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KEY POINTS
- Residence matters confirmed.
- Pension contributions to family members restricted.
- Tax statements planned for 2014/15.
- Bank levy increased.
- Moves to iron out VAT inconsistencies.
By the time you read this, the fuss over the Budget will have died down and you’ll doubtless be concentrating on what reliefs and allowances your clients should be using up before the end of the tax year.
Just in case you did not get enough of this year’s financial pronouncements, Taxation has delved into the myriad documents to boost your knowledge.
As always, one of the most important documents is the Overview of Tax Legislation and Rates.
These 208 pages contain a wealth of information, usefully including summaries of the previously announced measures included in the Finance Bill, and the proposed changes in the Budget 2012. The tax information and impact notes (TIINs) then provide the detail and a selection of these are summarised below.
The LexisNexis detailed Budget summary will be in the 12 April issue of Taxation.
Personal concerns
Various measures are to be consulted upon with a view to including legislation in the Finance Bill 2013.
Looking first at residence, as announced on 6 December 2011, the government confirmed that the proposed statutory residence test would be legislated in Finance Bill 2013 to take effect from 6 April 2013.
In addition, on the same time scale, ordinary residence is to be abolished for tax purposes but overseas workday relief will be retained and placed on a statutory footing.
Next, with regard to pensions tax relief, the rules which currently allow employers to pay pension contributions into an employee’s family members’ pensions as part of the employee’s remuneration package are to be amended so that the tax and National Insurance advantages are removed.
This is likely in particular to affect employees who reach their annual allowance (£50,000), and then opt for salary sacrifice to make contributions on behalf of , for example, their spouse to obtain tax relief and make use of spare contribution limits.
The pensions tax legislation for bridging pensions is to be amended to reflect the changes in state pension age.
A power will also be created to allow for regulations to be made changing the tax rules on bridging pensions to fit with any further changes to state pension rules.
Legislation will be introduced in Finance Bill 2013 to strengthen reporting requirements and powers of exclusion relating to the qualifying recognised overseas pensions schemes (QROPS) regime. This will support the changes in secondary legislation published for consultation on 6 December 2011.
Furthermore, where the country or territory in which a QROPS is established makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended or available under the QROPS rules, such schemes will be excluded from being QROPS.
The inheritance tax-exempt amount that a UK domiciled individual can transfer to his non-UK domiciled spouse or civil partner is to be increased.
Similar proposals will allow individuals who are domiciled outside the UK and who have a UK domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of inheritance tax.
A restriction for trusts that are heritage maintenance funds and which have deferred, or may defer, capital gains tax charges arising from the re-settlement of assets from one to another is to be eased.
This will apply with retrospective effect to April 2012 and will be subject to informal consultation.
Transparent tax
To provide greater transparency in the tax system, HMRC intend to make information on their tax affairs more accessible to all taxpayers.
In April, they will launch an online ‘business tax dashboard’, which will allow businesses to see how much tax they have already paid and how much they still owe.
In addition, from 2014/15, a ‘personal tax statement’ will be available to all individuals who file their self-assessment return online, as well as some taxpayers in PAYE.
It will show how much tax and National Insurance they have paid, average tax rates and how those deductions contribute to public expenditure.
Quite how useful or interesting taxpayers will find this remains to be seen. Given the cost, most would probably prefer the money was spent on improving HMRC ‘customer’ service.
With regard to the possible integration of tax and National Insurance, following consultation, the government has announced that a further detailed consultation on the subject will be published.
This will set out a broad range of options for the operation of employee, employer and self-employed National Insurance contributions.
Corporate matters
The rate of the bank levy will be subject to yet another change, with the rate for short-term chargeable liabilities increasing from 0.088% to 0.105% and that for chargeable equity and long-term chargeable liabilities rising to 0.0525% from 0.044%.
They will apply from 1 January 2013. The aim is to offset the reduction in corporation tax rates.
In relation to grouping rules, legislation will be introduced in Finance Bill 2012, taking effect from 21 March, to ensure that the group status of a company will be unaffected where it issues loan notes carrying a right to conversion into shares or securities of quoted unconnected companies.
The reform of controlled foreign companies (CFCs) proceeds at its leisurely pace with the government confirming the new regime, due to start in January 2013. The key elements are:
The business profits of a foreign subsidiary will be outside the scope of the new regime if they meet the specified conditions set out in a gateway.
‘Safe harbours’ for the gateway conditions will be provided covering general commercial business, incidental finance income and some sector-specific rules. A foreign subsidiary can rely on these safe harbours to show that some or all of its profits are outside the regime’s scope.
As an alternative to the gateway, the regime will also provide exemptions for CFCs. The exemptions will apply to the CFC as a whole and include an excluded territory exemption and a low profits exemption.
The lower level of tax test which currently forms part of the definition of a CFC will function as an exemption in the new regime.
The regime includes rules for finance companies which will generally result in an effective tax rate on intra-group finance income of one-quarter of the main corportion tax rate, and full exemption in certain circumstances.
Not forgetting VAT…
In his Budget speech, George Osborne said he planned to ‘address some of the loopholes and anomalies in our VAT system’ and singled out the way, for example, that soft drinks and sports drinks are subject to VAT but sports nutrition drinks are not.
The claim that these amount to ‘loopholes’ is questionable, but no one would argue that VAT is complex and sometimes even illogical. Whether these changes will improve it is open to debate.
A consultation document was published on 21 March, outlining the government’s plans in this area, although the Chancellor confirmed that the zero rating on certain food, children’s clothes, printed books and newspapers would be retained.
The measures addressed in the document aim to:
- clarify the treatment of catering to ensure that all hot takeaway food is taxed, as well as clarify the meaning of premises;
- tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment;
- remove the exemption from self-storage to ensure all supplies of storage receive the same tax treatment and to counter avoidance;
- remove the anomaly whereby approved alterations to certain listed buildings are zero rated while alterations to other buildings, and repairs and maintenance to all buildings are standard rated;
- put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs;
- ensure holiday caravans are taxed consistently at the standard rate of VAT.
Anti-forestalling provisions will be included in Finance Bill 2012, and the aim is for the changes to take effect from 1 October 2012. The consultation closes on 4 May 2012.
It should also be noted that the VAT registration threshold is increased from £73,000 to £77,000, while that for deregistration rises to £75,000 from £71,000.
More consultation
Expect a plethora of consultation documents to be released over the next few weeks as the government follows up on its promises of consultation on important forthcoming tax changes.
