Finance Bill: Slim Finance Bill packs a punch

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The Finance Bill 2017-2018 is a refreshingly slim 190 pages, but it contains some significant tax proposals, which if passed will form the Finance Act 2018.

Why so slim?

Since Gordon Brown was Chancellor, tax professionals have become used to hefty Finance Bills arriving at least once a year. This Finance Bill 2017-2018 is the third Finance Bill presented to Parliament in 2017.

If MPs are getting a bit fed-up of sitting through yet another round of committee deliberations on tax matters, imagine what members of the professional bodies’ tax technical committees feel like. At least MPs get paid for the time they spend (or don’t spend) scrutinising the draft tax legislation, members of the accounting bodies technical committees are largely volunteers.

This Bill is remarkably slim at 50 clauses and 12 schedules extending to only 190 pages. This is because it is fairly light on new anti-avoidance rules (see Schedules 1 and 10), and the Chancellor has resisted the temptation to invent a new tax!

What’s in it?

The usual clauses to set the tax rates and allowances for 2018/19, although the corporation tax rate for the year beginning 1 April 2019 was already set at 19%. A welcome tweak to the marriage allowances is made to allow retrospective claims where one spouse or civil partner has died. This takes effect from 29 November 2017.

However, the same flexibility is not extended to divorced couples. If your clients are divorcing, and the conditions for the marriage allowance apply, encourage them to make a claim before the divorce is finalised. The marriage allowance can’t be claimed once the marriage has ended, even for earlier years when the couple were together.

SDLT

The changes to SDLT for first-time buyers and the easing of the rules for the 3% supplement on additional homes are included at clauses 40 and 41, and Schedule 11. These take effect from 22 November 2017 and exclude from the SDLT rules properties in Wales from 1 April 2018, when the Welsh Land Transactions Tax (LTT) starts to apply. We await the reaction of the Welsh and Scottish Governments to these SDLT changes. Will Wales and Scotland mirror the land taxation break for first-time buyers, and if so up to what threshold?

New powers

An area that caught my eye is the amended powers for HMRC to enter premises and inspect goods, and the powers to search vehicles or vessels (boats). These powers relate to the enforcement of customs duties, which will be far more significant after the UK leaves the European Union.

HMRC officers will be able to use reasonable force to gain entry to a locked vehicle or vessel. They will also be able to enter business premises which is used to trade goods, at any reasonable time, and require the business owner or building occupier to provide assistance with that search, by say opening crates or unpacking goods.

Anti-avoidance rules

Schedule 1 tweaks the rules on the loan charge which was legislated in F(no.2) A 2017. This charge comes into effect in 2019, and will impose tax and NIC on individuals who have not the repaid their “contractor loans” by 5 April 2019 or settled their tax position with HMRC. This schedule introduces new requirements for those individuals to provide information to HMRC about the loans they have received.

Part 2 of Schedule 1 introduces a “close company gateway” to catch payments which are made by a close company via a circular route through a third party, to benefit the owner/ directors of the company, and to avoid tax or NIC. Such payments will be treated as remuneration of the owner/director unless the payment can be shown to be part of a commercial transaction.

Schedule 10 contains new rules relating payments and benefits from offshore trusts, particularly where capital payments are made to non-residents.

What’s not there

You will search the Finance Bill in vain for any mention of digital tax reporting or MTD. All the functioning parts of the MTD rules will be contained in regulations, which will have far less scrutiny than the primary law.

We do have three new publications concerning MTD, which I will examine in detail in a later article. In brief, they are:

  • Scope and pace review – this is a technical paper which restates the impacts of MTD and the expected increased tax revenue.
  • Interest and sanctions for late payment – this is a consultation on options for aligning the rules on interest payments and penalties for late payment across income tax, corporation tax and VAT. MTD was not supposed to change the frequency or date of payment of taxes.
  • The Government has also reacted to the earlier consultation on sanctions for late submission of MTD reports and has chosen the penalty points option.

 

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

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06th Dec 2017 10:49

Should be noted that Schedule 1 and 2 have retrospective effect (even though HMRC claim, semantically, that it's not retrospective law).

Hopefully Treasury Select and Public Accounts committees will bear this in mind as retrospection is meant to be used only in exceptional circumstances?

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06th Dec 2017 13:35

Hitherto hefty Finance Bills by Chancellors who clearly weren't up to the job, but needed to try and demonstrate otherwise, served to open the floodgates for abuse by greater intelligentsia.
Who knows , subsequent enacted bills might solve the legal avoidance effectively created by dumb predecessors.
Good to see no 'new' tax. Hammond has at least understood the adage of 'one step forward ; two steps backward'.

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07th Dec 2017 11:37

Oh yay, another set of penalties, this time for Making Tax Difficult.

MTD by regulation- what could possibly go wrong.....

Can't wait to try and explain why everyone's fees have to go up so that HMRC can have 4 or 6 filings a year when there is only the need for one.

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By Tornado
07th Dec 2017 12:04

It seems that the Finance Bill (No.2) 2017 (enacted on the 16th November 2017) includes basic, but wide ranging, regulations that enable the Government to progress with MTD with a liberal splattering of 'may do this" and "may do that" in the text.

Instead of the hundreds of pages included in the original draft of the Finance Bill 2017, which was later stripped out just before Parliament was dissolved for the General Election, we now have more basic enabling legislation in both the Finance Bill (No. 2) 2017 and the latest budget proposals. As Rebecca says, much of the detail of the format and operation of MTD will not be included in Primary Legislation. This also goes for the way in which penalties will be operated.

Of more interest to some of us is the introduction of MTD for VAT which seems to be nothing less than full MTD for businesses at or above the VAT threshold. Note that this does pave the way for reducing the 'VAT Threshold' after the current two year fix which probably means that eventually the thresholds will be lowered to bring more businesses into VAT and MTD.

With regard to the plan to bring in MTD for VAT in April 2019, the Government may still be under the false impression that this will be easy for those businesses affected to deal with. In my experience, smaller businesses will still struggle to comply, especially when there will be only a year from the completion of consultation to the proposed operation of MTD for VAT.

I would be very surprised if it is made compulsory to operate MTD for VAT from April 2019 and see this rather as a voluntary arrangement. I don't think any Government in its right mind would introduce this massive change to the administration of VAT at the same time as we are dealing with Brexit and changes in the way that VAT is operated throughout Europe as well. I doubt if HMRC would be up to speed on all of this anyway and I am hugely sceptical about the ability of software developers being able to include every single aspect of all these changes in software that is ready to go in April 2019.

The logical way, as it has always been with MTD, is to stage its introduction over a long time based on software, resources and training that has been tried and tested and proven to work. The legislation in the Finance Bills will enable the Government to take this approach and I feel sure that they will think carefully about this before making any final decisions.

For more information on MTD for VAT -

https://www.gov.uk/government/consultations/making-tax-digital-reforms-a...

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