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Legislation Day – what to expect

2nd Dec 2016
Tax Writer Taxwriter Ltd
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The dictionary definition of legislation
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The draft clauses for the Finance Bill 2017 are due to be released on Monday 5 December, on what tax geeks now call “L-Day”.

AccountingWEB will be paying close attention to what is published and offers the following pointers to the devils which may be hidden in the detail.

VAT flat rate

The proposed restriction of the VAT flat rate scheme was the big surprise in the Autumn Statement, but the technical guidance note gives little idea of how the new rules will work in practice.

Our own VAT expert Neil Warren will analyse the draft VAT regulations when they appear. The big question we all need answers to is; what will the VAT rules classify as ‘goods’ or ‘services’ for defining who is a ‘limited cost trader’? As those unfortunate businesses will have to use the new FRS percentage of 16.5%.

Employee share schemes

This scheme was effectively blocked for new shares issued on or after 1 December 2016, and draft legislation to implement this change was released alongside the technical note on 23 November.

Pension recycling

The third major surprise in the Autumn Statement was the proposal to cut back the money purchase annual allowance (MPAA) from £10,000 to £4,000 with effect from 6 April 2017. The function of the MPAA is to discourage pensions recycling by people who have been able to flexi-access their defined contribution pension pots since April 2015. This proposal has been introduced as a Treasury consultation, and it may not need any detailed legislation to implement.

IR35 changes

The Autumn Statement contained an indirect reference to the proposed changes to the IR35 rules for public sector contracts, called ‘off-payroll working rules’. As FreeAgent reported, the proposals are going to go ahead but it will be worse than we feared as the 5% allowance for expenses will not be permitted as a deduction from the invoiced amount.

The change in emphasis of who makes the decision about IR35 for public sector contracts (customer or agent rather than personal service company), will also have implications for auditors of public sectors bodies. This may require an amendment to the Companies Act 2006. We will expand on this point when the draft legislation is published.

Other tax measures

The professional bodies have been working overtime responding to detailed tax consultations to ensure the draft Finance Bill 2017 clauses work in the way the government intended and don’t cause any further foul-ups with unintended consequences. Among the other changes we expect to see on L-Day are:

Employee benefits

The future of salary sacrifice for benefits in kind is in the balance as Kate Upcraft explained. There are also moves to change the taxable benefit charges for low emissions company cars, and reform the taxation of termination payments. Further simplifications to the PAYE settlements agreements process will be introduced and the rules for when the employee repays the employer the value of the benefit will be rationalised. 

Hidden economy

This term refers to individuals and businesses who hide completely from the tax system. HMRC will have the power to gather bulk data from money service businesses, such as cheque cashers and currency exchange services, to track cash which is not being declared as earnings. Another tool to track non-compliant businesses is to make any licences, such as to sell alcohol, conditional on the business being registered with HMRC.

Sugar tax

This levy on soft drinks is due to take effect from April 2018. However, the food industry is already changing its recipes to avoid the new levy, so this new tax may achieve its aim of reducing childhood obesity without raising any revenue.

Tax avoidance 

No Budget or Autumn Statement would be complete without the announcement of a raft of tax avoidance measures. We should expect more detail on:

Replies (6)

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By andyjdicker
05th Dec 2016 13:55

https://www.gov.uk/government/publications/draft-legislation-vat-tacklin...

Doesn't say anything more than what we know already. Looks like it falls back on the VAT definition of 'goods' and 'services'.

So, £2,000 of stationery and computer consumables for everyone each year?

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Replying to andyjdicker:
By Ruddles
05th Dec 2016 15:36

Exactly - a company just under the £2k barrier each year, but saves about £6k per annum under FRS. So, a few extra reams of paper for the fire and a couple of extra boxes of Biros for the kids. Job done.

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By ireallyshouldknowthisbut
05th Dec 2016 15:32

The explanatory note for the VAT changes seems very odd.

They state that the are 411,000 FRS businesses
And they think 123,000 have limited costs.

BUT only 4,000 businesses will go onto the "normal" VAT scheme. This is clearly absurd as virtually all of our FRS scheme members will be going onto the normal scheme as they will incur a fair amount of services with VAT on, such as our fees for starters!

It is as if the explanatory note was written for "goods and services", and then the "services" crossed out later on.

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Replying to ireallyshouldknowthisbut:
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By RobertD
06th Dec 2016 06:33

ireallyshouldknowthisbut wrote:

The explanatory note for the VAT changes seems very odd.

They state that the are 411,000 FRS businesses
And they think 123,000 have limited costs.

BUT only 4,000 businesses will go onto the "normal" VAT scheme. This is clearly absurd as virtually all of our FRS scheme members will be going onto the normal scheme as they will incur a fair amount of services with VAT on, such as our fees for starters!

It is as if the explanatory note was written for "goods and services", and then the "services" crossed out later on.


Perhaps we could offer free accountancy services with the purchase of a box of paper. The box would cost as much as their previous accountancy fees.
I'd have to buy in more paper which would help my FRS issue too.
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Replying to RobertD:
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By andyjdicker
06th Dec 2016 08:37

RobertD wrote:

ireallyshouldknowthisbut wrote:

The explanatory note for the VAT changes seems very odd.

They state that the are 411,000 FRS businesses
And they think 123,000 have limited costs.

BUT only 4,000 businesses will go onto the "normal" VAT scheme. This is clearly absurd as virtually all of our FRS scheme members will be going onto the normal scheme as they will incur a fair amount of services with VAT on, such as our fees for starters!

It is as if the explanatory note was written for "goods and services", and then the "services" crossed out later on.

Perhaps we could offer free accountancy services with the purchase of a box of paper. The box would cost as much as their previous accountancy fees.
I'd have to buy in more paper which would help my FRS issue too.

This really is crap legislation isn't it. If the finanical benefit of 'getting around it' is in excess of the cost, then it's logical to do so. Even if it means incurring artificial costs.

Either reform it (the flat rate scheme) properly, or remove it entirely.

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By RobertD
06th Dec 2016 06:15

Well it appears that I am an aggressive abuser of the vat flat rate scheme.

I am also an aggressive abuser of the personal allowance.

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