Budget March 2010 – Olswang Analysis

Below are the articles posted in relation to the Budget 2010 announced on 24 March 2010

Pensions after 2011 – some more detail but not the full picture

David Farmer, Pensions Partner, Olswang - March 24th, 2010

The Government has confirmed that tax relief restrictions on pension contributions for high earners will apply from next year for those with incomes of £150,000 or over. Essentially, tax relief on pension contributions will be restricted for those on “gross incomes” of £150,000 and over, gradually tapering down so that for those on incomes of £180,000 and over the tax relief is worth the same as it is for a basic tax rate payer.

An individual’s “gross income” will include both the value of the individual’s pension contributions and any pension benefit funded, or eventually funded by, the employer on their behalf. It is also calculated before any deductions for charitable donations are made.  However, there will also be a ‘floor’, so it will only apply where the individual’s income (excluding employer pension contributions) is £130,000 or over.

Alongside the 2009 Pre-Budget Report the Government launched a consultation on the implementation of the restriction of pensions tax – this closed on 3 March 2010. Today the Government published ‘Implementing the restriction of pensions tax relief: a summary of consultation responses‘. This sets out a number of decisions on some of the significant features of how the restriction of relief will be applied.  In particular:

  • there will be a stepped taper of 1 % of relief for every £1,000 of gross income; and
  • contributions to defined benefit pension schemes will be valued using an age-related factors method rather than flat factors or cash equivalent transfer values.

However, it is clear from the consultation response document that there are still a number of detailed issues to be considered. The Government will continue discussions with stakeholders on these issues with the intention that details of how the restriction of relief will operate will be set out by Finance Bill 2011.

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Posted in Budget - March 2010, Budget Update, Pensions Tax Relief | No Comments - Click here to comment »

Film

Cliona Kirby, Tax Partner, Olswang - March 24th, 2010

There was little of excitement in today’s Budget for the UK film industry.  However, HMRC is continuing to target the UK film industry through the number of enquiries and litigation in relation to perceived film tax avoidance structures.  Thus far, HMRC is not having much success.  We were very pleased to see the recent  Court of Appeal decisions in Halcyon and Microfusion, cases which the film industry was watching with interest.  HMRC was challenging certain aspects of the old sale and leaseback structures which took advantage of the statutory film tax reliefs known as section 42 and section 48.   

In Halcyon, the decision confirmed that it was possible to effectively double dip and obtain successive film acquisition relief  under section 42 which entitled you to a 33.33% write off of such expenditure over the first three years.  Such successive acquisition relief was not available pursuant to section 48 which provided a 100% first year write off for small budget films.     

The Microfusion partnership was held to be carrying on a film exploitation trade and  “film” was held not to be confined to the master negative but to also include the distribution rights.   Further, the film did not constitute trading stock on the basis that the partnership only granted a limited term licence of the distribution rights which reverted to the partnership at the end of the term.   We were always surprised that HMRC ran these cases.    

It will be interesting to see whether HMRC decide to request leave to appeal to the Supreme Court.  Although we are not convinced they have appropriate grounds to do so,  HMRC is usually given the benefit of the doubt on such requests and granted permission. 

A more detailed press release containing our thoughts on these decisions will be published later this week.

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Posted in Budget - March 2010, Budget Update, Film Tax Relief, Olswang Budget Blog | No Comments - Click here to comment »

SDLT and partnerships – some further thoughts

Graham Chase, Tax Partner, Olswang - March 24th, 2010

Some clarity concerning the anti-avoidance measures may be starting to emerge.

Existing opportunities arise because transactions involving partnerships are dealt with under schedule 15 FA 2003, which schedule provides a complete code. Mitigation is possible by ensuring that the appropriate degree of connection exists as between the vendor and one or more partners in the purchasing partnership, so that only a fraction of market value is charged on acquisition.  The general anti-avoidance rule contained in sections 75A to C of that Act, which introduces the concept of “notional transaction”,  includes a rule to the effect that schedule 15 applies to the notional transaction so identified. The result is that the anti-avoidance rule does not produce a different result – at least in the context of partnership transactions.

It now appears that the proposed change relates to that rule. Instead of the partnership rules applying to the notional transaction identified under the anti-avoidance rule, the proposal appears to be that such rules will be specifically excluded.

If this is the case then this is likely to have unintended consequences, with quite straightforward partnership transactions becoming liable to SDLT or to increased SDLT, all with effect from today subject of course to “grandfathering” for existing arrangements.

Unfortunately, this is a difficult area - it is hard to balance the interests of taxpayers and the Treasury. The general anti-avoidance rule does not help given that it is very wide in its scope, with no motive test limiting its application.

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Posted in Budget - March 2010, Budget Update, SDLT | 4 Comments »

Bank Payroll Tax

Hartley Foster, Tax Partner, Olswang - March 24th, 2010

It has been confirmed that legislation in Finance Bill 2010 will introduce the bank payroll tax (“BPT”). The Chancellor announced that BPT “has raised £2bn, more than twice as much as was forecast” and, although there was speculation that the tax would be extended, BPT will have effect only from 9 December 2009 until 5 April 2010.

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Posted in Bank Payroll Tax, Budget - March 2010, Budget Update | No Comments - Click here to comment »

EBTs and employment-related securities anti-avoidance

Michael Deeks, Tax Partner, Olswang - March 24th, 2010

In their update on enforcement and compliance, the Government have announced that they will be taking action to prevent attempts to avoid avoid tax and National Insurance contributions through the use of employee benefit trusts and other arrangements to disguise payments of remuneration.  It intends to introduce such anti-avoidance legislation to take effect from 6 April 2011.

They have also announced that there will be a review and consultation, during 2010, on taxation of “geared growth arrangements” used in connection with employment-related securities, to ensure income from employment is taxed correctly.

No other detail has been published at the moment but it something on which we will certainly be seeking further clarification from HMRC.

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Posted in Budget - March 2010, Budget Update, Employee Incentives, Olswang Budget Blog | No Comments - Click here to comment »

Are yet more tax amnesties in the pipeline?

Hartley Foster, Tax Partner, Olswang - March 24th, 2010

Possibly.

Under the first quasi-amnesty, the Offshore Disclosure Facility (“ODF”) of 2007, taxpayers who had undeclared offshore income were invited to come forward and self-assess 20 years of undeclared tax liabilities in return for a 10% penalty. This was then followed by the New Disclosure Opportunity (“NDO”), which started in September 2009 and which has similar terms. The NDO was described (wholly inaccurately) by HMRC as “the last opportunity of its kind.”

Around the same time as announcing the NDO, HMRC introduced a further amnesty specific to those with assets held in Liechtenstein, the Liechtenstein Disclosure Facility (“LDF”). This disclosure facility remains open. The disclosure period under the LDF is limited to ten years from 6 April 1999 onwards.

The most recent amnesty is the Tax Health Plan (“THP”), which is aimed at medical professionals. THP remains open and similar amnesties are due to be introduced on a profession by profession basis.  

The Chancellor told the House today that “we are ready to sign tax information exchange agreements with three additional countries – Dominica, Grenada and Belize.”  Thus, a DGF, GDF and BDF may follow shortly, but we do not yet know what the specific terms of any future amnesties that may have been negotiated with these three jurisdictions will be.

Taxpayers with tax irregularities can potentially qualify for more than one of the disclosure facilities. They need to consider their different terms and the interaction between each before deciding which is the most appropriate route to follow.

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Posted in Budget - March 2010, Budget Update | 1 Comment »

Gambling

Stephen Hignett, Tax Partner, Olswang - March 24th, 2010

Alistair Darling did not mention gambling taxes at all in his Budget speech, although he did mention the Government’s plan to sell the Tote.   On the Tote, following Gerry Sutcliffe’s recent announcement of the intention to allow the Tote to offer pool betting on sports other than horse racing, the Chancellor has announced that it is the (current) Government’s intention that the sale process will commence this summer and be concluded by Spring 2011.

Although one generally finds a surprise or two in the small print of the Treasury’s press releases, this year would appear to be an exception.

There is no word of a new gross profits tax for FOBTs.   As a result, FOBTs will remain within the scope of VAT and amusement machine licence duty (“AMLD”) will continue into 2010/11 with rates being increased in line with inflation (with effect from 4pm on 26 March 2010).

As is customary, the bands of gaming duty (paid by “bricks and mortar” gaming operators) are to be increased in line with inflation (for accounting periods starting on or after 1 April 2010).

The reduction in bingo duty (from 22% to 20%) announced in the 2009 PBR comes into effect for periods commencing on or after 29 March 2010.

All other rates stay as they are.

A final item of note is that the National Lottery Commission and the Gambling Commission are to be merged, subject to consultation.

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Annual investment allowance

Graham Chase, Tax Partner, Olswang - March 24th, 2010

Businesses are already able to claim 100% allowances on most expenditure on plant and machinery up to an annual allowance of £50,000. From 1 April 2010 this limit will be doubled to £100,000. Groups of companies share a single allowance between them and this rule remains, as do restrictions on companies and qualifying activities under common control. Also, the general anti-avoidance rule remains so as  to prevent allowances where the main purpose or one of the main purposes of the arrangements is to obtain AIAs.

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Posted in Budget - March 2010, Budget Update, Capital Allowances | No Comments - Click here to comment »

Patent box confirmed

Natasha Kaye, Tax Partner, Olswang - March 24th, 2010

The Government has confirmed its plans, announced in the Pre-Budget Report (PBR) 2009, to introduce a reduced rate of corporation tax of 10% for income from patents from April 2013, in a bid to encourage more products being manufactured in the UK.

The PBR 2009 stated that it would apply to patents granted after the Finance Bill is passed in 2011 – this will still be the case.  However, the Government’s consultation regarding the design of the Patent Box will also consider how to include patents not yet commercialised at that point, and how the regime will apply to equivalent overseas patents held by UK companies.  The consultation with businesses will take place during summer 2010. 

This announcement is to be welcomed, although it was hoped that the Government may have extended this incentive to other intellectual property, to compete with other more competitive regimes in the international market.

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Posted in Budget - March 2010, Budget Update, Olswang Budget Blog, Patent Box | 1 Comment »

SDLT partnership anti-avoidance

Natasha Kaye, Tax Partner, Olswang - March 24th, 2010

The press releases confirm that stamp duty land tax (SDLT) anti-avoidance legislation will be introduced in the Finance Bill 2010 “to target those who exploit the SDLT partnerships rules to reduce artificially the SDLT payable on some land transactions”.

From the basic details which have been outlined in the press release, it seems that the existing general anti-avoidance provisions (sections 75A to C, FA 2003) which apply to SDLT will be amended to ensure that transactions which fall within the anti-avoidance rules will not benefit from the special partnership rules.

The new measures will apply to transactions with an effective date on or after 24 March 2010 (subject to transitional rules).

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Posted in Budget - March 2010, Budget Update, Olswang Budget Blog, SDLT | No Comments - Click here to comment »

VAT – Reverse charge for Emissions Allowances

Hartley Foster, Tax Partner, Olswang - March 24th, 2010

The Emissions Allowance system in the EU

In January 2005, the European Union’s Greenhouse Gas Emission Trading System (“ETS”) commenced operation. ETS works on a ‘cap and trade’ basis. Under ETS each EU Member State is allocated a CO2 allowance for each year and the Member State then divides that allowance between all installations that are covered by the scheme and that are operating within its jurisdiction. That allocation to an installation of what the Member State considers is the appropriate number of one-tonne emission allowances (“EAs”) operates as a cap on that installation’s CO2 emissions. If an installation exceeds its cap, it faces a substantial financial penalty. Companies which reduce their actual emissions to a level below their allocated EA limit can either sell their surplus EAs or ‘bank’ them for future use. Once in issue, EAs have a market value; they can be traded between buyers and sellers either on a spot or on a forward basis. Transfers of EAs between taxable persons are treated as a supply of services for VAT purposes.

MTIC fraud

The high value of EAs, and the fact that they can be easily traded in (lightly regulated) specialised markets, made the carbon trade market susceptible to Missing Trader Intra-Community (MTIC) fraud. Between July to September 2009, carbon traders noticed surges in trading volumes on the markets that they considered could be attributed only to fraud. As a result, the governments in the three countries with the main carbon exchanges acted quickly to try to prevent further fraudulent trading.

However, each government adopted a different measure. The Dutch Government introduced the reverse charge mechanism; the French Government removed the application of VAT from carbon markets; and the UK Government made carbon trading zero-rated (see HMRC Brief 46/09) and raided 27 businesses and private addresses in relation to a suspected £38 million VAT fraud on EAs.

The approach by the European Commission

On 29 September 2009, the Commission produced a proposal on temporary measures for a consistent response to carousel fraud (the Proposal). Laszlo Kovacs, Commissioner for Taxation and Customs, noted that it was important that Member States be able to take rapid action against MTIC fraud but added that ‘actions taken against this fraud should be taken in a consistent manner across the EU’.

The proposal by the Commission is to amend the VAT Directive to enable Member States to introduce the reverse charge mechanism for certain categories of goods and services. These categories are: mobile telephones, computer chips, perfume, precious metals and EAs. If the proposal is implemented it will apply until 31 December 2014.

Finance Bill 2010

The UK will follow the Commission’s lead: legislation in Finance Bill 2010 will introduce the reverse charge mechanism for supplies of EAs from 1 November 2010. The effect of this will be that a VAT registered business purchasing allowances will account for and pay the VAT chargeable instead of the supplier. This will replace zero-rating (which had been introduced in July 2009).

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Capital gains – entrepreneurs’ relief

Graham Chase, Tax Partner, Olswang - March 24th, 2010

The lifetime limit of £1 million is to be increased to £2 million for disposals on or after 6 April 2010, a doubling of the benefit of the 10% rate. The usual date for the time of disposal is the date of an unconditional contract or if the contract is conditional when the condition is satisfied. 

Gains realised pre-6 April above the £1 million limit will not benefit, but nor will such gains restrict the availability of relief on gains from 6 April when the new cumulative limit of £2 million applies.

All other rules remain the same.

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Posted in Budget - March 2010, Budget Update, Capital Gains Tax | 4 Comments »

REITs – stock dividends

Graham Chase, Tax Partner, Olswang - March 24th, 2010

One of the criticisms of the REIT regime has been the 90% distribution requirement, which restricts the ability of a REIT to preserve cash for reinvestment. So the Chancellor’s decision to allow the issue of stock dividends in lieu of cash is welcome - these dividends will now count towards the profit distribution requirement. There is no tax saving for shareholders, the distribution is taxed in the same way as a cash payment.

The measure is to be introduced as soon as possible in the next Parliament.

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Posted in Budget - March 2010, Budget Update, Olswang Budget Blog | No Comments - Click here to comment »

Game on !

Cliona Kirby, Tax Partner, Olswang - March 24th, 2010

After months of lobbying from the UK games industry, the Government has finally announced its intention to introduce games tax relief to support our highly successful and innovative games industry.  Olswang has been heavily involved in this lobbying  process and wrote a paper called “A tax relief for games” setting out how to adapt the existing film tax credit relief to games.  We are delighted by this news !

More detail to follow.  However, any games tax relief will need to obtain EU state aid approval.

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Posted in Budget - March 2010, Budget Update, Olswang Budget Blog | 1 Comment »

Capital gains

Graham Chase, Tax Partner, Olswang - March 24th, 2010

Notwithstanding many forecasts to the contrary the Chancellor has decided not to change the main rate of capital gains tax. Indeed, he has decided to increase Entrepreneurs relief, from £1 million to £2 million. Far from accelerating sales it looks as if some taxpayers would have been better off by delay.

Further details should be available once the press releases are published.

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Posted in Budget - March 2010, Budget Update, Capital Gains Tax, Olswang Budget Blog | No Comments - Click here to comment »

Stamp increase, for residential property only

Natasha Kaye, Tax Partner, Olswang - March 24th, 2010

The Chancellor has announced that the rate of stamp duty land tax will increase to 5% for residential property transactions of £1 million and over.  This new rate will apply to transactions with an effective date (usually completion) on and after 6 April 2011.

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Posted in Budget - March 2010, Budget Update, Olswang Budget Blog, SDLT | 4 Comments »