AB17: Other measures for businesses | KPMG | UK

Autumn Budget 2017: Other measures for businesses

AB17: Other measures for businesses

Further announcements in the Autumn Budget that affect businesses.

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Making Tax Digital – timetable and penalties

The Government has confirmed the revised timetable announced in July 2017 for the implementation of Making Tax Digital for Business (MTDfB). Businesses with a turnover above the VAT threshold will be required to use MTDfB from April 2019 to meet their VAT obligations only. Businesses with a turnover below this threshold will also be able to use MTDfB for their VAT submissions if they choose. An updated statement of impacts is to be published on 1 December 2017. The Government has stated that there will be no extension of the scope of MTD until the system has been shown to work well, or before April 2020 at the earliest.

In connection with Making Tax Digital, the Government consulted earlier this year on proposals for late submission penalties and a reform of sanctions for late payment. The Government’s response to this consultation will be published on 1 December and legislation to implement a points-based model for late submission penalties will be published for consultation in summer 2018 and legislation in a future Finance Bill. A further consultation on harmonised interest and late payment sanctions will also be published on 1 December 2017.

Contact: Stephen Whitehead

Leased Asset Taxation

We were expecting a consultation document on taxation of leased plant and machinery to come out on Budget day or shortly thereafter. HMRC have now announced that they will publish two consultations on 1 December 2017.    

One consultation is to cover the legislative changes required following the introduction of IFRS 16 to ensure that the tax rules for leased plant and machinery continue to work as they do currently. Interestingly HMRC say this will also cover "the wider impact of the accounting change for income and corporation tax". We wonder if this implies that they will be covering the position for property leases and other non-plant leased assets. We expect there may well be detailed draft legislation published with this document.

The aim of the other consultation is "to evaluate options for the corporation tax treatment of lease payments under the new corporate interest restriction rules". This consultation sounds as if it may be less advanced than the first. Speculating, it could offer some degree of optionality as to whether the finance element of certain leases is treated as interest for CIR purposes.

We will provide a more detailed update after publication on 1 December.

Contact: Michael Everett

Consultation on Intangible Fixed Asset regime

The Government will consult on the Intangible Fixed Asset regime in 2018. The consultation will look again at the regime, which is now more than 15 years old, and consider how it encourages growth and whether there are targeted changes that can be made in response. The extent of the regime was seriously curtailed on 8 July 2015 when purchases of goodwill ceased to be amortisable.

Contact: Iain Kerr

Changes to the Corporate Interest Restriction

The new Corporate Interest Restriction (CIR) rules were enacted on 16 November 2017 (with effect from 1 April 2017) to restrict corporation tax relief for finance costs. Following further engagement with affected businesses, eight specific amendments have been announced to ensure the rules work as intended.

Most of the changes are helpful relaxations assisting taxpayers in applying the rules, by:

  • Refining the CIR grouping tests;
  • Aligning the way R&D credits are treated in calculating tax- and group- EBITDA; 
  • Ensuring small amounts of non-taxable income do not prevent companies from accessing the special public infrastructure (PI) regime;
  • Extending the time limit to elect into the PI regime to the end of the accounting period to which it applies; and 
  • Relaxing the circumstances in which a transferee of a PI business will be treated as having elected into the PI regime.

Other changes will tighten the scope of the rules, by: 

  • Preventing groups using conduit companies to avoid limitation on relief for related party interest; 
  • Ensuring derivatives hedging a financial trade are not inappropriately excluded from the rules; and 
  • Ensuring companies’ tax returns must be amended if they are affected by a submitted CIR return.

Contact: Rob Norris, Mark Eaton

Extension of double taxation relief targeted anti-avoidance provision

This proposal is intended to create a suitable legal mechanism within Chapter 1, Part 2, TIOPA 2010 for the Multilateral Convention under Base Erosion and Profits Shifting Action Plan 15 to take effect in UK domestic law (expected to be broadly similar to the existing mechanism that applies for double taxation agreements).

Contact: Mario Petriccione, Nick Gurteen

Extension of royalty withholding tax

The Government will publish a consultation document on 1 December 2017.  This will cover the design of rules intended to extend the application of the withholding tax mechanisms in relation to royalty payments (and payments for certain other rights) made to low or no tax jurisdictions in connection with sales to UK customers, regardless of where the payer of the royalty is located.

Contact: Mario Petriccione, Nick Gurteen

Bringing the Multilateral Convention into effect

This proposal is intended to create a suitable legal mechanism within Chapter 1, Part 2, TIOPA 2010 for the Multilateral Convention under Base Erosion and Profits Shifting Action Plan 15 to take effect in UK domestic law (expected to be broadly similar to the existing mechanism that applies for double taxation agreements).

Contact: Mario Petriccione, Nick Gurteen

Amendments to the hybrids and other mismatch rules

The hybrid and other mismatch rules apply from 1 January 2017 and have proved difficult to apply in practice. The Government has announced a number of technical changes to the rules, which are largely intended to align the legislation with HMRC’s interpretation of the rules as reflected in draft guidance.  Most of the changes will apply retrospectively from the original commencement date of 1 January 2017 (with two of the changes applying prospectively from 1 January 2018). We await publication of the draft legislation (on 1 December 2017) to see the details of the proposed changes, but it is welcome that HMRC are looking to clarify the application of the rules. We understand that HMRC are also open to considering other changes to improve the workings of the legislation.  Revised HMRC guidance was expected at the end of October and we now understand that this is to be issued in the next week or so.

Contact: Rob Norris, Mark Eaton

Capital gains assets transferred to a non-resident company

Where a UK company has transferred the trade and assets of a foreign branch to an overseas company in return for shares, gains on the assets transferred may be deferred under s140 TCGA until there is a disposal of the shares received. If the overseas company is transferred to another overseas group company in exchange for shares within one year then s135 TCGA applies and the deferred gain is not triggered as there is deemed to be no disposal. If this transfer takes place after one year, however, then the substantial shareholding exemption (SSE) overrides s135, there is a disposal, and the deferred gain is triggered but does not benefit from the SSE. s140 is to be amended to ensure that the ‘no disposal’ treatment continues to apply in these circumstances so the deferred gain is not triggered. This amendment will apply with effect from 22 November 2017. 

Contact: Iain Kerr

Withholding Tax exemption for debt traded on a multilateral trading facility

Companies and certain other entities that pay interest with a UK source have an obligation to withhold income tax at 20%. Although an existing ‘quoted Eurobond exemption’ removes this obligation for interest on a security listed on a recognised stock exchange (RSE), securities admitted to trading on a UK multilateral trading facility (MTF) currently cannot benefit from this exemption because they do not meet the admission and disclosure requirements of the UK’s listing rules. This puts UK MTFs at a competitive disadvantage with overseas MTFs that can meet the local regulatory requirements to be classified as ‘listed. Finance Bill 2018 will therefore include legislation to extend the quoted Eurobond exemption so that it will apply to any payment of interest made on or after 1 April 2018 on an interest-bearing security issued by a company which is admitted to trading on a MTF operated by a RSE regulated in an European Economic Area (EEA) territory, including a UK MTF.

Existing rules governing the UK tax treatment of Sharia compliant financial instruments will also be widened to apply to certain financial instruments admitted to trading on a MTF operated by a RSE regulated in an EEA territory.  

Contact: Rob Norris, Mark Eaton

First year tax credits (FYTC)

FYTC have been available since 2008 in respect of expenditure incurred on qualifying energy-saving or environmentally beneficial plant and machinery under the Enhanced Capital Allowances (ECA) regime.

The good news is that the Chancellor has announced that the FYTC scheme will be extended for a further five years from 1 April 2018 (when it was previously due to expire). However, the FYTC, available to companies in a loss-making position for tax purposes, will decrease on 1 April 2018 from 19% down to two thirds of the prevailing corporation tax rate for the relevant period. 

With the headline corporation tax rate decreasing to 17% from April 2020, the FYTC will eventually reduce to 11.3%, reducing the absolute cash benefit for companies claiming the FYTC.

Contact: Harinder Soor, Darren Barker

First Year Allowances (FYA)

The list of ECA technologies and products qualifying for FYA will be updated in Finance Bill 2018.

In addition, the availability of FYA in respect of zero-emission goods vehicles and refueling equipment for gas, biogas and hydrogen powered vehicles has been extended for a further three years from 1/5 April 2018.

Contact: Harinder Soor, Darren Barker

Gift Aid donor benefit rules

After a period of consultation, the long awaited changes to simplify the gift aid donor benefit rules have been announced.  The basic method of calculating the maximum value of benefits that a donor can receive will change, reducing the number of rates and thresholds.  Under the new rules, the maximum value of donor benefits that a donor can receive will be: 

  • 25% of the value of the donation for amounts up to £100.  This has not changed; and
  • An additional 5% of the amount by which the donation exceeds £100.

The total value of benefit that a donor can receive remains at £2,500, but this is a welcome simplification.

These changes will take effect from 6 April 2019, and four extra-statutory concessions that are currently available with regards to donor benefits will also be brought into legislation.

Contact: Ian Short, James Cameron

Reforms to business rates

The Government has announced further reforms to UK business rates. Over the next five years the Government will provide a further £2.3 billion of support to businesses and improve the fairness of the system in England, by: 

  • Bringing forward to 1 April 2018 the planned switch in indexation from RPI to the main measure of inflation (currently CPI);
  • Legislating retrospectively to address the so-called ‘staircase tax’.  Affected businesses will be able to ask the Valuation Office Agency (VOA) to recalculate valuations so that bills are based on previous practice backdated to April 2010 – including those who lost Small Business Rate Relief as a result of the Supreme Court judgment in Woolway (VO) v Mazars [2015] UKSC 53. The Government will publish draft legislation shortly on this;
  • Continuing the £1,000 business rate discount for public houses with a rateable value of up to £100,000 (subject to state aid limits for businesses with multiple properties) for one year from 1 April 2018; and
  • Increasing the frequency with which the VOA revalues non-domestic properties by moving to revaluations every three years following the next revaluation, currently due in 2022. To enable this, ratepayers will be required to provide regular information to the VOA on who is responsible for business rates and property characteristics including use and rent. The Government will consult on the implementation of these changes in spring 2018.

Contact: Peter Beckett

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