21 July 2009 - Finance Bill receives Royal Assent

Last week saw the Finance Bill receive Royal Assent and become the Finance Act 2009. What implications will this have?

What is Royal Assent?
The 2009 Finance Bill had its first reading in parliament on 8 July 2009. Since this stage various amendments were proposed and debated and the final draft received Royal Assent on 21 July 2009, meaning that the Bill has now become the Finance Act 2009, and part of UK tax law.

What are the implications of the Finance Bill receiving Royal Assent?
While some provisions have been backdated to the start of the tax year, financial year for companies or Budget Day, for example, a number of provisions, including those detailed below, have come into force with effect from the date of Royal Assent and these will affect both individuals and corporate bodies.

Senior Accounting Officer
Proposals were initially introduced, to which various amendments were made with respect to new compliance obligations for 'Senior Accounting Officers' (SAOs), as detailed in Grant Thornton's previous tax story "Changes to the Finance Bill 2009 in respect of the 'SAO' obligation".

As a result, for accounting periods beginning on or after 21 July 2009 a SAO within a qualifying company will have to certify annually that the accounting systems for the company are adequate for the purposes of accurate reporting of certain 'taxes and duties' which are collected and managed by HM Revenue and Customs (HMRC).

Managed Payment Plans
The Finance Act 2009 introduces the ability for HMRC to introduce 'Managed Payment Plans' (MPPs) in respect of tax due after 21 July 2009. Some taxpayers find it difficult to pay their tax liabilities and voluntary entry into an MPP will allow more frequent tax payments to be made, enabling easier management of cashflow. Payments can be spread either side of the normal due date for the payment of the tax, as long as those payments made in arrears are balanced by those made in advance. While in the plan, normal interest and penalties on any instalments paid after the due date will not accrue, providing the conditions of the arrangement are adhered to.

The arrangements can apply to income tax and capital gains tax payable under self assessment and to corporation tax where the company is not within the quarterly instalment regime or a group payment arrangement.

The time limits for entering into arrangements will be:

• 31 October for taxpayers who are required to make payments on account under self assessment on 31 January and 31 July
• 31 July for taxpayers who are not required to make payments on account and must pay all their tax under self assessment by 31 January
• six months before the normal due date for payment for corporation tax

It will be possible to enter into arrangements later than these deadlines, but the payments would be spread over a shorter period.

Reallocation of gains and losses within a group
The implementation of the Finance Act also brings the reduction of compliance costs for groups of companies. From the date of Royal Assent, amended provisions allow a simpler procedure to match the chargeable gains or allowable losses that arise on chargeable assets, allowing matching of gains and losses that arise within different companies in a group when a relevant election is made. The previous election could only be made when an asset was sold outside of a group to a third party and deemed the asset as being transferred between the group companies prior to the actual disposal. The effect of the new election will now simply be to transfer the gain or loss and will apply in a wider set of circumstances when a gain or loss can arise.

Foreign currency accounting
Companies are required for corporation tax purposes to compute their profits and losses in their functional currency - being the currency of the "primary economic environment in which the company operates." Fluctuating exchange rates has created difficulties, particularly if a loss arises, calculated at the current exchange rate. Previously this would have to be carried forward in sterling, and utilised against future profits. With huge fluctuations in the exchange rates this would expose both the taxpayer and the Exchequer to an exchange rate risk.

Therefore, the Finance Act 2009 introduces provisions for accounting periods beginning on or after 29 December 2007, to require any losses carried forward to future accounting periods or back to a previous accounting period to be translated into sterling at the same exchange rate at the profits they are offsetting. This will serve to reduce the exposure to exchange rate risk.

An election is available to allow companies to only apply the changes to losses incurred in accounting periods beginning on or after 21 July 2009. The election must be made within 30 days of the start of the first accounting period after 21 July 2009 and is irrevocable.

Alternative finance investment bonds
From 21 July 2009, provisions are implemented which facilitate the issue of alternative finance investment bonds based on real property. They ensure that disposals and acquisitions of real property in connection with such bonds do not incur liabilities to stamp duty land tax (SDLT) or tax in respect of chargeable gains, as well as preserving entitlements to capital allowances.

Francesca Lagerberg, Head of Tax at Grant Thornton says: "The draft Finance Bill received a number of amendments prior to it receiving Royal Assent on 21 July 2009. Now that it has become the Finance Act 2009 we can be certain of the detail contained which will affect both businesses and individuals. If you have any concerns as to how the changes will affect you, advice should be sought."

Please contact us if you would like further advice on any of the above.