Draft legislation for certain provisions to be included in the next Finance Bill, known officially as Finance Bill 2017-2018 and also referred to as Finance Bill 2018, was published for consultation on 13 September. The final contents of this next Finance Bill will be confirmed in the Autumn budget. Clauses published for consultation include:
- amendments to the disguised remuneration rules including the introduction of a close company gateway – these were originally intended for inclusion in the first Finance Bill of 2017;
- changes to certain aspects of partnership taxation – as proposed in the government responses to the August 2016 consultation on partnership taxation; and
- a new exclusion from UK withholding tax for debt traded on a multilateral trading facility – this was announced in the March 2017 budget.
A brief summary of the proposals is given here and they are subject to consultation until 25 October.
Disguised remuneration and the close company gateway
The draft legislation will add a new class of transaction that can give rise to employment income tax under the disguised remuneration rules in Part 7A ITEPA 2003, and will apply to certain arrangements relating to employees or former employees of close companies (or non-UK companies which would be close if they were UK resident).
There was considerable concern about the scope of the rules when initial draft legislation was published earlier this year and that they could apply to a wide range of commercial transactions involving payments to employee or director shareholders of close companies. This was of particular concern to the funds industry because most companies owned by private funds will be close.
The government has listened to those concerns and the new draft legislation includes a "main purpose of tax avoidance" provision which should mean that commercially-driven transactions would be expected to be excluded from the charge. The new rules will mean, however, that consideration will have to be given to them in any transaction involving payments to shareholding employees or directors of close companies.
The rules will apply to transactions from 6 April 2018.
Partnership tax reform
As with the close company gateway, HMRC had announced earlier in the year that they would introduce a number of rules intended to simplify and clarify aspects of partnership taxation and compliance.
The draft legislation covers the following areas among others:
- providing that when a partner holds an interest in partnership profits as bare trustee for a beneficiary, the beneficiary is treated as the partner in respect of the relevant profits
- an attempt to clarify how a partnership's income profits and losses are to be allocated between the partners and purportedly to ensure that the allocation of profits between partners for the purposes of tax on income is the same as the allocation of commercial profit between the partners. Unfortunately, the draft legislation does not really seem to provide any real clarification as to how the partnership computation rules should apply to investment partnerships and it is somewhat unclear what is intended by the reference to allocation of commercial profit and what the draft legislation is designed to achieve in the context of investment partnerships. It is expected that this aspect of the draft legislation will be the subject of representations to HMRC and the final published rules will hopefully be clearer and easier to apply
- rules setting out how a partnership which has partners which are themselves partnerships should prepare its partnership return and likewise how partnerships which are partners in other partnerships should prepare their partnership returns
- as a welcome change, a provision ending the requirement for a unique taxpayer reference number (or UTR) to be provided on the partnership return for non-UK resident partners who have no liability to UK tax as a result of being partners if the partnership is an investment partnership (and does not carry out a UK property business) and reports to HMRC under the Common Reporting Standard rules
WHT exemption for debt traded on a multilateral trading facility (MTF)
In order to enhance the competitiveness of the UK as a market for debt traded on MTFs, the quoted Eurobond exemption from withholding tax on interest paid by a UK company will be extended to cover interest paid on UK company debt that is traded on a MTF.