The Finance (No 3) Bill

The Finance (No 3) Bill
The Finance (No 3) Bill was published today. This extends to 315 pages of legislation and 266 pages of explanatory notes.
The Bill contains provisions covering the areas listed below. A number of these relate to measures that were announced in principle in last year’s Budget on 22 November 2017, and which have been the subject of consultation exercises since then. Draft legislation was issued for many of these on 6 July 2018. In some cases this appears in the Finance Bill without any change, and in other cases amendments have been made. Other measures in the Bill were not announced until the 2018 Budget on 29 October.
Income tax
  • Income tax rates: remain at 20%, 40% and 45% for 2019/20 except where Scottish rates apply;
  • Personal allowance: increased to £12,500 for 2019/20 and 2020/21, and in line with the Consumer Prices Index (CPI) thereafter;
  • Higher rate threshold: increased to £50,000 for 2019/20 and 2020/21, and in line with the CPI thereafter (i.e. basic rate limit of £37,500 plus personal allowance of £12,500); separate rules for Scotland;
  • Starting rate for savings: the 0% band remains at £5,000 for 2019/20;
  • Gift aid: simplified limits on associated benefits for donations on and after 6 April 2019;
  • Social security benefits: eight new and existing benefits confirmed to be free of income tax; Carer’s Allowance Supplement in Scotland taxable; all with effect from Royal Assent to the Finance Bill.
Employee taxation
  • Optional remuneration arrangements: cars and vans – technical changes, with effect from 6 April 2019;
  • Vehicle battery charging at workplace: exemption for benefit, from 6 April 2018;
  • Private use of emergency vehicles: changes to tax treatment, from 6 April 2017;
  • Scale rates for travel expenses: checking requirements on employers reduced; existing HMRC administrative arrangements for overseas rates to be brought into legislation; both with effect from 6 April 2019;
  • Tax exemption for premiums paid by employers into life assurance products and certain overseas pension schemes: relaxation of rules as regards named beneficiary, from 6 April 2019.
Capital gains and inheritance tax
  • Gains on interests in UK land realised by non-resident individuals and companies: brought into charge insofar as not already chargeable (including certain ‘indirect disposals’), and the ‘ATED-related gains’ charge abolished; reporting and payment on account obligations extended accordingly; all from 6 April 2019;
  • New 30-day reporting and payment on account obligations: for UK residential property gains chargeable on UK resident persons, from 6 April 2020;
  • Entrepreneurs’ relief - personal company definition: individual must have a 5% interest in distributable profits and net assets of the company, as well as in ordinary share capital and voting rights, for disposals on or after 29 October 2018;
  • Entrepreneurs’ relief – minimum qualifying period: conditions to be met for two years rather than one year, in general for disposals on or after 6 April 2019;
  • Entrepreneurs’ relief: individuals whose shareholding is diluted below the 5% threshold as a result of a new share issue to be able to obtain relief for gains up to the time of the dilution, for new share issues on or after 6 April 2019;
  • Exit charge payment plans: provision to defer exit charges to comply with EU law, from 6 April 2019 (CGT) or 1 January 2020 (for corporation tax, where some deferral already applies); also provision to treat chargeable assets of companies, and assets within the intangible fixed assets regime, as acquired at market value where subject to an exit charge in an EU state on or after 1 January 2020;
  • Inheritance tax residence nil rate band: technical changes related to the ‘downsizing’ provisions and the definition of ‘inherited’, from 29 October 2018.
Business taxation
  • Annual investment allowance: increased to £1 million for expenditure from 1 January 2019 to 31 December 2020, subject to transitional provisions;
  • Structures and buildings allowance: a 2% annual writing down allowance for construction expenditure on commercial structures and buildings where contracts entered into on or after 29 October 2018; details to be in secondary legislation;
  • Plant and machinery special rate pool: writing down allowance reduced from 8% to 6% from 1 April 2019 (corporation tax) or 6 April 2019 (income tax);
  • First year allowance for energy-saving and water technology products: abolished from 1 April 2020 for corporation tax and from 6 April 2020 for income tax, together with the associated first-year tax credit;
  • First year allowance for electric charge points: extended for four years to 31 March 2023 (corporation tax) and 5 April 2023 (income tax);
  • Plant and machinery definition: exclusions from qualifying expenditure; a technical change for claims made on or after 29 October 2018;
  • Income of offshore entities from intangible property: chargeable to income tax where property is held in low-tax jurisdictions, and is not supported by sufficient local substance, to the extent that it is referable to UK sales (provided those sales exceed £10 million a year), with effect from 6 April 2019 and with an anti-avoidance rule that applies from 29 October 2018;
  • Profit fragmentation arrangements: anti-avoidance rules to prevent business profits being taken out of the UK tax charge by being attributed to offshore entities, from 6 April 2019 for income tax or 1 April 2019 for corporation tax;
  • Oil companies – transfer of tax history: transfer of history on the sale of an oil licence to enable the buyer to reclaim tax in some circumstances on decommissioning, for transfers approved on or after 1 November 2018;
  • Petroleum revenue tax: relief for decommissioning expenditure incurred or funded by a previous holder of an interest in an oil field, for transfers approved on or after 1 November 2018;
  • Leases: changes to tax rules as a result of the adoption of International Financial Reporting Standard 16, to apply for periods of account commencing on or after 1 January 2019, and in one case only for leases entered into on or after that date;
  • Charities: small trading exemption limits increased to £8,000 where turnover is under £32,000; 25% of turnover between £32,000 and £320,000; and £80,000 where turnover exceeds £320,000; from 6 April 2019 for unincorporated charities and for accounting periods beginning on or after 1 April 2019 for incorporated charities.
Corporation tax
  • Corporation tax re-imposed for the year beginning 1 April 2020: existing legislation applies the charge for the year beginning 1 April 2019 at 19%, and provides for a rate of 17% in the year beginning 1 April 2020;
  • UK property income of non-UK resident companies: charged to corporation tax rather than income tax from 6 April 2020, with an anti-avoidance rule having effect from 29 October 2018;
  • Corporate intangibles fixed assets regime: de-grouping charges removed where they result from a share disposal that qualifies for the substantial shareholdings exemption and takes place on or after 7 November 2018;
  • Relief for carried forward losses: technical changes from 1 April 2017, 6 July 2018 and 1 April 2019;
  • Corporate interest restriction: technical changes with effect from various dates;
  • Controlled foreign company (CFC) rules: technical changes to comply with EU rules, from 1 January 2019;
  • Hybrid and other mismatches regime: changes in relation to the treatment of permanent establishments and regulatory capital to comply with EU rules, mainly from 1 January 2020;
  • Hybrid capital instruments: to be taxed in line with economic substance, and certain mismatches to be eliminated, in general from 1 January 2019;
  • Permanent establishments: changes to definition to counter artificial fragmentation of UK activities by non-resident companies, from 1 January 2019;
  • Diverted profits tax: various detailed changes, from various dates;
  • Group relief: definition of ‘UK-related’ company for group relief purposes extended to include non-UK resident companies within the charge to corporation tax, from 5 July 2016.
Value added tax
  • VAT registration limit: to remain at £85,000 for two years from 1 April 2020 (no legislation required);
  • Vouchers: changes in accordance with Council Directive (EU) 2016/1065 for vouchers issued on or after 1 January 2019;
  • VAT groups: non-corporate entities eligible to join a VAT group from a date to be appointed by statutory instrument;
  • Reverse charge: power to disapply by statutory instrument the rule that the recipient of reverse charge supplies must aggregate them with their own supplies in establishing whether they are liable to register for VAT, from the date of Royal Assent to the Finance Bill.
Stamp taxes
  • Stamp duty land tax (SDLT): first-time buyers’ relief (properties less than £500,000) extended to qualifying shared ownership property, backdated to 22 November 2017;
  • SDLT: reduction in time limit for filing a return and paying tax in England and Northern Ireland from 30 to 14 days, for transactions on or after 1 March 2019;
  • SDLT higher rate for second homes: three month limit for amending return where old home sold more than 12 months after buying new home extended to 12 months, and meaning of ‘major interest’ clarified, from 29 October 2018;
  • Stamp duty, SDLT and stamp duty reserve tax (SDRT): exemption on exercise of certain powers under the special resolution regime in the Banking Act 2009 for managing failing financial institutions, with effect from Royal Assent to the Finance Bill;
  • Stamp duty and SDRT relief for approved share incentive plans: a technical change to terminology, backdated to 6 April 2014;
  • Stamp duty and SDRT – connected companies: the charge on transfers of listed securities to connected companies will be based on the market value of the securities, if higher than the consideration, from 29 October 2018.
Environmental taxes
  • Climate change levy: exemption for energy used in mineralogical and metallurgical processes redefined with effect from Royal Assent to the Finance Bill;
  • Carbon emissions tax: to apply in the event of a ‘no deal’ Brexit, to all stationary installations currently participating in the EU Emissions Trading System at a rate of £16 per tonne of carbon dioxide (or equivalent) above the installation’s emissions allowance, from a date to be appointed by statutory instrument, expected to be 1 April 2019;
  • Landfill tax: standard and lower rates increased in line with RPI to £91.35 and £2.90 from 1 April 2019;
  • Air passenger duty: long haul rates increased in line with RPI from 1 April 2020;
  • Soft drinks industry levy – Isle of Man: movements of drinks between the UK and the Isle of Man will not be regarded as either an import or an export, so long as the rates of the levy in the two jurisdictions remain aligned, from 1 April 2019;
  • Soft drinks industry levy - penalties: penalties will apply to the late submission of a quarterly return from Royal Assent to the Finance Bill.
Tax administration
  • Brexit: the Treasury is given power with effect from Royal Assent to the Finance Bill to make technical amendments to tax law by statutory instrument to ensure that the law continues to operate unchanged when the UK leaves the EU;
  • Time limits for personal tax assessments: limit for income tax and capital gains tax assessment involving offshore matters increased to 12 years in two stages from the tax year 2013/14 onwards, with similar changes to inheritance tax for chargeable transfers on or after 1 April 2013;
  • Security deposits: construction industry scheme and corporation tax – HMRC given powers to make statutory instruments as regards the provision of security, with effect from Royal Assent to the Finance Bill;
  • Double tax disputes: powers given to the Treasury to implement the EU directive on tax dispute resolution mechanisms and similar agreements by statutory instrument, from Royal Assent to the Finance Bill;
  • Disclosure of cross-border arrangements: power given to the Treasury to make regulations to give effect to international rules, from Royal assent to the Finance Bill;
  • Interest on unpaid taxes – interest on unpaid corporation tax, diverted profits tax, stamp duty, SDLT, inheritance tax and PAYE penalties: technical changes to confirm the existing position, with retrospective effect from the date when the relevant interest was first applied
  • Voluntary tax returns: to be treated as valid returns with retrospective effect, whenever made, from the date of Royal Assent to the Finance Bill, and thereafter;
  • Advance corporation tax (ACT): provision for interest on ACT that was paid before the abolition of ACT in 1999, and which was subsequently set off or repaid, from Royal Assent to the Finance Bill, where legal proceedings were commenced before 12 December 2012.
Various other measures dealing with excise duties are not covered here.
The Bill is called the ‘No 3’ Bill, because it is the third Finance Bill of the current (2017-2019) Parliamentary session. It follows two earlier bills: the ‘Finance Bill’, which was the first such Bill of the session, and became the Finance (No 2) Act 2017 (because it was the second such Act in that calendar year); and the Finance (No 2) Bill, which became the Finance Act 2018 (because it was the first such Act in that calendar year). The present Bill, when it completes its progress through Parliament next year, will become the Finance Act 2019, because it will be the first such Act of that calendar year.
Strictly, a Finance Bill does not have a year as part of its title; the Bill published today can only be distinguished from any other Finance (No 3) Bill by referring to its date of publication or to the fact that it is ‘currently before Parliament’. However, the parliamentary authorities have adopted the practice of referring to the present Bill, on some occasions at least, as the ‘Finance (No 3) Bill 2017-19’, while HMRC refer to it as the ‘Finance Bill 2018-19’ (not the ‘Finance (No 3) Bill’), presumably because its parliamentary progress will span parts of those two calendar years. Simples.
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