Budget 2013 – the tax implications

As with all budgets the devil is in the details.

The following information from HMRC summarises tax changes to be legislated in Finance Bill 2013 or other legislation having effect in 2013-14 and includes confirmation of previously announced policy changes and explains where changes, if any, have been made following consultation on the draft legislation. It also sets out new measures announced at Budget 2013.

Personal tax

Statutory residence test – As announced in Budget 2011, the Government will
introduce a statutory definition of tax residence for individuals. The legislation will be
introduced in Finance Bill 2013 and will also provide for a tax year to be split into a
UK part and an overseas part in certain circumstances, and contain new rules for the
taxation of certain income and gains arising during a period of temporary
non-residence. Following consultation, the legislation contains amendments to the
concepts of full-time work, international transportation workers and split-year status.
The legislation will take effect from 6 April 2013.

Ordinary residence – As announced in Budget 2011, the Government will
reform the concept of ‘ordinary residence’ for tax purposes. The legislation will be
introduced in Finance Bill 2013. The legislation will eliminate as far as possible the
concept of ordinary residence. In particular, overseas workday relief, which is
currently accessed by remittance basis users who are resident but not ordinarily
resident and who perform employment duties in the UK and abroad, will in future be
available to non-domiciled individuals who have been non-resident for three tax
years. It will apply for a fixed period of residence in the UK regardless of whether the
individual settles or intends to settle here. Following consultation, the legislation
contains amendments to the transitional rules for claiming overseas workday relief to
better align these with the current position. The legislation will take effect from
6 April 2013.

Statement of practice 1/09 (SP1/09) – As proposed in the June 2011 document, Reform of the taxation of non-domiciled individuals: a consultation, legislation will be introduced in Finance Bill 2013 to put SP1/09 on a statutory basis.

Following consultation on the draft legislation, changes have been made to the rules
to ensure that they are as straightforward to operate as possible. An updated TIIN for
this measure is available at Annex A.

Seed enterprise investment scheme (SEIS): reinvestment
relief – Legislation will be introduced in Finance Bill 2013 to extend the capital gains
tax (CGT) relief for reinvesting gains in SEIS shares to gains accruing in 2013-14
when those gains are reinvested during 2013-14 or 2014-15; the relief will apply to
half the qualifying re-invested amount. A TIIN for this measure is available at
Annex A.

Seed enterprise investment scheme: income tax relief – Legislation will be
introduced in Finance Bill 2013 to prevent a company from being disqualified from
SEIS where it was established by a corporate formation agent before sale to its
ultimate owners. This will apply in respect of shares issued on or after 6 April 2013. A
TIIN for this measure is available at Annex A.

Employee shareholder status – As announced in December 2012, legislation
will be introduced in Finance Bill 2013 to exempt gains made on disposals of up to
£50,000 worth of ‘employee shareholder’ shares from CGT. Following consultation,
the legislation has been revised to prevent an income tax charge arising on a
distribution where a company buys back CGT-exempt shares and to strengthen the
‘material interest’ anti-avoidance provision, which denies CGT exemption in certain
circumstances. Legislation will also be introduced in Finance Bill 2013 and by
statutory instrument so that income tax and National Insurance contributions (NICs)
respectively will not be chargeable on the first £2,000 of share value received by
eligible employee shareholders. It is anticipated that these changes will have effect
from 1 September 2013. An updated TIIN for this measure is available at Annex A.

Enterprise Management Incentives (EMI) – As announced in Budget 2012,
legislation will be introduced in Finance Bill 2013 that removes, for shares acquired
through the exercise of a qualifying EMI scheme option, the requirement for a person
to hold 5 per cent or more of the ordinary share capital in the company in order to
qualify for the entrepreneurs’ relief. Following consultation, the legislation has been
revised to allow the period during which the option is held to count towards the
qualifying 12 month holding period requirement. In addition, relief will also apply to
the disposal of shares that replace EMI shares following a reorganisation of a
company and to certain shares following an exchange for shares in another
company.

Review of tax advantaged employee share schemes – As announced in
December 2012, legislation will be introduced in Finance Bill 2013 to implement a
number of the recommendations made by the Office of Tax Simplification (OTS) in its
review of tax advantaged employee share schemes. Following consultation, the
legislation has been revised to:
• protect the position of current Save As You Earn (SAYE) participants who
reach a specified age;
• widen the range of circumstances in which tax free exercise of SAYE and
Company Share Option Plan options or tax free payments for Share Incentive
Plan (SIP) shares, will be available on the cash takeover of a business;
• ensure that SIP partnership shares may not be subject to forfeiture
provisions;
• allow businesses flexibility to limit the amount of cash dividends that can be
reinvested in SIP dividend shares; and,
• make a number of minor technical and consequential revisions.
Most of these changes will have effect from the date of Royal Assent to
Finance Bill 2013, although changes which relate to the reinvestment of cash
dividends paid on SIP shares come into effect on 6 April 2013.

London Anniversary Games tax exemption – As announced on
15 February 2013, legislation will be introduced in Finance Bill 2013 to exempt from
UK tax any income arising to competitors who are not UK resident in relation to a
performance at the London Anniversary Games to be held in July 2013 at the
Olympic Stadium, Stratford. A TIIN for this measure is available at Annex A.

Pensions tax relief – As announced in Autumn Statement 2012, legislation
will be introduced in Finance Bill 2013 to reduce the annual allowance to £40,000 for
the 2014-15 tax year onwards and to reduce the standard lifetime allowance to
£1.25 million also for the 2014-15 tax year onwards. Transitional protection (fixed
protection 2014) will be introduced to provide individuals with a lifetime allowance of
£1.5 million subject to certain conditions. Following consultation, draft legislation for
the restriction to the lifetime allowance has been revised to include various minor
adjustments and several consequential changes in connection with previous
protection regimes. An updated TIIN for this measure is available at Annex A.

Pensions drawdown policy – As announced in Autumn Statement 2012,
legislation will be introduced in Finance Bill 2013 to increase the capped drawdown
limit for pensioners of all ages with these arrangements from 100 per cent to 120 per
cent of the value of an equivalent annuity. Following consultation, the legislation has
been revised to remove the rule requiring the maximum drawdown pension to be
recalculated after a pensioner with transitional protection from the Finance Act 2011
rules transfers to another scheme, so ensuring that transfers do not affect the capped
drawdown limit. These changes will have effect from 26 March 2013.

Pensions tax: abolition of contracting out – As announced in Budget
2012, legislation will be introduced in Finance Bill 2013 to bring tax legislation into
line with Department of Work and Pensions legislation which abolished contracting
out through a defined contribution pension scheme from 6 April 2012. Following
consultation, the legislation has been revised to clarify the types of payment that
would be considered a ‘member’s contribution’ for the purposes of a short service
refund lump sum.

Transfer of assets abroad and Gains on assets held by foreign
companies – As announced in Budget 2012, legislation will be introduced in
Finance Bill 2013 to allow for changes to be made to these anti-avoidance provisions
and ensure their compliance with EU law. Following consultation, the legislation
relating to transfer of assets abroad has been revised to partially exempt income
from charge when the income is attributable to a transaction where part is genuine
and part is not genuine. The change will have effect from 6 April 2012. The proposed
changes to clarify the ‘matching rules’ (the rules governing the calculation of the
income chargeable when an individual other than the transferor receives a benefit
following the transfer of an asset) have been postponed pending further consultation
and legislation will be introduced in Finance Bill 2014. An updated TIIN for this
measure is available at Annex A. The gains on assets held by foreign companies
legislation to be introduced in Finance Bill 2013 has been amended to remove the
requirement in the new ‘economically significant activity’ exemption for activity to be
carried on wholly outside the UK through a non-UK business establishment.

Income tax rules on interest – Following consultation on changes to the
income tax rules on interest, the Government announced in October 2012 that
legislation would be introduced in Finance Bill 2013 on disguised interest and on
deduction of income tax from interest on compensation payments, specialty debt,
and interest in kind. Following further consultation, the legislation on disguised
interest has been revised to exclude certain types of share from its application,
subject to an anti-avoidance rule.

Company car tax (CCT) – Legislation will be introduced in Finance Bill 2013
to introduce two new appropriate percentage bands from 2015-16 for company cars
emitting 0-50g of carbon dioxide per kilometre (with appropriate percentage set at 5
per cent) and 51-75g CO2 per km (with the appropriate percentage set at 9 per cent).
In addition, as announced in Budget 2012, the remaining appropriate percentages
will increase by two percentage points for cars emitting more than 75g CO2 per km, to
a new maximum of 37 per cent. The differential between each of the bottom three
CCT bands is set at 4 percentage points in 2015-16. A TIIN for this measure is
available at Annex A. Future changes to company car tax are set out in Chapter 2.

Car and van fuel benefit charge – The rate of fuel benefit charge for
company cars, fuel benefit charge for company vans, and the benefit charge for
company vans will all increase in line with inflation (based on RPI) for 2014-15. The
increase will be based on the September 2013 RPI figure. The changes will be
brought in by secondary legislation in the autumn, in time for the normal tax code
exercise in January 2014.
National Insurance contributions

National Insurance: £2,000 employment allowance – The Government will
introduce an allowance of £2,000 per year for all businesses and charities to be
offset against their employer Class 1 secondary NICs bill from April 2014. The
allowance will be claimed as part of the normal payroll process through RTI. The
Government will engage with stakeholders on the implementation of the measure
after Budget 2013 and is seeking to introduce legislation later in the year.
Business tax

Simpler income tax – As announced in Budget 2012, legislation will be
introduced in Finance Bill 2013 to allow two simpler income tax schemes for small
unincorporated businesses. Following consultation, the legislation has been revised
to:
• keep the cash basis optional but limit the circumstances under which a
business can leave it; and,
• provide for an adjustment on a ‘just and reasonable’ basis where an individual
takes business goods for own use and not require businesses to align
reporting with the tax year.
These changes will have effect from the 2013-14 tax year. An updated TIIN for this
measure is available at Annex A.

Corporate tax

Corporation tax rates – Legislation will be introduced in Finance Bill 2013 to
reduce the main rate of corporation tax for non ring fence profits to:
• 21 per cent for the financial year commencing 1 April 2014; and,
• 20 per cent for the financial year commencing 1 April 2015.
Finance Bill 2013 also sets the small profit rate at 20 per cent for the financial year
commencing 1 April 2013. A TIIN for this measure is available at Annex A. Finance
Bill 2013 will also set the marginal rate fraction and rate for ring fenced profits. All
corporation tax rates are set out in Annex B. Changes to the small profits rate in
Finance Bill 2014 are set out in Chapter 2.

Bank Levy – As announced in Autumn Statement 2012, to ensure that the
Bank Levy raises at least £2½ billion each year the full rate of the levy will increase
from 0.105 per cent to 0.130 per cent from 1 January 2013. The half rate for
chargeable equity and long term chargeable liabilities will be increased from 0.0525
per cent to 0.065 per cent also with effect from 1 January 2013. As set out in
Budget 2013, to offset the benefit to the banking sector from reductions to the main
rate of corporation tax announced since 2010, the full rate of the levy will increase
from 0.130 per cent to 0.142 per cent from 1 January 2014. The half rate for
chargeable equity and long term chargeable liabilities will be increased from 0.065
per cent to 0.071 per cent also with effect from 1 January 2014. Legislation for all
rates will be in Finance Bill 2013. A TIIN for this measure is available at Annex A.
Bank levy rates are set out in Annex B.

Research and development (R&D) credits – Following consultation,
legislation will be introduced in Finance Bill 2013 to provide an ‘above the line’ (ATL)
tax credit to encourage R&D activity by larger companies. The ATL credit will be paid
at a rate of 10 per cent of qualifying expenditure and will increase the visibility and
certainty of UK R&D tax relief and provide greater financial and cash flow support to
companies with no corporation tax liability. The new rules will be effective for
qualifying expenditure incurred on or after 1 April 2013. An updated TIIN for this
measure is available at Annex A.

Foreign currency assets and corporate chargeable gains – As announced
in Budget 2012, the Government will introduce legislation in Finance Bill 2013
requiring relevant companies to compute their chargeable gains and losses on
disposals of shares in their functional currency (or for UK resident investment
companies with a designated currency, that designated currency). Following
consultation on the draft legislation, this measure has been extended to also cover
disposals of ships, aircraft and interests in shares. This measure will have effect from
a day to be appointed by Treasury Order, shortly after Royal Assent to
Finance Bill 2013. An updated TIIN for this measure is available at Annex A.

Oil and gas: decommissioning tax relief certainty – As announced in
Budget 2012, the Government will in 2013 enter into contracts with oil and gas
companies to guarantee the basis on which tax relief for decommissioning will be
available. This involves a package of measures to be introduced in Finance Bill 2013
which enable the Government to meet its liabilities under the contracts and also
make changes to the tax regime to support the introduction of the contracts.
Following consultation, aspects of the legislation have been revised to ensure it will
operate effectively. A TIIN for this measure is available at Annex A.

Corporation tax: deferring payment of exit charges – As announced on
11 December 2012, legislation will be introduced in Finance Bill 2013 to enable
companies to opt for deferred payment arrangements in respect of exit charges. This
will allow UK resident companies to defer payment of certain corporation tax charges
when they cease to be resident here as a consequence of a transfer of their place of
management to another EU or EEA Member State. Following consultation, the
legislation has been revised to extend the scope of the charges which can be
deferred to include the corporation tax attributable to the revaluation of trading stock.
UK permanent establishments of non-resident companies incorporated elsewhere in
the EU or EEA will also be able to defer payment of corporation tax attributable to
unrealised gains on assets which cease to be held for the purposes of a UK trade.
These changes have effect from 11 December 2012. An updated TIIN for this
measure is available at Annex A.

Group relief – As announced on 11 December 2012, legislation will be
introduced in Finance Bill 2013 to amend the restrictions when companies resident in
the EEA can surrender losses from their UK branches as group relief from
corporation tax in the UK. From 1 April 2013, these restrictions will be based on
whether the losses are used elsewhere in any period, rather than on whether they
could potentially be used elsewhere. A technical note will be published on
28 March 2013 to clarify how this will interact with existing group relief legislation. An
updated TIIN was not found to be necessary following consultation.

Controlled foreign companies (CFC) regime – As announced on
11 December 2012, legislation will be introduced in Finance Bill 2013 to make four
amendments to the new CFC rules introduced in Finance Act 2012. These
amendments counter two tax planning opportunities and make consequential
changes to ensure the rules work as intended. Finance Bill 2013 will also include four
new minor mechanical amendments to ensure the CFC rules operate as intended.
The amendments, one of which is subject to a transitional rule, will have effect from
1 January 2013 in line with the commencement date for the new CFC rules. A
revised TIIN for this measure is available at Annex A.

Investment trust companies – Legislation will be introduced in Finance Bill
2013 to remove an unintended consequence of changes to the tax rules for
investment trust companies (ITCs). This measure makes changes so that all or
substantially all of the business of a company (wishing to be approved as an ITC)
must be investing its funds in shares, land or other assets with the aim of spreading
investment risk and giving members of the company the benefit of the results of the
management of its funds. This will ensure that ancillary activities will not prevent a
company from being capable of being approved as an ITC. This has effect for
accounting periods commencing on or after 1 January 2012. Secondary legislation to
provide an exception to the income distribution requirement for ITCs will be published
for consultation in spring 2013. The exception will apply in certain circumstances
where an ITC has accumulated realised revenue losses in excess of its income for
an accounting period, such that a requirement to make a distribution would result in a
distribution from capital. Subject to the consultation responses, the changes are
expected to take effect for accounting periods commencing on or after 1 July 2013. A
TIIN for this measure is available at Annex A.

Offshore funds amendments – Secondary legislation will be introduced to
address certain technical issues in the operation of the Offshore Funds (Tax)
Regulations 2009. The changes will make aspects of the regulations fairer for UK
investors in offshore funds, and ensure that they are taxed in a similar way to
investors in equivalent UK funds. A statutory instrument came into force on
20 March 2013 to put beyond doubt that, in a case where a disposal of an interest in
an offshore fund would incur a charge to tax on an offshore income gain then the
potential charge will not be avoided by any merger or reorganisation of the fund in
which the interest is held. A further statutory instrument will be published for
consultation to address the remaining issues. Those issues concern investors in
reporting offshore funds and the proposed changes will help to ensure that they are
taxed on their correct proportionate share of the income of a reporting fund. Subject
to the consultation responses, those changes are expected to take effect by
30 June 2013. A TIIN for this measure is available at Annex A.

Investment management exemption – The Government will consult on the
possibility of expanding the published ‘White List’ within secondary legislation
governing the investment manager exemption, authorised investment funds,
investment trusts and offshore reporting funds. The list provides certainty that
specified transactions will not be treated as trading activities for the purposes of
authorised investment funds, investment trusts and offshore reporting funds. The list
also acts to determine the types of investment transactions that may qualify for the
investment manager exemption.

Reform of the withholding tax rules on interest distributions – The
Government will consult on a proposal to remove the requirement to withhold tax on
interest distributions on UK domiciled bond funds when sold via reputable
intermediaries and marketed only to non-UK investors.

Authorised contractual funds – The Government remains committed to the
early introduction of authorised contractual funds (tax transparent funds) and intends
to introduce regulations to Parliament shortly.

Capital allowances for energy-saving plant and machinery in Northern
Ireland – Legislation will be introduced in Finance Bill 2013 to ensure that
expenditure on plant and machinery in Northern Ireland that qualifies for both first
year allowances for energy-saving technologies and the renewable heat incentive is
treated in the same way as in the rest of the UK. These changes will apply to
expenditure incurred on or after 1 April 2013 (corporation tax) or 6 April 2013 (income
tax). Enhanced capital allowances will be available for expenditure incurred on
combined heat and power systems until 31 March 2014 or 5 April 2014. The
legislation will also apply to any future feed-in tariff that may be introduced in
Northern Ireland at a later date. A TIIN for this measure is available at Annex A.
1.35 Capital allowances: railway assets and ships – Legislation will be
introduced in Finance Bill 2013 to remove the general exclusions to first year
allowances for expenditure incurred on railway assets and ships. These changes will
have effect from 1 April 2013. A TIIN for this measure is available at Annex A.

Enhanced capital allowances: energy-saving and water-efficient
technologies – The energy-saving and water-efficient enhanced capital allowances
schemes will be updated by Treasury Order in summer 2013, subject to State aid
approval. The main changes will be the inclusion of two new technologies to the
schemes: carbon dioxide heat pumps for water heating and grey water re-use
technology. In addition, four technologies will be removed from the energy-saving
scheme, and one will be removed from the water efficient scheme. The qualifying
criteria for a number of technologies in both schemes will be revised. A TIIN for this
measure is available at Annex A.

Corporation tax: Chief Constables and Commissioner of Police of the
Metropolis – As announced on 17 January 2013, following changes introduced by
the Police Reform and Social Responsibility Act 2011, legislation will be included in
Finance Bill 2013 to exempt Chief Constables and the Commissioner of Police of the
Metropolis from corporation tax.

Community Amateur Sports Clubs (CASCs) – As announced on
4 March 2013, powers will be introduced in Finance Bill 2013 to allow the
Government to change the rules on CASCs through secondary legislation. The
Government will consult on a range of issues including fees, allowable income, travel
expenses and permitting limited payments to players, before laying regulations after
Royal Assent to Finance Bill 2013.
Property tax

Annual tax on enveloped dwellings – As announced in Budget 2012,
legislation will be introduced in Finance Bill 2013 for an annual charge on residential
properties valued at more than £2 million held by certain non-natural persons.
Following consultation on draft legislation, changes have been made to introduce
additional reliefs, modify conditions for some of the reliefs, and alter the requirements
to make returns if companies cease to be eligible for relief or become liable to an
increased charge. The changes also introduce rules for alternative finance
arrangements; provide exemptions for charities and certain others; and set rules for
claims, appeals, information powers, disclosure of tax avoidance schemes and for
penalties. The annual tax on enveloped dwellings will come into effect on
1 April 2013. An updated TIIN for this measure is available at Annex A.

Stamp duty land tax (SDLT): changes to the 15 per cent rate – Finance
Bill 2012 introduced a 15 per cent rate of SDLT on the acquisition by certain nonnatural persons of dwellings costing more than £2 million. The scope of the 15 per
cent rate was included as part of the consultation on the annual charge. A number of
reliefs will be introduced in Finance Bill 2013 to reduce the rate to 7 per cent. The
reliefs will, broadly, match those where there is relief against the annual tax on
enveloped dwellings. However, these SDLT reliefs will apply only if the property
continues to satisfy the qualifying conditions throughout the following three years. If it
does not, additional SDLT will become payable.

CGT: extension to certain non-natural persons disposing of UK
residential property valued at over £2 million – The Government will legislate in
Finance Bill 2013 to introduce a CGT charge payable by certain non-natural persons
when they dispose of interests in high value residential property in the UK on or after
6 April 2013. Broadly, the new tax charge will be payable by these non-natural
persons, wherever they are resident, if they were liable to the new annual tax on
enveloped dwellings on the property in question. CGT will normally be payable only
on gains attributable to periods of ownership after 5 April 2013. However, it will be
possible to elect for gains or allowable losses to be computed for CGT purposes by
reference to the entire period of ownership. The tax will be charged at 28 per cent.
An updated TIIN for this measure is available at Annex A.

SDLT: transfer of rights – As announced in Autumn Statement 2012,
legislation will be introduced in Finance Bill 2013 to reform the stamp duty land tax
rules for ‘transfer of rights’. Following consultation, the legislation has been revised
to:
• improve its clarity and structure;
• address a number of technical issues including identifying who the vendor is
in various circumstances; and,
• include a power to make certain changes by way of statutory instrument.
This measure will have effect from Royal Assent to Finance Bill 2013.

SDLT avoidance – Legislation will be introduced in Finance Bill 2013 to put
beyond doubt that certain SDLT avoidance schemes that abuse the transfer of rights
rules do not work. These changes will have retrospective effect to 21 March 2012. A
guidance note with further detail about the changes is available on the HMRC
website. A TIIN for this measure is available at Annex A.

SDLT: leases simplification – As announced in Budget 2012, legislation will
be introduced in Finance Bill 2013 to simplify the reporting requirements that apply
when a lease continues after the expiry of its fixed term and where an agreement for
lease is substantially performed before the actual lease is granted. The rules on
abnormal rent increases will also be abolished. Following consultation the legislation
has been revised to provide clarification of how the provisions apply in certain
circumstances. The legislation will have effect from the date of Royal Assent to
Finance Bill 2013.
Indirect tax

Gaming duty – Legislation will be introduced in Finance Bill 2013 to raise the
gross gaming yield (GGY) bandings for gaming duty in line with inflation (based on
RPI). The revised GGY bandings used to calculate gaming duty must be used for
accounting periods starting on or after 1 April 2013. The GGY bandings are
published in Annex B.

Tobacco duty – Legislation will be introduced in Finance Bill 2013 to increase
the duty rates for all tobacco products by 2 per cent above the rate of inflation (based
on RPI) from 6pm on 20 March 2013. This will add 26 pence to the price of 20
cigarettes, 9 pence to the price of a pack of five small cigars, 26 pence to the price of
a 25g pouch of hand-rolling tobacco, and 14 pence to the price of a 25g pouch of
pipe tobacco. The rates are set out in Annex B.

Alcohol duty – Legislation will be introduced in Finance Bill 2013 to increase
the duty rates for spirits, wine and made-wine, cider and perry by 2 per cent above
the rate of inflation (based on RPI) with effect from 25 March 2013. This will add
2 pence to the price of a litre of cider, 10 pence to the price of a bottle of wine and 38
pence to the price of a bottle of spirits. The duty rates on beer will decrease by 6 per
cent for low strength beer (less than 2.8 per cent abv), 2 per cent for the standard
rate of beer duty (between 2.8 per cent and 7.5 per cent abv) and 0.75 per cent on
high strength beer (above 7.5 per cent abv) with effect from 25 March 2013. This will
reduce the price of an average strength pint of beer by 1 penny. A TIIN for this
measure is available at Annex A. The rates are set out in Annex B.

Fuel duty – Legislation will be introduced in Finance Bill 2013 to reflect the
cancellation of the 1 January 2013 fuel duty increases and to amend fuel duty rates
to reflect the current effective rates of duty. The Government announced in
Budget 2013 that the fuel duty increase that was due to take effect on
1 September 2013 would be cancelled. A TIIN for this measure is available at Annex
A. Fuel duty rates are set out in Annex B.

Vehicle excise duty (VED) – Legislation will be introduced in
Finance Bill 2013 to increase VED rates in line with inflation (based on RPI) with
effect from 1 April 2013. The exceptions to this are VED rates for heavy goods
vehicles, buses and other selected vehicles, which will be frozen in 2013-14. VED
rates are set out in full in Annex B.

Air passenger duty – Legislation will be introduced in Finance Bill 2013 to
increase air passenger duty rates in line with inflation (based on RPI) from
1 April 2013.

Climate change levy (CCL) – Legislation will be introduced in Finance Bill
2013 to increase the rates of CCL in line with inflation (based on RPI), from
1 April 2014. The rates of CCL are set out in Annex B.

Carbon price floor (CPF) – The CPF will be introduced in Great Britain from
1 April 2013. Legislation will be introduced in Finance Bill 2013 to set the carbon
price support (CPS) rates of CCL for the years 2013-14, 2014-15 and 2015-16, and
to exempt Northern Ireland. The CPS rates of CCL and fuel duty are set out in
Annex B. Following consultation on draft legislation, Finance Bill 2013 will also
include minor changes to the CPF:
• all solid fuels that are taxed under CCL will be taxable commodities for CPS,
with one rate covering all solid fuels;
• the previously announced reliefs from the CPS rates of CCL for coal slurry
and stand-by generators will be clarified; and
• where conditions are met, credit from the CPS rates of CCL will be allowed
when fuel which has borne CPS tax, but has not been used to generate
electricity, is removed from a power station.
Two statutory instruments will be laid before Parliament in March 2013. The first will
set the CPS rates of fuel duty on oils used in electricity generation for the years
2013-14, 2014-15, and 2015-16, and exempt Northern Ireland from these rates. The
second will deal with the administrative provisions needed to give effect to the CPS
rates of CCL. An updated TIIN for this measure is available at Annex A.

Landfill tax – Legislation will be introduced in Finance Bill 2013 to increase the
standard rate of landfill tax by £8 per tonne to £80 per tonne for disposals of waste
made, or treated as made, to landfill on or after 1 April 2014. The lower rate will
remain frozen at £2.50 per tonne for 2014-15.

Value of landfill communities fund (LCF) – A statutory instrument laid on
20 March 2013 will maintain the potential value of the LCF for 2013-14 at
£78.1 million of claimable landfill tax credit. This will be achieved by amending the
maximum credit that landfill site operators may claim against their annual landfill tax
liability for contributions made to environmental bodies enrolled under the LCF from
5.6 per cent to 6.8 per cent from 1 April 2013.

VAT: revalorisation of fuel scale charges – A statutory instrument laid on 20
March 2013 will revalorise fuel scale charges with effect from 1 May 2013. The fuel
scale charges are published in Annex B.

VAT: future revalorisation of road fuel scale charges – As announced in
Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to amend
the way that VAT law sets out the scale charges and provides for their annual
revalorisation. This will bring two concessions into law, simplify the annual
revalorisation process and take it out of the Budget. HM Treasury will be given
powers to amend the way the annual revalorisation is done, including to change the
definition of road fuel and thus the scope of the optional scheme, after a
parliamentary debate. A change to the legislation published in December means that
a similar power to amend will also apply to the definition of road fuel in the
anti-avoidance section of the legislation. This does not affect the way the legislation
will operate.

VAT: revalorisation of registration and deregistration thresholds – The
Government has announced that the VAT registration and deregistration thresholds
will be increased in line with inflation so that:
• the taxable turnover threshold which determines whether a person must be
registered for VAT, will be increased from £77,000 to £79,000;
• the taxable turnover threshold which determines whether a person may apply
for deregistration will be increased from £75,000 to £77,000; and
• the registration and deregistration threshold for relevant acquisitions from
other EU Member States will also be increased from £77,000 to £79,000.
A statutory instrument will apply the revised thresholds with effect from 1 April 2013.
The simplified reporting requirement (three line accounts) for the income tax self
assessment return will continue to be aligned with the VAT registration threshold. For
the 2013-14 tax year and onwards, small businesses will be able to use the new
simpler income tax cash basis (see paragraph 1.20) intended to simplify the way in
which small businesses can calculate their trade profits. The eligibility conditions for
the cash basis will be linked to the VAT registration threshold in place at the end of
the tax year.

VAT: withdrawal of exemption for business supplies of research
between eligible bodies – The consultation on the withdrawal of the VAT exemption
for business research supplied by one eligible body to another closed on
14 March 2013. Subject to the responses, the Government plans to introduce
secondary legislation and proceed with the withdrawal of the exemption on
1 August 2013. The Government will consider the possibility of transitional reliefs.
Anti-avoidance

General anti-abuse rule (GAAR) – Legislation will be introduced in
Finance Bill 2013 for a GAAR to counteract tax advantages arising from abusive tax
avoidance schemes. The GAAR will apply to income tax, corporation tax (and
amounts treated as corporation tax), CGT, inheritance tax, SDLT, the annual tax on
enveloped dwellings and petroleum revenue tax. Before counteraction can proceed
under the GAAR, HMRC must refer the arrangements to an independent advisory
panel for its opinion. The opinion is not binding, but forms part of the evidence in any
subsequent hearing, as does the guidance to be approved by the advisory panel.
The legislation applies to abusive tax arrangements undertaken on or after the date
of Royal Assent to Finance Bill 2013. Separate legislation will be introduced later in
2013 to apply the GAAR to NICs. An updated TIIN for this measure is available at
Annex A.

Inheritance tax: limiting the deduction for liabilities – Legislation will be
introduced in Finance Bill 2013 to amend the inheritance tax provisions which allow a
deduction from the value of an estate for liabilities owed by the deceased on death.
The changes are being introduced in response to avoidance schemes and
arrangements which exploit the current rules that allow a deduction regardless of
whether or not the liabilities are paid after death, or how the borrowed funds have
been used. In some circumstances, the changes will bring in new conditions for the
deduction to be allowable, or will restrict the deduction, so that the tax advantage
resulting from the schemes or arrangements does not arise. These changes will have
effect from the date of Royal Assent to Finance Bill 2013. A Tax Information and
Impact Note for this measure is available at Annex A.

Trade and property business deductions – As announced on
21 December 2012, the Government will introduce targeted anti-avoidance rules
(TAARs) to the income tax and corporation tax provisions governing the relationship
between the rules prohibiting and allowing deductions, with effect from that date. The
TAARs will apply where a permissive rule would otherwise allow a deduction in
calculating the profits of a trade or property business for an amount which arises from
tax avoidance arrangements and will ensure that the rules prohibiting a deduction
take precedence over those allowing a deduction. Legislation will be in
Finance Bill 2013.

Corporation tax deductions for employee share acquisitions – Legislation
will be introduced in Finance Bill 2013 to clarify the rules that determine the
availability of corporation tax deductions in connection with share options or awards
granted to employees. This legislation will have effect from 20 March 2013 in relation
to company accounting periods ending on or after that date. A TIIN for this measure
is available at Annex A.
Close company loans to participators – Legislation will be introduced in
Finance Bill 2013 to close three loopholes used to attempt to avoid the tax charge on
close company loans to their participators. The changes will:
• charge close companies on loans they make via intermediaries to their
participators;
• charge close companies on other payments they make via intermediaries to
their participators; and,
• update the repayment rules with an anti-avoidance provision.
These changes will have effect for loans, payments, repayments and repayment
arrangements made on or after 20 March 2013. A Tax Information and Impact Note
for this measure is available at Annex A.

Loss buying – Legislation will be introduced in Finance Bill 2013 to prevent
‘loss buying’, where companies pass the potential to gain access to corporation tax
relief to unconnected third parties. The legislation will:
• extend the current ‘loss buying’ rules, in Part 14 of Corporation Tax Act 2010
(CTA 2010), to apply to a transfer of ownership of a company that is not a
trading company nor one with a property or investment business, which holds
non trading loan relationship deficits and non trading intangible fixed asset
debits and credits;
• amend the rules in Part 14 of CTA 2010 to additionally apply to the trade of a
company that has undergone a change of ownership, if that trade or part
trade is subsequently transferred to a fellow group company; and,
• amend the rules at Part 5 of CTA 2010 to add to the threshold which ‘relevant
amounts’ must exceed before they can be surrendered by way of group relief.
The threshold will be amended to include any apportionments of profits under
controlled foreign company rules made to the surrendering company.
These changes have effect from 20 March 2013. A TIIN for this measure is available
at Annex A.

Loss buying: ‘targeted loss buying’ rule – Further to paragraph 1.64,
legislation will also be introduced at a later stage of Finance Bill 2013 to address
arrangements which seek to circumvent the longstanding loss buying rules in Part 14
of CTA 2010. The Government proposes, in certain circumstances, to bring the tax
treatment of unrealised loss, involved in a transfer between unconnected parties,
more closely into line with the longstanding treatment of realised losses. The
proposed changes relate to reliefs, deductions, allowances and expenses for which it
is possible to dictate or predict in advance the timing of their ‘crystallisation’. Three
separate rules will be introduced to combat ‘loss buying’ which, when triggered, will
not remove the ability to relieve relevant losses but merely stop their set-off against
other profits (including by way of group relief). Draft legislation and a TIIN for this
measure will be published on 28 March 2013. The legislation will have effect from
20 March 2013 and a technical note was be published on that day.
Tax administration

PAYE late payment and filing penalties – As announced in Budget 2012,
and following consultation, legislation will be introduced in Finance Bill 2013 to
encourage compliance with the real time information payment and information
obligations, whilst ensuring those who do not comply do not gain an advantage. The
legislation includes new late filing penalties and changes to the current late payment
penalties to ensure they can be charged in-year, with effect from 6 April 2014. It will
also include minor changes to the existing inaccuracy penalties so they can be
charged in a way that minimises the burden on employers and HMRC, with effect
from the date of Royal Assent to Finance Bill 2013. An updated TIIN for this measure
is available at Annex A.

Information correct on 21st March 2013.