As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include provisions to simplify the process for applying for and agreeing the Pay as You Earn Settlement Agreement (PSA) process. Broadly, a PSA allows an employer to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for employees. Further details will be published in due course. The changes will have effect in relation to agreements for the 2018-2019 tax year and subsequent tax years.
Capital allowances: first-year allowance for electric charge-points
From 23 November 2016, businesses will be able to claim a 100% first-year allowance (FYA) in relation to qualifying expenditure incurred on the acquisition of new and unused electric charge-
points. The allowance will be available until 31 March 2019 for corporation tax purposes and 5 April 2019 for income tax purposes.
The measure complements the 100% FYA for cars with low carbon dioxide (CO2) emissions, and the 100% FYA for cars powered by natural gas, biogas and hydrogen.
Employee shareholder status
The income tax reliefs and capital gains tax exemption will no longer be available with effect from 1 December 2016 on any shares acquired in consideration of an employee shareholder agreement entered into on or after that date. Any individual who has received independent advice regarding entering into an employee shareholder agreement before the 23 November 2016 will have the opportunity to do so before 1 December (but not later) and still receive the income and CGT tax advantages that were known to be available at the time the individual received the advice. The effective date is to be the 2 December where independent legal advice is received on 23 November prior to 1.30pm. Corporation tax reliefs for the employer company are not affected by this change.
New tax allowance for property and trading income
As announced at Budget 2016, the government will create two new income tax allowances of £1,000 each, for trading and property income. Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will now also apply to certain miscellaneous income from providing assets or services.
Expanding the museums and galleries tax relief
The new museums and galleries tax relief is to be expanded to include permanent exhibitions. The new relief, which starts in April 2017, was originally only intended to be available for temporary and touring exhibitions. The rates of relief will be set at 20% for non-touring exhibitions and 25% for touring exhibitions. The relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022.
Tax deductibility of corporate interest expense
Following recent consultation, the government will introduce rules that limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. The provisions proposed to protect investment in public benefit infrastructure are also to be widened. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.
Reform of loss relief
Following consultation, the government will legislate for reforms announced at Budget 2016 that will restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group.
In implementing the reforms the government will take steps to address unintended consequences and simplify the administration of the new rules. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector.
Bringing non-resident companies’ UK income into the corporation tax regime
The government is considering bringing all non-resident companies receiving taxable income from the UK into the corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change. The government wants to deliver equal tax treatment to ensure that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules.
Substantial Shareholding Exemption (SSE) reform
Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017.
Authorised investment funds: dividend distributions to corporate investors
The rules on the taxation of dividend distributions to corporate investors are to be modernised in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by authorised investment funds. Proposals and draft legislation will be published in early 2017.
Northern Ireland corporation tax
The government will amend the Northern Ireland corporation tax regime in Finance Bill 2017 to give all small and medium sized enterprises (SMEs) trading in Northern Ireland the potential to benefit. Other amendments will minimise the risk of abuse and ensure the regime is prepared for commencement if the Northern Ireland Executive demonstrates its finances are on a sustainable footing.
Corporation tax deduction for contributions to grassroots sport
As announced at Autumn Statement 2015 and following consultation, in Finance Bill 2017 the government will expand the circumstances in which companies can get corporation tax deductions for contributions to grassroots sports from 1 April 2017.
Patent Box rules
The government will legislate in Finance Bill 2017 to add specific provisions to the Patent Box rules, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’. The provisions ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. This will have effect for accounting periods commencing on or after 1 April 2017.
Authorised contractual schemes: reducing tax complexity for investors in co-ownership authorised contractual schemes
As announced at Budget 2016 and following a period of consultation, Finance Bill 2017 will include legislation (to be supported by secondary legislation) to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS.
Off-payroll working rules
Following consultation, the government will reform the off-payroll working rules in the public sector from April 2017 by moving responsibility for operating them, and paying the correct tax, to the body paying the worker’s company. This reform aims to tackle high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees. In response to feedback during the consultation, the 5% tax-free allowance will be removed for those working in the public sector, reflecting the fact that workers no longer bear the administrative burden of deciding whether the rules apply.
Bank levy reform
As announced at Summer Budget 2015, the bank levy charge will be restricted to UK balance sheet liabilities from 1 January 2021. Following consultation, the government confirms that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and an exemption for UK liabilities relating to the funding of non-UK branches. Details will be set out in the government’s response to the consultation, with the intention of legislating in Finance Bill 2017-18. The government will continue to consider the balance between revenue and competitiveness with regard to bank taxation, taking into account the implications of the UK leaving the EU.
Hybrids and other mismatches
The government will legislate in Finance Bill 2017 to make minor changes to ensure that the hybrid and other mismatches legislation works as intended. The changes will have effect from 1 January 2017.
Annual Tax on Enveloped Dwellings
The annual charges for the Annual Tax on Enveloped Dwellings (ATED) will rise in line with inflation for the 2017-2018 chargeable period.
Clarification of tax treatment for partnerships
Following consultation, the government will legislate to clarify and improve certain aspects of partnership taxation to ensure profit allocations to partners are fairly calculated for tax purposes. Draft legislation will be published shortly for technical consultation.
Tax-advantaged venture capital schemes
The rules for the tax-advantaged venture capital schemes (Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) are being amended to:
– clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December 2016;
– provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS provisions, for investments made on or after 6 April 2017; and
– introduce a power to enable VCT regulations to be made in relation to certain shares for share exchanges to provide greater certainty to VCTs.
In addition, a consultation will be carried out into options to streamline and prioritise the advance assurance service.
The government will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time, and will review this over the longer term.
Gift Aid digital
As announced at Budget 2016, intermediaries are to be given a greater role in administering Gift Aid, with the aim of simplifying the Gift Aid process for donors making digital donations.