Draft legislation for Finance Bill 2018-19 released
The Treasury has issued the draft Finance Bill 2018-19, which has at least 33 tax changing measures. The draft legislation is out for consultation until 31 August and will be approved in the Autumn Budget in November. Due to the number of changes that the bill will introduce, some of which we have highlighted in previous newsletters and Budget reports, we have summarised the main changes below.
Rent a Room Relief – A new condition will be introduced for the relief, that requires the individual or individuals in receipt of the rental income to share occupancy of the residence in question with the individual(s) whose occupation of the furnished accommodation is generating the receipts. The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.
Reform of employer contributions into life assurance and overseas pension schemes – The measures concern premia paid by employers into life assurance products and contributions to qualifying recognised overseas pension schemes (QROPS).
These contributions are currently only tax-exempted if the beneficiary is the employee, or a member of the employee’s family or household. The new measures will allow the beneficiary to be any individual (not just the employee’s family members) or registered charity without the premia being treated as a taxable benefit in kind.
Workplace charging for all-electric and plug-in hybrid vehicles – New measure to exempt employees’ workplace charging of all-electric and plug-in hybrid vehicles from Income Tax and National Insurance contributions.
Receipt checking for benchmark scale rates – This measure abolishes receipt checking by employers when they reimburse using HMRC’s benchmark scale rates (“BSR”), overseas scale rates (“OSR”), or qualifying expenses incurred travelling to work.
BSR and OSR are the maximum amounts an employer can pay or reimburse in respect of deductible subsistence expenses, free of tax and National Insurance contributions, without reporting the payments to HMRC under this system. An employer may choose to pay less. If a higher amount is paid, the excess is subject to tax and National Insurance contributions. Alternatively, employers may pay or reimburse employees’ actual expenses or use bespoke scale rates, agreed separately with HMRC.
Changes to Optional Remuneration Arrangements (OpRA) rules for taxable cars and vans – This measure addresses two anomalies in the original OpRA rules introduced April 2017, by introducing legislation to:
- ensure that when a taxable car or van is provided through OpRA, the amount foregone, which is taken into account in working out the amount reportable for tax and National Insurance contributions purposes, includes costs connected with the car or van (such as insurance) which are regarded as part of the benefit in kind under normal rules.
- adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the tax year.
OpRA’s (formerly known as salary sacrifice arrangements) now covers a wider number of arrangements where employees agree to be provided with a benefit rather than the salary equivalent. The OpRA provisions make no changes to the underlying salary sacrifice principle but do change how the benefit is taxed. Where a salary sacrifice agreement is entered into or modified after 5 April 2017 all benefits provided under that agreement will be taxed at the higher of the standard benefit in kind value (usually the cost to the employer except for certain benefits) or the salary sacrificed. There are only a few exceptions, where the previous treatment continues, which in general are the tax-free benefits, such as pension contributions, cycle to work etc.
Capital Gains Tax
Capital Gains Tax and Corporation Tax on gains for non-residents on UK property – This measure extends the scope of the UK’s taxation of gains accruing to non-UK residents to include gains on disposals of interests in non-residential UK property. It also extends the charge on gains on disposals of interests in residential property to diversely held companies (those with widely held funds not previously included) and to life assurance companies. Currently non-UK tax residents only pay capital gains tax on the disposal of residential property, which must be reported within 30 days of the disposal.
Entrepreneurs’ Relief (10% tax rate) where shareholding ‘diluted’ below the 5% threshold – This measure allows individuals whose shareholding is ‘diluted’ below the 5% threshold as a result of a new share issue to obtain relief for gains up to that time. Currently if a founding shareholder falls below 5% they will not qualify for entrepreneurs’ relief.
Tax accounting changes for leasing – Measures will be introduced to the tax regime, as a result of the adoption of International Financial Reporting Standard 16 (IFRS 16) for all entities which apply International Financial Reporting. The changes are technical and complex but these measures will not apply to those companies using FRS 102 reporting standard.
Amendments to the corporate interest restriction rules (“CIR”) – The CIR rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest expenses. They are part of the government’s wider changes to encourage alignment of the location of taxable profits with the location of economic activity. Large businesses within the charge to Corporation Tax that incur net interest expense and other financing costs above £2 million per annum will be impacted by the restriction.
Corporation Tax on UK property income of non-UK resident companies – From 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax which is the case at present. (This will create a small tax saving as corporation tax is 19% compared to basic rate income tax 20%).
Stamp Duty Land Tax
Changes to the Stamp Duty Land Tax (“SDLT”) filing and payment time limits – The measure reduces the time limit that purchasers of land and property have to file a SDLT return and pay the tax due from 30 days to 14 days. The new time limit will apply to transactions with an effective date on or after 1 March 2019.
Extension of offshore time limits for the assessment of tax – This measure increases the tax assessment time limit for non-deliberate offshore non-compliance. The time limit will be increased to 12 years for Income Tax, Capital Gains Tax and Inheritance Tax. This increases the existing time limits of 4 years, or 6 where the loss of tax is due to carelessness, after the end of the year of assessment (or date of the chargeable transfer) to which it relates. Where the taxpayer has sought to deliberately evade tax, the time limit will remain 20 years.
Profit fragmentation – From April 2019, this targeted legislation aims to prevent UK traders and professionals from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The counteraction will be effected by adding those profits to the profits of the UK trade. This measure will also introduce a duty to notify HMRC of relevant arrangements meeting certain criteria.
Should you wish to discuss any of the Finance Act measures, or any other tax matter, please do not hesitate to contact us.