HM Treasury has published a new version of the Finance Bill 2019, which includes a new tax and further tweaks to old ones. Surprisingly a number of provisions which were included in the July 2018 version of the Bill have been dropped.
The new Finance Bill 2019 is officially called: Finance (no. 3) Bill 2017-19 as it’s the third Finance Bill to be introduced for the 2017-2019 Parliamentary session. It will become Finance Act 2019 when it is passed, which expected to be in March 2019.
The Bill is 324 pages long, a mere snippet compared to some Finance Bills I have known, but there are also 270 pages of explanatory notes to wade through. Since July the legislation has grown by 52 sections and three schedules. I’ve summarised the changes which have been made since I reviewed the first draft of this Bill in July.
No points for MTD
The most significant omission from this Bill are the three schedules which were devoted to the proposed penalty points system. We were expecting a whole new penalty system for late filing and late payment of tax to be introduced alongside MTD. As the mechanism of submitting information to HMRC is changing under MTD it makes sense to also reform the penalties imposed for not submitting on time.
HMRC has said that the delay in reforming the penalty system is to allow it more time to consider further the communication needed for successful implementation. Also, despite this delay, it remains committed to the reform and intends to legislate in a future finance bill. However, this does mean that the new penalty regime will not be in place until April 2021 at the earliest, which perhaps provides us with a hint of the new timetable for MTD for income tax.
Rent a room
The proposed new condition for shared occupancy for rent-a-room relief has been dropped. This condition of requiring the landlord to also be in occupation for most of the period of letting would have prevented people from claiming rent a room relief while on holiday. This is sensible, as there is no clear way for a homeowner to prove that the shared occupancy test was met, or not met, for short periods.
There is still an overriding condition for rent-a-room relief that the property is also the landlord’s main home. This means that rent-a-room relief cannot apply to a buy to let property, or to a holiday let which is not also occupied by the landlord.
Main residence relief
Two further provisions which aren’t in this Bill are the proposed changes to main residence relief which I covered in CGT blow to homeowners. These changes are set to take effect from 6 April 2020, so there is plenty of time for consultation before the draft law is included in Finance Bill 2020.
Income tax rates
The income tax rates, thresholds, and allowances are set out for 2019/20. The tax rates are the same as for 2018/19, as are the thresholds, except for the basic rate limit which laps £3,000 to £37,500. The personal allowance has also been increased by £650 to take the point at which people start paying higher rate tax, to the beautiful round sum of £50,000.
However, these rates and thresholds won’t apply for Scottish taxpayers in respect of income which is not savings or dividends. The Scottish income tax rates and thresholds are expected to be announced on 12 December 2018 and it is thought unlikely that the Scottish government will also increase the higher rate threshold to £50,000. As the Scottish government has introduced five new social security benefits, this Finance Bill includes provisions to determine whether those new benefits are taxable or not.
Corporation tax for 2020/21 will be formerly imposed by FA 2019, but the corporation tax rate was already set by FA 2016, s 46 at 17%, reduced from 19% which applies for 2019/20.
The EU anti-tax avoidance directive is written into UK law in Schedule 8 of the Bill to take effect from 1 January 2020. The provisions concern exit charges on the transfer of assets or tax residence between the UK and an EEA state by companies resident in the UK or an EEA state.
The definition of “UK related company” for group relief is expanded to include non-UK resident companies with effect from 5 July 2016, and the time limit for making a group relief claim where it is affected by this change is extended to 31 December 2019.
There are new rules for hybrid capital instruments; bonds (debt) that also have some equity-like features. Such bonds may be converted into shares in some circumstances. The new rules should ensure that interest payments are deductible from the profits of the company that issued the debt.
The big surprise in the Budget speech was the temporary increase in the annual investment allowance (AIA) cap to £1m for two years from 1 January 2019. It takes a whole schedule of the Bill to set out the rules for accounting periods that straddle the beginning or end of this temporary increase.
These complicated rules could catch out the 97% of businesses who don’t spend more on capital assets than the £200,000 current AIA, but will never the less have to pay attention to the timing of their expenditure to ensure the fluctuating limit does not produce an unintended consequence.
No Finance Bill is complete (it seems) without a new tax or two. This Bill introduces the carbon emissions tax, to take effect from 1 April 2019, with the first payment being due in 2020. It would apply to large power generators and certainly large industrial premises and manufacturers.
You may wonder why such an exciting new development wasn’t announced in the Budget speech. This is because the legislation will only be brought into force if the UK leaves the EU without a withdrawal agreement (no deal Brexit). The carbon emissions tax is essentially a replacement for the EU emission trading system which the UK would be excluded from in a “no deal” scenario.
The digital services tax, which was announced in the Budget, is not in the Finance Bill, as it is currently only at the consultation stage. This consultation runs until 28 February 2019, and the legislation will be included in the 2019-20 Finance Bill.