Budget 2017 from a Tax Adviser???s Perspective

Listed below are the main areas from a tax adviser???s perspective following a detailed review of the Chancellor???s 2017 Budget:

  1. Non Residents and Capital Gains Tax: Finance Act 2016 included legislation, which took effect on 5 July 2016, to ensure that profits from dealing in or developing UK land are taxed in the UK irrespective of the residence of the person making the disposal. The exclusion for contracts entered into before 5 July 2016 is to be removed in cases where the profits are recognised in the accounts for a period beginning on or after 8 March 2017 or would be recognised in a notional accounting period beginning on that date.??[Our view ??? This provision aims to close a loophole to avoid capital gains tax charges where contracts had been entered prior to 5 July 2016. There is still a window for accounting periods that finished on or before 7 March 2017.]
  2. VAT Fraud in Construction Industry: The government will launch a consultation on 20 March 2017 on a range of policy options to combat supply chain fraud in supplies of labour within the construction sector. Options include a VAT reverse charge mechanism so the recipient accounts for VAT. The government is consulting to ensure any option taken forward is targeted effectively, is simple to operate and minimises impacts on businesses, while tackling the fraud as effectively as possible. [Our view: This was a long awaited change as government has been trying to tackle VAT fraud on provision of labour in the construction industry. From our experience this is likely to be extended to other sectors such as the security industry. The consultation will provide further guidance on this matter]
  3. Penalty for participating in VAT fraud: As announced in the Autumn Statement, the government will legislate in Finance Bill 2017 to introduce a new penalty for participating in VAT fraud. The new penalty will be a fixed rate penalty of 30% for participants in VAT fraud. Following consultation on the draft legislation some minor changes have been made to improve the clarity of the measure and also to limit the naming of a company officer to instances where the amount of tax due exceeds ??25,000. The new penalty will take effect once the Finance Bill receives Royal Assent. [Our view: This change is welcomed and is aimed at people such as those in a chain where VAT is lost through for example missing traders or where there is collaboration amongst different parties to commit VAT fraud]
  4. Marketed Tax Avoidance Schemes: Changes are being introduced which are designed to prevent promoters circumventing the Promoters of Tax Avoidance Schemes legislation.??[Our view: This is a welcome change and will hopefully discourage people from using heavily marketed tax avoidance schemes which are now being tagged as Non- DOTAS by the scheme promoters. Our advice has always been to stay clear of such artificial tax avoidance schemes as there is a strong likelihood that HMRC will successfully challenge these in the court]
  5. Losses in Companies: There will be greater flexibility for relieving various types of loss which arise on or after 1 April 2017 and which are carried forward to a later accounting period. Such brought forward losses may be relieved against the company???s total income rather than specified classes of income. In addition, losses carried forward to a later accounting period will, in certain circumstances, be capable of being surrendered as group relief. [Our view: This is a welcome change and will be a relief for a large number of companies that are stuck with losses that cannot be used.]
  6. Substantial Shareholding Exemption for Companies: The condition that the investing company is a trading company or member of a trading group is to be withdrawn, as is the condition that the company being sold is a trading company or the holding company of a trading group, unless the disposal is to a connected person. Currently, a substantial shareholding must have been held for minimum period of twelve months starting not more than two years prior to the disposal. The two year period is to be extended to six years. These changes apply to disposals on or after 1 April 2017.??[Our view: This change is aimed at levelling the playfield for trading and investment companies. The rules if carefully considered are likely to open tax planning opportunities for people in the real estate industry.]
  7. PAYE on contractors to the public sector: From 6 April 2017 public authorities will have responsibility for determining whether the workers they engage fall within the intermediaries legislation (IR35). If the public authority decides the rules apply it will be required to deduct income tax and national insurance from the payments it makes to the worker or the worker???s intermediary. The new rules will also apply where work is completed before 6 April 2017 but payment is made on or after that date.??[Our view: This rule is aimed to align taxation of contractors with those on payroll and being taxed under PAYE and, in our view, is the first step towards taxing contractors in the private sector under the PAYE regime. Once again in our view this is a harsh measure as it ignores the risks taken by the contractors who are not entitled to sick pay, holiday pay, maternity pay and work on a daily / hourly wage and have no job security. In our view, there are various ways to avoid being caught under the PAYE where carefully implemented]

You can contact us for more details on the above or any aspect of the 2017 budget.

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