Following yesterday’s Spring Budget, we have set out below a summary of some of the main announcements. Further details on various measures are expected to be available on 20 March 2017, when the Finance Bill 2017 and various consultation documents are scheduled to be published.
If you would like to discuss the impact of any of the changes, please get in touch.
- Following the Budget 2016 announcement and subsequent consultation, legislation will be included in the Finance Bill 2017 to limit the tax deductions that a company can claim for their interest expenses with effect from 1 April 2017. The new rules will restrict each group’s net deductions for interest to 30% of the earnings before interest, tax, depreciation and amortisation (“EBITDA”) that is taxable in the UK, subject to an optional group ratio rule, which may permit greater deductions in some cases. All groups will be able to deduct up to £2 million of net interest expense per annum before the restrictions apply. Draft legislation was published for consultation on 5 December 2016 and 26 January 2017. Changes will be made to the draft legislation to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens as follows:
- unintended restrictions arising from the modified debt cap that could prevent deductions for carried forward interest expense will be removed;
- the optional alternative rules for public infrastructure (which also apply to property letting businesses where letting is on a short-term basis to unrelated tenants) will be made easier to apply in practice. There will be no need to compare the level of indebtedness of companies qualifying for these rules with that of non-qualifying group companies, e.g. those outside the UK, and transitional rules will apply in the first year to allow businesses to restructure if necessary;
- the rules treating interest on debt guaranteed by related parties as related party interest will be amended to ensure that they do not apply to certain performance guarantees and all guarantees granted before 31 March 2017. The rules will also not apply to intra-group guarantees in the context of the group ratio rule;
- the definition of interest will be amended to include income and expenses from dealing in financial instruments as part of a banking trade; and
- rules will be introduced for insurers regarding the calculation of interest on an amortised cost basis to provide a practical alternative to fair value accounting.
- The Government announced at Autumn Statement 2016 that it will consult on the case and options for bringing non-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. It does not currently appear that the consultation will encompass bringing gains on commercial property for non-resident companies within the scope of corporation tax, however. A consultation document will be published on 20 March 2017.
- The VAT registration threshold will increase from £83,000 to £85,000 from 1 April 2017. At the same time, the deregistration threshold will increase from £81,000 to £83,000.
- A call for evidence will be published on 20 March 2017 to examine the case for a new VAT collection mechanism for online sales. This would use technology to allow VAT to be extracted directly from transactions at the point of purchase.
- The Government announced that legislation will be included in the Finance Bill 2017 to prevent businesses with loss-making capital assets obtaining a tax advantage by electing to convert those losses into more flexible trading losses. These changes have effect from 8 March 2017.
- The Chancellor announced that the main rate of the soft drinks industry levy will be 18 pence per litre and the higher rate will be 24 pence per litre. The levy takes effect from April 2018. Following consultation, the draft legislation has been amended to include a criminal offence for evasion of the levy and minor amendments have been made to improve clarity.
- Administrative changes will be made to R&D tax credits in order to increase the certainty and simplicity of claims. Action will also be taken to improve awareness of R&D tax credits among SMEs.
- The Government confirmed that the Finance Bill 2017 will include provisions to implement digital record keeping and updating by businesses, the self-employed and landlords, as part of ‘Making Tax Digital for Business’. However, the start date for mandation for unincorporated businesses and landlords with turnover below the VAT registration threshold will be deferred until April 2019. Draft legislation was published on 31 January 2017. Changes will be made to the draft legislation following consultation.
- The main rate of Class 4 national insurance contributions (“NICs”) will be increased by 1% to 10% from April 2018 and by a further 1% in April 2019. The first increase in the rate of Class 4 NICs will take place at the same time as the previously announced abolition of Class 2 NICs.
- The Chancellor announced that the dividend allowance will be reduced from £5,000 to £2,000 from April 2018. This is part of a wider strategy to reduce the differences in tax treatment between the employed, the self-employed and those working through a company.
Real estate and construction
- Following consultation, the Government will delay the reduction in the SDLT payment window from 30 days to 14 days until after April 2018.
- The Government announced that it will include provisions in the Finance Bill 2017 to amend the Finance Act 2016 legislation on profits from trading in and developing land in the UK in order to tax all profits arising on or after 8 March 2017, including those on contracts entered into before 5 July 2016 (which were previously excluded).
- The Chancellor announced that there will be a consultation on proposed changes to rent-a-room relief to ensure that it is better targeted to support longer-term lettings.
- The Government will publish a consultation on 20 March 2017 on a range of policy options to combat supply chain fraud in supplies of labour in the construction industry. Options include a reverse charge mechanism, which would mean that the recipient would account for VAT. Other changes will also be considered, including changes to the qualifying criteria for gross payment status under the Construction Industry Scheme.
- Please also refer to the above Business Taxes changes concerning interest deductions and the extension of corporation tax to non-residents presently subject to income tax on UK-source income.
Banking and finance
- The Double Taxation Treaty Passport scheme will be extended to apply to all types of overseas lenders and UK borrowers (not just corporate lenders and corporate UK borrowers, as now). This change will take effect from 6 April 2017, when guidance and revised terms and conditions will also be published.
- The Government will consult in summer 2017 on the legislative changes needed as a result of the International Accounting Board’s new leasing standard (IFRS16), which comes into effect on 1 January 2019. The aim of the changes is to maintain the current system of lease taxation.
- The Government announced that it will introduce a new exemption from withholding tax on interest on debt traded on a Multilateral Trading Facility, in order to remove a barrier to the development of UK debt markets. A consultation document will be published on 20 March 2017.
- The Government announced that it will consider existing tax reliefs aimed at encouraging investment and entrepreneurship to ensure that they are effective, well targeted and still provide value for money as part of the Patient Capital Review.
- The Government has announced that transfers from qualifying registered overseas pension schemes (“QROPS”) requested on or after 9 March 2017 will be subject to a 25% tax on transfer unless certain circumstances apply. It has also announced that payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident.