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Anti-avoidance
The Budget contained several measures aimed at combating tax avoidance. Some were as a result of earlier consultation, others were new.
In the first category, venture capital trusts will be prevented from returning share capital to investors within three years of the end of the accounting period in which the trust issued the shares.
This measure came about as a result of HMRC concerns that particular forms of share buy-back and reinvestment arrangements offered by venture capital trusts contravened the intention of the legislation. It will apply to shares issued from 6 April 2014.
Also the subject of previous consultation, the government has amended a measure concerning the artificial use of dual contracts by non-domiciles. It prevents contrived arrangements by high-earning UK-resident, non-domiciled individuals who obtain a tax advantage by creating artificial divisions between the duties of a UK employment and an employment overseas.
After a technical consultation, the legislation will be amended to prevent charges arising on nominal directorships if they or their associates own or control less than 5% of the company’s ordinary share capital.
The legislation will also be amended to clarify that an income tax charge cannot arise on income related to employment duties performed in tax years before 2014/15. It will also take into account employments held for legal or regulatory reasons. Finally, the threshold in the comparative tax rate test will be reduced from 75% to 65%.
The government confirmed that the accelerated payments proposals are to go ahead. Legislation will be introduced in Finance Bill 2014 to enable HMRC to issue a notice to pay to a taxpayer who has used a tax avoidance scheme that falls under the disclosure of tax avoidance scheme or is counteracted under the general anti-abuse rule for whom there is an open enquiry.
The notice will require the taxpayer to pay the disputed tax within 90 days, or a further 30 days where the taxpayer requests that HMRC should reconsider the amount of the payment notice. Where the matter is under appeal, the measure will prevent the postponement of the tax.
In addition, legislation will permit HMRC to issue a notice to the user of a tax avoidance scheme that they should settle their dispute when the scheme has been defeated in other litigation. Taxpayers who do not settle risk a penalty and must make upfront payment of the tax in dispute.
The Chartered Institute of Taxation (CIOT) was disappointed that the government has pressed ahead with its plans to demand that users of existing disclosure of tax avoidance schemes (DOTAS) pay the tax in dispute upfront without a right of appeal.
On the other hand, the equivalent rules applying to follower cases in which an example case has been lost before the courts, seem acceptable, given the backlog of unsettled avoidance cases.
CIOT president Stephen Coleclough said, “These measures introduce a significant retrospective change to the DOTAS regime without providing adequate taxpayer safeguards in the collection of the disputed tax in advance.
“Extending these measures beyond follower cases to DOTAS raises serious questions about the breadth and proportionality of these proposals. It is now incumbent on HMRC to publish as quickly as possible a list of schemes to which this legislation will apply.”
Inheritance tax
Despite the usual calls for the inheritance tax threshold to be raised, the chancellor offered little solace in this area, and confirmed that it would remain at £325,000 until 2017/18.
However, there was some good news for emergency service staff. The government is to consult on options to extend the inheritance tax exemption for armed forces personnel who die on active service to all emergency service employees who die in the line of duty, or whose death is hastened by injury incurred in this way.
It was also announced that the government will consult on revised proposals for simplifying the calculation of the inheritance tax trust charges and dividing the nil-rate band available to trusts created by the same settlor. Legislation for both measures will be introduced in Finance Bill 2015.
Employees
In its review of unapproved share schemes, the Office of Tax Simplification (OTS) recommended the introduction of the marketable security and the employee shareholding vehicle. The government plans to consult on these suggestions.
The OTS also recently reviewed employee benefits and expenses. Consultation will take place on four simplifications recommended:
- abolishing the threshold for the taxation of benefits in kind for employees who earn less than £8,500, with action to mitigate the effects on any vulnerable groups disadvantaged by the reforms;
- introducing a statutory exemption for trivial benefits;
- introducing a system of voluntary payrolling for benefits in kind; and
- replacing the expenses dispensation regime with a reimbursed expenses exemption.
They are expected to be introduced in Finance Bill 2015.
Turning to company car tax, the chancellor said that the appropriate percentage of list price subject to tax will increase by two percentage points for cars emitting more than 75 grammes of carbon dioxide per kilometre (gCO2/km) to a maximum of 37% in 2017/18 and 2018/19.
In 2017/18 there will be a four percentage point differential between the 0 to 50 and 51 to 75 gCO2/km bands and between the 51 to 75 and 76 to 94 gCO2/km bands. In 2018/19 this differential will reduce to three percentage points. It will reduce to two percentage points in 2019/20.
Finance Bill 2015 will extend support for zero-emission vans to 5 April 2020 on a tapered basis. In 2015/16 the van benefit charge rate paid by zero-emission vans will be 20% of the rate paid by conventionally fuelled vans, followed by 40% in 2016/17, 60% in 2017/18, 80% in 2018/19 and 90% in 2019/20, with the rates equalising in 2020/21.
Rollover relief
Legislation will be introduced in Finance Bill 2014 to amend TCGA 1992, s 156ZB to bring the corporation tax treatment of companies that wish to claim rollover relief into line with the rules enacted in FA 2002.
Section156ZB will be amended to make it clear that rollover relief is not available where the proceeds are reinvested in an intangible fixed asset, effective from 19 March 2014.
Legislation will also be introduced to enable the tax cost of any intangible fixed asset to be adjusted where rollover relief has been claimed in respect of a reinvestment in intangible fixed assets before 19 March 2014.
The tax cost will be adjusted when calculating any debits and credits arising for any accounting periods beginning on or after that day. Any companies affected by this change will be required to compute debits and credits separately for the periods before and on or after 19 March 2014.
In a move that will affect farmers who dispose of or acquire payment entitlements under the new agricultural subsidy basic payment scheme, the government is to introduce legislation in Finance Bill 2014 to include such payments within the classes of qualifying assets eligible for rollover relief in s 155.
VAT
From 6 April 2014, the VAT registration and deregistration thresholds will each be increased by £2,000 to £81,000 and £79,000 respectively.
It was also confirmed that the simplified reporting requirement for income tax self assessment will continue to be aligned with the VAT registration threshold.
The legislation on prompt payment discounts will be amended to align UK VAT legislation with EU legislation. Until now suppliers have been allowed to account for VAT on the discounted price offered for prompt payment even when that discount is not taken up.
This interpretation is to be changed to bring it into line with the Principal VAT Directive, which requires VAT to be accounted for on the consideration received.
Historically, prompt payment discounts have been used mainly in business-to-business transactions and recipients have been entitled to recover any VAT charged. These discounts are increasingly used to final consumers who cannot recover the VAT charged in the telecommunication and broadcasting sectors.
This measure will, for supplies of telecommunication and broadcasting services where there is no obligation to provide a VAT invoice, have effect for supplies made on and after 1 May 2014. For other sectors, the measure will have effect for supplies made on and after 1 April 2015.
Administration
HMRC are to be given powers to recover tax and tax credit debts of £1,000 or more directly from taxpayer accounts, subject to safeguards to prevent hardship. After consultation, legislation will be included in Finance Bill 2015.
Despite promises that HMRC will use the powers only where they have failed to collect tax due by conventional methods, Nigel May of MHA MacIntyre Hudson said, “It has to be questioned whether HMRC, a body that has not been exactly free from administrative gaffes, can be shown to have understood the concept of rigorous safeguards based upon its own past performance.”
May expressd concern that the Revenue will rush to judgment, leaving an innocent taxpayer financially embarrassed. He added that it was also “not entirely clear how, for example, joint accounts or accounts held for children would be dealt with”.
The government is to review the rules that determine the treatment of benefits given to donors by charitable organisations. This follows informal feedback from the sector that the rules are complex.
HMRC will work with stakeholders to review whether it is possible to simplify the existing rules.
Download the eight-page Budget summary from Tolley Tax
