Huge Finance Bill will test Parliamentary scrutinyby
Tax experts have confirmed the Finance Bill 2017 is the largest ever UK financial bill in history, covering 767 pages with 313,031 words.
Philip Hammond’s Budget on 8 March was the slimmest many tax experts can remember, and it is now even thinner as the proposal to raise the rate of class 4 NIC has been scrapped. So why have we been landed with such a mammoth Finance Bill 2017?
The answer is that many of the measures in this bill were proposed by George Osborne in the 2016 Budget or even earlier. It takes some time to work into draft law complex anti-avoidance provisions and to formulate completely new taxes and reliefs.
Large chunks of the Finance Bill hold little interest for advisers of small businesses and individuals. Unless your client produces sugary drinks, you can ignore the new soft drinks levy (35 pages). Where your corporate groups pay interest of less than £2m you can skip the 156 pages on the new corporate interest restriction. Similarly, 116 pages on carried-forward corporate losses can be consigned to the budgie cage where if the company’s turnover is less than £5m.
However, this law is important to larger businesses. I hope the House of Commons Finance Bill committee will find the time to properly scrutinise every new piece of anti-avoidance law, and carefully weigh the increased complexity against the need to prevent the loss of tax revenue.
There is a lot of law relevant to smaller businesses in Finance Bill 2017, you just need to know where to look.
The IR35 rules for contracts in the public sector (Schedule 1) contains new conditions including: Deadlines for providing information, fraudulent information, and the definition of a public authority, which AccountingWEB will cover in a later article.
Making Tax Digital
Sections 120 to 122 and schedule 25 outline the rules for digital record keeping to facilitate Making Tax Digital (MTD) for businesses, which will replace the annual self assessment tax return. However, much of the detail on the mechanics of how the data must be transmitted to HMRC and how tax elections will be made, will be set out in regulations, which are not published alongside this bill.
I will look at the MTD requirements in more detail in another article, but two points to note are:
New TMA 1970 schedule 1A, para 13(6) which concerns digital record keeping and reporting says that information provided in the updates and in the end of period return must meet standards of accuracy and completeness specified by HMRC, and failure to meet those standards will be treated as a failure to comply with regulations. In other words; providing estimated figures will not be acceptable.
A penalty of up to £3,000 may be imposed for not keeping electronic records and preserving those electronic records for a specified period (New TMA 1070 Sch1A para 12(4))
The conditions for the cash basis for property businesses do not appear to have changed from the earlier draft legislation. The cash basis will be the default accounting treatment for individual landlords with rental income of no more than £150,000 per year, but as soon as their property income crosses that threshold they must not use the cash basis (new ITTOIA 2005, s 271A(4)).
Trading and property allowances
The rules have been amended for the two new £1,000 allowances for property income and miscellaneous trading income. These allowances now can’t be used by a participator in a close company against income received from that company. Similar anti-avoidance rules prevent employees or their relatives, from using the allowances against income received from the employing company.
Just in case we didn’t have enough to read with 1,210 pages of Finance Bill and notes, HMRC has published four new consultation documents which are relevant to small and medium sized businesses:
- MTD: penalties for late submission and late payment – closes 11 June 2017
- Non-resident companies who pay income tax (mostly non-resident landlords) – closes 9 June 2017
- VAT fraud on labour provision in construction industry – closes 9 June 2017
- VAT split payment procedure for online purchases – closes 30 June 2017
What are we waiting for?
We are still waiting for the MTD consultation on complex businesses, which is supposed to cover all companies and large partnerships. This was promised in December 2016, then January and now it seems it won’t appear until “the summer”. I do wonder whether HM Treasury and HMRC are struggling to find the form of words which justifies quarterly reporting under MTD for larger businesses and corporates.