On a hot Friday afternoon in July, HM Treasury published 226 pages of draft tax legislation, alongside 143 pages of explanatory notes. Rebecca Cave has heroically waded through this bumf to bring you the highlights and surprises.
This is the draft Finance Bill 2018-19, which will become FA 2019, when it is passed in March 2019, so the new law can take effect from 1 April 2019 or a later date.
The formal consultation on these proposals is open until Friday 31 August. However, the draft provisions could be subject to changes announced in the Budget in November 2018, or as a result of representations made during this consultation period.
There is list of supporting documents for the Bill, which groups together the draft provisions, explanatory note and the technical note for each policy change.
My first scan through the draft Bill was to seek out any further MTD provisions, but the only changes in that area relate to penalties for late submission of MTD reports and late payments of tax (Finance Bill part 3, schedules 11 and 12).
The technical note: late submission penalties confirms that a points based penalty system will be imposed to encourage taxpayers to submit their MTD reports for income tax and VAT on time. This system will work much as I outlined in March in response to the consultation paper.
Points will be given for each late report. When the number of points breaches a set threshold (which will vary according to MTD obligations), a financial penalty will be charged for subsequent failures.
Points will expire after a period of good compliance. HMRC will have the discretion not to apply points, for example when the software fails. The taxpayers will be able to appeal against points and penalties through their online digital account, but its not clear whether tax agents will be able to do this on behalf of their clients.
In time this points system will be expanded to other taxes and duties including corporation tax, as the government intends to bring corporation tax within the scope of MTD at a later date.
Late paid tax
The policy document: interest harmonisation and sanctions for late payment relates to income tax, corporation tax and VAT. The new interest charges should replace the surcharge system for VAT from 1 April 2020, and it will be introduced for the other taxes at a later date.
Rent a room relief
The government believes that rent a room relief is being abused, as some people think this relief can be claimed for properties entirely let out for holiday or short term lets – it can’t.
The relief is retained at its currently level of £7,500 per year, but an additional condition will apply from 6 April 2019 such that the taxpayer must be present in the property for all or part for the time for which the room is let out.
This rules out letting the whole house while on holiday, but taking short holidays during a period of long term letting to a lodger will not break the conditions of the relief.
Benefits in kind
A clarification of the law regarding charging of electric vehicles by employees at work was promised in the 2017 Budget, but the required legislation wasn’t included in FA 2018.
The law will now be changed with retrospective effect from 6 April 2018, so that employees who charge their own electric or hybrid vehicles at or near work won’t be subject to a benefit in kind.
This tax exemption won’t apply if the employer reimburses the employee for the cost of charging the vehicle at another location. Charging company provided electric vehicles at work does not generate a benefit in kind as electricity is not “road fuel” for the car benefit rules.
When employees in the emergency services keep their work vehicles at home, they may be taxed on the provision of the vehicle under the use of assets rule.
The law will be changed with retrospective effect from 6 April 2017 so use of assets does not apply to emergency vehicles. Also, the employees won’t be taxed on the benefit of fuel used in the vehicle to travel to work when on call.
There are a number of benchmarked expenses rates for subsistence while travelling for business in the UK and abroad, such as the £5 meal allowance.
Amounts reimbursed to employees within those rates are free of tax and NIC, but the employer is supposed to ask for evidence of amounts spent. From 6 April 2019 employers will not be required to check receipts provided by employees, but they will be expected to check that the employee has undertaken the qualifying business journey.
OpRA rules for cars
The salary sacrifice rules (OpRA) for taxing the amounts forgone when receiving the benefit of a company car or van contain two anomalies.
At present the connected costs of providing the vehicle such as insurance are ignored, and the capital contributions made by the employee to the cost of the car can be overstated, as that amount is not apportioned over the tax year. These anomalies will be removed from 6 April 2019.
As proposed at the Spring Statement the entrepreneurs’ relief rules are to be changed where additional equity funds are raised by the company on and after 6 April 2019, to allow the company founders to continue to qualify for the relief even if their shareholding has slipped below 5%. Tax advisers will have to be aware of the need to make elections to retain the relief or defer the gain. Another legislative trap for the unwary.
Payments on account
The government had proposed a 30 day deadline for paying CGT arising from the disposal of residential property. On first sight it appeared that objections were listened to as the headline refers to payments on account within 60 days.
However, reading the detail of the proposal and draft law it is apparent that the payment window will be set at 30 days from completion date for disposals of residential property, made by any person, on and after 6 April 2020.
A CGT return will be required to be submitted within the same 30-day period. This return will be independent and additional to the self-assessment return, and HMRC will be able to enquire into to it separately.
So double the paperwork and tighter payment deadlines – that’s tax simplification!
Non-resident persons (individuals, close companies and trusts), who are not already registered with HMRC for self assessment, corporation tax or ATED, currently have to pay their non-resident CGT within 30 days of completion for disposals of residential property.
The scope of CGT for non-resident persons is to be expanded to cover all gains made from UK real property: commercial and residential, for disposals made on and after 6 April 2019.
The 30-payment deadline will be applied to all CGT arising from UK property disposals made by all non-residents, with no exemptions for non-close companies. It will no longer be possible to defer the payment of CGT until the self assessment tax return is due. ATED-related CGT will be abolished (hurrah!).
The following proposals will also advance tax payments or the requirement to pay in advance of tax liabilities:
- Reduction in the payment deadline for SDLT from 30 days to 14 days for transactions made on and after 1 March 2019 (why March?).
- HMRC to be permitted to ask for security deposits for corporation tax and CIS deductions from 6 April 2019.
The time given for HMRC to raise assessments will double from 6 years to 12 years, where the source of the tax is offshore assets or offshore income.
Unsurprisingly the period available for the taxpayer to submit claims or elections is not extended beyond the usual 4 years. This HMRC power is retro-active as it applies to transactions arising in 2013/14 and later years.