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KEY POINTS
- Improvements to the controlled foreign company regime.
- Security required for PAYE payments at risk.
- Defunct reliefs to be withdrawn.
- Consultation on the UK REIT legislation.
Among the Budget documentation was the Overview of Tax legislation and Rates. It contained a massive amount of detail, including useful sections on the new tax changes announced in the Budget for Finance Bill 2011, previously announced measures included in the Bill, and new changes planned for Finance Bill 2012 and later.
The detail of a range of the measures is contained in a host of tax information and impact notes (TIINs) in annex A of the document. A selection of these notes are summarised below.
The LexisNexis detailed Budget summary will be in next week’s issue of Taxation.
Corporation tax matters
The bank levy came into effect on 1 January 2011. In the Budget, the Chancellor announced that the rates will be increased from 1 January 2012 and will be 0.078% for short-term chargeable liabilities and 0.039% for long-term chargeable equity and liabilities.
He said this was to prevent the banks benefiting from the reduction in headline corporation tax rates.
The Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive provides that UCITS funds may be managed by an authorised fund manager resident in a member state other than the home state of the fund.
The Budget introduced legislation so that foreign UCITS funds can be treated as not being resident in the UK, where they otherwise might be resident by virtue of having a UK resident fund manager.
The aim is to maintain UK competitiveness in the asset management industry by ensuring there will be no adverse tax consequences in the UK when a foreign UCITS fund has a UK-resident manager.
Another new measure reverses the tax consequences of an order made in February 2010: the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010.
This had the unintended effect that certain debt securities might not qualify for the loan capital exemption from stamp duty, and the companies that issue them might not qualify for the corporation tax securitisation company regulations.
As a result of the order introduced in the 2011 Budget, instruments will continue to qualify for the exemption and the securitisation company regulations will apply.
The Budget announced a package of interim improvements to the controlled foreign company (CFC) rules. These:
- introduce an exemption for certain intra group trading transactions where there is little connection with the UK and therefore UK profits are unlikely to have been artificially diverted;
- introduce an exemption for CFCs with a main business of intellectual property exploitation where the intellectual property and the CFC have minimal connection with the UK;
- introduce a statutory exemption which runs for three years for foreign subsidiaries that, as a consequence of a reorganisation or change to UK ownership, come within the scope of the CFC regime, making the exemption available to previously UK-headed groups if they return to the UK;
- introduce an alternative to the current de minimis exemption, which will increase the limit to £200,000 profits a year; and
- extend the transitional rules for superior and non-local holding companies until July 2012.
Fundamental reform of the CFC rules is set for 2012.
With regard to the taxation of foreign branches, legislation is to be included in the Finance Bill 2011 to exempt foreign branches of UK resident companies from corporation tax on the profits. Companies who wish to take advantage of this will have to make an irrevocable election to do so.
SDLT and bulk purchases
A new stamp duty land tax relief is to be introduced where a land transaction, or a scheme, arrangement or series of linked transactions, includes interests in more than one dwelling.
Where the relief applies, the rate of tax charged on the consideration attributable to the dwellings will be determined by the mean consideration i.e. by the aggregate consideration attributable to dwellings, divided by the number of dwellings, subject to a minimum tax rate of 1%.
For the purposes of the relief, the dwellings will be treated as residential property, however many are involved.
Provision will be made for the relief to apply to ‘off-plan’ purchases where a contract is substantially performed before construction of the dwellings has begun.
A further return will be required if the number of dwellings reduces, so that additional tax becomes due within three years of the transaction. Non-residential property will be excluded from the relief.
Ensuring tax collection continues
An amendment to the Provisional Collection of Taxes Act 1968 will be introduced in Finance Bill 2011 to maintain the government’s ability to collect income tax and certain other taxes and duties on a provisional basis following changes to the parliamentary timetable. The amendments are as follow:
- a resolution will be allowed to have the same statutory effect as an earlier resolution in the same session, so long as the earlier resolution was not passed in the same calendar year;
- resolutions will no longer lose statutory effect at the end of a session, as long as the Bill is to be carried over into the next session (although the condition that resolutions will lose statutory effect when Parliament is dissolved will remain unchanged);
- where the House of Commons does carry over the Bill, then that Bill must be reintroduced in the first 30 sitting days of the new session or the resolution will lose statutory effect; and
- to allow time for equivalent parliamentary scrutiny there will now be a maximum period of seven months during which resolutions continue to have statutory effect.
Security for PAYE payments
New provisions will be introduced in Finance Bill 2011 giving HMRC the power to make regulations enabling them to require a security from employers for PAYE and National Insurance that they consider to be seriously at risk of non payment. A new criminal offence of not providing a security when one is required will also be introduced.
Draft Finance Bill clauses, together with draft regulations, were published for consultation on 9 December 2010 (and were discussed in Anne Redston’s article The Hitchhiker’s Guide to tax policy making). No changes have been made to the primary legislation.
However, the regulations will be amended, to take account of comments received to ensure that time to pay arrangements are give proper consideration before HMRC enforce a security.
The department’s response to the consultation will be published on 31 March.
Reliefs on the way out
As a result of its review of reliefs and allowances, the Office of Tax Simplification recommended the abolition of a number of reliefs.
In light of this, the government has decided to abolish the reliefs set out below in Finance Bill 2011:
- charities – transitional relief on distributions;
- millennium gift aid;
- National Savings Bank ordinary account interest;
- payroll giving 10% supplement;
- stamp duty reliefs covering the exemption for certain assignments by seamen, instruments relating to National Savings, and transfers in relation to ships and vessels.
These reliefs are all out of date, so removing them will have no adverse effect. With regard to other reliefs recommended for abolition, the government plans to consult on whether or not to proceed on some of them.
The list of those falling into this category can be found in the Treasury document, but they include cycle to work days – provision of meals, late night taxis, luncheon vouchers, capital allowances – flat conversion allowances, disadvantaged area relief, land remediation relief, and compensation for mis-sold pensions.
More future plans
The government published a consultation paper on 24 March 2011 ), as promised in the Budget, setting out options that could be taken to support the rebalancing of the Northern Ireland economy, including the possibility of devolving the power to vary the corporation tax rate in Northern Ireland. The closing date for this consultation is 24 June 2011.
On real estate investment trusts (REITs), the government said it will be undertaking an informal consultation on the relevant provisions shortly after the Budget with a view to including legislation in Finance Bill 2012.
The aim is to make the regime more attractive to new entrants and less onerous to operate within.
Views will be sought on:
- a diverse ownership rule for institutional investors which will enable them to meet the non-close company rule;
- allowing cash to be a ‘good’ asset for the purpose of the REIT balance of business asset test, so UK REITs can make investment decisions on a commercial basis;
- extending the time limit for complying with the distribution requirement, in particular with regard to stock dividends;
- redefining financing costs for the REIT interest cover test;
- abolishing the conversion charge for companies joining the regime;
- introducing a fixed grace period for new REITs to meet the non-close company requirement to enable start up UK REITs build sufficient reputation to attract shareholders;
- relaxing the requirement for a UK REIT to be listed on a recognised stock exchange; and
- making technical changes to the REITs legislation.
