TAX NEWS - 
2010
Emergency Budget 2010
UK emergency budget - June 2010
Value Added Tax (VAT)
The headline grabbing change in the Budget is the increase in the standard rate of VAT from 17.5% to 20%. The change will be introduced for supplies made on or after 4 January 2011. The VAT treatment of zero and reduced rated supplies (5%) was not changed. Similarly, the scope of what VAT is levied on was not extended.
As with other recent changes to the VAT rate, there are detailed anti-forestalling measures (applying from 22 June 2010) to prevent the current 17.5% standard rate of VAT applying to supplies made on or after 4 January 2011.
HMRC has confirmed that it will operate a 'light touch' approach to mistakes made in the first VAT return after the change of rate, where the mistake relates to the change of rate.
Corporation tax
The main rate of corporation tax, payable by companies with profits over £1.5 million, will reduce from 28% to 27% from 1 April 2011 and then by a further 1% for each subsequent year, until it reaches 24% from 1 April 2014.
Capital allowances
The 20% rate of writing-down allowances applicable to the main rate pool and the 10% rate applicable to the special rate pool will be reduced to 18% and 8% respectively. This will be effective from chargeable periods ending on or after 1 April 2012 for corporation tax payers and 6 April 2012 for income tax payers, with hybrid rates applying to periods that span these implementation dates.
From April 2012, the maximum annual investment allowance will also be reduced from £100,000 to £25,000. The effect of these changes is to delay relief for expenditure, rather than to remove relief altogether.
Stamp Duty Land Tax (SDLT)
The Government proposes to examine whether changes to the rules on SDLT on high value property transactions are needed to prevent avoidance in this area.
The Budget confirmed the introduction of the 5% SDLT rate applicable to residential property transactions with consideration of more than £1 million. This will take effect from 6 April 2011.
As announced in the Coalition Agreement, the effectiveness of the relief from SDLT for first time buyers is to be reviewed. The review will take into account the impact of the relief on both affordability and value for money.
To put SDLT in line with other tax repayment measures, changes are to be made to simplify a refund claim for overpaid SDLT. We urge clients to consider whether they have any such claims as the time limits to actually obtain a refund are also to be tightened.
Changes to be introduced with effect from April 2011 will (i) remove the current requirement that any overpayment of tax must be the result of a mistake in a tax return; and (ii) that it must be made under an assessment by HMRC. The restrictions on the right of appeal will also be removed so that appeals may be made to the Courts on the same grounds as for other matters. It should be noted that the time limit for claiming repayments will, however, be shortened from six years to four years.
The Government intends to introduce legislation in the next Finance Act. This measure was previously announced in the March 2010 Budget.
Real Estate Investment Trusts (REITs)
The next Finance Act will contain provisions which will allow UK REITs to issue stock dividends in lieu of cash dividends in meeting the requirement to distribute 90% of the profits from the property rental business of the REIT. This measure was previously announced in the March 2010 Budget.
A UK REIT is a qualifying group or company with a property rental business that elects to join the UK REIT regime. The principal benefit of joining the regime is that the profits and gains arising from the property rental business are exempt from UK corporation tax. Current legislation requires that UK REITs distribute, for each accounting period, 90% of the profits from its property rental business by way of a dividend. This is known as the distribution requirement and the distribution itself is known as a property income distribution (PID).
The proposals will have effect for PIDs made on or after the date on which the Finance Act receives Royal Assent.
Business rates
Legislation is to be introduced to cancel backdated business rates bills for newly assessed properties that were split from larger rateable properties. Legislation will also introduce a temporary increase in small business rate relief for one year from October 2010. No further detail is available in respect of either measure as yet.
Capital Gains Tax (CGT)
The CGT rate increase for higher rate taxpayers (to 28%) is perhaps less than first expected, and keeps the CGT rate at significantly less than the higher income tax rates. The immediate implementation of the new rates has reduced opportunities for planning. The change will adversely impact on second home owners and buy-to-let landlords.
Insurance Premium Tax (IPT)
IPT is charged as an inclusive amount within premiums received under taxable insurance contracts. The standard rate of IPT applies to most general insurance, including property insurance.
With effect for premiums received or written by an insurer on or after 4 January 2011, the standard rate of IPT will increase from 5% to 6%.
Furnished holiday lettings
The Government will not repeal the special tax rules for furnished holiday lettings. Instead, a consultation will be carried out over the summer on proposals to ensure that the tax rules comply with EU legal requirements by changing the eligibility thresholds and placing restrictions on the use of loss relief. The current rules will continue for the remainder of this tax year, with any changes taking effect from April 2011.
Anti-avoidance
The Government has announced that, as part of a new approach to tax policy-making, it intends to make the tax legislation more robust and able to combat tax avoidance in a more systematic manner, while reducing the instability and complexity of the tax code. Four particular measures that are intended to minimise the risks of avoidance have been announced as part of this new approach.
First, building defences into the legislation, for example by clearly setting out the intended objectives of the provisions being introduced. This corresponds to the purposive approach to tax legislation that is taken by the Courts, as expressed for example by the House of Lords in BMBF v Mawson.
Second, reviewing legislation that has been subject to frequent change to close avoidance opportunities.
Third, looking critically at the need for announcing legislative changes outside of the Budget and Pre-Budget Report announcements and developing a protocol for the circumstances in which such announcements may be made.
Finally, considering whether it is necessary to introduce a General Anti-Avoidance Rule (GAAR). HMRC will engage in informal consultation over the summer on the case for developing a UK GAAR, taking account of whether a GAAR is necessary in the light of the new systematic approach to tax policy-making.
For now, a piecemeal approach to tax avoidance is being followed and the Government has announced targeted anti-avoidance measures in a number of areas (including those in respect of SDLT referred to above).
Infrastructure
One of the Government's stated aims in the Budget is to create the right incentives to attract public sector investment in the UK's infrastructure. The Budget confirms the establishment of Infrastructure UK (IUK). IUK will lead work within HM Treasury to enable the proposed increase in private sector investment in infrastructure to go ahead and to improve the Government's long-term planning and delivery. Goals for UK infrastructure will be set out in a national infrastructure plan to be published in the autumn. IUK will also investigate cost-reduction in relation to delivery of civil engineering works for major infrastructure projects.
Local enterprise partnerships
Regional Development Agencies will be abolished. To replace them, local enterprise partnerships (LEPs) will be created to improve coordination of public and private investment in transport, housing, skills, regeneration and other areas of economic development. LEPs will also consider incentives for local authorities to use to support growth. In addition, they will promote a simplified planning consents process in specific areas where there is either potential for or a need for business growth, through the use of Local Development Orders. The details of these proposals will be set out in a White Paper to be published later in the summer.
Environment
As previously announced in the March Budget, the Government will put forward detailed proposals for the creation of a Green Investment Bank for investment in the low-carbon sector. It is expected that these proposals will be set out in detail some time after the autumn Spending Review (which will take place on 20 October 2010), with the Government considering a wide range of options for the scope and structure of the Bank.
Proposals to reform the Climate Change Levy will be published in order to provide more certainty and support to the carbon price. These proposals will be issued in the autumn and, subject to consultation, the Government intends to enact legislation in Finance Act 2011.
With regard to Landfill Tax, the Government announced in the March Budget that it intends to enact legislation which will provide for publication and review of new qualifying criteria for the lower rate of Landfill Tax. This has been reiterated in today's Budget with the legislation due in the next Finance Act. Under this measure, HMRC must publish the criteria which will apply when the Treasury determines what material is lower-rated. In practice, it is unlikely that the scope of the tax will change significantly.
Making future tax law
The Government has published a discussion document, 'Tax policy making: a new approach', containing proposals to reform the manner in which tax policy is made in order to restore the UK tax system's reputation for predictability, stability and simplicity.
The proposals include establishing an independent Office of Tax Simplification (further details to be announced shortly) and a new more transparent approach to changing tax law involving the Government being more accountable in the development of tax policy.
The Government proposes to improve on the current consultation process including consulting at each identifiable stage of any reform, being more transparent on the underlying rationale for tax policy changes and publishing supporting analysis and assumptions. Views are sought on a new convention that the majority of changes to tax law are confirmed no later than three months before the tax year in which they come into effect or publication of the Finance Bill in which they are to be included and are accompanied by draft primary legislation and, where appropriate, significant statutory instruments.
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