May 2017 15:59

Call me overcautious if you like. While in no way ignoring the changes which were proposed, we are aware, from many years of frustrating, bitter and painful experience of such matters, that changes and timetables which were considered by experts to be practically set in stone did not survive the unpredictable changes in political priorities and expediency over the few weeks of an election campaign.

While giving careful consideration to plans as to how my firm, its subcontractors and clients are likely to adapt to new ways of working, we are certainly not going to implement any major changes until we know what the actual framework and timetable will be. The only current certainty is that neither primary legislation nor any statutory regulations and formal HMRC guidance actually exist. We cannot be certain that any new Budget and Finance Bill or draft regulations will be promulgated before Autumn 2017. I for one doubt it.

As I remember, the then PM, a certain Mr Wilson, said that a week is a long time in politics.

I therefore believe that it would be sensible to wait a little longer before jumping in with both feet.

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By AndrewV12
03rd May 2017 11:56

God knows what will happen when we enter Brexit negotiations and get an un-expected 60 Billion Euro bill, (EU are asking for 100 billion, just to make the 60 Billion bill look cheap).

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Chris M
By mr. mischief
03rd May 2017 13:16

All I am saying - having qualified back in 1990 - is that I have seen many times in various sectors people betting the house on legislation they thought was a "gimme". Only to find that their hoped for changes in the law did not take place and the house went down the Suwanee.

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