The Chancellor Philip Hammond today presented his first and final Spring Budget, before the permanent move to Autumn Budgets later this year.
As expected there were few significant announcements – Mr Hammond had already noted that the Autumn Budget would be the main policy event for the year.
The measures likely to be of most relevance to the Channel Islands are as follows:
- The Government stated it will be introducing a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction. Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the same country or within the European Economic Area. The changes will take effect for transfers requested on or after 9 March 2017.
- As previously announced, the Government will consult on bringing non-UK resident companies, who are currently chargeable to Income Tax on their UK taxable income, and to non-resident capital gains tax on certain gains, within the scope of Corporation Tax. This will potentially impact Non-Resident Landlords in the Channel Islands receiving UK rental income.
- Some changes were announced today to the draft legislation restricting relief for corporate interest expense and the use of corporation tax losses. However, there are other points on which EY have made representations, and which we know HMRC are actively considering, that were not announced. Finance Bill 2017 will also see the previously announced changes to the anti-hybrids, patent box and SSE regimes.
- There was an update to the ‘Profits from Trading in and Developing Land’ legislation, to remove the exception for grandfathering of contracts entered into before 5 July 2016. This will bring all profits recognised in the accounts on or after 8 March 2017 into the charge to UK Corporation Tax or Income Tax, regardless of the date of contract.
- As announced in 2016, non-doms will be able to segregate amounts of income, gains and capital within their overseas mixed funds to provide certainty on how amounts remitted to the UK will be taxed. Following consultation on the draft legislation this will be extended by government amendment to income, gains and capital held in mixed funds from years before 2007 to 2008, as well as those from subsequent years.
Further updates will come with the publication of the Finance Bill, and of particular importance we await updated legislation for the changes affecting non-doms.
Alongside the Budget documents, HMRC has released its summary overview document. The document is available here.
The Chancellor’s other main announcements were:
- The Government will make administrative changes to the claiming of research and development (R&D) tax credits.
- The Government will legislate in Finance Bill 2017 to remove the ability of businesses with loss-making capital assets to obtain an unfair tax advantage by converting those losses into more flexible trading losses by removing the election available on appropriation to trading stock. The changes will take immediate effect from today, 8 March 2017. Draft legislation is available.
- The Government will consult further in Summer 2017 on the legislative changes required following the announcement of the International Accounting Board’s new leasing standard – IFRS16 – which comes into effect on 1 January 2019.
- HMRC will publish guidelines in Spring 2017 for employers who make payments for image rights to their employees to improve the clarity of the existing scheme.
- A formal discussion paper will be launched looking at providing further support to the Oil and Gas industry in relation to the transfer of late life assets.
- An exemption from withholding tax will be introduced for interest on debt traded on a multilateral trading facility, removing a barrier to the development of UK debt markets. There will be a consultation from Spring 2017 on implementation.
- Further work will be undertaken on the process for business rates revaluations in the future. The Chancellor announced three transitional reliefs to soften hardship in relation to the current revaluation. This includes a discretionary fund of £300m to be allocated to local authorities to address hardship cases. The other measures address capping rises for businesses which lose small business rate relief and providing a £1,000 discount for 90% of local pubs.
Personal tax/employment tax
- The Chancellor recommitted to raising the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020. The Scottish Parliament has its own separate powers to set rates and thresholds for Scottish taxpayers and has already implemented a difference in the higher rate threshold with effect from April 2017.
- Class 2 NICs will be abolished as announced from April 2018. The main rate of Class 4 NICs will increase from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.
- In respect of the dividend allowance, legislation will be introduced in Finance Bill 2017 to reduce the amount of dividend income that is charged at the nil rate from £5,000 to £2,000 from April 2018.
- As announced at Autumn Statement 2016, Finance Bill 2017 will tackle use of disguised remuneration avoidance schemes. The legislation has been revised including the fact that the close companies’ gateway will now be introduced in Finance Bill 2017-18 to commence from 6 April 2018.
- The Government will amend the tax registration process for master trust pension schemes to align with the Pensions Regulator’s new authorisation and supervision regime.
- The Government will consult on proposals in relation to rent-a-room relief to ensure that it is better targeted to support longer-term lettings.
- As announced at Autumn Statement 2016, the Government will publish a response document and draft legislation to clarify and improve aspects of partnership taxation. The Government intends to legislate in Finance Bill 2017-18 (ie, the Bill after Finance Bill 2017).
- Also as announced at Autumn Statement 2016, the Government will publish a call for evidence alongside the Finance Bill on 20 March 2017 to better understand the use of the income tax relief for employees’ expenses, as well as a call for evidence on exemptions and valuation methodology for the Income Tax and employer NICs treatment of benefits in kind There will also be a consultation paper published on the same day with proposals to bring the tax treatment of employer-provided living accommodation together with board and lodgings up to date.
Tax avoidance/tax administration
- As confirmed in this Spring Budget, there will be a new penalty on those individuals or entities who enable the use of tax avoidance arrangements which HMRC later defeats (‘enablers’). The draft legislation has been revised to provide further detail of when and how the General Anti Abuse Rule (GAAR) Advisory Panel will consider enabler cases and changes have been made to apply the enablers regime to arrangements that seek to avoid NICs. The penalty for enablers will apply prospectively to enabling activity after Royal Assent.
- In terms of the Making Tax Digital (MTD) proposals, unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will now have until April 2019 to prepare before MTD becomes mandatory.
- HMRC will launch a consultation into its process for risk profiling large businesses. The consultation will review how HMRC can promote stronger compliance. The consultation will be released ahead of the summer recess and will run for 12 weeks.
- As part of its action to tackle the hidden economy, the Government will develop further proposals on conditionality – the principle of making access to certain licences or services conditional on tax registration – and explore options to trial conditionality through pilot activity.
VAT and other indirect taxes
- The Government will shortly publish a ‘call for evidence’ on the case for a new VAT collection mechanism for online sales. The split payment model requires the purchaser to pay the net price to the supplier and the VAT direct to HMRC.
- The Government is to consult on a range of options to combat VAT fraud on the provision of labour in the construction sector. The likely result of this will be a mandatory reverse charge in respect of certain supplies,
- As previously announced, Finance Bill 2017 will introduce a penalty for participating in VAT fraud. The new penalty will take effect once the Finance Bill receives Royal Assent.
- The Government will remove the VAT use and enjoyment provision for mobile phone services provided to consumers. The measure will bring those services used outside the EU within the scope of the tax.
- A new minimum excise duty on cigarettes will be introduced. Duty rates for all tobacco products will be increased by 2% above RPI inflation from 6pm on 8 March 2017. This is in accordance with the Budget 2014 announcement that all Tobacco Duty rates will increase by this amount each year until the end of the current Parliament.
- Duty rates on beer, cider, wine and made-wine and spirits in line with inflation (based on RPI), in line with previous forecasts. These changes will take effect from 13 March 2017.
- Vehicle Excise Duty (VED) rates for cars, motorcycles and vans registered before 1 April 2017 to be increased by the RPI with effect from 1 April 2017.
- New Insurance Premium Tax (IPT) anti-forestalling legislation and legislation in relation to the previously announced increase of IPT to 12% from 1 June 2017 will be introduced.
- The Government had already announced that it would legislate in Finance Bill 2017 to increase Air Passenger Duty rates in line with RPI from 1 April 2017. It will now also legislate in Finance Bill 2017 to increase Air Passenger Duty rates in line with RPI from 1 April 2018.
Stamp Duty Land Tax
- The Government will delay the proposed reduction in the filing and payment window until after April 2018.