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It is not that the latest Finance Bill is all in just one small volume, nor that it costs only a paltry £14.70 which should have us all leaping round maypoles with extra vigour this year. The most striking thing about the Bill for me is that there are no fewer than sixteen different duties and taxes listed in the contents. Once upon a time there was not much more than window tax and stamp duty (quietly forgetting income tax!). If you were bored out of your skull with those, you were down to some alternative career, such as making bows and arrows or finding out whether or not the earth was flat. Now we are totally spoilt for choice and this Bill adds yet another tax to the ever-increasing list. Aggregates levy bursts on the scene with 34 clauses and 7 Schedules in the Bill. It will not be long before we have a new vacancy at all the major accountancy firms for 'Head of Aggregates Levy', to go with all the other heads they have rolling around.
I shall not be applying for the vacant posts, but those interested can prepare themselves for their interviews with the following question:
Which of the following is not a relevant substance qualifying for exemption for the purposes of the levy?
(1) Anhydrite; (2) Muscovite; (3) Anthracite; (4) Sodium chloride.
Phone a friend if you like, because that is what those in the industry will surely have to do; they will never memorise the long list in clause 18 of the Bill.
Mileage allowances
Once you have got past the aggregates levy, you are up to clause 50 of the Bill and the familiar ground of income tax changes. Clause 57 introduces the new statutory replacement of the fixed profit car scheme. It does not take effect yet and so this is advance notice for the year commencing on 6 April 2002. The rules will be free standing, in that they are only loosely tied in with the existing section 198 relief for Schedule E necessary expenses. Instead, approved mileage allowance payments for employees using their cars on business will be exempt from tax up to a statutory limit and if nothing is paid by the employer, then mileage allowance relief at the same rates is to be allowed. Forty pence per mile can be paid for the first 10,000 miles of business travel, which is reasonably generous compared to the present 4,000 mile limit and the first 10,000 miles applies to all mileage with associated employers (as defined); however, if the employee has several completely unconnected employments, then he or she has the higher mileage rate for the first 10,000 miles for all the different jobs.
The existing travelling expenses rule in section 198 is to remain in place, although the new car mileage rules take precedence where they apply. They will not of course apply in the case of travel by public transport; that is where the existing section 198 rule will continue to have effect.
Capital allowance claims by employees where their own cars are used in the employment will cease at the end of 2001-02 with the consequence that the employee is to be treated as ceasing to own the asset at the close of business on 5 April 2002. Given the substantial depreciation in the secondhand car market, this will no doubt give rise to many useful balancing allowance claims.
Capital allowances
Expenditure on energy saving plant or machinery is to qualify for 100 per cent first year allowances where it is incurred on or after 1 April 2001. One of the main conditions is that the equipment must not be secondhand.
Schedule 19 to the Bill introduces the new capital allowances for the conversion of flats. A generous 100 per cent initial allowance is available which can be reduced to some lower figure followed by 25 per cent writing-down allowances. The key point for clients looking to take advantage of this new capital allowance is that it is to take effect only for expenditure incurred on or after the day on which the Act is passed. Thus it will be necessary to delay projects which may qualify for the relief until after Royal Assent to the relevant provisions. Probably this whole Finance Bill will be rushed through with inordinate haste, but it is possible that some provisions may be transferred to a new Bill after a General Election.
There are many detailed conditions for the relief which will be examined in Taxation in due course, but it should be noted that the expenditure must relate to an unused dwelling over business premises of not more than four storeys, excluding the attic, and the dwelling must have been unused for the previous year, or used only for storage. Furthermore only the bottom end of the market qualifies through a 'high value' test. The relief is therefore fairly specialist and not likely to be of widespread availability.
Enterprise investment scheme
The dreaded value received rules in the enterprise investment scheme are subjected to very useful relaxations in Schedule 15 to the Bill. A 'receipt of insignificant value' will no longer lead to a withdrawal of enterprise investment scheme relief. Insignificant value is in all cases an amount not exceeding £1,000, and if the value received is in excess of that figure then it must be 'insignificant in relation to the amount subscribed by the individual for the eligible shares in question'. The second leg of this definition appears to have no further explanation and so we will all be looking for the Revenue guidance on it. In each case, separate amounts of value are aggregated to see whether the limits are breached.
The foregoing rules apply to the enterprise investment scheme income tax relief and they are largely mirrored in the capital gains tax Schedule 5B deferral relief. However, there is a distinction. For deferral relief, receipts of insignificant value in excess of £1,000 are tested by reference to the amount of gains deferred in respect of the subscription for the shares, rather than with the amount which the investor subscribed for them.
Where value is found to have been received in excess of the limit for insignificant sums, it will in future be possible to make restitution of the value to the company in order to save the tax relief. Restitution can in fact be made before the value was received, but must be made after the start of the period of restriction in relation to the shares and in any case it must be made as soon as is reasonably practicable in the circumstances.
These new rules will be very helpful for the future. Unfortunately they do nothing for the past as they apply only in relation to shares which still qualified for enterprise investment scheme relief immediately before 7 March 2001. How nice it would be if the Revenue could see its way to applying the new rules to past cases by way of extra-statutory concession!
Copyright income
Now for a deliberate mistake: the Bill replaces the existing spreading provisions for authors' copyright income with a new modern provision for them based upon farmers' averaging. Wrong: the coverage of the new provision which is in Schedule 24 to the Bill is wider since it applies not only to literary, dramatic, musical or artistic works but also to a trade or profession of creating designs (electrical circuits? architecture? town planning?). Any work to which the spreading provisions are to apply must be created by the taxpayer personally.
The Revenue states that the existing spreading provisions are little used, and having acted for an author for many years, I add my own 'Amen' to that. They are pretty useless except for those emulating Gustav Flaubert who spent days mulling over each paragraph and thus finished only a handful of works in his lifetime. The new provisions will be an improvement and readers will find that they are drafted in the style used by the Tax Law Rewrite project.
Self assessment machinery
How many readers appreciated that, under self assessment, one is not supposed to amend a return whilst an enquiry into it is in progress? I discovered this fact only recently, only to find that the Finance Bill abolishes the rule!
The Bill also provides for a right for the taxpayer to reject Revenue corrections to self-assessment returns, so long as this is done within 30 days of the correction being issued. I sincerely hope that this is not a new right of the taxpayer, since I have been rejecting some corrections, occasionally in forceful terms.
And finally
The general verdict on the Bill is that it is very mundane, but what else could one have expected weeks ahead of an anticipated General Election? Anyway, it opens up whole new vistas for those interested in becoming experts in aggregates levy; it is just unfortunate that most of us will be more bored with this levy than we might have been with window tax. And finally, anthracite is the answer to my question above.
