The second Finance Bill for 2017 hasn’t been passed yet, but the government has just issued eight new policy papers on tax changes to be included in the next Finance Bill which will become FA 2018.
This is in spite of the fact there has been no comprehensive consultation paper on MTD for VAT, or MTD for complex businesses – which covers large partnerships and all companies.
The six MTD consultation papers which were released in August 2016, focused on small unincorporated businesses and only mentioned VAT as a side issue. The full ramifications of end-to-end digital reporting for VAT have not been fully explained to, or discussed by, the businesses which will be affected.
Eight tax changes
I have briefly described below the issues at the core of each of these policy changes, further detail and how to respond can be found in the policy documents.
If you have views on any of these policy areas, do respond to HMRC, or send your comments to your professional body who will make representations on your behalf. The changes in the area of partnership taxation will be of particular interest to the larger accountancy firms.
The rules on termination payments are to be tightened up with effect from 6 April 2018, in particular the £30,000 cap will apply to NIC as well as for income tax.
The draft law for the revised termination payments exemptions is published as clause 5 of the second Finance Bill 2017 (which will become F(no.2)A 2017).
But its seems the legislation drafter needed a bite at restricting termination pay exemptions. The unlimited relief for foreign service is to be removed from 6 April 2018, although it will be retained for seafarers.
The new tax charge (loan charge) on contractors loans, which are not fully repaid by 5 April 2019, is introduced by the second Fi Bill 2017, Sch 11. But this policy paper announces changes to that law, which in general strengthen HMRC’s hand against the taxpayer. The changes include:
- A new close company 'gateway' to the tax charge to catch the owners of close companies, to ensure the tax charge doesn’t rest on the company which may then be liquidated.
- Genuine commercial arrangements which don’t have a tax avoidance purpose will not be caught by the loan charge.
- Where the loan could be caught by the loan charge and also by corporation tax charge for loans to participators in close companies, only the loan charge will apply.
- Requirements for the taxpayer and others to provide information to HMRC for the purposes of calculating the loan charge.
This is policy change is presented as a clarification of the tax treatment of partners, including partners who are themselves trustees or other partnerships. The main change is that partnership profits will have to be allocated for tax purposes in the same ratio as the commercial profits. Also, a new dispute mechanism will be introduced to resolve disagreements about the allocation of taxable profits between partners, which was the issue at the heart of Morgan & Self v HMRC (TC00046).
These measures boost HMRC’s ability to act against pensions fraud with effect from 6 April 2018. They extend HMRC’s powers to refuse to register a pension scheme, add powers to deregister Master Trust pension scheme which doesn’t have authorisation from the Pensions Regulator, and to deregister pension schemes which have been set up with a dormant company as the sponsor.
Fly tipping is a blight on the landscape, but it is also tax avoidance, as dumping in unauthorised waste sites avoids paying landfill tax. This policy change extends landfill tax to disposals made at sites without a permit, so the fly-tipper will be hammered for tax as well as penalised under the environment regulations, if they are caught on or after 1 April 2018.
This is another slice of anti-avoidance law directed at UK resident individuals who receive income or gains from off-shore trusts. If the payment is routed through a non-domiciled person or an overseas beneficiary, the UK resident will still be liable to the tax.
Such payments from off-shore trusts would only avoid tax if the recipient was non-domiciled, but following the introduction of the deemed domicile rules in the second Fi Bill 2017, cl 29 and sch 8, there will be far fewer people with effective non-dom status who are resident in the UK from 6 April 2017.
Withholding tax on interest
This is another tidy-up of tax law to make the UK more attractive to international debt trading. It abolishes the requirement to the deduct withholding tax from certain types of debt instruments.
The scope of this levy is changing from 2021 to be chargeable only on UK balance sheet equity and liabilities. These changes also make some simplifications to the levy collection process from 2018.
The consultations on these policy changes are open for comments until 25 October 2017. The MTD regulations consultation is open until 10 November 2017. Do let us know your thoughts below.