Finance Bill 2013 – draft clauses released
The Treasury released draft clauses which will form part of Finance Bill 2013 on 11 December 2012. This is the third year that the clauses have been published early to enable consultation on the legislation before the Bill is published in Spring 2013. Many of the items have already been subject to consultation and we highlight some key measures and changes below.
General anti-abuse rule (GAAR)
The introduction of a GAAR follows a study by Graham Aaronson QC which considered whether such a rule could deter and counter tax avoidance, while providing certainty, retaining a tax regime that is attractive to businesses and minimising costs for businesses and HM Revenue & Customs (HMRC). The report into the study concluded that a specific and targeted general anti-abuse rule (GAAR) could provide real benefit.
The GAAR will apply to arrangements entered into on or after Royal Assent of the Finance Bill 2013. As currently drafted, the GAAR will cover the following taxes:
• Income tax
• Corporation tax
• Capital gains tax
• Petroleum revenue tax
• Inheritance tax
• Stamp duty land tax
• The residential property annual charge
The GAAR will also apply to National Insurance contributions, but this will require separate legislation, which is likely to be enacted after the GAAR has been introduced.
Key changes in the draft legislation released on 11 December 2012 include details of the procedural requirements which must be undertaken once HMRC has notified a taxpayer that it believes a tax advantage has arisen. All cases must now be referred to the independent GAAR advisory panel. HMRC must take into account the opinion of the advisory panel when determining its final decision.
There were concerns that the GAAR, as previously drafted, was too broad, and could result in uncertainties for the taxpayer. These measures are therefore welcome, however much will depend on the accompanying guidance to the legislation, which an interim group of panel members will oversee the development of.
Cap on income tax relief
It was announced at the 2012 Budget that the Government planned to introduce a limit on all currently uncapped income tax reliefs, from 6 April 2013, to ensure higher earners cannot use income tax reliefs excessively. Following widespread concern that the introduction of the cap would have a substantially detrimental impact on charitable donations, the Government dropped its plans to apply the cap to tax relief on charitable giving. However, the draft legislation released on 11 December 2012 confirms that a cap for other, currently uncapped, income tax reliefs will be introduced.
Broadly, the cap will be set at the greater of £50,000 or 25% of an individual’s net taxable income (after any deductions for pension contribution and/or charitable donations), and is intended to apply to claims for relief made in 2013/14 and later years. This will include future claims to carry losses back from 2013/14 to 2012/13.
Following the consultation the Government has made the following welcome amendments to the cap:
• Trade loss relief and early trade loss relief claims will not be capped where the losses are attributable to overlap relief
• Share loss relief for shares qualifying for the enterprise investment schemes or the seed enterprise investment schemes will be excluded from the cap
Residential property charges
Following Budget 2012, the Government has consulted on certain measures intended to ensure that individuals and companies pay a fair share of tax on residential property transactions. These include the introduction of an annual charge on residential properties valued above £2 million on 1 April 2012 and owned by non-natural persons (such as companies).
These measures are included in the draft legislation released on 11 December 2012, and will apply in addition to the increased SDLT charges introduced from April 2012. It is proposed that the annual charge will be:
|£2 million- £5 million
|£5 million - £10 million
|£10 million - £20 million
|Over £20 million
The new tax charge will come into effect on 1 April 2013, and apply annually thereafter. Those caught by the measures will therefore be required to file a return each year. These will usually be due, alongside the payment of the charge, on 30 April after the year end. However, for the first year only, returns will be due on 1 October 2013 and payment by 31 October 2013.
Further measures are also expected that will extend the capital gains tax (CGT) regime, from April 2013, to include gains on disposals by non-resident non-natural persons of UK residential property valued above £2 million and shares or interests in such property.
However, the release of the draft legislation on this has been delayed until January 2013. Read our full briefing paper here.
Statutory residence test
Deciding whether you are resident in the UK for tax purposes has become increasingly difficult owing to changing guidance and court decisions. From 6 April 2013, a new statutory test for UK residency will be introduced, which combines a mixture of objective tests, and subjective rules to determine residency. Its objective is to replace the current uncertain and complicated residence rules with a clear, unambiguous statutory residence test that is simple for the taxpayer to use.
It was initially anticipated that the new test would take effect from April 2012. However, following the consultation on the initial proposals in June 2011, the decision was made to delay its introduction in order to ensure that the final test is as robust as possible. Given the length of prior consultations, there were few amendments of note within the latest draft. However, the increase in the number of work days allowed in the UK to 30 days and the increase in the qualifying period for an individual working in the UK to be treated as a UK resident to 12 months, are welcome.
As expected, there is anti-avoidance within the new legislation intended to prevent temporary non-residence for the purposes of avoiding tax.
Above the line research and development tax credit
The Chancellor announced, in his 2011 Autumn Statement, the introduction of an ‘above the line’ (ATL) tax credit, to be introduced from April 2013, to encourage research and development (R&D) activity by larger companies.
The intention behind the credit is to incentivise those making the investment decisions in a company to undertake R&D as it should improve the visibility of the relief. It will also assist loss-making companies who do not currently get any immediate benefit from the scheme.
The draft legislation released on 11 December 2012 confirms that the ATL tax credit will be calculated as 9.1% of qualifying R&D expenditure.
The tax credit will initially reduce any corporation tax liability of a qualifying company. However, if the company is loss making, it can receive the full tax credit net of tax, limited by the PAYE/national insurance contribution liabilities of the company’s R&D staff. Any amount above the cap not utilised may be carried forward to be treated as a credit for the following year or used to reduce corporation tax liabilities of other group companies.
The ATL scheme will initially be optional, becoming mandatory on 1 April 2016, when the current R&D large company scheme will be fully replaced. This means that for a limited period, it will be the 'best of both worlds' for large companies.
Employee shareholder scheme
Despite widespread criticism of the proposal, the Chancellor announced in his Autumn Statement that the Government is to press ahead on a new capital gains tax-free share scheme.
A new employment status, now referred to as an 'employee shareholder', will be introduced into UK employment law. In the revised proposals, these employee shareholders could receive a minimum of £2,000 worth of employer shares in exchange for releasing some of their employment rights.
Draft legislation, published on 11 December 2012, exempts gains on the sale, by the employee, of employee shareholder shares from capital gains tax, but this will have an upper limit of £50,000 worth of shares.
The Government has also confirmed that it is considering options to reduce income tax and National Insurance contribution (NIC) liabilities that may arise when employees receive their shares. One option under consideration is to deem that individuals have paid £2,000 for shares they receive, meaning that the first £2,000 of shares received under the new status would be free from income tax and NICs.