The recent passing of the Finance Bill 2017 saw new legislation for tax changes announced by the Chancellor in the Autumn Budget 2017. The key areas of focus were clamping down on tax avoidance, supporting businesses and innovation.
To separate fact from fiction, we’ve put together a handy breakdown of the most relevant tax-related reforms that are likely to affect our clients:
- Business Investment Relief
The Business Investment Relief (BIR) was introduced to attract foreign investment without incurring a tax liability on remitted income and gains providing it was invested in UK business. This clause introduces a number of changes to the rules governing BIR to encourage foreign investors to make greater investment into UK business. The changes affects investments made on or after 6 April 2017.
- Corporate Interest Restriction
The aim of this rule is to restrict the amount of interest and other financing amounts that a company may deduct in computing its profits for the purposes of corporation tax. The restrictions will allow all groups to deduct up to £2million of aggregate net tax-interest expense. After this amount, net interest expense is restricted to 30% of taxable profits before interest, tax, depreciation and amortisation. The legislation has been in effect from 1 April 2017
- Penalty for Transactions Connected with VAT
This clause introduces a new penalty for participating in VAT fraud into the VAT Act 1994. This will give HMRC the power to apply a penalty where a person has entered into a transaction connected with fraudulent evasion of VAT and they knew or should have known of that connection. The penalty will be 30% of the potential lost VAT that being the amount of VAT denied under the knowledge principle.
- Inheritance Tax
The new law amends the inheritance tax (IHT) legislation relating to individuals who will be treated as domiciled in the United Kingdom. It defines that an individual is treated as UK domiciled for IHT purposes if they have been resident in the UK for at least 15 out of the previous 20 tax years rather than 17 out of the 20 tax years ending with the tax year in question. The changes came into effect from the 2017-18 tax year on 6 April 2017.
- Trading and Property Allowances
The trading and property allowances allow full relief on trading and property income of up to £1,000. This clause also provides for partial relief where there is relevant income above the level of the allowance, if the individual elects for an alternative method of calculating profits by deducting the allowance from their receipts, instead of the actual allowable expenses. The allowances do not apply to income of a participator in a close company or to any income of a partner from their partnership. These allowances took effect in the tax year 2017 to 2018.
- Taxable Benefits (time limit for making good)
This legislation introduces the date for ‘making good’ on benefits-in-kind which are not accounted for in real time through PAYE, which is 6 July following the end of the tax year in which the tax liability of the benefit-in-kind arises. ‘Making good’ is when an employee makes a payment in return for a benefit-in-kind received. The taxable value, and the value on which Class 1A National Insurance contributions are payable, will be reduced only if the benefit-in-kind is made good by that date. The change will affect making good on a tax liability arising in the tax year 2017-18 and subsequent years.
- PAYE Settlement Agreements
This rule simplifies the PAYE settlement agreement (PSA) process by removing the need for agreement with a HMRC officer. Employers will no longer be required to submit a request in advance of their year-end reporting obligations. They will now be able to submit their PSA request at the year end and make ad hoc requests throughout the year.
For more information on how the Finance Bill 2017 may affect you, contact Gill Molloy on 0161 703 2500.