CCH Live News - Budget 2012

Budget 2012

Personal Tax

Overview

The Chancellor's key focus in this year's Budget remains stability and the shoring-up of government finances, although better than expected borrowing figures gave him some room for manoeuvre. The main personal tax measures announced are connected with improving the UK business environment.

Reduction in 50 per cent additional rate

After intense speculation about whether this would stay or go, the Chancellor has announced that the 50 per cent additional rate of tax for those individuals with incomes over £150,000 will be reduced to 45 per cent from 6 April 2013. The Chancellor always presented the rate as a temporary but necessary measure and following statistics published today by HMRC on the tax-take from the 50 per cent rate, he decided that now was the time to announce it would go.

HMRC's report showed that it had only raised a fraction of the £3bn the previous Chancellor had said it would, as behavioural response had been greater than expected. However, 2010–11 figures may not be an accurate reflection as many individuals took bonuses and dividends in the previous tax year if they thought they would be caught by the 50 per cent rate. Also, some may say he should have gone the whole hog and reduced the rate from this year as bonuses that would normally be paid approaching the year end might be deferred and dividends may be delayed so they fall into the later year.

The Chancellor claims that the removal of the 50 per cent rate is part of a broader package which claims to transfer money from the rich to middle Britain through the closing of tax loopholes and reliefs for the wealthy.

Non-UK domiciled individuals (non-doms)

Amendments to allow non-dom entrepreneurs to invest overseas income and gains in qualifying UK businesses without incurring an immediate taxable remittance could open the door to significant investment in the UK. There is currently little incentive to invest offshore money in the UK as this could result in a remittance tax charge of up to 50 per cent. From 6 April 2012, new rules mean that tax relief will be available on income and gains brought in for investment purposes, provided they meet certain criteria.

Less welcome for non-doms is the proposed increased charge of £50,000 from 6 April 2012 for those who have been resident in the UK in 12 out of the previous 14 tax years if they wish to claim the benefit of the remittance basis of taxation. However, the increase is unlikely to raise significant revenue for the UK tax authorities and is seen as more of a symbolic gesture.

Statutory residence test

HMRC have confirmed that implementation of a statutory residence test (SRT) will be delayed until 6 April 2013. The reason for the delay is to give HMRC more time to deal with a number of complex issues that have emerged through consultation. This means that individuals coming to or leaving the UK, and their employers, face another uncertain year subject to the current subjective test and a lack of clarity surrounding the present rules on residence. However, it is important that the Government gets the legislation right and achieves a simple, effective test to determine residence for an increasingly internationally mobile workforce so the draft legislation and further consultation announced at the Budget are to be welcomed.

Personal allowances

The personal allowance for those aged under 65 is already pledged to increase to £8,105 from 6 April 2012. The Government moved a long-way towards its aim of raising this to £10,000 by the end of this Parliament by announcing that the personal allowance will rise to £9,205 for 2013–14.

The advantage of increasing the allowance is that it puts more money in the hands of lower earners who are currently being squeezed by the economic situation and who will be more likely to put the money back into the economy. However, the reduction of the basic rate limit to £32,245 from 2013–14 will mean that most higher rate taxpayers will only get one-quarter of the benefit from the personal allowance that a typical basic rate taxpayer will receive and will put more people into the 40 per cent tax rate.

Child benefit

The initial proposal to abolish child benefit for any household in which an earner was a 40 per cent taxpayer was simple but caused consternation as it was seen as unfair. The Chancellor has now announced measures to soften the blow. Child benefit will be withdrawn through an income tax charge, and that charge will only apply to households where someone has a taxable income of £50,000 or more. For taxpayers with income between £50,000 and £60,000, there will be a taper, so that the amount of the charge will be a proportion of the child benefit preventing a cliff-edge effect as effectively withdrawal is spread over a greater level of income. For taxpayers with income above £60,000, the amount of the charge will equal the amount of the child benefit received.

This approach will be complex to administer and will impose high effective rates of tax on the income within that range which may in turn create its own disincentives.

Simplifications

Since July 2010, the Office of Tax Simplification (OTS) has been advising the Government on simplifying the UK tax system. One of its first tasks was to identify redundant legislation. This has been widely publicised and has resulted in a number of reliefs being proposed to be repealed. Some of these go back to 1946, suggesting that there should be a more regular review of redundant legislation going forward.

The Government has decided, however, not to proceed with a number of the reliefs identified by the OTS. The retention of the land remediation relief has been welcomed by the construction industry at a time when that industry is struggling. The Government has also confirmed that following consultation for exceptional reasons, it will not abolish the late-night taxis relief. If the relief, which provides that no income tax charge arises where employers pay for employee's transport home from work when working late, provided certain conditions are met, had been abolished, this could have led to increase costs for employers as in many cases the costs would still be met by the employer, but with an additional tax burden to be met via PAYE Settlements Payments.

The Seed Enterprise Investment Scheme

The Seed EIS is an attempt to encourage equity investment in small start-up companies; a kind of EIS Lite. The EIS proper was once described as giving money to someone you haven't met to invest in a business you don't understand. One tax adviser claimed to have invented an alternative to EIS; the client would give him £1 and the adviser would give him back 20 pence. The process was repeated until the client called a halt. this achieved the same result as EIS but much quicker and with less red tape.

Under Seed EIS the investor only stands to lose half of his investment, so maybe that will be an attraction. However, one has to ask whether the proprietors of new start-up companies will really want outsiders as minority shareholders? Given that the company can only raise £150,000, under the new scheme, they may prefer to raise loan rather than equity finance (assuming, of course, that they can get the loan finance in the first place).

For detailed commentary on the proposed legislation, see British Tax Reporter 319-000 and 568-500.

Anti-avoidance

Many Budgets in the past have sought to block tax avoidance which the majority of tax advisers never knew existed. This year is no exception. Apparently schemes have been devised which generate post-cessation losses in trading and property businesses or losses in a property business which has an agricultural connection. In all cases the loss could then be claimed as a deduction against general income. The proposed measures will introduce a targeted anti-avoidance rule (TAAR) which will deny relief where there are relevant tax avoidance arrangements. Such arrangements are widely defined and are those which have as one of their main purposes the obtaining of one of those reliefs.

We have, however, been told that there will be formal consultation exercise on the proposal to introduce a general anti-avoidance rule (GAAR), with a view to introducing enabling legislation in the 2013 Finance Bill. Logically then, this TAAR and others will become superfluous and so perhaps could be repealed? I suspect that although the Revenue will be able to apply a nuclear option, they will still wish to retain all their other traditional weapons.

Another unknown tax avoidance device to be blocked is the acquisition of certain life policies which have had earlier chargeable events which were not actually liable to UK tax because the policy-holder at that time was not UK resident. These earlier gains were taken into account as a deduction when calculating a gain on a subsequent chargeable event. The measure disallows such a deduction where the earlier gain was not regarded as part of the current policy-holder's income. It will apply to new policies entered into on or after Budget Day, 21 March 2012, and to existing policies where they are wholly or partly assigned.

For the future …

An unexpected measure announced for the first time on Budget Day was the proposal to restrict the amount of any tax reliefs which could be claimed in any tax year. The intention is to restrict those reliefs which are given by means of a deduction from income to the higher of £50,000 or 25 per cent of the individual’s income. No indication has been given as to what will happen to any excess relief. Draft legislation will be published for consultation later this year, with a view to making it effective from 2013–14 onwards.

Other measures announced for the first time were an increase in the upper limit in the value of shares over which shares may be held in under the Enterprise Management Incentive. This will be increased from £120,000 to £250,000 by means of a Treasury Order. The intention is that the increase will take effect as soon as approval is given by the EU under the State Aid provisions.

Julie Clift BA (Hons), CTA is a tax writer with CCH, specialising in inheritance and employment tax.

Trevor Johnson FTII, AITI, ATT is a tax writer with CCH.

Detailed Budget Measures

Employer asset-backed pension contributions

The Government announced on 29 November 2011 that legislation, effective from the announcement, will be included under Finance Bill 2012 to ensure that the amount of tax relief given to employers using ABC arrangements reflects accurately the total amount of payments the employer makes to the pension scheme directly or through a special purpose vehicle (SPV) (for example, a partnership).

Alongside an announcement, further Finance Bill 2012 legislation was published on 22 February 2012 to take effect from the same date. In line with the policy objective, this further legislation ensures that upfront relief will not be given unless the whole total of all asset-backed payments to the pension scheme are to be of fixed amounts at the outset.

For more details see the Tax Information and Impact Note.

Income tax rates 2013–14

This measure sets the main rates of income tax, for 2013–14, at 20 per cent for basic rate, 40 per cent for the higher rate and 45 per cent for additional rate.

The dividend additional rate will be set at 37.5 per cent, the trust rate will be set at 45 per cent and the dividend trust rate will be set at 37.5 per cent.

The charge on benefits paid to non-individuals under an employer-financed retirement benefits scheme will reduce from 50 per cent to 45 per cent. Where capital sums are deemed to be income of a settlor, the rate of tax taken as paid by the trustees will also reduce from 50 per cent to 45 per cent.

CCH Comment:

Many well-regarded commentators suggested that the 50 per cent rate of tax would raise little additional tax and this was confirmed by statistics released by HMRC today (21 March 2012). The Chancellor stressed that the 50 per cent tax rate was intended to be temporary, as announced by the previous Chancellor who introduced it and the tax take would be weighed up against the perceived disincentive to entrepreneurism.

Industry comment:

Confirmation that the 50p top rate of tax will be reduced to 45p is a welcome step in the right direction for multinationals looking at the UK as a location for increased investment. The headline tax rate will result in a 9% saving for employers for a typical expat package, making it easier for employers to bring their global talent to the UK

Business will want this to be a signal that the headline rate is on its way down, and that  the Chancellor will continue to focus on looking at the comparison with other G20 countries, given that an effective 47% rate (with uncapped NIC) is still relatively high.

Given all the positive work the Government has done to create an attractive and stable corporate tax regime, it's good news the regime for senior employees could become equally competitive.  We won't attract businesses unless we can also attract their people. Sean Drury, tax partner at PwC

While the reduction in the top rate of tax will be welcomed by many top earners, the justification by the Chancellor just doesn't stack up.

It's highly likely that more money would have been brought in through the 50% income tax rate if it had been left to run.

Comparing the two years either side of the rate change doesn't tell the whole story. Just as taxpayers accelerated income ahead of the new rate, they will now be deferring income until after April 2013.

The lower top rate of income tax coupled with the reduction in corporation tax is geared towards attracting and retaining 'internationally mobile' businesses and higher net worth individuals.

Tony Bernstein, senior tax partner, HW Fisher & Company.

For more details see the Tax Information and Impact Note. 

Income tax: changes to the higher personal allowances for people aged 65 to 74 and aged 75 and over

From 2013–14, the availability of the ‘age-related’ income tax personal allowances will be restricted. The allowance of £10,500 for 2012–13, available to people aged 65 to 74, will be restricted to people born after 5 April 1938 but before 6 April 1948. The allowance of £10,660 for 2012–13, available to people aged 75 and over, will be restricted to people born before 6 April 1938. From 2013–14, the amounts of these allowances will not be increased. From 2013–14, people born after 5 April 1948 will be entitled to a personal allowance of £9,205 for 2013–14.

CCH Comment:

This measure will support the Government’s goal of a single personal allowance for all taxpayers regardless of age, and will simplify the system and reduce the number of pensions in self-assessment.

For more details see the Tax Information and Impact Note.

Enterprise management incentives

Qualifying businesses can grant tax-advantaged share options to their employees under EMI. The limit on the value of shares over which options may be held by an employee under EMI will be increased from £120,000 to £250,000.

CCH Comment:

The intention is that the increase will take effect as soon as approval is given by the EU under the State Aid provisions.

For more details see the Tax Information and Impact Note.

Company car tax rates

For 2014–15, the measure increases the appropriate percentage of the list price subject to tax by one percentage point for cars emitting more than 75g of carbon dioxide per kilometre, to a maximum of 35 per cent.

CCH Comment:

Company car rates have traditionally been announced around two years in advance, to give certainty to the industry, so Finance Bill 2012 will legislate 2014–15 company car tax rates. Legislation will be introduced in a later Finance Bill to:

  • increase by two per cent the amount of the list price subject to tax, to a maximum of 37 per cent; and
  • remove the three percentage point diesel supplement from April 2016, so that diesel cars will be subject to the same level of tax as petrol cars.

For more details see the Tax Information and Impact Note.

Company car fuel benefit charge

This measure will increase the multiplier used to calculate the cash equivalent of the benefit of free fuel provided to employees from £18,800 to £20,200 for the tax year 2012–13. There is a further commitment to increase the multiplier by two per cent above the rate of inflation (RPI) for the tax year 2013–14 which will be legislated by Order in the Autumn, following confirmation of the September 2012 inflation figure. As a result of this change, the fuel benefit charge will increase for fuel provided for all cars apart from zero emissions cars.

CCH Comment:

In addition to announcing the fuel benefit charge multiplier for 2012–13, the Government is also announcing the 2013–14 rate, whilst committing to announce all future rates a year in advance. This aims to provide greater certainty for employers and employees.

For more details see the Tax Information and Impact Note.

Child benefit: income tax charge for those on higher incomes

A new income tax charge will apply to those taxpayers affected by this measure to reduce or remove the financial benefit of receiving child benefit. For taxpayers with income between £50,000 and £60,000, the amount of the charge will be a proportion of the child benefit received. For taxpayers with income above £60,000, the

amount of the charge will equal the amount of child benefit received. The amount of child benefit payable will be unaffected by the new tax charge.

CCH Comment:

The Chancellor had to announce how he proposed to withdraw child benefit from higher rate taxpayers. The new income tax charge will only apply to taxpayers whose income is more than £50,000 for the tax year. If both partners have income of more than £50,000 for the tax year, the charge will apply only to the partner with the highest income.

The Chancellor has introduced a taper for incomes between £50,000 and £60,000 to minimise the ‘cliff edge’ problem where families with one parent in employment and earning just over the 40 per cent threshold would have lost this benefit, whereas a family with two earners just under the 40 per cent threshold would have been able to keep the benefit.

For more details see the Tax Information and Impact Note.

Resettlement payments made to Members of Parliament

From 1 April 2012, the MPs’ Expenses Scheme administered by IPSA will include provision for a resettlement payment to any MP who involuntarily leaves office on or after that date. This measure introduces an income tax exemption for such payments (subject to a £30,000 limit).

CCH Comment:  

There is a long-standing exemption for resettlement grants made to MPs and members of the devolved administrations. The existing exemption for MPs only applies to grants and payments made under a resolution of the House of Commons on a dissolution of Parliament. As it is currently worded, it does not apply to resettlement payments made by IPSA. This measure had not been previously announced and will have effect in relation to any resettlement payments made by IPSA on or after 1 April 2012.

For more details see the Tax Information and Impact Note.

Inheritance tax: avoidance using offshore trusts

This measure will amend the inheritance tax (IHT) excluded property and settled property provisions. The changes will largely replicate the tax treatment that a UK-domiciled individual using such a scheme would incur if the assets within the offshore trust had instead been transferred to a UK trust.

CCH Comment:

This measure is aimed at blocking avoidance of IHT by a UK-domiciled individual purchasing an interest in an offshore trust, the assets of which are ‘excluded property’, thus reducing the value of his estate for IHT purposes.

For more details see the Tax Information and Impact Note. 

Life insurance policies: income tax avoidance

This measure amends the rules for calculating the amount of gains from the relevant policies and contracts. It puts beyond doubt that the gains liable to income tax are not reduced by the fact that there are untaxed gains earlier in the life of the policy or contract, or by the use of certain cluster policy arrangements. This addresses aspects of the current rules that have been exploited in disclosed avoidance schemes.

The Government has also announced a consultation on reform to time apportionment reductions reflecting a policyholder’s period of residence outside the UK. Issues for consultation will include an extension of these rules to policies issued by insurers inside the UK, and to reflect the residence position of previous owners of a policy. It is intended that this consultation will result in legislation for inclusion in Finance Bill 2013.

CCH Comment:

Where gains arise on an earlier chargeable event, they are taken into account as a deduction when calculating a gain on a subsequent chargeable event. This measure disallows such a deduction where the earlier gain was not regarded as part of the current policy-holder’s income. It will apply to new policies entered into on or after Budget Day, 21 March 2012, and to existing policies where they are wholly or partly assigned.

For more details see the Tax Information and Impact Note.

Seed enterprise investment scheme

This measure introduces a new tax-advantaged venture capital scheme, similar to the Enterprise Investment Scheme (EIS).

The new scheme – the Seed Enterprise Investment Scheme (SEIS) – will be focused on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The scheme will make available tax relief to investors who subscribe for shares and have a stake of less than 30 per cent in the company.

The relief will apply to investments made on or after 6 April 2012.

For the first year of the new scheme, the Government will offer a capital gains tax (CGT) holiday – gains realised on the disposal of assets in 2012–13 that are invested through SEIS in the same year will be exempt from CGT.

CCH comment:

This relief comes as a result of the Government's review of the existing venture capital schemes and a consultation exercise carried out in the summer of 2011. Whilst drawing heavily upon existing EIS principles, Seed EIS is nevertheless a new stand-alone regime. It provides for an income tax relief of 50% of the amount invested and a capital gains tax exemption in respect of any profit made on the shares acquired by the investment, in addition to the one year only exemption referred to above.

For more details see the Tax Information and Impact Note on the measure.

Enterprise investment scheme and venture capital trusts: better focus

This measure will better focus the EIS and VCT schemes through:

  • introducing a new disqualifying purpose test for the schemes;
  • providing that acquiring shares in another company (other than by subscription in a subsidiary) will not be a qualifying activity; and,
  • providing that receipt of Feed-In Tariffs (FiTs) or similar subsidies will not generally be a qualifying activity.
CCH comment:

The new disqualifying purpose test is intended to counter the formation of companies solely for the purposes of accessing the venture capital reliefs. It denies relief where there are arrangements under which the main purpose of one to the parties is to obtain EIS relief and that more than half of the funds raised is paid to a party to the arrangement or a connected person. The new test will apply to shares issued on or after 6 April 2012.

Under EIS and VCT the funds raised could be validly expended on purchasing the share capital of a trading company. In such a case the funds would go into the hands of the previous shareholders and would not be able to be used by the trading company in its business. This will no longer be regarded as a qualifying activity. Instead the shares in a new subsidiary must be obtained by subscription. This requirement will apply from 6 April 2012 in respect of EIS shares issued or money invested in a VCT, on or after that date.

For more details see the Tax Information and Impact Note on the measure.

Enterprise investment scheme and venture capital trusts: simplification

This measure will amend the EIS to:

  • relax the rules defining when a person is connected to a company through an interest in its capital; and,
  • widen the definition of shares which qualify for relief.

It will also remove the £1 million limit on investment by a VCT in a single company (except for companies in a partnership or a joint venture).

For more details see the Tax Information and Impact Note on the measure.

Enterprise investment scheme and venture capital trusts: increases to thresholds

This measure will increase the annual amount that an individual can invest under the EIS. Subject to state aid approval, legislation will also be introduced in Finance Bill 2012 to increase:

  • the thresholds for the maximum size of qualifying company for both EIS and VCTs; and,
  • the maximum annual amount that can be invested in an individual company under all the venture capital schemes.
CCH comment:

The limits of qualifying companies for EIS and VCT purposes are be raised; the employee limit from 50 to 250 and the gross asset limit from £7m before the investment and £8m after to £15m and £16m respectively. In addition, the maximum amount that can be raised by an investee company is to be raised from £2m to £10m. These changes were also announced in the 2011 Budget and are subject to EU approval which does not yet appear to have been received. Subject to that approval, the changes will be effective from 6 April 2012.

For more details see the Tax Information and Impact Note on the measure.

Reform of the taxation of non-domiciled individuals

The measure makes three keys changes.

The first is to introduce a higher annual charge of £50,000 for those non-domiciles who claim the remittance basis in a tax year and have been resident in at least 12 of the previous 14 tax years.

The second removes the charge to UK tax on overseas income or capital gains remitted to the UK for the purpose of making a commercial business investment in an unlisted company or a company listed on an exchange regulated market.

The third introduces simplifications to the existing remittance basis rules in respect of nominated income and the taxation of assets remitted to and sold in the UK.

CCH comment:

A positive development is that non-doms will, from 6 April 2012, be able to use overseas income and gains to invest in unlisted trading companies without creating an immediate taxable remittance. This can include investment in companies developing or letting commercial (but not residential) property. A claim for relief from UK tax on that income or gain has to be made.

Another welcome development is the proposed simplification of the treatment of nominated income. The proposed amendment will allow individuals to remit up to £10 of overseas nominated income or capital gains to the UK without being taxed and without being subject to complicated remittance identification rules.

Industry comment:

The Chancellor has made much of raising five times as much from the wealthy as he has given away. Particularly badly affected will be those owning properties in companies. While not a non dom relief, many non doms would have taken advantage of this for confidentiality.

Owners of properties held by companies face a triple attack by the Chancellor: a penal up front charge, the possibility of an annual charge under 'mansion tax lite' and taxation on gains. While not unexpected, the combination of these measures will be seen as yet another example of revenue raising from a relatively small group of people. It's unfortunate that this is potentially detracting from the relatively generous relief for investment in businesses.

Alex Henderson, tax partner at PwC

For more details see the Tax Information and Impact Note on the measure.

Capital gains tax: foreign currency bank accounts

Capital gains arising on withdrawals of money in foreign currency bank accounts will not be liable to capital gains tax (CGT), and capital losses will not be allowable losses.

CCH comment:

Every withdrawal from a foreign currency account is a chargeable disposal giving rise to either a gain or loss. It has been recognised that the burden of record-keeping and calculation of gains and losses is out of all proportion to the tax generated and as a simplification measure, bank accounts in foreign currency are to be treated as debts and therefore no chargeable gain or allowable loss will arise on any withdrawal. Thus they will be given the same treatment as that accorded to sterling accounts.

For more details see the Tax Information and Impact Note on the measure.

Inheritance tax nil rate band: switch to consumer prices index

Legislation will be introduced in Finance Bill 2012 to provide for the inheritance tax (IHT) nil rate band to rise in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from 6 April 2015. Automatic indexation of the NRB using the CPI will still be subject to override if Parliament determines a different amount should apply.

CCH comment:

Finance Bill 2012 confirms that the IHT nil rate band will remain frozen at its current level of £325,000 until 2014-15 and then will be linked to CPI for 2015-16 onwards. This will mean more estates will be brought into IHT in the future through fiscal drag.

For more details see the Tax Information and Impact Note on the measure.

Capital gains tax: annual exempt amount

This measure sets the capital gains tax (CGT) annual exempt amount (AEA) for 2012–13 at £10,600, keeping it at the same level as for 2011–12. It also provides for the AEA to rise in line with the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) from 2013–14 onwards. Automatic indexation of the AEA using the CPI will still be subject to override if Parliament determines a different amount should apply.

For more details see the Tax Information and Impact Note on the measure.

Single payment scheme and capital gains tax roll-over relief

The measure will preserve the availability of roll-over relief in relation to rights to SPS payments following changes to the EU scheme.

In addition, powers are to be given to the Treasury to make future changes of this type by secondary legislation.

For more details see the Tax Information and Impact Note on the measure.

Tax exemptions: international military headquarters, EU forces, etc.

The measure ensures that members of EU forces and their civilian staff receive the tax privileges to which they are entitled under the EU Status of Forces Agreement. These privileges are the same as already apply to visiting North Atlantic Treaty Organisation (NATO) forces.

CCH comment:

The financial impact of the measure will therefore be neutral for service personnel and their families but the measure is designed to simplify administration of the allowance.

The measure will have effect for payments made on after 6 April 2012.

For more details see the Tax Information and Impact Note on the measure.

Income tax exemption: armed forces continuity of education allowance

This measure will exempt from income tax, payments of continuity of education allowance (CEA) to service personnel and payments in respect of the children of deceased service personnel.

For more details see the Tax Information and Impact Note on the measure.

Company car tax: security enhanced cars

This measure excludes certain passive security enhancements from being treated as accessories for the purpose of calculating the cash equivalent of the benefit of a company car made available for private use.

For more details see the Tax Information and Impact Note on the measure.

Taxation of non-residents: Champions League Final 2013

An exemption from UK taxation for non-resident footballers and team officials for money earned in relation to the Champions League final 2013, which is to be held in the UK.

CCH comment:

UK income tax is charged on non-resident sportspeople's income that is related to a UK performance. Without an exemption, non-resident sportspeople are taxed at UK rates on both income directly gained from the performance, plus a proportionate share of worldwide sponsorship income.

The exemption has been put in place to satisfy the UEFA's requirement that countries hosting the Champions League final do not levy domestic tax on non-resident players and team officials involved in the final Legislation in Finance Bill 2012 will mirror similar provisions put in place by Finance Bill 2010 for the 2011 UEFA Champions League Final and will have effect on or after the date the Finance Bill receives Royal Assent.

For more details see the Tax Information and Impact Note on the measure.

Qualifying time deposits: deduction of tax at source

QTDs are investments which, among other conditions, require a single deposit of at least £50,000 and do not permit any withdrawals during their term, which can be any period up to 5 years. Interest, dividends and similar amounts paid by providers on QTD balances are subject to income tax.

From 6 April 2012, any QTD provider who operates the Tax Deduction Scheme for Interest (TDSI) will be required to deduct sums representing income tax at the basic rate from interest, dividends or similar payments they make in respect of QTD investments opened or made after this date.

This measure will align tax collection arrangements for QTDs with those already in operation for many comparable savings or investment products.

For more details see the Tax Information and Impact Note on the measure.

Property loss relief against general income and post-cessation property relief – anti-avoidance

This measure will introduce targeted anti-avoidance rules (TAARs) that will deny property loss relief against general income for agricultural expenses and post-cessation property relief where expenses, or a payment or event for which relief is sought, arises from relevant tax avoidance arrangements.

CCH comment:

The restriction on relief under section 96 will have effect in respect of events occurring and payments made on or after 12 January 2012 (unless paid under an unconditional contract made prior to that date). In the case of sections 125 and 120, the effective date is 13 March 2012.

For more details see the Tax Information and Impact Note on the measure.

PAYE code applied to share-based payments in certain circumstances

Regulations will be laid in Parliament to change the default PAYE tax code employers and share scheme administrators are required to operate in certain circumstances. From 6 April 2012 employers and share scheme administrators will be required to operate tax code 0T (zero T) on share-based payments (those in the form of securities, interests in securities or securities options) made to employees after cessation of employment which have not been included in Form P45.

Closure of the Simplified PAYE Deduction Scheme (SPDS) to new employers at 6 April 2012 and completely on 5 April 2013

The SPDS provides an alternative to standard PAYE for non-business employers being used by employers engaging domestic staff, and (often) elderly, or, disabled individuals engaging carers within their own home. It was intended to offer a simpler manual system but as PAYE has evolved over the years the Scheme has not kept pace. As such the employer responsibilities under SPDS differ little to those of employers under standard PAYE.

HMRC wishes to adopt a two stage approach to close down the SPDS. Stage 1 will inhibit entry to the scheme to any new employers from 6 April 2012, with all new employers going straight onto standard PAYE. Phase 2 will be the complete closure of the scheme on 5 April 2013 with all existing SPDS employers at that date being supported to move to standard PAYE and Real Time Information (RTI) reporting on 6 April 2013.

Real Time Information (RTI): Improving the operation of Pay As You Earn

From April 2012 HM Revenue & Customs (HMRC) will begin phased introduction of RTI. Under RTI, information about tax and other deductions under the PAYE system will be transmitted to HMRC by the employer every time an employee is paid. Employers using RTI will no longer be required to provide information to HMRC using Forms P35 and P14 after the end of the tax year, or to send Forms P45 or P46 to HMRC when employees start or leave a job.

Changes to National Insurance contributions (NICs) arising from the 1 per cent increase in NICs from 6 April 2011 and the abolition of contracting-out on a defined contribution basis

Consequential changes to NICs legislation are necessary because of the:

  • 1 per cent increase in the rate of Class 1 NICs from 6 April 2011 and the effect on excess refunds calculations
  • abolition of Contracted-Out Money Purchase (COMP) schemes and Appropriate Personal Pensions (APP) schemes from 6 April 2012

These are merely technical amendments to the NICs legislation which are necessary to amend the relevant Class 1 calculations to be carried out at the end of the tax year. Minor amendments also remove two redundant references to repealed tax provisions relating to registered pension schemes.

Minor changes to National Insurance Contributions (NICs) legislation regarding the information recorded on a deductions working sheet; clarification of the general earnings definition; and the signatory to Class 1A returns

There are three amendments to the Social Security (Contributions) Regulations 2001.

These changes are minor technical amendments to the NICs legislation. Changes to the legislation relating to Class 1A are being made to specify who should sign a return in circumstances where the employer is self employed or in partnership. Changes are also being made to ensure that those employers who choose to submit their returns electronically can have those returns authenticated in a manner approved by HMRC. Amendments also set out the information to be included on a deductions working sheet now that the Primary and Secondary Thresholds are no longer aligned following the threshold changes made from 6 April 2011.

Grants for giving up agricultural land: repeal of relief

The relief exempts certain grants received by individuals for giving up agricultural land from capital gains tax. No such grants have been made for a considerable number of years. The last scheme through which grants could be made came into effect in 1976 and has since lapsed. There are no plans to make new grants. The relief is no longer necessary and is being repealed.

For more details see the Tax Information and Impact Note on the measure.

Luncheon vouchers: repeal of relief

There is a tax and national insurance contributions (NICs) exemption on the first 15 pence per working day of a meal voucher provided by an employer to an employee. However, any benefit provided above 15 pence per working day is liable to tax and NICs. The relief was introduced in 1946 when food rationing was in place with the objective of helping individuals afford healthy meals. The benefit of this relief has been almost entirely eroded by inflation. It is therefore very low in value and no longer achieves a clear objective, and is now being repealed.

For more details see the Tax Information and Impact Note on the measure.

Tax reserve certificates Issued by HM Treasury: repeal of relief

This measure will repeal the reliefs which provide an exemption from income tax and corporation tax respectively for interest earned from tax reserve certificates (TRC) issued by HM Treasury. TRCs have not been issued since 1975, when they were replaced by certificates of tax deposit. Therefore, on the basis that they have not been issued for sometime, the relief is being repealed.

For more details see the Tax Information and Impact Note on the measure.

Payments for the benefit of family members: repeal of relief

Individuals may claim income tax relief of up to a maximum of £20 per year where they are required by their employer, or under an Act of Parliament, to make payments that secure a provision for their surviving spouse/civil partner or children. The pensions code provides more generous relief for similar expenditure therefore the relief is no longer necessary and is being repealed.

For more details see the Tax Information and Impact Note on the measure.

Pensions for 1947 redundancies: repeal

Section 62(2) and (3) of the Finance Act 1946 make provision for the payment of pensions to those made redundant following the closure, in 1947, of the offices for land tax and income tax assessors. These provisions are no longer required and are being repealed.

For more details see the Tax Information and Impact Note on the measure.

Deeply discounted securities: incidental expenses: repeal of relief

Deeply Discounted Securities (DDS) are certain kinds of government securities and corporate bonds that are issued at a discount. This discount, which would otherwise be taxed as capital gains, is taxed as income. There is limited relief for incidental expenses incurred on the acquisition and disposal of DDS held before 27 March 2003. Legislation will repeal relief for incidental expenses of disposal which are incurred on or after 6 April 2015. Relief for expenses incurred before 27 March 2003 will remain.

For more details see the Tax Information and Impact Note on the measure.

Life assurance premium relief (LAPR): repeal

Income tax relief of 12.5 per cent is available on regular premiums paid into qualifying life insurance policies issued on or before 13 March 1984. The relief was removed for policies issued on or after 14 March 1984 but continues for premiums payable under policies taken out before this date. The relief is therefore obsolescent but still requires long and complex legislation although the average value of the relief per policy is minimal. Accordingly, the relief is being repealed

For more details see the Tax Information and Impact Note on the measure.

Life assurance premiums paid by employers under EFRBS: repeal of relief

Income tax relief of 12.5 per cent is available on life assurance premiums paid by an employer under an employer-financed retirement benefit scheme (EFRBS) to provide an employee (or their spouse, widow(er), children or dependants) with retirement or death benefits. The relief only applies to payments made under a policy issued on or before 13 March 1984, where the payments are being made in respect of an individual employed before that date who continues to be employed by the same employer.

Very few individuals are likely to still be eligible for the relief which is limited to £12.50 per person per year in connection with policies providing retirement benefits. The relief is no longer necessary and is being repealed.

For more details see the Tax Information and Impact Note on the measure.