Amongst the mountain of Budget publications there was a raft of other interesting measures worthy of mention. Not the least of these was the news that 2010 will probably go down in history as the year in UK tax history were there will have been not just one, not just two but three finance bills for tax analysts to pour over and digest.
True to many of the tax ‘promises’ in the Coalition’s Programme for Government the following additional measures also appeared:
R&D and innovation
The Government will consult with business to review the taxation of intellectual property, the support R&D tax credits provide for innovation and the proposals of the Dyson Review.
The Dyson review proposes that a 200% rate of credit for SME’s be given serious consideration, which will need the necessary EU approval before implementation. It also discusses the possibility of the R&D system being more targeted for specific industries sectors e.g. start-ups, technology focused.
However it will be important to ensure that businesses which currently benefit from the relief do not lose out via specifically targeted measures.
The Banks
A bank levy will be introduced from 1 January 2011 based on banks’ balance sheets at a proposed rate of 0.07%, though the rate starts initially at 0.04%. The Government will also explore the costs and benefits of a Financial Activities Tax.
The Government has also asked the FSA to consider a number of factors in its forthcoming review of its Remuneration Code. Alongside this there will be a consultation on a remuneration disclosure regime.
Reform of the Controlled foreign companies rules
A key priority for UK multinationals, new CFC rules will be legislated for in spring 2012 to allow time to consider carefully how to make the rules more competitive, to enhance long-term stability and to provide adequate protection of the UK tax base.
Consultation will take place over the summer on interim improvements, to be legislated for in spring 2011, to make the current rules easier to operate and where possible increase competitiveness.
The Budget also announced a move to a more territorial basis for taxing the profits of foreign branches, with a consultation to take place in the summer on options for retaining foreign branch loss relief as part of this and a reform of the rules in spring 2011.
Corporate tax reform
As part of the 5 year reform of corporate tax, the Government stated that it understands the importance of the whole corporate tax system to business and will set out a more detailed programme for reform in the autumn.
This is intended to allow a more considered approach to implementing tax reforms and to listen to the needs of business through greater consultation. In particular, the Government intends to develop its view that in general a broad tax base, a low rate and a more territorial approach will improve competitiveness.
With a view to achieving this, the Government will establish a business forum, chaired by the Exchequer Secretary to the Treasury, to consult with multinational businesses on the UK’s tax competitiveness, including the long-term aims of reform of the corporate tax system.
IR35 review
The Government announced that it remains committed to a review of IR35 and small business tax and will release further details shortly.
We welcome the proposed review of IR35 which, since its introduction over a decade ago has led to uncertainty and a lack of clarity over the status of contractors and a resulting disproportionate administrative burden on many small businesses having to comply with these rules.
However it is important that the outcome of this review produces a revenue neutral outcome; balancing this equation is an essential part of finding the right long term solution without simply charging all contractors more.
Greater clarity over contractors' status should not come at the expense of more contractors paying more tax.
Environmental taxes
Alongside wider market reforms, the Government will assess how the energy tax framework can provide the right incentives for investment. In the autumn, the Government will publish proposals to reform the climate change levy in order to provide more certainty and support to the carbon price. Subject to consultation, the Government intends to bring forward relevant legislation in Finance Bill 2011.
There is undoubtedly world wide increasing pressure to increase environmental taxes. Note for example the commitment of the newly appointed EU Tax Commissioner Mr Algirdas Semeta to such measures.
The critical point for Government to remember is that an environmental tax is still a tax, a burden on business and ultimately on individuals. All taxes have costs, as well as benefits. It is therefore vital to balance all of these issues/concerns and ensure the total tax take of any new measures will not increase as a proportion of GDP.
Taxation of non-doms
As announced in the Coalition Agreement, the Government will review the taxation of non-domiciled individuals. This will assess whether changes can be made to the current rules to ensure that non-domiciled individuals make a fair contribution to reducing the deficit, in return for greater certainty and stability for those bringing skills and investment to the UK.
As there is no detail available yet as to what form the stated review will take or when it will commence it is difficult to comment further on this suffice to say however that it will be important to ensure that the review incorporates a thorough consultation period so that any changes implemented can be introduced in a more considered and coherent manner than the changes made in 2008.
Tax treatment of furnished holiday lets
The furnished holiday lettings rules (FHL) will not be withdrawn from 6 April 2010 (1 April 2010 for companies).
Since 22 April 2009 (Budget 2009), HMRC has applied the current FHL rules to UK taxpayers with qualifying holiday lettings situated elsewhere in the European Economic Area (EEA). Such businesses can currently choose whether to be taxed under the FHL rules or under the normal rules for property businesses. These arrangements will continue to apply for the tax year 2010-11.
The Government will publish a public consultation over the summer about plans to change the tax treatment of furnished holiday lettings from April 2011. The consultation will specifically look at a proposal which would:
- ensure the FHL rules apply equally to properties in the EEA;
- increase the number of days that qualifying properties have to be available for, and actually let as, commercial holiday letting; and
- change the way in which FHL loss relief is given.
Full details about the proposed changes will be published over the summer. Draft legislation will be published in the autumn, with a view to inclusion within Finance Bill 2011.
Pension capping rules
The Government will continue with plans to raise revenues from restricting pensions tax relief and is committed to protecting the public finances by introducing reforms that raise no less revenue than existing plans. However, as is the view of many commentators including ourselves, the Government believes that the approach legislated for in Finance Act 2010 could have unwelcome consequences for pension saving, bringing significant complexity to the tax system, and ultimately damaging UK business and competitiveness.
An alternative approach involving reform of existing allowances including a significantly reduced annual allowance is being considered. Provisional analysis by government suggests that an annual allowance in the range of £30,000 to £45,000 would raise the necessary yield. However the Government wishes to engage employers, pension schemes, experts and other interested parties to determine the best design of a regime.
Most importantly, the Government intends to introduce legislation in the Finance Bill after the Budget to bring in powers to repeal the measure legislated for in Finance Act 2010.
Stamp duty land tax
The additional five per cent rate of stamp duty land tax for residential transactions worth over £1 million, announced in the March budget, will go ahead from 6 April 2011.
In addition the Government is to undertake a review of the first time buyers relief to take into account its impact on affordability and value for money. So for those first time buyers out there, sooner rather than later may be the appropriate advice!
Company car tax reform
The Government will reform company car tax so that it continues to provide an incentive to purchase the lowest emitting vehicles on the market. From April 2011, the basic threshold for the 15 per cent band of company car tax will be reduced by 5 grams of carbon dioxide emitted per kilometre (g CO2 per km), so that this band applies to cars emitting between 121 and 129g CO2 per km.
The percentage of list price subject to tax will continue to increase by one percentage point with every 5g CO2 per km increase in emissions, to a maximum of 35 per cent. The cap on car list prices used to calculate the taxable benefit arising from company cars will also be abolished on this date, as will discounts for early uptake Euro 4-standard diesel cars, higher-emitting hybrid cars and alternative fuel company cars.
From April 2012, the 10 per cent band for cars emitting 120g CO2 per km or less will be removed, and the system of bands will be extended so that they increase by one percentage point with every 5g CO2 per km increase in emissions, from 10 per cent. This 10 per cent band will apply to cars that emit 99g of CO2 per km or less.
Review of powers
The Government is committed to maximising tax compliance by delivering a tax system that is predictable, stable and simple. Legislation will be in the Autumn Finance Bill to complete the harmonisation of interest charged by HMRC across different tax regimes, to modernise compliance checking powers for excise duties and to complete the modernisation of HMRC’s late filing and late payment penalty regimes.
There was no mention in the Budget of the draft legislation published in February 2010 to deal with deliberate wrongdoing by tax agents however we are aware that the submissions made by various representative bodies including ourselves have caused HMRC to put this legislation on hold for now at least until further discussions are held with interested parties in July
Tax policy
Tax competitiveness is not just about rates and incidence of tax. Predictability, stability and simplicity are also important. Alongside the Budget, the Government published proposals to improve the way tax policy is made to support these objectives.
Concerns identified with the current system include:
• a lack of clear strategy for the tax system;
• consulting too late in the policy development cycle;
• length and complexity of the tax code;
• uncertainty due to the volume and timing of tax changes; and
• inadequate Parliamentary scrutiny of tax legislation.
To underpin its commitment to improving tax policy in the UK, the Government also published a detailed discussion document setting out a number of proposals for improving the framework for developing, legislating and implementing tax policy. Over the summer, the Government intends to meet with interested parties to discuss its overall approach.
In addition, there are a number of specific areas where the Government will have more detailed discussions to help develop its thinking.
If you have any comments on the proposals set out in that paper which can be found at here please email taxpolicymaking@hmtreasury.gsi.gov.uk by 22 September 2010. If readers wish to be involved in discussions on this new approach or have a specific interest in a particular proposal they should email taxpolicymaking@hmtreasury.gsi.gov.uk by 12 July 2010.
The Government also confirmed its intention to create an independent Office of Tax Simplification and will announce further details shortly.
That’s all for now?
Sadly not. This news item and our previous one on Budget No. 2 2010 are just the tip of the tax iceberg. There are many other smaller proposals and measures mentioned and it is recommended that practitioners take the time to scan the various documents published for other relevant matters – what is important to one practitioner may not be to another!
The Budget 2010 section can be found on HM Treasury and on the HMRC websites.
And so from the Tax Department of Chartered Accountants Ireland we sign off with the following warning: The devil is in the detail – let’s wait and see what the forthcoming Finance Bills have to say.