Impact on the UK tax system
Finance (No 2) Bill 2017 (FB17) was introduced by Parliament on 20 March 2017, subsequent to the Spring Budget presented by the Chancellor on 8 March 2017. It confirms a number of items for the 2017-18 tax year, as well as the legislation to implement some significant changes to the UK tax system.
Two of the most substantial changes relate to corporate losses and interest deductibility. Draft provisions were released in January 2017 and there have been no substantive changes to these in FB17. Losses carried forwards will be afforded increased flexibility, such that they can be set against total profits, or be available for group relief. However, this will be subject to a cap of 50% of relievable profits above a £5 million allowance per group. Interest deductions will be restricted to 30% of EBITDA, or, if higher, an amount based on the adjusted net-interest EBITDA for the worldwide group subject for a de minimis interest allowance of £2 million per group.
Significant changes are also made to the taxation of certain benefits provided under salary sacrifice arrangements entered into on or after 6 April 2017. Key benefits that are excluded from the change are pension contributions, childcare provision and cycle to work schemes. Where the new rules apply, arrangements in place before 6 April 2017 for most affected benefits will not be caught until 6 April 2018 unless there is a change, modification or renewal of the arrangement before that date. The window is extended to 6 April 2021 for cars, living accommodation and school fees unless there is a change, modification or renewal of the arrangement before that date. Where the new rules apply, benefits in kind will be valued at the higher of the cash given up for the benefit or the current taxable value. The responsibility for deciding whether the so-called IR35- rules apply to public sector organisations when engaging workers through personal service companies will move from the PSCs to the public sector organisation from 6 April 2017. The responsibility for accounting for any tax and NIC due will move from the PSC to the public sector body, agency or other third party paying the PSC. The 5% tax free allowance will also be withdrawn for PSCs in the public sector. Additionally, there are new restrictions on deductions for contributions to disguised remuneration tax avoidance schemes where no charge for PAYE and NICs have been made, as well as specific provisions in relation to appropriations to trading stock, which prevent the conversion of capital losses into trading losses.
The disclosure of tax avoidance schemes ('DOTAS') regime will be extended with effect from 1 September 2017 so that the scope of arrangements in point includes VAT and other indirect taxes.
In terms of reliefs, there have been changes to the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) regime. The issue of shares with a right to future conversion into shares of another class will now qualify for relief. Companies will be able to make deductions for all contributions to grassroots sports through recognised sport governing bodies, and deductions of up to £2,500 in total annually for direct contributions to grassroots sports. The museums and galleries tax relief will be also available for both touring and non-touring, including permanent exhibitions.
The substantial shareholding exemption has been reformed to extend the period of assessment for ownership to six years, remove the trading requirement for the investor company and remove the requirement for the company invested in to be trading immediately subsequent to the disposal for all disposals not to a connected party.
For more information please contact your usual Grant Thornton adviser or Nicola Mandale.