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Nicole Johnson

HM Treasury Press Notices

PN01 Securing the recovery

The Government's economic objective is said to be to build a strong economy and fair society, where there is opportunity and security for all: identical to the wording a year ago. The key measures introduced are analysed under the following headings:

  • securing the recovery;
  • maintaining macroeconomic stability;
  • reforming financial services;
  • supporting business and growth;
  • achieving fairness and providing opportunity;
  • protecting public services; and
  • securing low-carbon growth.
Supporting business and growth

The Government proposes the following measures under this heading:

  • continuing to offer Time to Pay arrangements;
  • supporting start-ups, SMEs and growing businesses through a temporary increase in small business rate relief;
  • launching UK Finance for Growth to oversee £4bn of support;
  • doubling the annual investment allowance to £100,000;
  • doubling the CGT entrepreneurs' relief to £2m;
  • launching a University Enterprise Capital Fund;
  • providing a £270m Modernisation Fund to drive efficiencies in Higher Education; and
  • meeting the UK's infrastructure and energy challenges in a variety of specified ways.
Achieving fairness and providing opportunity

The Government proposes the following measures under this heading:

  • extending the Young Person's Guarantee after March 2011;
  • increased support through tax credits for families with children aged one and two;
  • continuing to provide an additional payment in 2010–11 alongside the Winter Fuel Payment;
  • extending the temporary freeze in the Standard Interest Rate for the Support for Mortgage Interest scheme until December 2010;
  • a two-year stamp duty land tax relief for first-time buyers, for residential property purchases up to £250,000;
  • an additional five per cent rate of stamp duty land tax for residential property over £1m from 2011–12;
  • freezing of the inheritance tax allowance at £325,000 until 2014–15;
  • the provision of further details of how pensions tax relief will be restricted for those on high incomes; and
  • a range of increases to duty on tobacco and alcohol, this year and in future years.
Protecting public services

The Government proposes the following measures under this heading:

  • action to control public sector pay;
  • £11bn of operational efficiencies;
  • further detail on £5bn of savings as announced in the Pre-Budget Report;
  • reforms to the welfare system;
  • rationalising regional structures and removing burdens on local government; and<
  • new strategic property vehicles to help realise annual property savings of £5bn, with major relocation of civil service jobs out of London;

Securing low-carbon growth

The Government proposes the following measures under this heading:

  • reform of the energy market to provide clean, secure and affordable energy in the long term;
  • creation of a Green Investment Bank to address emerging equity finance gaps;
  • launch of UK Finance for Growth;
  • development of port sites to support offshore wind turbine manufacturers;
  • commitment to reduce the carbon emissions of government departments by at least 30 per cent by 2020; and
  • halving of company car tax for ultra-low carbon cars for five years from April 2010.

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PN02 Rates and allowances in 2010–11

This notice sets out the main tax rates and allowances for 2010–11.

With regard to income tax:

  • the personal allowance for the under-65s will remain at £6,475;
  • the age-related allowance will remain at £9,490 for people aged between 65 and 74 and at £9,640 for those aged 75 and over;
  • the income limit for the age-related allowance remains at £22,900;
  • the personal allowance will be gradually withdrawn for those with incomes over £100,000;
  • the starting rate for savings remains at 10 per cent and the starting rate tax limit remains at £2,440;
  • the basic rate of income tax will remain at 20 per cent (10 per cent for dividends) and the basic rate tax limit remains at £37,400;
  • the higher rate of income tax remains at 40 per cent (32.5 per cent for dividends) and the higher rate tax limit is £150,000; and
  • the additional rate is 50 per cent (42.5 per cent for dividends).

With regard to NICs:

  • the starting point for employers', employees' and self-employed (Class 4) NICs will remain at £110 per week;
  • the Small Earnings Exemption for Class 2 NICs will remain at £5,075;
  • the rate for employers' NICs will remain at 12.8 per cent;
  • the rate for employees' NICs will remain at 11 per cent for earnings below the Upper Earnings Limit and 1 per cent for earnings above it;
  • the rate for Class 4 NICs will remain at 8 per cent for profits below the Upper Profits Limit and 1 per cent for profits above it; and
  • Class 2 NICs will continue to be paid at £2.40 per week.

With regard to capital gains tax:

  • the annual exempt amount remains at £10,100 for individuals, personal representatives of deceased persons and trustees of certain settlements for the disabled and at £5,050 for most other trustees;
  • for gains above the annual exempt amount, the CGT rate remains at 18 per cent; and
  • the entrepreneurs' relief lifetime limit is increased from £1,000,000 to £2,000,000.

With regard to corporation tax:

  • the small profits rate remains at 21 per cent for profits up to £300,000;
  • marginal relief continues for profits between £300,000 and £1,500,000; and
  • the full rate remains at 28 per cent for profits over £1,500,000.

With regard to inheritance tax, the individual nil-rate band remains at £325,000 and the rate of tax remains at 40 per cent.

With regard to VAT, the standard rate is 17.5 per cent from January 2010. The reduced rate is 5 per cent.

With regard to stamp duty land tax (SDLT), the rates and thresholds remain the same with the exception that first time buyers can claim relief from SDLT on residential transactions up to £250,000 between 25 March 2010 and 25 March 2012.

The rate of stamp taxes on shares remains at 0.5 per cent.

All elements of the Working Tax Credit (apart from the childcare element) and the disability elements of the Child Tax Credit are increased by 1.5 per cent. The child element of the Child Tax Credit has increased to £2,300. The threshold for receipt of the maximum Child Tax Credit has risen to £16,190.

With regard to business rates, the standard multiplier is reduced to 41.4p and the small business multiplier is reduced to 40.7p.

PN03 Protecting tax revenues

A series of measures are to be introduced to protect the tax system from perceived abuses, including measures to strengthen the disclosure regime and combat offshore evasion.

Specific measures include:

  • new penalties of up to 200 per cent of tax for individuals who fail to pay taxes due on offshore income or gains, higher penalties for non-compliance applying where the jurisdiction in which the non-compliance arises lacks tax transparency;
  • introduction of a reverse charge for services used in VAT missing trader intra-Community fraud and additional reporting requirements for services covered by the reverse charge;
  • improved mechanisms for leaving the hidden economy and a clearer route for disclosing undeclared tax liabilities;
  • a package of measures to enhance and strengthen the disclosure of tax avoidance schemes regime;
  • introduction of a generic or principles-based rule to counter so-called group mismatch schemes;
  • a package of measures to prevent companies from claiming excessive double tax relief, effective from 1 April 2010;
  • measures to combat avoidance schemes involving the share incentive plans (SIPs) rules, introduced with immediate effect;
  • measures to prevent avoidance using company share option plans (CSOPs), introduced with immediate effect;
  • close companies to be denied a corporation tax deduction for releases or write-offs of loans to participators, to take immediate effect;
  • simplification and better targeting of the transactions in securities rules;
  • measures to prevent stamp duty land avoidance by partnerships, introduced with immediate effect;
  • revised legislation to close down an insurance premium tax loophole, to take immediate effect;
  • extension of the overhedging and underhedging provisions announced in the 2009 Pre-Budget Report, in the case of banks and other financial traders, to instruments other than loans and derivatives;
  • preventing avoidance using the option to elect under the sale of lessors legislation announced at the Pre-Budget Report 2009, with immediate effect;
  • consultation on the taxation of returns from geared growth arrangements connected with employment-related securities and future action on the use of trusts and other vehicles to reward employees; and
  • limiting the scope for fraudulent claims to charitable tax reliefs.

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HMRC Budget Notes

BN01 Income tax rates, rate limits and personal allowances for 2010–11

This notice sets out the income tax rates and allowances for the year commencing 6 April 2010

  • The basic rate of income tax will remain at 20 per cent and the basic rate tax limit will remain at £37,400.
  • The higher rate of income tax will remain at 40 per cent for income above £37,400.
  • The new additional rate of income tax will be set at 50 per cent for income above £150,000.
  • The personal allowance for the under-65s will remain at £6,475.
  • The age-related allowance will remain at £9,490 for people aged between 65 and 74 and £9,640 for those aged 75 and
  • The personal allowance will gradually be withdrawn for all individuals (regardless of age) with incomes above £100,000.
  • The limit for the 10 per cent starting rate for savings will remain at £2,440.

BN02 Bank payroll tax

As announced in the 2009 Pre-Budget Report PBR, legislation will be included in Finance Bill 2010 to introduce the bank payroll tax (BPT). A Technical Note and draft clauses were published at the time of the 2009 PBR, although it has since been announced that changes will be made to:

  • clarify the scope of the legislation; and
  • provide for the assessment and collection of BPT.

Briefly, BPT will be payable by a taxable company on bonuses awarded between 9 December 2009 and 5 April 2010 to the extent that they exceed £25,000. The rate of tax will be 50 per cent and the tax due will be payable by 31 August 2010.

BN03 Corporation tax main rates

The main rate of corporation tax applying from 1 April 2011 onwards will be 28 per cent (30 per cent for ring fence profits). The main rate of corporation tax applies to companies with profits above the upper limit, which remains at £1,500,000.

BN04 Corporation tax small profits rate

The small profits rate for profits other than ring fence profits will be 21 per cent from 1 April 2010 (19 per cent for ring fence profits). The marginal relief fraction will be 7/400 ( 11/400 for ring fence profits).

The small profits rate applies to profits below the lower limit, which remains at £300,000. Marginal relief applies to profits between the lower limit and the upper limit, which remains at £1,500,000.

BN05 Capital distributions

Legislation will be introduced in the Finance Bill 2010 with retrospective effect which will allow certain distributions to fall within the distribution exemption regime even though they are capital in nature.

The new legislation will mean that it will no longer be necessary to consider difficult boundary issues between income and capital. It will allow HMRC to revert to its previous practice whereby only distributions specifically excluded from income are treated as capital.

The legislation will have retrospective effect, although UK companies will be able to elect for the legislation not to apply retrospectively.

BN06 Relief for interest: amendments to the worldwide debt cap legislation

The worldwide debt cap was introduced by the Finance Act 2009,with the aim of guarding against excessive debt funding of UK companies. The legislation has since been rewritten as the Taxation (International and Other Provisions) Act 2010, Pt. 7. A number of changes to the legislation were announced in November 2009 and further changes are to be made as a result of consultation with business. The further changes include:

  • measures to exclude the results of certain securitisation companies from the available amount
  • the inclusion of a power to make regulations which enable a company involved in capital market arrangements, and which incurs an additional liability as a result of the debt cap, to transfer that liability to another group company.

BN07 Changes in accounting standards

Legislation will be introduced in the Finance Bill 2010 to allow regulations to be made to amend the corporation tax rules on loan relationships and derivative contracts, where it is necessary to change tax rules as a consequence of a change in accounting standards.

The legislation will allow regulations to come into force on or after the date that the Finance Bill receives Royal Assent. However, where a change of accounting treatment is effective in an accounting period beginning before that date, such regulations may apply retrospectively.

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BN08 North Sea fiscal regime: reinvestment relief

A number of measures were introduced by the Finance Act 2009 to provide support through the UK oil and gas fiscal regime for investment in the UK and the UK Continental Shelf. One of these measures prevents chargeable gains from arising where disposal proceeds are reinvested in new oil trade assets and where the disposal and acquisition qualify for roll-over relief. This relief is to be amended so that it can apply as intended in a group context where the company making the reinvestment is not the company making the disposal.

The Government hopes to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament. It will have effect in relation to disposals made on or after 24 March 2010.

BN09 Capital allowances: plant and machinery: increase in the amount of the annual investment allowance

The annual investment allowance (AIA), available to businesses of all sizes for investment in most plant and machinery, becomes more valuable from 1 or 6 April (for corporation tax and income tax respectively). The maximum allowance is doubled from £50,000 to £100,000.

For chargeable periods spanning the April date, an apportionment will be made to determine the allowance for the year. For example, a company with a 31 December year end will be entitled to an AIA of £87,500 for the year to 31 December 2010. However, no more than £50,000 of the expenditure incurred before 1 April 2010 can qualify for AIAs (so, if the only expenditure on plant and machinery was on a single asset costing £80,000, the AIA would still be restricted to £50,000 if that expenditure was incurred before 1 April 2010, but AIA would be given on the full £80,000 if it was incurred after 31 March).

A new anti-avoidance measure is introduced for certain arrangements entered into on or after 24 March 2010. The new measure disallows property loss relief against general income to the extent that the loss is attributable to AIA, but only where tax avoidance was a main purpose of the arrangements.

AIAs are not available for certain specified assets, the main exclusion being cars.

BN10 Capital allowances: plant and machinery: cushion gas

All leases of cushion gas will be treated as funding leases from 1 April 2010. It will follow that where cushion gas is leased for more than five years, the lessor will be taxed by reference to the commercial substance, rather than the legal form, and the lessee if tax resident in the UK will have the option to claim the capital allowances. Any lessee of cushion gas under a funding lease will have the choice of claiming a deduction for the lease rentals in accordance with the accounting treatment, or opting to claim capital allowances with a restricted deduction in respect of the leases rentals.

As cushion gas does not wear out or necessarily lose its value by the mere passing of time, writing-down allowances will be given at the lower special rate of 10 per cent per year.

BN11 Enhanced capital allowances for energy-saving and water-efficient (environmentally beneficial) technologies

Long-established provisions allow 100 per cent first-year allowances for certain expenditure on energy-saving or environmentally beneficial (water-efficient) technologies. The categories of expenditure qualifying for the accelerated allowances are normally reviewed each year. Following this year's review, the energy-saving list will be revised to include Permanent Magnet Synchronous Motors and Biomass fired warm air heaters. However, the general category of compact heat exchangers will be removed, as will the sub-technology of liquid pressure amplification. In the water-efficiency category, the criteria for tax and showers will be tightened.

The date of the changes is not yet known but they will be made by Treasury Order prior to the summer 2010 Parliamentary recess.

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BN12 Venture capital schemes

This measure, to be introduced in a Finance Bill in the next Parliament, will make changes to the enterprise investment scheme (EIS) and venture capital trust (VCT) scheme agreed with the European Commission as a condition for their approval by the Commission as approved State aids.

For VCTs only:

  • the current requirement that the shares making up a VCT's ordinary share capital be included in the official UK list throughout the relevant accounting period will be replaced with a requirement that the shares be admitted for trading on any EU-regulated market;
  • the current requirement that at least 30 per cent of the VCT's qualifying holdings is represented throughout the relevant accounting period by holdings of eligible shares will be increased to 70 per cent, but will change the definition of eligible shares to allow VCTs to include shares which may carry certain preferential rights to dividends.

For EIS and VCTs:

  • the new legislation will exclude shares in a company from qualifying for the purposes of EIS or VCT legislation if it is reasonable to assume that the company would be treated as an enterprise in difficulty for the purposes of the European Commission's Rescue and Restructuring Guidelines;
  • the current requirement that there is a qualifying trade carried on wholly or mainly in the UK will be replaced for shares issued on or after the commencement date with a requirement that the company issuing the shares must simply have a permanent establishment in the UK.

Regulations will also be made at this time to update SI 2004/2199 to reflect the new conditions concerning eligible shares.

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BN13 Enterprise management incentives

Legislation will be included in a Finance Bill in the next Parliament to amend the requirement that a company granting qualifying enterprise management incentives (EMI) options to its employees must operate wholly or mainly in the UK. A company granting EMI options will be required instead to have a permanent establishment in the UK.

The change will have effect in respect of EMI options granted on or after the date the legislation receives Royal Assent.

BN14 Sale of lessor companies: option to elect

It was announced during the 2009 Pre-Budget Report that companies will be able to elect for an alternative tax treatment to apply where a lessor company changes hands. Draft legislation was published at the time and it has now been announced that changes will be made to this. The changes include:

  • preserving entitlement to capital allowances in some circumstances;
  • ensuring that the legislation operates fairly where the lessor company is a controlled foreign company or leases ships into tonnage tax; and
  • addressing a flaw in the draft legislation applying where a lessor company is owned by a consortium.

Revised draft legislation has been published.

The legislation will be included in the Finance Bill 2010 but will come into effect, where the changes benefit the taxpayer, from 9 December 2009.

BN15 Release of loans to participators in close companies

A new measure has effect where close companies release or write off loans or advances that have been made to a relevant person who is a participator (or an associate of a participator) in the company. The effect of the measure is to prohibit any deduction being brought in by the company for loan relationship purposes if the loan is wholly or partly released or written off. The income tax treatment of the person to whom the loan was made is unaffected by the measure.

BN16 Risk transfer schemes

The legislation relating to risk transfer schemes covers financial instruments that are treated for tax purposes as loan relationships or derivative contracts.

Legislation will be announced in the Finance Bill 2010 to include a regulation-making power in the risk transfer schemes legislation announced in the 2009 Pre-Budget Report. The regulation-making power will allow regulations to be laid to extend the scope of those provisions to cover other instruments held on trading account by financial traders.

The commencement date for these provisions is 1 April 2010 and transitional provisions will apply for schemes that straddle that date.

BN17 Countering double tax relief avoidance

Legislation will be introduced in the Finance Bill 2010 to thwart a scheme under which some taxpayers have effectively sought to claim double relief for foreign tax suffered on foreign income.

The law will be amended to make it clear that a person may only deduct foreign tax from any foreign income where that person has included the foreign tax in his taxable income. Legislation will also be introduced to reaffirm the scope of the targeted double taxation relief anti-avoidance rule. Both sets of legislation will have effect for foreign tax paid or payable on or after 1 April 2010, as regards corporation tax, and 6 April 2010, as regards income tax and capital gains tax.

Also, the manufactured overseas dividend (MOD) regulations are being amended to combat schemes that try to claim two reliefs for foreign tax suffered on a foreign dividend, once as an offset under the MOD regulations and again by not including the gross amount of income received in taxable income. The amendments have effect in relation to manufactured overseas dividends paid or treated as paid 21 days after 24 March 2010.

BN18 Insurance premium tax: premium splitting

Legislation will be introduced in the Finance Bill 2010 to treat fees charged to the insured under a separate contract in specified circumstances, where the insured is an individual, as part of the premium received by the insurer and thus subject to insurance premium tax. The legislation will have effect for fee payments received on or after 24 March 2010.

The legislation will not apply to insurance bought by businesses as avoidance has not been seen in that sector of the market. However, the scope of the premium-splitting provision may be extended in the future using secondary legislation if there is evidence of avoidance moving into other areas.

BN19 Life insurance companies: apportionment of income and gains

It was announced in the 2009 Pre-Budget Report that legislation would be included in the Finance Bill 2010 to modify the rules which allow companies carrying out life insurance business to defer recognition of profits from business arising in a non-profit fund. As it has now become clear that the modified rules could be avoided by the transfer of non-profit business from one non-profit fund to another, an anti-avoidance rule will be included in a Finance Bill to be introduced as soon as possible in the next Parliament.

The anti-avoidance rule will apply to transfers of business which take place on or after 24 March 2010.

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BN20 Life insurance policies: deficiency relief

In some instances, individuals are entitled to a special relief, known as deficiency relief, when their life insurance policy, life annuity contract or capital redemption policy comes to an end. The relief is available if the individual has income subject to the higher rate and/or dividend upper rate of tax for the year in which the policy comes to an end. This is to be extended so that relief can be claimed against income subject to the additional and/or dividend additional rates of tax.

However, deficiency relief will be restricted where a person enters into arrangements with the main purpose of securing a tax advantage greater than the income tax due on earlier chargeable events. The restriction will apply to arrangements entered into on or after 22 April 2009 that culminate in the surrender of a policy on or after 6 April 2010.

Legislation will be included in a Finance Bill to be introduced as soon as possible in the next Parliament.

BN21 Financial services compensation scheme interventions in relation to insurance contracts

Legislation will be introduced in the Finance Bill 2010 to provide regulation-making powers to ensure that if the Financial Services Compensation Scheme (FSCS) takes action to protect policyholders, there will be broadly the same tax treatment as if the FSCS had not intervened.

The measure will have effect on and after the date that the Finance Bill receives Royal Assent. Once the regulations have been made, they can apply to an earlier period, provided they do not increase any person's tax liability.

BN22 UK Real Estate Investment Trusts and stock dividends

A UK Real Estate Investment Trust (a REIT) must meet a distribution requirement, meaning that it must distribute, for each accounting period, 90 per cent of the profits from its property rental business by way of a dividend. The rules will be amended so that stock dividends can be taken into account for the purposes of this requirement. The recipients of stock dividends will be taxed in the same way as if they had received the distributions in cash.

Legislation will be included in a Finance Bill to be introduced as soon as possible in the next Parliament. It is expected to have effect for distributions made on or after the date that the Finance Bill receives Royal Assent.

BN23 Stamp duty and stamp duty reserve tax relief for members of clearing houses

The power under FA 1991, s. 116 and 117 to make regulations that remove multiple charges to stamp duty or stamp duty reserve tax will be extended so that regulations may be made providing relief for transactions in UK securities involving members of clearing houses and their nominees.

The measure will have will have effect on and after the date that the Finance Bill 2010 receives Royal Assent.

BN24 Stamp duty land tax: rates and thresholds

A new higher rate of stamp duty land tax of 5 per cent will apply to purchases of residential property where the consideration exceeds £1m and the effective date of purchase (normally the date of completion ) is on or after 6 April 2011.

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BN25 Stamp duty land tax: first-time buyers

Purchases of residential property at up to £250,000 will be relieved of stamp duty land tax where the purchaser or all the purchasers are first-time buyers and intend to occupy the property as their only or main home. The relief will only be available where the effective date of the purchase (normally the date of completion) is on or after 25 March 2010 and before 25 March 2012.

BN26 Stamp duty land tax partnerships

Special stamp duty land tax (SDLT) rules for partnerships are being exploited to reduce the chargeable consideration on which SDLT is payable. Legislation will be introduced in the Finance Bill 2010 so that these special rules will no longer apply, as they currently do, to a notional land transaction created by the existing anti-avoidance rules. The measure will apply where a notional land transaction has an effective date on or after 24 March 2010, subject to transitional rules.

BN27 Capital gains tax: increase in lifetime limit on entrepreneurs' relief

Legislation will be introduced in the Finance Bill 2010 to double, from 6 April 2010, the lifetime limit on gains qualifying for entrepreneurs' relief to £2m.

Where individuals or trustees make qualifying gains above the previous £1m limit before 6 April 2010, no additional relief will be allowed for the excess above the old limit. But if they make further qualifying gains after 5 April 2010, they will be able to claim relief on up to a further £1m of those additional gains, giving relief on accumulated gains up to the new limit of £2m.

BN28 Indexing individual savings account limits from 2011

It has been announced that from 6 April 2011 and over the course of the next Parliament, the ISA limits will be increased in line with the retail prices index (PRI) on an annual basis. The new annual limits will be rounded to the nearest multiple of 120 so that individuals who save monthly will be able to calculate their monthly savings more easily.

The new limits will be calculated by reference to the RPI for the September before the start of each tax year. In the event that RPI is negative, the ISA limits would be unchanged.

BN29 Tax changes for certain trusts compensating asbestos victims

This measure will exempt trustees of certain trusts from capital gains tax, inheritance tax and income tax. The trusts that will benefit are those set up on or before 23 March 2010 as part of an arrangement made by a company with its creditors and specifically to pay compensation to, or in respect of, individuals with asbestos-related conditions.

This legislation will be introduced in a Finance Bill in the next Parliament and will have effect on and after 6 April 2006.

BN30 Income tax adjustments between settlors and trustees

Legislation will be introduced in a Finance Bill in the next Parliament to require settlors to pay all repayments of tax on trust income they receive to the trustees. These payments to trustees will therefore be disregarded for inheritance tax purposes.

This measure will have effect for repayments relating to income tax chargeable on or after 6 April 2010.

BN31 Inheritance tax: nil rate band

As announced in the 2009 Pre-Budget Report, legislation will be introduced in the Finance Bill 2010 to freeze the inheritance tax nil rate band for the tax year 2010–11 at the current level of £325,000. This will now be extended to also cover the tax years 2011–12 to 2014–15.

BN32 Extending UK charity tax reliefs to certain organisations in Europe

Legislation will be introduced in the Finance Bill 2010 to extend UK charitable tax relief to equivalent charities and community amateur sports clubs in the EU, as well as the European Economic Area (EEA) countries of Norway and Iceland. This follows a judgment of the European Court of Justice on 27 January 2009. Claims for relief after this date and before 1 April 2010, made to organisation equivalent to UK charities in the EU or EEA, will be considered on a case-by-case basis.

A number of other measures are also being introduced. These will:

  • align the definition of a charity across all charity tax reliefs and exemptions administered by HMRC, including those made under gift aid;
  • limit fraudulent claims for charitable tax relief; and
  • remove inconsistency in the current rules, for example by aligning the rules for UK-resident and non-UK resident donors, who make gift aid donations without sufficient tax to cover the repayment.

Broadly, the new measures will take effect from 2010–11, subject to a commencement order. However, restrictions on the payments of charitable funds outside the UK and changing the nature of payroll giving, such that it needs to have a charitable purpose to qualify for exemption, take effect from 24 March 2010.

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BN33 Implementing the restriction of pensions tax relief

The government announced in the Budget 2009 its intention to restrict tax relief on pensions for higher-income individuals from 6 April 2011. For this purpose, higher income individual means an annual income of £150,000 or over before deduction of relief for pension contributions and charitable donations. A tapering relief applies to those with income between £150,000 and £180,000, above which level tax relief is restricted to the basic rate.

Legislation for this will be included in the Finance Bill 2010. The restriction will be delivered via self-assessment, with a new high income excess relief charge payable by those affected.

BN34 Pension schemes: laying of Treasury Order to set the lifetime allowance and annual allowance from 6 April 2011

As announced in the 2008 Pre-Budget Report, the 2010–11 lifetime allowance of £1.8m and the annual contributions allowance of £255,000 will continue to apply, with the rates held constant, up to and including 2015–16.

A Treasury Order has been laid before Parliament today and the measure will have effect on and after 6 April 2011.

BN35 Changes to pensions taxation

Legislation will be introduced in a Finance Bill in the next Parliament that will:

  • allow the National Employment Savings Trust (NEST) to register with HMRC for tax purposes, and to be subject to the same tax rules as other tax-registered pension schemes;
  • remove the tax liability on any interest charges on late pension contributions made by an employer to qualifying pension schemes;
  • provide a regulation-making power to deal with any unintended tax consequences that may merge as a result of the implementation of NEST and the employer duties and compliance as set out in the
  • Pensions Act 2008; and
  • remove the tax charge on borrowing linked to the cost of establishing and operating a registered pension scheme, subject to conditions.

The changes will have effect on and after the date that the legislation receives Royal Assent.

BN36 Employer-supported childcare: relaxation of available generally condition

The Government intends to introduce a technical relaxation of one aspect of the rules for employer-provided childcare.

The tax exemption is available only where childcare is made available to all employees (whether or not they need it or choose to take up the offer). A particular difficulty has been identified in relation to salary sacrifice schemes where some individuals might not be able to take up the offer of childcare as the loss of actual salary would take their income below the level of the national minimum wage. Strictly, if such individuals are thereby barred from accepting the offer of employer-provided childcare, the conditions are not met and the provision for all other employees would be a taxable benefit.

The proposed amendment, to be introduced as soon as possible in the next Parliament but with retrospective effect to 6 April 2005, will relax the available generally requirement in the case of relevant low-paid employees where the childcare is provided (whether by voucher or directly) through a salary sacrifice scheme.

BN37 Special guardianship orders and residence orders

Following informal consultation, it has been decided that carers who take on legal parental responsibility for a child should be taxed in the same way as adopters. Legislation will therefore be introduced in a Finance Bill in the next Parliament to exempt certain payments made to special guardians, and to certain carers looking after children under a residence order, from income tax.

The change will have effect for payments received on or after 6 April 2010.

BN38 The remittance basis: relevant person

The Finance Act 2008 included a provision that any foreign income or gains of an individual taxable on the remittance basis remitted to the UK by way, or for the benefit of, any relevant person are taxed on the individual.

The current definition of a relevant person includes, among others, close companies and their subsidiaries in which such persons are participators. To remove uncertainty, the Finance Bill 2010 will make it clear that references to a close company in this context include subsidiaries of non-resident companies which would be close companies if they were resident in the UK.

The change will have effect on or after 6 April 2010.

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BN39 Share incentive plans: anti-avoidance

An anti-avoidance measure is to be introduced to combat a stated abuse in relation to share incentive plans (SIPs). The measure will have effect in relation to payments made and alterations to share capital or rights attached to shares taking place on or after 24 March 2010.

The provision will apply where companies pay money to SIP trustees to buy shares from director-shareholders but where no real value is transferred to employees under the SIP. In such cases, where a main purpose of the payment is to obtain a corporation tax deduction, that deduction will not be allowed. The measure will not affect payments made with the purpose of genuinely enabling employees to obtain shares under the SIP.

HMRC may withdraw approval of a SIP if the value of shares is materially affected by alterations to the share capital or to rights attaching to the shares. The legislation will be amended to clarify that HMRC may withdraw approval of a SIP even if there are no participants, or where no shares have been awarded under it, at the time of such alteration.

BN40 Company share option plans: anti-avoidance

Anti-avoidance measures will to be introduced in the Finance Bill 2010 to counter arrangements being used to circumvent the financial limit in Company Share Option Plans (CSOP). The measures will mean that CSOP share options can no longer be granted over shares in a company which is under the control of a listed company.

The new rules will have effect in relation to options granted over shares in a company which is under the control of a listed company on or after 24 March 2010.

BN41 Anti-avoidance: transactions in securities

Following consultation, the transactions in securities rules applying for income tax purposes are to be replaced with clearer legislation targeted more effectively at arrangements involving tax avoidance. Importantly, the new legislation will make clear how the tax advantage is to be quantified. The new income tax advantage test, and the introduction of new exemptions covering fundamental changes in ownership of close companies, are expected to mean that the rules will apply to fewer individuals than before.

It would appear that no changes will be made at this stage to the transactions in securities rules applying for corporation tax purposes.

Legislation will be included in the Finance Bill 2010 and will apply with effect for transactions where the tax advantage is obtained on or after 24 March 2010.

BN42 Zero-emission goods vehicles: 100 per cent first-year allowances

A new 100 per cent first-year allowance is to be given to businesses that purchase brand new zero-emission goods vehicles. The intention is to introduce the measure as soon as possible in the next Parliament.

The new allowances will be available for expenditure incurred in the period of five years beginning on 1 April or 6 April 2010 (for corporation tax and income tax respectively).

A zero-emission goods vehicle will be one that cannot under any circumstances produce CO2 emissions when driven. It must be of a design primarily suited to the conveyance of goods or burden (broadly speaking, a van rather than a car). The normal exclusions for leased assets will apply, as well as the other general exclusions specified in the legislation for the purposes of the first-year allowance rules.

Various very specific exclusions will also apply to comply with State Aid rules.

BN43 Taxable benefit charges on zero-emission vehicles and low emission cars

Company car charges are to be introduced for zero-emission cars and vans and for ultra-low emission cars.

A reduced appropriate percentage of 5 per cent will be introduced for company cars with an approved emissions figure that does not exceed 75g per kilometre.

A zero rate will apply to all cars that cannot produce any CO2 emissions under any circumstances when being driven. This will replace the narrower statutory reference to electric cars.

There will also be a cash equivalent of zero for a van that cannot produce any CO2 emissions under any circumstances when being driven.

These changes come on top of an earlier announcement of changes to the concept of qualifying low-emission cars.

BN44 VAT: changes in fuel scale charges

For prescribed accounting periods starting on or after 1 May 2010, the table of VAT scale charges for taxing private use of road fuel is amended.

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BN45 VAT: increased turnover thresholds for registration and deregistration

From 1 April 2010, the amount of the annual VAT registration threshold rises to £70,000 from £68,000 and the VAT deregistration threshold rises to £68,000 from £66,000.

From the same date, the registration and deregistration limits for relevant acquisitions from other member states rises to £70,000 from £68,000.

BN46 VAT: change to zero-rating of qualifying aircraft

For supplies made on or after 1 September 2010, the definition of aircraft that can be supplied at the zero rate changes from one based on weight and usage to one based on the status of the customer. Supplies of aircraft will be zero-rated only where used by airlines operating for reward chiefly on international routes.

There is no change to the treatment of supplies of aircraft to state institutions.

BN47 VAT: place of supply of gas, heat and cooling

From 1 January 2011, changes are made to the VAT treatment of supplies of natural gas and of heat and cooling. At present, gas supplied via the natural gas distribution system is treated as supplied where either a wholesale customer is established or the natural gas is consumed. UK customers who are VAT registered must account for VAT on the supplies of natural gas they receive from suppliers established abroad as a reverse charge. At present, no rules specifically govern the application of VAT to supplies of heat and cooling.

The rules, which include electricity, are to be amended so as to:

  • extend their scope to cover supplies in all categories of natural gas pipeline;
  • limit their scope to supplies involving natural gas pipelines located in the member states or linked to such pipelines; and
  • extend the relief from VAT at importation to all natural gas imported via a network (including liquefied natural gas by tanker).

The amended rules (above), will be extended to apply to heat and cooling supplied through networks.

BN48 VAT: postal services

For supplies made on and after 31 January 2011, standard-rating applies to certain postal services provided by Royal Mail Holdings plc, the universal service provider (USP) of public postal services in the UK.

Currently, VAT exemption applies to the conveyance of postal packets, and services connected to the conveyance of postal packets, by the Post Office company, including any wholly-owned subsidiary of the Post Office company. In practice, this means Royal Mail (including Parcelforce).

The exemption will be restricted to supplies of public postal services and incidental goods made by a USP. The exemption will only apply to supplies of services made under a licence duty, including those where – pursuant to a licence duty – the USP allows private postal operators access to its postal facilities.

Standard-rating will apply to supplies of services that a USP is not required to make under a licence duty, e.g. those made by Parcelforce, and services provided on terms and conditions that have been freely negotiated.

Social mail, including stamped mail, remains exempt from VAT, so private individuals should largely be unaffected.

BN49 VAT: reverse charge for emissions allowances

From 1 November 2010, a reverse charge applies to supplies of emissions allowances to try to stop Missing Trader Intra-Community (MTIC) fraud. At the same time zero-rating, which was introduced from 31 July 2009, no longer applies to such supplies.

There will be no additional reporting requirements in respect of emissions allowances. Thus, suppliers will not be required to submit reverse charge sales lists for these supplies.

BN50 VAT: Lennartz accounting: restricting application and securing revenue

From 1 January 2011, for certain specified assets, VAT cannot be recovered in respect of private use or purposes other than those of a business.

The change should ensure that VAT recovery is restricted to the business use of the asset, excluding any private use by the taxpayer or the taxpayer’s staff.

The capital goods scheme will be amended to take account of changes in private use over subsequent years.

Until Vereniging Noordelijke Land-en Tuinbouw Organisatie v Staatssecretaris van Financien (Case C-515/07) (VNLTO), some taxpayers were incorrectly permitted to use Lennartz accounting (HMRC Brief 2/2010 (22 January 2010)).

Where such taxpayers choose not to unravel these arrangements, they must continue to account for the VAT due under the arrangements. Legislation will ensure that this position is treated as having always had effect.

These changes may affect taxpayers who buy land, property, boats and aircraft which are used for both business and private purposes.

When the law ensures that there is no entitlement to any VAT recovery on the private use of directors’ accommodation, the law relating to recovering VAT on directors’ accommodation will be repealed.

BN51 Landline duty

The Finance Bill 2010 will contain provision for the introduction of landline duty with effect from 1 October 2010. The duty will be 50p per line per month, and will be apply when a local loop is made available for use. The duty will be payable by the owner of the loop.

BN52 Landfill tax: standard rate

The standard rate of landfill tax will increase from £48 per tonne (the rate in force from 1 April 2010) to £56 per tonne, with effect from 1 April 2011, under provision to be included in the Finance Bill 2010.

BN53 Landfill communities fund

In a measure to have effect from 1 April 2010, the maximum credit claimable by landfill site operators for contributions made to bodies enrolled under the landfill communities fund (LFC) will be reduced from 6 per cent to 5.5 per cent.

BN54 Landfill tax: criteria for determining material to be subject to the lower rate

In a measure intended to be effective from 1 October 2010, there is to be provision for the publication and review of criteria for determining the lower rate of landfill tax, and for the Treasury to have regard to those criteria when listing materials that qualify for the lower rate.

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BN55 Climate change levy: change in rates

For supplies of taxable commodities that are treated as taking place on or after 1 April 2011, the rates of climate change levy are increased.

BN56 Aggregates levy: rate

The rate of aggregates levy rises from £2.00 per tonne to £2.10 per tonne for any aggregate commercially exploited on or after 1 April 2011.

BN57 Aggregates levy: Northern Ireland credit scheme

The Northern Ireland Aggregates Levy Credit Scheme is to be extended for a further 10 years to 1 April 2021.

The Scheme grants an 80 per cent tax credit to aggregate producers in Northern Ireland who meet certain conditions.

BN58 Hydrocarbon oils: duty rates

The fuel duty rates will change from 1 April 2010, 1 October 2010, and 1 January 2011.

BN59 Air passenger duty: duty rates

The rates of air passenger duty rise for any carriage of a passenger which begins on or after 1 November 2010, irrespective of when the ticket for travel was booked or purchased.

BN60 Tobacco products duty: rates

Rates of duty on tobacco products imported into, or manufactured in, the UK will increase by 1 per cent from 6pm on 24 March 2010.

PN61 Alcohol duty: rates

Duty rates for all still ciders, and some sparkling ciders, will increase by 10 per cent above inflation. Duty rates for all other alcoholic drinks will increase by two per cent above inflation.

These annual duty rate changes will have effect on and after 29 March 2010.

PN62 Alcohol duty: definition of cider

Legislation will be included in the Finance Bill 2010 to provide a power to amend the definition of cider. The legislation will have effect on and after the date that Finance Bill receives Royal Assent.

BN63 Excise: changes to bingo duty, amusement machine licence duty and gaming duty

Legislation will be included in the Finance Bill 2010 to:

  • reduce the rate of bingo duty to 20 per cent with effect for accounting periods beginning on or after 29 March 2010;
  • increase the amounts of amusement machine licence duty in line with inflation with effect for licence applications received by HMRC after 4pm on 26 March 2010; and
  • raise the gross gaming yield bandings for gaming duty in line with inflation with effect for accounting periods starting on or after 1 April 2010.

BN64 Disclosure of tax avoidance schemes

Legislation is to be introduced to revise the Disclosure of Tax Avoidance Scheme (DOTAS). Increased penalties will be imposed for failure to comply with the rules. The DOTAS hallmarks will be revised and extended. National Insurance regulations will be changed to mirror the changes in primary and secondary legislation.

It is expected that the various new measures will come into effect on a common date in the autumn of this year. The provisions will:

  • introduce a new trigger point for the disclosure of actively marketed schemes;
  • impose further requirements on a person introducing a client to a notifiable scheme;
  • increase the penalties for failure to comply with a disclosure obligation; and
  • impose further requirements on promoters to provide information to HMRC.

BN65 Relief for overpayments of stamp duty land tax and petroleum revenue tax

The SDLT and PRT error or mistake rules are to be amended to provide a means of reclaiming overpayments where there is no other statutory route. This will mirror changes made by the Finance Act 2009 to the rules for income tax, capital gains tax and corporation tax.

This measure will take effect from 1 April 2011 and is intended for inclusion in a Finance Bill to be introduced in the next Parliament.

BN66 Interest harmonisation for corporation tax and petroleum revenue tax

Corporation tax and petroleum revenue tax are to be brought within the harmonised interest regime introduced by the Finance Act 2009. The harmonised interest regime provides a single legislative framework for interest chargeable on late payments and payable on repayments in respect of taxes and duties administered by HMRC,

It should be noted that this will not include the rules applying to quarterly instalment payments, which will remain in force.

This measure will be legislated in a Finance Bill to be introduced as soon as possible in the next Parliament.

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BN67 Review of HMRC powers, deterrents and safeguards: penalties for late filing of returns and payment of tax

A revised penalty regime will apply to taxpayers who fail to file their tax returns on time or pay their tax liabilities in full and on time for:

  • VAT and insurance premium tax;
  • aggregates levy, climate change levy and landfill tax;
  • air passenger duty, alcoholic liquor duties, tobacco products duty, hydrocarbon oil duties, general betting duty, pool betting duty, bingo duty, lottery duty, gaming duty and remote gaming duty; and
  • other excise duties.

The revised penalties will:

  • be introduced over a number of years;
  • treat late payment of tax and late-filed returns separately;
  • reflect the more frequent filing and paying obligations for these taxes and duties compared to direct tax;
  • try to encourage filing and payment by the correct dates by imposing an escalating series of penalties, depending on the number of failures within a set penalty period. Further penalties will arise if there is a prolonged delay in filing returns or paying the tax due;
  • include a right of appeal if the taxpayer has a reasonable excuse for the lateness; and
  • be avoided where taxpayers have agreed a time to pay arrangement with HMRC (as regards the late payment penalties).

The key features of the revised penalty for late filing of quarterly returns are:

  • £100 penalty immediately after the due date for filing (whether or not the tax has been paid);
  • the failure also starts a penalty period, which is set for a year;
  • if there are further failures within the penalty period, then the fixed penalty escalates by £100 for each of those subsequent failures, up to a maximum of £400 per failure. The penalty period is also extended to the first anniversary of the latest failure;
  • if any of the failures are prolonged, then additional penalties of five per cent of the tax on the relevant return are charged at six and 12 months from the date of the failure; and
  • if, by failing to make the return, the taxpayer is deliberately withholding information to stop HMRC from correctly assessing the liability to tax, then penalties of up to 100 per cent of the tax on the return may be chargeable.

The revised penalty for late filing of monthly returns is similar to the quarterly model above, except that the fixed penalties are £100 for the first three failures in any penalty period, £200 for the second three failures, etc., up to a maximum of £400 per failure.

The key features of the revised penalty for late quarterly payments are:

  • if a taxpayer first pays late, although there is no penalty, it starts a penalty period, which is set for a period of a year;
  • any further failures within that period attract a penalty of two per cent of the unpaid tax, as well as extending the penalty period to the first anniversary of the latest failure;
  • a third failure within the period attracts a penalty of three per cent, with further failures attracting a maximum of four per cent; and
  • if any of the failures are prolonged, then additional penalties of five per cent of the unpaid tax are charged at six- and 12-months from the date of the failure.

The revised penalty for late monthly payments is similar in structure to the quarterly model above, except that, after the first failure, the tax-geared penalties are:

  • one per cent for the next three failures in any penalty period; and
  • two per cent of the next three failures, etc., up to a maximum of four per cent per failure.

Special provisions deal with circumstances where taxpayers change from a monthly to a quarterly return, or where exceptional payment obligations arise.

BN68 Review of HMRC powers, deterrents and safeguards: tackling offshore tax evasion

Higher penalties are to be introduced for individuals and businesses who fail to provide a full account of their income tax or capital gains tax liabilities, where the failure is linked to an offshore matter. The changes are expected to apply broadly from 1 April 2011.

There is no intention to change the mechanics of the penalty frameworks but the absolute level of the percentage used to determine tax-geared penalties will depend on the jurisdiction in which the non-compliance arises. If the jurisdiction is one that has a provision for automatic exchange of information with the UK on savings income then the penalty percentages will be the same as for non-compliance arising in the UK. In other cases, the level of penalty will be either one-and-a-half times those set out in the existing Schedules (where there is an agreement to share information, but this is not done automatically) or twice the amounts in the Schedules (where there is no such agreement).

BN69 Review of HMRC powers, deterrents and safeguards: excise modernisation and compliance checks

The Government intends to introduce a measure to update the compliance checking framework for certain excise duties. The intention is to introduce the measures as soon as possible in the next Parliament.

The aim is to modernise information and inspection powers and to align record-keeping rules and time limits for assessments and claims.

The excise duties affected include those on alcohol, tobacco, energy products, gambling duties and air passenger duties.

BN70 Review of HMRC powers, deterrents and safeguards: security for payment of PAYE

HMRC are to gain powers, provisionally effective from 6 April 2011, to require a financial security from employers where amounts due under PAYE or NICs obligations are seriously at risk. The amount of security will be set by HMRC in the light of the potential liability.

The detail of the new powers will be set out in regulations and will be the subject of a 12-week consultation. Employers will have the right of appeal against both the imposition and the amount of the security. Failure to give security when required to do so will be a criminal offence which may result in a fine of up to £5,000.

Although new for PAYE purposes, the measure mirrors provisions already applying for VAT liabilities (whereby, for example, a director may be required to give personal security for the VAT liabilities of the company).

BN71 Tackling tobacco smuggling in the post

A measure, to be included in the Finance Bill 2010, will remove the requirement for HMRC to notify addressees and invite them to attend before packets suspected of containing smuggled items can be opened.

This measure will take effect from the day on which the Finance Bill receives Royal Assent.

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